Management Accounting and Accounting Systems in Organization

This report focuses on management accounting and the requirement of various accounting systems in organizations. It discusses different types of reporting methods and their importance. It also includes the calculation of net profit using marginal costing and absorption costing methods.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
LO1..................................................................................................................................................1
P1. Explain management accounting and requirement of various accounting systems in the
organization..................................................................................................................................1
P2. Types of management accounting reporting and the requirement of it in the organization . 3
LO2..................................................................................................................................................5
P3. Calculate net profit by using marginal costing as well as absorption costing method and
evaluate the product cost..............................................................................................................5
LO3..................................................................................................................................................7
P4. Merit and Demerit of various types of planning tools which is used by the organization for
budgetary control.........................................................................................................................7
LO4................................................................................................................................................10
P5. Evaluate that how organization implement management accounting systems in order to
solve financial problem .............................................................................................................10
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting also called managerial accounting because it is followed by the
manager to record financial information which beneficial for stakeholders to understand
company's financial position. It is also used to measure performance or monitor each functional
activities that further beneficial for the manager to develop strategic decisions which increase
productivity as well as profitability (Banerjee, 2012). By using various systems or reporting
methods, organization able to achieve their business goals & objective and satisfy their
stakeholders. This report focus on Oshodi Plc which is UK based fruit juice manufacturing
company who provide healthy and tasty juice without additional preservatives that is harmful for
the human body.
This project report cover various topics such as use of management accounting in the
organization and its various system which is essential required for the organization. Reporting
system which help the manager to analyse performance of every functional department as well as
employees. Along with this, it includes the different costing method for the calculation of net
profit.
MAIN BODY
LO1
P1. Explain management accounting and requirement of various accounting systems in the
organization
Introduction: Management accounting is the process of monitoring or controlling
internal functions of the organization which affect the operational activities and manager's
decisions. It also includes the formulation of policies, planning for the future events.
Implementing management accounting will increase efficiency as well as effectiveness
(Banerjee, 2012).
Management accounting system is the process which help the manager to evaluate
internal information for the further management of functional activities. It helps in collecting
information which is helpful for the stakeholders to take effective decision in respect of further
investment or interest to involve with the organization. Manager of JOJO fruit juice manufacture
company that is Oshodi Plc follow various accounting system that helps in enhancing their
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performance and maximising productivity and profitability as well. Some of accounting systems
discussed below:
Different types of management accounting system:
 Cost accounting system: In this system raw material will be track on each level of
production. Because when material shifted for the production level then system
automatically updated that level of stock will reduce and material handling manager
prepare to order further stock as per the requirement. Along with this, it also includes the
estimation of each item that provide actual cost of production which help the manager to
develop their further strategy to control cost in order to maximise the profit margin. This
system helps the JOJO fruit juice manufacturing company to identify their cost of
production at each stage. It is important to evaluate cost because it further helps the
manager to set selling price of their juice and identify actual profit or loss through selling.
 Inventory management system: It is a system or software which help the individual as
well as organization to track their inventory level or regular basis. If any business does
not follow inventory management system then it will cause the problem of shortage of
raw material or wastage due to more inventory stored in the warehouses. Manager of
Oshodi Plc use this system to track their stock level which is very important for the
organization to run their production in effective manner (Bell, Hoque and Arroyo, 2012).
It is essentially required to analyse optimum level of inventory in the organization for the
production. It is beneficial for the organization to use this system which helps in tracking
daily inventory and order material as per the requirement. It will save ordering as well as
carrying cost of the warehouses which reduces the overall cost of product and increase
profit margin. Company follow FIFO inventory management system in order to maintain
their requirement of raw material.
 Job costing system: This costing system is the accumulation overall cost. Labour cost
and direct expenses such as overheads which is related to the specific job. It is an
excellent tool which help the manager to identify specific cost and further analysis will be
done through checking changes in the cost. This system essentially required to evaluate
each job cost which helps the manager of JOJO fruit juice manufacturing company to
develop their strategy in order to control cost and try to reduce. It will be consider under
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costing technique which is very important because it estimate the total cost which
required to calculate selling price for the product.
 Price optimising system: This is mathematical program which helps the organization to
identify customer's buying behaviour. Here data combined with the cost and inventory
level that recommend different price level. So manager of the company follows this
system in order to analyse that which price range are beneficial for the company which
can meet with customer's needs & desire regarding product (Cadez and Guilding, 2012).
This model used to tailor price for the customer and it increase the demand of product in
the market. So manager of Oshodi Plc follows this system to analyse customer's
behaviour regarding price of product and then they adopt suitable price range for JOJO
fruit juice which generate high demand in the market and maximise productivity as well
as profitability.
Conclusion: Above mention systems are used to increase organizational efficiency as
well as effectiveness that further helps in increasing production. Manager of JOJO fruit juice
manufacturing company follow above mention systems which helps the business to develop
effective strategy which is useful at the time of decision making process. Company use inventory
management system in order to avoid the situation such as shortage of raw material because it
affect the production and delay the delivery that cause various problems for organization.
P2. Types of management accounting reporting and the requirement of it in the organization
Introduction: Management accounting reporting used for the planning, developing
strategies, follow regulation and complete operational as well as functional activities. With the
help of reporting system, manager evaluate the performance and analyse the effectiveness of
their measurements. There are various methods of reporting which can be used by the manager
of JOJO fruit juice manufacturing company and some of this discussed below:
 Cost managerial accounting report: This reporting method include different types of
cost which is used for the production of goods. It includes the cost of raw material,
labours, overheads etc. These cost will be divided by total production which provide each
unit cost. Cost accounting report important for the manager of Oshodi Plc in order to
identify cost which further affect the manager's decision making process.
 Inventory reporting system: This report includes the stock level which is important to
create because it helps in tracking inventory. With the help of inventory management
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report, manager able to analyse the situation and order stock for the requirement of
further production. Manager of JOJO fruit juice manufacturing company use this report
to keep track their stock level otherwise it can cause the production through shortage or
wastage of raw material. If organization order raw material more then its requirement
then it will increaser the carrying cost (Chenhall and Moers, 2015). There are high
chances of wastage due to stored for the longer period. On the other hand, if business face
the problem regarding shortage of raw material then it will affect the production which is
not good for the organization.
 Job costing report: It is an accounting report which is used to record or tract costs as
well as revenue which generated because of this job. It includes the overall profit and loss
statement of the specific job that further helps the manager of Oshodi Plc to develop
strategy in respect of that. Manager analyse different job costing and then select which is
more suitable for the company. After developing job costing report, manager able to
identify the problem and make sure that it will not repeat in the future.
 Performance report: This report used by the organization in order to measure
company's performance as well as separate employees. It is required to analyse by the
manager to develop future strategy according to it. Along with this, manager use this
report to develop key strategies and give promotion as well as rewards to the best
performed employees. Because of reward system most of the employees get motivated
towards their work and other individuals increase their potential in order to achieve high
performance. So basically, this report helps in analysing individual as well as whole
organizational performance and further strategies will be developed by the manager for
the improvement in the operational functions.
 Account receivables ageing report: This report include those customers who do not pay
their invoices. With the help of this report organization record their creditors and ensure
that they will pay after some time (Cuganesan, Dunford and Palmer, 2012). It is
essentially required to analyse total defaulters who still not pay their bills. Manager of
JOJO fruit juice manufacturing company prepare this report for the analysis.
Conclusion: Above mention reporting system help the manager of Oshodi Plc to manage
their internal as well as external aspects. With the help of performance report, stakeholders able
to analyse organizational performance.
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LO2
P3. Calculate net profit by using marginal costing as well as absorption costing method and
evaluate the product cost
Marginal Costing: It is a costing methods which helps in evaluating cost which is
chargeable on every additional production of product and fixed cost will be written off against
contribution (Duong, Wood and Wang, 2015). Marginal costing applied on every additional unit
produced and it will provide accurate cost of product which further helps the manager to develop
strategy and consider these actions into future decision making process. Below mention table
represent the net profit of Oshodi Plc and it is calculated with the help of marginal costing
method.
Calculation of Net profit by using marginal costing method:
Particulars November (£) December (£)
Sales 5000000 6000000
Less: Cost of sale
Direct Material Cost
Direct Labour Cost
Variable production overheads
(180000)
(40000)
(30000)
(216000)
(48000)
(36000)
Contribution 250000 300000
Less: Variable Selling overheads (10% sales
value)
-50000 -60000
Fixed selling expenses -14000 -14000
Administration overheads -26000 -26000
Fixed production overheads -99000 -99000
Net Profit £ 61000 £ 101000
Interpretation: Above mention table represent that net profit of the month of November
is £ 61,000 and £ 101,000 of December. It is calculated by using marginal costing techniques and
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the final outcome is different from absorption method because here fixed cost will be written off
from contribution.
Absorption costing: this costing method also called full absorption costing method
because it indicates that all the manufacturing cost assign according to the unit produced. It
includes the various cost such as direct material, labour, overheads and fixed manufacturing
overheads (Fullerton, Kennedy and Widener, 2014). This method used for external financial as
well as tax reporters which helps the manager to maintain their records according to the
requirement.
Calculation of Net profit by using absorption costing method:
Particulars November (£) December (£)
Sales @ 50 units 500000 600000
Less: Cost of sale
Variable production cost @ 34 408000
Less: Closing stock @ 34 (68000) 340000
408000
Gross Profit 160000 192000
Under or over absorption 9000 -9000
Less: Fixed Overheads
Selling expenses
Selling overheads
Administration overheads
(50000)
(14000)
(26000)
(60000)
(14000)
(26000)
Net profit £ 79000 £ 83000
Working notes:
Fixed production overheads absorption rate = Fixed production overheads
Production
= 99000 / 11000
= 9
Over or under absorption = 9000
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Interpretation: It has been understood that by using absorption method of costing
Oshodi Plc get the lower net income. In November, net profit of the company is £ 79,000 and £
83,000 in the month of December. Net profit through calculating absorption method is low
because over absorption expenses also included which create differences.
LO3
P4. Merit and Demerit of various types of planning tools which is used by the organization for
budgetary control
Introduction: Planning tool is an instruction which helps the organization and provide
guidelines to implement various actions, take initiative and intervention to control their internal
operational functions. There are various planning tools used by the manager of JOJO fruit juice
manufacturing company in order to increase their efficiency as well as effectiveness. Some of
them discussed below:
Budgeting control: It is the process of motoring and controlling budget and follow it in
effective manner through utilizing budget where listed amount spend on each item. Manager
have to ensure that every member follow the budget in given time period. On the other hand,
budgetary control is the process of managing their finances to fulfil operational performances
goals (LHerzig and et.al., 2012). Here manager compare actual performances with budgeted
performance in order to identify actual outcomes or if any changes required than done it
accordingly. There are different types of budget which helps the manager of Oshodi Plc to take
necessary actions accordingly. Every budget has own advantage and disadvantage which affect
the performance of organization and it was discussed below:
Different methods of planning tools which used buy the organization for budgetary control:
Production budget: This budget includes the number of unit manufacture and deliver to
the customer for the final consumption. It is derived due to sales forecasting which is based on
the previous sales numbers. Production budget prepare on quarterly or monthly basis format and
it include the forecasted sales units & closing finished goods which provide total production and
it subtracted from opening finished goods balance. This budget has their own advantage or
disadvantage which is discussed below:
 Importance: This budget helps in measuring quantity for the production for the certain
period of time. It provide balance between inventory level, production and sales.
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 Advantage: Plant & Machinery can be utilized more for the production and labour hours
also can extent. It also used to reduce production cost and maintain minimum stock in the
warehouses for the production of goods.
 Disadvantage: It is time taken process which required lots of efforts and money which is
very costly for the organization. It increase the each unit cost of the product which
automatically reduce the profit margin.
Cash budget: It is the estimation of cash inflow and outflow of a particular time period.
Most of the organization used sales and production forecast to generate cash budget. Basically all
the payments and receivable are included and manager ensure that it will be follow in
appropriate way (Kihn and Ihantola, 2015). It is used where organization have enough liquidity
to run their daily expenses. This budget also has some merits and demerits which discussed
below:
 Importance: Cash budget is very important for the small organization because they
generally deals in cash transactions rather than digital form. Company allow to deals in
credit to extend their customers and it will not generate any kind of problem regarding
liquidity.
 Advantage: This budget allows the manager to avoid debt because it only include the
cash related transaction (Kotas, 2014). It is easy and simple to understand along with this,
it does not required any expertise to develop cash budget.
 Disadvantage: It will create limit for the spending which reduce the capacity of thinking
big because they have limited resources to spend. So they have to perform according to
the budget not to extent their capacity.
Sales budget: It is the estimation of future sale and it will be done by the professionals or
those people who have enough experience in this filed. Most of the organization used this budget
to set as a functional goals and it further affect the operating as well as master budget. This
budget also has some advantage and disadvantage which required to understand and it is
discussed below:
 Importance: This budget helps in generating cash flow in the company and it will
directly impact the product of the various duration where actual performance compared
with the standard once. It also includes the huge planning which required to increase
future sales.
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 Disadvantage: Qualitative or quantitative forecasting because barrier for the organization
because they do not analyse that on which basis they forecast (Merchant, 2012). Sales
forecasting is not too beneficial for the large organization.
Purchase budget: This budget impact the profitability of the company and it is depend
upon functional strategy of the organization. It is different from expenditure or revenue budget
because it totally concern about material required for production.
 Importance: It help the owner to analyse the requirement of inventory according to
overall budget of the company. It is totally depend upon the material required for the
production.
 Advantage: It is an forecasting technique which is used for material required in the
production level and it helps the manager to prevent the problems of shortage or wastage
of inventory (Parker, 2012).
 Disadvantage: Some time purchase budget does not provide accurate results and it
heavily impact the production that automatically reduce profit margin.
Material budget: It include the process where purchase of raw material based on the
quality or quantity they required for the production. They does not analyse the material cost for
the period but they also measure the requirement.
 Importance: It will help the business top maintain their inventory level according to the
production. Because higher material will generate more cost of carrying. So order stock
as per requirement of manufacturing unit which minimise the cost.
 Advantage: It provide coordination between warehouse to production unite where they
regularly communicate regarding availability of raw material (Rahim and Ben-Daya eds.,
2012). Regular review will helps in maintaining records which provide effective analysis.
 Disadvantage: It is similar to the purchase budget, so most of the organization get
confused with it and create error at the time of developing material budget.
Labour budget: It is a type of budget which include the number of labour employed in
the organization and business has to be accountable & maintain proper records.
 Importance: Every organization required labour to complete their production and
achieve successful outcomes. It helps the top management to develop their plan for the
requirement of labour force for the production.
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 Advantage: Time factor is very important because wages paid to the labour according to
hour bases. Along with this, labour rates are more stable than material prices.
 Disadvantage: There is no discrimination between skilled & unskilled labour and their
pay also same which demotivate experienced or skilled employees.
Overheads budget: It is manufacturing budget which include the expenditure that
required for the production of goods & services. It includes the on going cost which is used to
manufacture goods.
 Importance: This budget required to analyse the overall expenses which is used to
generate profit. It include various items such as rent, insurance, direct cost for the
production, utilities etc.
 Advantage: Most of the organization think that only labour or material expenses
included in the manufacturing units but overheads also included which provide
absorption costing advantage.
 Disadvantage: Increament in the overheads will incarese the price of product and it
automatically reduce the profit margin.
Conclusion: Above mention planning tools required for the budgetary control and help
the business to increase their production or profitability (Sánchez-Rodríguez and Spraakman,
2012). Manager of JOJO fruit juice manufacturing company will adopt cash and production
budget for the successful outcomes. It is simple to understand and implement in effective
manner which provide benefits to the organization.
LO4
P5. Evaluate that how organization implement management accounting systems in order to solve
financial problem
Introduction: Every organization face financial problems which impact the business and
their profitability. So manager have to ensure that, they follow correct management accounting
system to resolve their issues. Below mention financial issues will be solved through effective
implementation of accounting systems.
Financial problem: It is a situation where organization feel pressure due to lack of
finances which affect the production level. Organization face financial issues due to various
problems manager have to identify and take necessary actions to remove problems (Roni, Jin and
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Eksioglu, 2015). These problems will impact on mental health of individual and increase
financial pressure which force them to necessary actions to solve these issues. Some financial
problems faced by the Oshodi Plc and it was discussed below:
Delay in supplier's payment: Manager of Oshodi plc sell their products on credit for the
purpose of increasing their sales. But they are enable to recover their payment which generate
financial problem for the company (Schaltegger, Gibassier and Zvezdov, 2013). Because they
also required finances for the further production.
Over expanses in the production: Company face the problem regarding over expenses
in the manufacturing. Which automatically increase the product cost and reduce the profit
margin.
Key Performance Indicators (KPI): It is a performance measurement techniques which
help the business to evaluate their results. With the help of this, business able to demonstrate that
how company achieve their goals & objectives. There are two type of KPI such as financial or
non- financial. In context of Oshodi Plc, manager use key performance indicator which helps in
resolving over expenses in the manufacturing units (Ward, 2012). Main objective of KPI is to
identify unnecessary expenses which increase the cost of product that reduce profit margin
automatically. Another is to identify error which impact business and their supply chain process.
Benchmarking: It is the process of comparison their manufactured products & services
with their competitors which are best in the industry. It helps in identifying internal opportunities
which required for the further improvement. After analysing all the factors and different aspects
organization able to implement changes for the significant improvement. In context of Oshodi
Plc, manager adopt this technique to solve the problem of late payment from suppliers. Firstly
manager compare their credit policy with their competitors and then analyse how it is better from
them or if any improvement required them implement in effective manner. Because manager
have to ensure that this type of problem will not generated in the future.
Manager of Oshodi Plc, follow financial governance in order to resolve their financial
problem which impact the business and its production level.
Financial governance: It is the structure format where organization collect various
infiltration, manager internal system, control and monitor financial information. It also include
the process that how organization track financial transaction which required for the disclosure of
accounts. Oshodi Plc follow financial governance to solve their both problems such as late
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payment from suppliers and over expanses which increase the product cost that automatically
reduce profit margin (Van der Stede, 2015). So manager have to ensure that, they follow all the
accounting principles as well as standards which is important to manage their records for the
further analysis. It will help the business to develop budget and perform accordingly.
Financial problem Oshodi Plc Kiril Mischeff Group
Over expenses in
production.
Company follow cost accounting
system to resolve over expenses
problem because manager able to
evaluate each item cost. If any cost is
unnecessary then remove it from the
production level. After analysing
cost, budget will be allocated as per
the requirement which reduce
unwanted expenses (Saberi,
Nookabadi and Hejazi, 2012).
By using job costing system,
manager able to analyse each
activity and track cost records
which helps in measuring
overall expenses. Funds will
be allocated as per the required
and it will reduce the
overexpresses at the time of
producing goods.
Payment issue with
suppliers.
With the help of price optimizing
system manager analyse the suitable
price range which helps in resolving
late payment issue of supplier. If
price if product is suitable or
affordable then they wont ask for
credit purchase. Suppliers will pay
whole amount on the day time.
Company using inventory
management system to manage
their stock level. Because
business face the problem of
shortage due to lack of proper
inventory rerecords. This
system help the business to
track inventory and order as
per the requirement.
Conclusion: Above mention problem can become bigger for the organization if they
does not resolve on time. So management accounting system help the operations to resolve their
internal problems by using cost accounting and price optimization system (Wouters and
Kirchberger, 2015). Because, manager have to manage their over expenses through analysing
each type of cost and if they do not generate revenue then try to reduce that expense.
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CONCLUSION
Above mention report provide various information and it will be concluded that
management accounting helps the manager to manage their internal functions which helps in
increasing productivity as well as profitability. Cost accounting and inventory management
system is very important because it management the inventory to save cost and estimate overall
expenses to maximise profit margin. Along with this, reporting system helps in maintaining
proper report which evaluate the performance of each department and employees as well. With
the help if various accounting systems managers can resolve financial issues which generated
due to various reasons.
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REFERENCES
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practices within a public sector agency. Management Accounting Research. 23(4).
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system for perishable & substitutable products. Procedia Manufacturing. 2. pp.66-76.
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