Management Accounting

Management
Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PART-1............................................................................................................................................3
Management accounting and its essential requirements of different types of management
accounting system........................................................................................................................3
Different method that are used for management accounting reporting.......................................4
Benefits of management accounting system and their application..............................................5
PART 2............................................................................................................................................6
Application of MA techniques.....................................................................................................6
PART-3..........................................................................................................................................10
Advantages and disadvantages of different types of planning tool used for budgetary control10
Advantages and disadvantages of planning budgetary control..................................................11
Use and application of various budgetary planning tool in innocent drink...............................12
Comparison between the way company are adapting to management accounts system to cope
up with financial problem..........................................................................................................12
Analysis of the way management accounting system can lead to sustainable success.............13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is a process that includes preparation of various financial
reports that effective helps manager to take accurate short and long term decision so that
company can sustain its business for longer period of time. Thus, it provides support in business
operation by guiding manager in planning, controlling and monitoring performances so that firm
can earn more profit margins. This report is about Innocent drink that makes smoothies and
juices to be sold in coffee shop, supermarket and various others outlets. Therefore this report
covered information related to method and essential requirements of different types of
management accounting system. It also discussed about different range of management
accounting techniques and planning tool that are used in management accounting. At last it has
discussed about the way different organisations adapt to management accounting systems to
responds to financial problems.
PART-1
Management accounting and its essential requirements of different types of management
accounting system
There are various decision which needs to be taken by manager so that company can
earned sufficient profit margin such as it needs to set prices at products should be sold, amount
of bonus, incentive need to be paid to employees for their hard work and determination.
Therefore, in another term timely preparation of various financial accounts or statistics
information of business operation that assist manager of innocent drink to take correct decision
so that it can gained competitive advantages (Yigitbasioglu, 2017). Financial manager make use
of statistic information to control, monitors, plans and reduce overall cost or set effective pricing
of products so that maximum benefits can be gained by enterprise. There are various essential
requirements of different types of management accounting system that can be illustrated as
follows:
Cost accounting system: It is framework used by finance manager to decide actual value or
cost of products, services profitability analysis. Traditional and activity based are two costing
system that are used in allocation of cost to various products of firm. It calculates actual cost of
products by adding fixed (building, machine) and variable cost (input raw material) thus add
specific amount of profit to it for rendering services to end user. Thus, manager by comparing
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actual cost incurred with outcome is able to measure financial performance of business during
particular year.
Job costing system: It is types of system that includes three key elements such as direct
material, overhead and labour that are used in manufacturing or delivering services of Innocent
drink to customers (Wanderley and et.al., 2017). Therefore, the information is about
accumulated cost that have been incurred in delivering of products to end users so manager can
take accurate decision at prices which it have to sell products or services to earn maximum profit
margin and sales volume.
Inventory management: It is other essential requirements for accounting management that
oversee existing inventory, future required, storage capacity of firm etc. The main aim of
inventory management is to minimise under stock and overstock of products for smooth
operation of business. Manager of innocent drink can performed several functions by use of
inventory management system such as creation of purchase orders, disposable of inventory and
reallocation of resources.
Different method that are used for management accounting reporting
Management account is highly dependent upon financial information such as cash flow
statements, balance sheet and profit and loss in order to take correct decision for benefits of firm.
Cost, budget and performance are some other reports that are used by accounting manager of
innocent drink to plan, control and measure performance of enterprise in competitive
environment. Such as:
Cost report: There are various material, efforts that are used in manufacturing or delivering of
products so they needed to be add in cost to find actual prices at which they should be sold to
customers. So, this report content information related to all additional cost that have been
incurred by company such as overhead, labour and other consideration that affect prices of
products (Dierynck and Labro, 2018). Therefore manager of innocent firm can easily compare
between actual price and selling cost thereby take crucial steps to control prices, delivered
maximum value to customers for effective growth and success of firm.
Budget report: Every company prepare a budget regarding specific amount of money need to
be invest in specific area so that overall objectives can be achieved. Budget report of innocent
drink will represent overall sources of income and expense during specific year. Thus, on the
basis of estimated budget financial manager arrange sufficient fund so that it can carry out
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various activities and contribute in growth of firm (Jack, 2017). Company main aim is to
complete various task within specific budget so that organisation can earn more amount of
profitability.
Performance reports: It can be stated that manager by finding difference between budget set
and actual expense, revenue that company have incurred in recent year is able to take decision
about new budget. Thus, it means manager considered the difference amount at time of
preparation of new budget that is known as performance report (Lindholm, Laine and Suomala,
2017). Innocent drink manager by preparing this report at each year is able to plan for future
increase in cost and demand of products.
Benefits of management accounting system and their application
There are various benefits of management accounting and its application to innocent
drink that can be illustrated as follows:
Increase efficiency: It can be stated that scientific system is being used to evaluate performance
of organisation that contributed in increasing efficiency of firm. Manager by use of management
accounting system is able to find deviation within firm thus plan better strategies to influence or
motivate employees to give their best for growth and development of firm (Adler, 2018). It helps
in reducing various types of wastage, defects or errors that happened during production thus
enhancing efficiency of innocent drink.
Control cash flow of business: Another benefit of maintaining and using accounting
management system is that it helps in controlling inflow and outflow of cash. Finance
management is able to find actual cash present in enterprise and needed to be presented to
complete specific task.
Contribute in simplifying financial statement: Management accounting system and
application has helped manager in easily understanding about various financial statements to take
important decision of firm. Thus, manager of innocent drink because of application and system
is able to understand meaning and uses of financial statement in future decision making for
growth and expansion of enterprise (Sugahara, Daidj and Ushio, 2017).
Maximise profitability of firm: Capital budgeting and budget control tool are very useful as it
helps in reducing both capital and operational expenditure of firm. Thus, innocent drink can
easily reduce prices of products and earned more profit margin, sales volume and customers
satisfaction.
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Reliability: It can be stated that use of various management accounting tools and application
enhance reliability of business thus more and more people wants to be part of enterprise.
External and internal stakeholders can easily trust data or statistic information present in
financial statements that resulted in building of strong brand image and reputation of
organisation in industry.
PART 2
Application of MA techniques
Marginal costing: Under this technique, the net profit is computed taking into account
only the variable cost of production in determining the contribution factor (Nan, 2019). This is
very easy to calculate. This method is useful in computation of break even point.
Absorption costing: In this, technique both the cost fixed and variable is taken for
determining the cost of production (Berisha and Asllanaj, 2017). This approach is preferred by
the organization as it is also used in the financial reporting purposes.
Cost volume profit analysis: This used in determining the point at which the company is
in the position of no profit and no loss (Kampf, Majerčák and Švagr, 2016). It is used in business
expansion plan or for the newly established business for reducing the loss.
Margin of safety: It helps in identifying the amount of sales which is above the break
even point. It is the level till which the company is not losing anything and after this it starts
losing profits.
Income statement as per Marginal Costing
Particulars April May
Sales Revenue (4000*14) 56000 (5000*14) 70000
Marginal Cost of Sales
Variable Production cost (4000*5) 20000 (5000*5) 25000
20000 25000
Add:
Opening Stock 0
(2000/6000*30
000) 10000
Less:
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Closing Stock
(2000/6000*30
000) 10000
(3000/6000*30
000) 15000
10000 20000
Contribution 46000 50000
Fixed manufacturing overheads 18000 18000
Fixed Non-Manufacturing Cost 5000 5000
Net Income 23000 27000
Income statement as per Absorption Costing
Particulars January February
Sales Revenue (4000*14) 56000 (5000*14) 70000
Marginal Cost of Sales
Variable Production cost (4000*5) 20000 (5000*5) 25000
Fixed manufacturing overheads 18000 18000
38000 43000
Add:
Opening Stock 0 16000
Less:
Closing Stock
(2000/6000*48
000) 16000
(3000/6000*48
000) 24000
22000 35000
Gross profit 34000 35000
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Fixed Non-Manufacturing Cost 5000 5000
Net Income 29000 30000
Analysis: It can be inferred from the above that the result from the absorption costing is
higher than that of marginal costing because it considers fixed cost in cost of production on the
other hand, marginal costing considers only the variable cost in computing the same and also
provides profits lower than the absorption costing.
Reconciliation statement
April May
Profit as under marginal costing 23000 27000
Add: Under absorption of closing or
opening stock 6000 3000
Profit as under absorption costing 29000 30000
Budgeted production 20000 packs
Sales revenue (20000*60) 1200000
Less: Variable costs
Materials (20000*20) 400000
Labour (20000*14) 280000
Other variable cost (20000*12) 240000
Variable administration and selling (20000*3) 60000
980000
Contribution 220000
Less: Fixed cost
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Fixed cost 80000
Fixed administration and selling 60000
140000
Net profit 80000
Contribution margin per unit 60-(20+14+12+3) 11
Contribution margin (11/60) 18.00%
Total fixed cost 140000
Break even point (in units) 12727.27
Break even point (in amount) 763636.36
Current sales in units 20000
Break even sales in units 12727
Margin of safety (in units) (20000-12727) 7273
Current sales 1200000
Break even sales 763636
Margin of safety (in amount) (1200000-763636) 436364
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From the above, the break even point derived is 12727.27 units and in terms of amount it
is 763636.36 with the fixed cost of 140000.
PART-3
Advantages and disadvantages of different types of planning tool used for budgetary
control
Budgetary control refers to process that is used to compare and contradict between actual
revenue and expenditure that organisation have incurred during particular financial year with
budgeted plan. Thus, it helps in identifying and enumerating whether corrective action need to be
taken or not so that more amount of profit can be enjoy at minimum cost (Alsharari, 2019).
There are various objectives of preparation of budget control by innocent drink that can be
explained below such as:
To coordinate activities: Budget control helps in coordinating and cooperating activities of
various departments such as production, purchasing, marketing and sales and Human resources.
10
01/01/1899
01/01/1904
01/01/1909
01/01/1914
01/01/1919
01/01/1924
01/01/1929
01/01/1934
01/01/1939
01/01/1944
01/01/1949
01/01/1954
01/01/1959
01/01/1964
01/01/1969
01/01/1974
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
2000000
Break even point analysis
Sales Revenues
Fixed Costs
Total Cost

As each department have to carry out their respective activities within limited budget so that
innocent drink can enjoy more profit margin.
To have system of control: It can be stated that budget control planning tool contributed in
maintaining control over business operation thus effective achievements of goals (Nielsen and
Pontoppidan, 2019).
Advantages and disadvantages of planning budgetary control
There are numerous advantages and disadvantages of budgetary control tool for innocent
drink which can be stated below like:
Corrective action: It can be stated from above discussion that planning tools of budget control
contributed in take effective corrective measures in case of errors or mistake (Klychova and
et.al., 2019). Manager can easily know about error within limited time frame thus take particular
action earlier as possible for growth of enterprise.
Brining economic of scale: Manager of Innocent drink by planning in advance about actual
amount of money needs to be spend in particular areas is able to make optimum, systematic
utilisation of fund within organisation. Therefore, ultimately all such tool contributed in reducing
cost, maximum utilisation of resources and effective achievements of company goals.
Determination of weakness: Innocent drink can easily find key areas in which it lacks that can
act as a threat in future operation of business in competitive market condition. Thus, manager of
firm put its best efforts to remove weakness so that it can easily expand its business operation
and earn sufficient profit margin (Fleischman, Johnson and Walker, 2017).
Contribute in development of plan and policies: It can be stated that manager of innocent
drink by use of several budgetary control tools can develop effective plan, strategies and policies
that are used to achieve specific objectives of firm. Thus helps employees to complete their task
in best possible manners or minimum wastage of resources so that maximum return on invested
capital can be gained by company.
Despite of all such advantages of different tool of planning budget controlling there are certain
limitation which can be discussed as:
Uncertain future: There are several changes in external business environment that affects
adversely on business operation and strategy. All these tools of planning are used to prepared
budget for future circumstance that is ever changing or uncertain (Lay and Jusoh, 2017).
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Therefore, future changes reduce utility of budgetary control system, indirectly impact on
smooth operation of firm.
Conflict among different department: Another disadvantage of budgetary control is that it
leads to conflict or confusion between various departments of innocent drink such as every
department wants maximum fund so that they can effectively carry out several activities. Thus, it
creates conflict and inappropriate coordination between departments to work together for
achievements of common goals.
Use and application of various budgetary planning tool in innocent drink
There are various planning tool for budget control which is used by manager of innocent
drink that are explained below such as:
Competitive pricing: It type of budgetary control tool in which manager oversee pricing of
other competitors in market in order to set effective price for its products so that customers are
motivated to make purchase form it as compared to others.
Marginal cost pricing: Innocent drink manager is able to adapt to marginal cost pricing method
in case actual cost price- volume are accomplished (Lindholm, Laine and Suomala, 2017).
Standard costing: Historical data are used to prepared budget by assuming standard cost that
innocent drink needs to incur in order to manufacture products and services. Accounting
manager considered standard and actual cost while preparation of new budget in order to have
sufficient amount of capital to operate business.
Cost plus pricing: It is another method of planning of budget control which stated that manager
in order to set prices add cost plus pricing to complete excess amount that have contributed in
company reserves.
Activity based costing: It can be stated that there are two types of expense or cost that is direct
and indirect such as company by spending in technology which is fixed asset is able to enhance
volume of products thus reduce price (Nielsen and Pontoppidan, 2019). Therefore, it can be said
that it have contributed in reducing direct cost of company but indirect cost is still similar or
higher.
Comparison between the way company are adapting to management accounts system to cope up
with financial problem
Company that effectively adapted to external change is able to retain its customer’s
satisfaction level, build strong brand image or reputation in mind and heart of various
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individuals. There are numerous financial problems which have been faced by innocent drink
and Robinsons in day to day life so they have adapted to management accounts system to
overcome problem (Dierynck and Labro, 2018). Such as:
Identified financial issue: There are various types of financial issue that are suffered by
company such as it is difficult to indentify key performance indicators or problem faced while
using budgetary targets. Therefore manager of innocent firm by identifying key issue plan
appropriate strategies that can be used to resolved them so that firm can easily expand its
business operation.
Financial governance: Another organisation that is Robinsons that have make use of financial
governance method to respond with financial issue. Manager of company have clearly defined
financial governance and the way it will be applied within organisation for gaining specific
outcome (Klychova and et.al., 2019). It helps in effective monitoring and evaluation of
implementation of plans so that various corrective actions can be taken for growth of firm.
Managerial accounting skills: Innocent drink has human resource management have hired
individual that have special skills and qualities of managerial accountant. Present of specific
skills, knowledge and experienced in managerial account of firm have save company from
misappropriate use of resources or fund for benefits of organisation.
Effective strategies and system: On other hand Robinsons have developed better system,
procedure, policies and strategies that have lead in timely collection and reporting of financial
information, or disclosure of statics information that is necessary for taking correct decision for
organisation.
Balance scorecard: It is other techniques that have been used by innocent drinker accounting
manager that have helped in sustainable organisation and enhance performance (Lay and Jusoh,
2017). It also improve financial decision regarding amount that need to be invested so that
specific amount of profit can be earned.
Therefore it can be stated that all these were several method or techniques which have
been used by two organisations such as innocent drink and Robinsons to effective handle
financial issue and promote operation of business.
Analysis of the way management accounting system can lead to sustainable success
Innocent drink manager by use of management accounting system have understand about
social and environmental changes that influence performance of business in long time. It have
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also be analysed form above report that Key performance indicators are other medium that helps
in identifying areas in which firm lack so manager have effective plan steps that need to be taken
to cope up with situation for sustainability of enterprise (Jack, 2017). Management accounting
system helps in generating of various reports such as pricing, budget and investment appraisal
that contribute company in making optimum utilisation of opportunities and expand its
operation.
CONCLUSION
From the above report it can be concluded that management account is most crucial
function as manager can easily resolve problem, take decision that can helps firm to earn more
market share and profitability. There are different planning tool that could be used by enterprise
in budget control so that each departments can make optimum utilisation of allotted fund for
achievements of objectives. At last it can be concluded from above discussion and analysis that
key method can be used by different firms or enterprise to addressed financial issue for
sustainable operation of business.
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REFERENCES
Books and Journals
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Practice Development: Evidence from Kosovo. Journal of Economic & Management
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Dierynck, B. and Labro, E., 2018. Management accounting information properties and
operations management. Foundations and Trends in Technology, Information and
Operations Management (2018), 12(1). pp.1-114.
Fleischman, G. M., Johnson, E .N. and Walker, K. B., 2017. An exploratory examination of
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Jack, L., 2017. Strong structuration theory and management accounting research. Advances in
Scientific and Applied Accounting, 10(2). pp.211-223.
Kampf, R., Majerčák, P. and Švagr, P., 2016. Application of break-even point analysis. NAŠE
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Accounting. In Energy Management of Municipal Transportation Facilities and
Transport (pp. 669-686). Springer, Cham.
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control in global operations. Journal of Service Theory and Practice.
Nan, N., 2019. Comparative Analysis of Marginal Costing Method and Absorption Costing
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Nielsen, S. and Pontoppidan, I. C., 2019. Exploring the inclusion of risk in management
accounting and control. Management Research Review.
Sugahara, S., Daidj, N. and Ushio, S., 2017. Value Creation in Management Accounting and
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Wanderley, C and et.al., 2017. Mapping variety in management accounting research: an
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