Management Accounting and Systems

This document provides an introduction to management accounting and management accounting systems. It explains various methods of management accounting reporting and their application for Innocent drinks. It also includes the calculation of costs using different methods for making an income statement. The document discusses the benefits of management accounting systems and their relevance for Innocent drinks.

Management accounting

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Management accounting and management accounting systems......................................3
P2 Explaining various methods of MA reporting...................................................................5
M1 Benefits of MA systems and their application for Innocent drinks.................................6
TASK 2............................................................................................................................................6
P3. Calculation of costs using best method of cost analysis to make an income statement...6
M2 Range of management accounting techniques...............................................................10
TASK 3..........................................................................................................................................11
P4. Explanation of various planning tools used in budgetary control with proper benefits and
drawbacks.............................................................................................................................11
M3 Analyse of planning tools and their application............................................................12
TASK 4..........................................................................................................................................13
P5. Comparison of organisations for adapting MAS to defect to financial problems.........13
M4.........................................................................................................................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting defined as the financial reporting whereby all monetary and non-
monetary data are integrated to include effective and efficient decision-making tools. This is an
important instrument for planning, decision-making as well as creating an efficient financial
statement because standard costing is the central component in the method of cost determination
as well as price-setting (Wagenhofer, 2016). The management accounting definition and method
varies from financial accounting, as MA includes both financial and nonfinancial considerations.
The key purpose of the production of this study is to pass through performance of the second
task effectively.
This really uses a wide variety of managerial accounting documents to promote the
performance assessment procedure, as well as several budgeting process strategies enable proper
knowledge about the business employee's success. Various strategies and their effect are
addressed as a central objective of this review and they are analysed from a separate angle.
Moreover, methodologies used during MA offer a good picture in the context of company to
make better results.
TASK 1
P1. Management accounting and management accounting systems
Management accounting functions include formulating market objectives like
understanding the financial impact of corporate decision making, tracking spending, and
maximizing profit. MA theory includes the design of gathering financial information,
documents as well as assumptions, outstanding management, extra cost of absorption, as well as
reference of accounting discipline. MA Systems aim to create cost accounting records for
managers' organizational use in order to enhance the effective decision making process and
better operate the company (Epstein and Lee, 2015). Some of the useful system of MA that can
be used by Innocent Drinks in making proper decision is discussed underneath:
Inventory management system: This system helps a company to retain an optimal
amount of inventory such that it can access as it is needed and thus does not get to deal with
surplus product problem or in appropriate product. This system is managed by
implementing different algorithms, with some of the more efficient methods being FIFO, LIFO,
ABC Analysis, JIT etc. (Botes and Sharma, 2017).

In context of Innocent Drinks the inventory management system have an important part
in managing the organization's holding costs and price levels. Manager can use a standardizing
supply chain management system to create storage stocks and product inventories.
Company items are typically the home pieces that are cumbersome to bring to sell as they are
sold by a list in stores and these pieces are shipped from the factory as they are ordered. This
inventory management program is basically needed by this organization as this program helps
reduce the expense of the keeping and able to promote goods rapidly and efficiently.
Job costing system: This MA system is a program which deals with the expenses
involved among each work a company conducts (Drury, 2013). This work costing system is done
in a sequence of steps; initial costing of every work including small or big is reported and then,
at the conclusion of the evaluation process, all costs are split into separate cost object that can be
valuation, output, distribution of materials and much more. In order to monitor and manage the
organization's budget, each expense pool is then evaluated to determine the amount of expenses
involved within them.
This MA system is needed at Innocent drinks because it allows this manager to track the
expenditures related to jobs like packaging and distribution. Company also uses cost-per-touch
methodology associated with this method to track its expenditures.
Cost accounting system: This system is a mechanism that companies use to measure the
expenses associated in their goods being made and marketed. The cost of this assessment covers
all the expense pools including cost of production, cost of marketing and much more. This
framework aims to define expenses paid with each organisation's commodity.
This accounting parameter is helpful for Innocent drink management because it can
determine which goods are more cost-involved and so it can evaluate if they really are worth
investing a massive proportion or whether they're able to achieve a large market share. Company
also uses this method to measure the prices of its goods and to select its product line which is
more profitable and demanding in the market.
Price costing system: This management method depends on a methodology focused on
economics rather than scientific and machinery. Through this method, a company should
determine the price of each of the goods so that it can lead in their consumers becoming
extremely successful and happy (Hiebl and Richter, 2018).

This program is strongly needed by Innocent drinks because by doing this, manager sets
the values on all of its goods in such a manner that it will result in high profitability on
company and could also be a commodity with the maximum priority for its quality, so that might
also obtain customer loyalty.
All of the above-mentioned management accounting framework is basically necessary at
innocent drinks and lets this business sustain and monitor its organizational and financial
performance.
P2 Explaining various methods of MA reporting
MA reports are the records that are generated by providing financial and organizational
information in these reports so that administrators can justify their plans and decisions as
confirmation of policy development in these reports. Various reports are published under
MA and others can be designed by innocent drinks. Such reports serve as tools for accounting
managerial accounting, although these documents are the means to execute accounting system
successfully. Here are some of those approaches explained:
Cost accounting report: This process of cost financial reports assists an enterprise to
carry out its audit task smoothly as this study is produced under a cost system where all the
prices of all the organization's products are reported (Jermias, Gani and Juliana, 2018). This
study provides prices of all of the company's purchased goods and splits all of the other products
through variable, semi-variable, as well as fixed operating costs to aid in decision-making.
Innocent drinks manager can produces such a study to assess the amount of the fixed costs they
are paying on each commodity.
Performance report: This is among the most relevant MA report that is not associated
with numerical revenues or spending problems but is associated with increasing employee's
success in an enterprise. This study is produced by an organisation's HR department and reports
on the workers' 360-degree success evaluations. Innocent drinks manager finds their staff
member as the most important asset by which they create this study to define their staff
performance standards. This study aims to improve the efficiency of the workers and of the
whole company effectively.
Reporting of accounts receivable: This report is deemed acceptable for large-scale
companies or entities which is involved in numerous money transaction obtained per day
(Kaplan and Atkinson, 2015). This account receivables summary contains an organization's

inflow cash transfers to keep a list of the money that the company routinely collects toward their
activities. Both these inflow assets contribute to a company income. Innocent drinks finance
team is accountable for devising such a database, taking into consideration the company's
transaction flow, it could be said organization is creating an automated account receivables
system to efficiently monitor the flow of cash in its business but instead keep making effective
strategies.
All of these MA reports analysed above ensure that an organization such
as Innocent drinks can effectively manage all its internal process and operation to make better
performance every year.
M1 Benefits of MA systems and their application for Innocent drinks.
Inventory management system: This system is effective for respective organization to record
the total inventory and support to determine the exact level as well as time of reordering (Leotta,
Rizza and Ruggeri, 2017). Innocent drinks use this to standardize its inventory by administering
a completely separate storage facility with several of its stores.
Job costing system: The additional benefit of such a system is to identify expenses
involved among each job. Innocent drinks uses this approach to enhance different cost streams
and afterwards incorporate cost reduction strategies related to every cost in order to increase the
overall profit.
Cost accounting system: This is very beneficial system as it aims to identify costs
involved by the organization for each manufactured product. Innocent drinks use this method to
track their price per unit and afterwards keep making actions to minimize a certain cost by re-
analysing their variable and fixed costs.
Price optimization system: This specific system is beneficial to business organization as
this support to find the specific price for its products sold to customers. Innocent drinks can use
this specific system to fix an affordable price for all of its products which can result in
trustworthy affordable customer costs and make company profit.
TASK 2
P3. Calculation of costs using best method of cost analysis to make an income statement.
The cost may be described as the monetary interest a corporation has expended on
inventing content, so this decided to donate a certain number of money a company has used to

manufacture or generate products and services. Some of the common method of costing used by
innocent drinks in order to prepare income statement so that net profit can be determined is
discussed underneath:
Marginal costing:
Marginal costing could be described as a costing scheme which defines the operating
expenses as either the cost of the commodity, whereas fixed expenses are viewed as the cost of
the time. This costing strategy is being used by effective operational accounting administrators to
create an organization's income statement through splitting all of an organization's incurring
expenditures into just two variable and static classes (Novas, Alves and Sousa, 2017).
Organizations should use costing method to determine the estimated income benefit and to
calculate the total income that the company will gain from covering entire variable costs.
Absorption costing:
Absorption costing is a method of costing which recognizes all fixed and variable
expenses of manufacturing here as costs of the product. That is a method of administrative
costing that is used to describe all the expenses borne by an organization. This methodology is
known as a more advanced approach because it not only divides an organization's expenditures
into fixed as well as variable and it also divides an organization expenses into manufacturing and
sales costs, from which the amount of the asset value is often measured against the net income
estimate.
Income statements from both methods with proper calculation are shown below:
Absorption costing for April:
Particulars Unit cost (In
pounds)
Total (In pounds)
Sales (4000*14) 56000
Less: Cost of sales
Variable Manufacturing cost (6000*5) 30000
Fixed Manufacturing Overhead 18000 48000
Less: Closing stock (2000*8) 16000
Gross loss (8000)
Less: Fixed Non Manufacturing Cost (5000)
Net loss (13000)

Absorption costing for may:
Particulars Unit cost (In
pounds)
Total (In pounds)
Sales (5000*14) 70000
Less: Cost of sales
Variable Manufacturing cost (6000*5) 30000
Fixed Manufacturing Overhead 18000 48000
Add: Opening stock 16000
Less: Closing stock (3000*8) 18000
Gross profit 20000
Less: Fixed Non Manufacturing Cost (5000)
Net profit 15000
April as per marginal costing:
Particulars Unit cost (In
pounds)
Total (In pounds)
Sales (4000*14) 56000
Less: Marginal cost of sales
Variable manufacturing cost (6000*5) 30000 30000
Less: Closing stock (2000*5) 10000
Contribution 16000
Less: Fixed Manufacturing Overhead 18000
Less: Fixed Non Manufacturing Cost 5000
Net loss (7000)
May as per marginal costing:
Particulars Unit cost (In
pounds)
Total (In pounds)
Sales (5000*14) 70000
Less: Marginal cost of sales
Variable manufacturing cost (6000*5) 30000 30000

Less: Closing stock (2000*5) 10000
Add: Opening stock (2000*5) 10000
Contribution 40000
Less: Fixed Manufacturing Overhead 18000
Less: Fixed Non Manufacturing Cost 5000
Net profit 17000
Working note:
Calculation of cost per unit under marginal costing:
Fixed manufacturing cost (18000/6) = 3
Variable cost per unit= 5
Total cost per unit (3+5) = 8 pounds per unit
Reconciliation statement:
Particulars April May
Profit/loss under absorption costing (13000) 15000
Add: Closing stock 6000 2000
Profit/loss (7000) 17000
Profit/loss under marginal costing (7000) 17000
1.2 Calculation of BEP and MOS.
Breakeven point (In units) = Fixed cost / contribution per unit
Fixed cost= 80000
Variable cost (20+14+12) = 46 pounds per unit
Contribution per unit= selling price per unit- variable cost per unit
= 60-46
= 14 pounds per unit
Thus,
BEP (In units) = 80000/14
= 5714 units
BEP (In revenues) = Fixed cost / PV ratio
PV ratio= Contribution per unit / selling price per unit * 100
= 14/60*100

= 23.33%
Thus,
BEP (In revenues) = 80000/23.33%
= 342906 pounds
Margin of safety (In units) = Budgeted sales (In units) – BEP (In units
= 20000-5714
= 14286 units
Margin of safety (In revenues) = Budgeted sales (In pounds) – BEP (In pounds)
= 1200000-342906
= 857094 Pounds
M2 Range of management accounting techniques
MA approaches are the processes by which a company measures net income and losses
generated during an accounting period. The marginal and absorption methods are used to
generate the correct documentation for financial statements. But there are still some other
methods beyond these methods, like these could be used to measure and forecast income.
Activity-based costing: The activity-based costing (ABC) scheme is an accounting tool
which manager of Innocent drinks can use to calculate the overall cost of the operations that are
required to produce a good. The ABC method allocates costs of any operation that reaches
production, including such labourers inspecting a drug. Relevant expense management also lets
them to set rates that offer a reasonable profit margin for small businesses. If they know just
which specific costs are incurred in certain goods, they neglect some other costs, which might
reduce the profit margins. In an ABC method, each operation in the manufacturing cycle can be
allocated costs, allows users to fix a price quite precisely, which estimates for how much it
expenses to produce a product.
Cost variances: A cost deviation is the discrepancy between the expense currently
generated and the sum of costs which would have been expected either budgeted or expected.
Cost variances with expenditure items listed also are basically tracked and can also be measured
at work or mission level, as well because there is a schedule or benchmark to which it can be
determined. Such variances are a regular feature of other monitoring schemes for the

management of Innocent drinks. Any variances of prices are formally established into uniform
equations.
TASK 3
P4. Explanation of various planning tools used in budgetary control with proper benefits and
drawbacks.
A budget might be described as an estimate of income and expenses throughout a given
period, which is calculated which calculated on a timely manner. Budgetary monitoring is a
management control mechanism in which the real revenue and cost estimates are measured and
correlated with the expected cost and profits, so that the uncertainty and divergence can be
detected and appropriate steps need to be taken to increase productivity. Budgetary management
has various functions in which it can monitor the organisation, such as providing a robust system
of measures, conducting fund reviews, keeping the funds available, and tracking real budget
expenditures (Sims and Smith, 2016). Planning methods are the devices a company uses to plan
the budgets for the future. These techniques are used to manage a company's spending plans;
some of these techniques and their benefits and limitations are discussed below in the context of
Innocent drinks:
Production schedule: This forecasting method helps a company like Innocent drinks
to prepare for its potential growth by tracking its currently projected development costs and the
expected production units. Developing such production expenditure is used in an enterprise as a
conventional forecasting method for budgetary management.
The advantage of such a budget would be that it enables to quantify independently the
various manufacturing expenses like direct inventory costs, direct labour costs as well as other
operating costs from which Innocent drinks can use this budget to determine the cause of the
issue owing whereby the budget has also been overflowed. It also helps to determine the
production process which is increasing costs for company so that steps are made to remove such
operations. The disadvantage of this method is that separating any cost into a group is
complicated, because it is often hard to classify the type of the expenditure.
Master budget: This preparation mechanism is indeed a conventional budget built to
simplify the tasks of an organization's organizational managers (Soderstrom, Soderstrom and

Stewart, 2017). Both expenditures are integrated in one framework so that when companies like
Innocent drinks manager can decide to compare their various budgets, money will be saved.
Considering the aforementioned review, it can be assumed that the advantages of master
budget is that it help to save time and providing a detailed summary of each operation within
company. As every other method, this budget does have its demerits that are absence
of specific information due to which there is greater room for uncertainty. It also require
professional person for understanding and estimating the figures for future due to which job cost
increase for company.
Zero-based budgeting: This planning method is a new and innovative form of budgetary
management where all spending for every year is explained and not by following the old pattern
for specific years. This budget contains features that apply mainly to a particular future time and
which make it more suited for project budgeting rather than whole organizations.
In the context of innocent drinks benefit of this method is that it provides the reason behind
all costs which protects the company from every economic recession. It also supports to maintain
a new budget for every new task or product which is added within company for the very first
time so that actual profitability can be analysed. The drawbacks of this technique are it also
supports in short term preparation so this involves the production of high expertise, time and
resources (Yalcin, 2012).
M3 Analyse of planning tools and their application.
Budgeting Forecasting
Budget means a structured financial estimate
for a given duration of revenue and spending.
It is a schedule for the money available to
accomplish the tasks, which needs to be
implemented, in order to meet the desired goal.
Budgeting details how the total program will
be implemented month by month, usually
including income and spending forecasts and
projected working capital including debt
reduction. At the start of a fiscal year,
businesses sometimes set their targets and
Forecasts are a straightforward prediction of
the possible course of events or patterns. It's a
forward-looking operation that involves
prediction. Prediction can be interpreted as the
estimation and understanding of the
circumstances that are expected to continue in
the near future, including regard to the
company's activities. Forecasts leverage
cumulative past evidence and business
dynamics to forecast upcoming years or
decades of financial results. The predictions

leave space for change as sales rise or
decrease. Budgets for estimating the
differences or discrepancies here between both
are contrasted with real financial reports.
will be modified when new evidence becomes
obtained to help managers predict outcomes
based on historical evidence. Unlike budgeting
financial predictions doesn't really examine the
difference between projections and current
results.
Application for preparing and forecasting budgets
 Strategies for clarifying issues and challenges: All imaginative thought classes require
ingenuity and rational focus to interpret challenges and consider solutions. One of two
strategies addressed fostering imagination and focus.
 Strategies of position and local organisations analysis: A strategic decision for Innocent
drink planning includes commitment to valuable resources and alliances. The frameworks
for this are focused on district guidance with the help of effective budgets.
 Systems for researching financial, environmental and monetary matters: The design
department has to focus on the positive, biochemical and economic consequences of the
strategies and approaches that it suggests.
 Methods for looking to the future: Planning is related to future choices and how manager
of innocent drinks choose to plan. Know that the company must learn and step away from
"objective research" approaches.
TASK 4
P5. Comparison of organisations for adapting MAS to defect to financial problems.
Due to a massive complex global economy, businesses face various rising financial
problems and overall economic concerns. There are several explanations why such conditions
arise within the company, such as missing consumer orders, deficit spending, product un-
clearance etc. Enormous challenges face by major companies such Tesla and also General
Motors while operating. The manager uses different MAS to detect and resolves these issues
same is discussed underneath:
Basis Tesla General Motors
Problems and tool
used to detect.
Tesla faces the biggest financial
challenge related to the transition of
The company faces issues related
to inefficient use of supplies, due

cash resources. Managers are now
using KPI to determine the source of
poor cash flow through various
operations. Reviews are contrasted
with their predictions using this
approach outcome reported by Tesla,
meaning the company's assumptions
are not at least related to its success,
but rather to its own missing or
exceeded prediction in the history.
Tesla's success is customized to its
own standards.
to which competitiveness is
growing. General Motors will
then find progress in sales and
the position of the sector as
significant metrics of success in
the division of policy indicators
for the financial statements.
These programs will act as a
main aim to assess how far the
company performs in generating
higher profits.
Implementation of
MAS
By implementing cost accounting
system managers use to implement
and efficiently track and measure the
total costs associated with specific
activities and assign cash resources
accordingly to resolve the above-
mentioned problem (Tucker and
Schaltegger, 2016).
To fix the above
discussed financial issue
manager using to execute stock
accounting system to ensure that
accurate stock documents are
well maintain throughout the
year and also at every point of
development as the available
inventory is fully handled (Hall,
2016).
MA Technique Using the respective company's cost
accounting system will allow it easier
to accurately record net cash inflows
as well as outflows and even to
compare with the initial estimation to
assess overall productivity.
It is easy to work out the lowest
amount of productivity
interference by using the
Financial Governance
monitoring system, and to
prevent this cycle that leads to
these major financial difficulties.
Common problems that may arise in Innocent drinks and techniques used to resolve the
same are discussed underneath:

Benchmarking: This is the mechanism by which organisations' output is measured at any stage.
Innocent drinks is using this system to evaluate the reasons for poor inventory usage and
decreased efficiency. Moreover, by setting an initial goal this MA resource manager compares
stock use with other profitable firms.
KPI's Metrics: This appears to be a reliable tool used for quantifying the company's present
success over a span of time. The innocent ltd uses different types of metrics to measure how
successfully they meet their objectives and priorities through using this tool.
M4
MA has an imperative task to support management with a diverse function. Managers are
expected to classify the information at the right time in case of financial difficulties. Today work
is the way to develop their strategies, action plans and activities to tackle human and economic
challenges while implementing budgets and opportunities for their clients, some organisations it
embraces to resolve these issues and perform in a competitive system. The management study
reveals how many company aspects have vanished, and a major regulation that neglects capacity
building obligations.
CONCLUSION
From the aforementioned report it can be concluded that MA principles and techniques
allow the organization to collect the evidence that the dedication managers need to acquire in
order to achieve their market potential. Such board structures and techniques will be developed
and introduced by Innocent drinks for their efficiency and product quality upgrades. To make
decisions it offers manager led information and also aims to promote a fluid design. Using
reduced expenses and extra preparation can help businesses design expense decisions based
mostly on manipulated regulations of the company. Through use of numerous MA devices and
resources it offers the company with a set of company practices and strategies that can rely on
ensuring execution and progress on retaining the market. This also ensures that the organization
prepares specific budget analyses on the grounds of very rough details, while agreeing to review
and analyse the execution of the monetary approaches and theories.

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