Methods in Management Accounting Reporting

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................2
MAIN BODY ..................................................................................................................................2
TASK 1............................................................................................................................................2
P1. Management accounting systems and its requirements:........................................................2
P2. Methods in management accounting reporting......................................................................4
D1. Management accounting system and reporting integrated with organisational process.......6
TASK 2............................................................................................................................................6
P3. Preparation of income statements by using absorption and marginal costing......................6
M2. Management accounting techniques for preparation of financial reporting documents......8
D2. Interpretation of income statements......................................................................................9
TASK 3............................................................................................................................................9
P4. Advantages and disadvantages of planning tools..................................................................9
M3. Various kind of planning tools and their application for preparing and forecasting of
budget.........................................................................................................................................10
TASK 4..........................................................................................................................................10
P5. Comparison of organisations to solve the financial issues with the help of accounting
systems.......................................................................................................................................10
M4. Management accounting to solve the financial issues........................................................13
D3. Planning tools to resolve financial problems so to lead the organisation towards
sustainable success.....................................................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
1

INTRODUCTION
Management accounting is a field of accounting that is related to identifying, analysing,
measuring, interpreting and arranging business information and data in a appropriate manner so
that management of the business can make decision in future (Baird. Jia Hu and Reeve, 2011). It
is defined as a process in which analysing the business cost and operation to prepare the financial
reports, records, statement in order to assist to management in decision making process. To
achieve the firm's goal, It is require to assess the financial reports, business operation, cost
structure and other relevant issue that may help in future in betterment of the organisation. The
tools of MA is really helpful in the formation of the business strategies and achievement of the
financial objectives. To better understanding of the management accounting and its system,
Oshodi plc business is chosen in order to set up this report. Oshodi plc is fruit juice
manufacturing firm that produce various kind of fruit juices but specialist in JOJO fruit juice.
This report is consider the various factors of management accounting such as management
accounting systems, reports, budgeting tools and techniques, financial issues, planning
techniques to sustain in the future.
MAIN BODY
TASK 1
P1. Management accounting systems and its requirements:
Management accounting system (MAS) control the business operation by measuring the
business activities regarding cost structure and price for the product. It is a financial process that
refer to detail research of the financial and non monetary activities that may affect to company's
performance. Management accounting is a fundamental process that measure the business
efficiency by operating the fundamental tools and techniques of the firm. It evaluates the
business performance and apply the strategies planning to control the operational activities of the
enterprises. Oshodi plc is using this accounting tools in the firm to better control on the
business operations (Baird, Schoch and Chen, 2012).
Management accounting system: It is system that is defined as appropriate uses of
business detail and information to achieve the business goal by following the rule and processor
of the company. This system help in devising the plan, providing expertise in the reporting
system and assist the management in formulation of financial activities related to business. It is a
2

basic business practice that support to business management in adverse situation of the business.
There are antithetic kind of management accounting systems which works to handle the overall
managerial processes and provide a framework to management that help in futuristic issues.
Some of the management accounting systems are defined as follows:
 Inventory management system (IMS) - As per this method of IMS, It ascertain the
availability of the material at the right time of requirement. It assure the inflow and
outflow of the stock from the warehouses and stores. It is accumulated system of stock
that provides the information related to stock quantity and its availability at the stores or
warehouses. This system further ensure the availability of goods at right time of
manufacture and supplies. This method is generally uses by the business unit that are
involved in the manufacturing, stores, bulk selling. They uses this system to access the
tags, scan and bar code to handle the stock level of inflow and outflow (Basu, 2012).
Oshodi plc uses this method to control the cost of material of JOJO fruit juice to better
flow of the inward goods so they can provide the better services to it customers.
 Cost accounting system (CAS) – This method of MAS is connected with keeps a detail
records of cost subject to fabrication the goods and products. It is detailed structure of
cost that is used by the firm to ascertaining the total cost occur during production of the
goods. This system is generally used by the business to controlling the cost activities and
evaluation the profitability of the business. The framework of cost accounting system are
used by Oshodi plc to determine the correct price of the JOJO fruit juice products. This
cost model verify the cost of particular product and services with cost of sales. With the
help of this system of rules, institution can apportion the accurate cost of input such as
direct material, labour and overhead at various level of manufacture. So they can find out
the profitability of product of their offerings.
 Job costing system (JCS) - It is a system that put together the cost data that is related to
with peculiar goods and product. This system of MA is related with allocation of the total
production outlay to total unit of manufactured. As per this system, production
expenditure is generally calculated on the completed projects or tasks. Job costing system
helps in reckoning the total output costs in a arranged manner by dividing cost in sub part
of direct material, labour and other expenses to approximation its actual cost. Oshodi plc
3

uses this method to handle the cost related to JOJO fruit juice and it also enables to track
the business disbursement at different locations of production.
 Price optimisation system (POS) - This is the functional concepts of the management
accounting system which divine the customer response or feedback on the different level
of pricing structure of relevant goods and services through certain channels. It support in
setting the prices of the product and goods by assessing the customer or market based
response. It is the most important system for the marketing department as with the help of
this system, they can sell the product with effective or market price rate. Oshodi plc is
using this techniques to find out the exact cost of material to sell its at special price.
Company is selling the JOJO fruit juice at effective price so more customer can attract
towards it.
P2. Methods in management accounting reporting.
Management accounting reporting: In any organisations, managers prepares reports that
are confidential addition to serves internal uses only are characterised to management accounting
reports. Accounting reports provides detailed information that is required to trim costs, cutting
inappropriate product lines, rewarding employees whose performance are above the set level and
making investments in certain aspects which delivers best financial returns. Management
associations of Oshodi Plc generates accounting reports on distinct basis such as daily, weekly,
monthly, quarterly and even yearly. Following are accounting reports that are generated by
Osholdi Plc managers:
Account receivable report (ARR): In order to manage cash flow it is very decisive to
create account receivable report as it will help in preparing separate columns having detailed
information about amount, quantity, date and name of creditor. The report helps Oshodi Plc to
list out unused credit memos along with customer invoices that are not paid. It helps managers to
finding issues related with collection processes.
Budget report: To determine expenditure levels, budget reports plays critical; function at
any workplace. Budget reports involves estimated values together with actual results associated
with profit or losses (Bierstaker, Janvrin and Lowe, 2014). At Oshodi Plc, management uses
such report to differentiate estimates, budgeted projections addition to actual performances
attained during financial period.
4

Performance report (PR): To analyse and record individual performances during course
of time performance reports are prepared to control costs as well as evaluating departmental
performances. This reports evaluates the performance of the overall business unit and employees.
These are created with the aim to review business performances at end of financial period.
Administrations of Oshodi Plc uses such kind of accounting report in order to frame key strategic
decisions associated with future of company. It offers detailed statements that are required to
measure outcomes of particular operation in context to success over particular time frame.
Cost managerial report: To calculate costs of different products which are
manufactured at workplace, cost managerial reports are produce that helps in summarising
information about associated costs on certain operations. It comprises overhead costs, inventory
wastage together with labour costs (Bloomfield, 2015). The report provides accurate information
to production managers of Oshodi Plc about expenses so to manage costs for optimising
resources between all departments. Using the report, businesses carefully check information
related to costs addition to this they can also evaluate operations that are consuming more costs
which help them to become aware about all activities while producing JOJO fruit juice.
M1. Benefits of management accounting systems and their application in organisational context.
Management accounting systems comprises distinct systems that benefits the company in
several aspects. In relevance to Oshodi Plc, benefits of all accounting systems are as follows:
Systems Benefits
Inventory management system The system benefits in appropriately tracking movement of
materials along with goods from manufacturing procedures
to supply chain management so to reduce wastages of
inventory addition to improving certain areas.
Price optimisation system Price optimising system helps Oshodi Plc to reduce errors,
providing consistency in operations as well as optimising
data insights so that appropriate prices are determined to
particular product after considering customers perceptions.
Cost accounting system The system benefits Oshodi Plc managers by helping them
5

to control, reducing and setting prices. It also helps in
proper planning, eliminating wastages as well as analysing
reasons for losses so that effective decisions are
implemented to increase profit margins (Boučková, 2015).
Job costing system The system helps in allocating costs to particular jobs or
projects so to determine efficiency through making
effective estimations of product costs.
D1. Management accounting system and reporting integrated with organisational process.
Organisations performs distinct operations by using accounting systems with reporting
mechanisms to meet targets. Accounting systems like job costing, price optimisation, inventory
management and cost management system enhance internal functionality by providing paths
involving procedures to increasing profitability and efficiency of Oshodi plc. Accounting reports
also provides procedures to evaluate performances so that rewards and training programs are
provided to employees so that improvements are made in organisational performances (Chiu,
Teoh and Tian, 2012). Hence, systems and reports of accounting are closely linked with
procedures of organisation to achieve greater revenues.
TASK 2.
P3. Preparation of income statements by using absorption and marginal costing.
Cost is a monetary term which is identified as disbursement of business items such as
material expenses, direct labour, overhead and other expenditures.
Absorption costing- It is a costing method that determines the value from total cost of
manufactured output for every unit. It reckon the overall cost such as direct material, labour and
other expenses cost. This method used both the cost in accounting variable cost and fix cost
considered as cost of unit.
Marginal costing- It shows the extra cost to alteration in the total manufactured item due to
produce one additional unit of a production. Marginal cost take over only variable cost as a
production cost. In this costing technique, fixed cost is taken as periodical cost and variable cost
is taken as unit or product cost (Collis and Hussey, 2017).
6

In order to prepare an income statement both the cost are considered as business cost and also
consider in this statement.
Income statement by using absorption costing method for month of November and
December
Particulars Unit 10000 In November (£)
Sales 50 500000
Less: Cost of sales 34 -340000
Gross profit 160000
Variable selling overheads (10% sale value) 10000*5 -50000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Under/over absorbed production expenses 9000
Net Profit 79000
Particulars Unit 12000 In December (£)
Sales 50 600000
Less: Cost of sales 34 -408000
Gross profit 192000
Under/over absorbed production expenses -9000
Variable selling overheads (10% sale value) 12000*5 -60000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Net Profit 83000
Working Notes:
1. Calculation of the cost of sales -
Total cost = 25
Fixed production overhead = 99000
Normal production unit = 11000
7

cost per unit = 9
Total cost of sales ( 25+ 9) = 34 per unit
2. Calculation of the under and over absorption for the Oshodi plc in the month of
November and December:
Month Production
unit
Overhead per
unit
Total overhead
absorption
Fix Overhead
incurred
Over / under
overhead
November 12000 9 108000 99000 9000
December 10000 9 90000 99000 9000
Income statement under Marginal costing method for month of November and December:
Particulars Unit 12000 In November (£)
Sales 50 500000
Cost of sales
Opening stock
Direct Material Costs 18
-
216000
Direct Labour costs 4 48000
Variable Production Overheads
Less- closing stock 3 36000
50000
Contribution 250000
Less:
Variable selling overheads (10% sale value) 10000*5 -50000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Fixed production overheads -99000
Net Profit 61000
8

Particulars Unit 10000 In December (£)
Sales 50 600000
Cost of sales
Opening stock
Direct Material Costs 18
50000
180000
Direct Labour costs 4 40000
Variable Production Overheads 3 30000
Contribution 300000
Less:
Variable selling overheads (10% sale value) 12000*5 -60000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Fixed production overheads -99000
Net Profit 101000
So here total profit for the month November and December as p[er marginal costing is
(61000+101000)= 162000.
M2. Management accounting techniques for preparation of financial reporting documents.
For the purpose of the financial reporting, company Oshodi plc is applying the costing
tools in the accounting titled as marginal and absorption costing techniques. After analysing the
both statement of cost accounting, it is concluded that marginal costing is the best method as
compare to another one as covered all the data related to production and provides the more
accurate and correct information related to profit (Contrafatto and Burns, 2013). So these tool of
management accounting are really helpful in estimation of cost structure of the company.
D2. Interpretation of income statements.
After measuring all the information related to statement of marginal and absorption
costing, It is interpreted that company Oshodi plc is earning a profit of £ 61000 in the month of
November and it is raised in the next month to £ 101000 as per the marginal costing. Whereas
9

profit as per absorption costing is £ 79000 in the month of November. It is uplift by 4000 and
become £ 83000. so the profit under the marginal costing is higher as it eliminate the extra or
irrelevant cost in he calculation of total profit.
TASK 3
P4. Advantages and disadvantages of planning tools.
Budget are the projections which are prepared to predict future position of the company.
With the help of budgets, managers of Oshodi Plc creates spending plan and ensures that the
have enough money to facilitate daily operations without facing any sort of hurdle. By carefully
following spending plan, it helps the company to keep out of any debt as well as overcoming
debt situations in effective manner.
Budgetary control: It is accompanying with definite procedures that helps in
establishing business goals by using budgets (Fullerton, Kennedy and Widener, 2014). It
measures the actual performance by considering the standard data and information and make
favourable comparison to identifying the deviation. These are used to ensure adequate limits of
spendings at workplace. Importance of budgetary control at Oshodi plc is to evaluate the impact
of excessive spendings on corporate profits. For this, following planning tools are opted by
finance team of Oshodi Plc:
Cash budget: It is prepared to plan the flows of cash during accounting period. It
includes the cash inflow and outflow for the particular period of time. It includes payments and
receipts in context to revenue collected, loans paid and expenses disbursed. It is used at Oshodi
plc in order to ascertain cash position during particular time period so to arrange cash for
estimates shortages or controlling excess usage of cash.
Advantages: Cash budget helps Oshodi Plc to prioritizing payments as well as analysing
variances in movement of cash in budget period.
Disadvantages: Cash budget only provides estimates which can be wrong or fails to
deliver appropriate factual knowledge that can results in more outflow of cash for the company.
Operating budget: It includes estimates related with totality of resources that are
required to effectively perform operations. It is used by accountants of Oshodi Plc to estimate
workloads, tracking incomes and controlling expenses so to achieve ambitious targets.
10

Advantages: It benefits selected business in managing current expenses, increasing
accountability, building financial reserves and projecting expenses so to overcome from weak
operations (Håkansson, Kraus and Lind, 2010).
Disadvantage: one of the limitation of such budget is that it requires long range planning
that requires more time and efforts of managers which results in additional costing and decreased
profit margins.
Master budget: It provides detailed summary of other budgets such as sales budget,
capital budget, general expenses budget and many more. Master budget is concluded the all the
budgeting a summarised form for all the department. It delivers information related with
different departments of Oshodi Plc in one go.
Advantages: It assists management of company in financial planning as well as allocating
funds among departments so that confident communication is shared with stakeholders.
Disadvantages: Master budget fails to provide exact information concerned with
subsidiary budgets that results in lack of specificity to management of Oshodi Plc.
M3. Various kind of planning tools and their application for preparing and forecasting of budget.
Certain planning tools are used to prepare as well as forecasting budget in effective
manner. Master budget, cash budget as well as operating budget are some of the kinds of
planning tools that are For example, master budget is applied by Oshodi Plc in order to extract
detailed summary of other budgets where as cash budget is applied to generate estimates about
cash flows during particular budgeting period (Jacobs, 2012).
TASK 4.
P5. Comparison of organisations to solve the financial issues with the help of accounting
systems.
In the modern era of business, most of business enterprises are facing difficulties
regarding the financial issue or lack of funds. It is arises due to mismanagement in the business
operations of the company. It totally depends on the management of the business that how they
handle these issue and earn more profit in the future. It is mandatory to resolve the business issue
to better flow of the functional activities in the business. Some of the financial issue are
described as under:
11

Increasing operational cost: Under this financial issues, increment in the production
cost due to higher operating expenses such as material cost, labour, other overhead. Operational
are the functional cost of the business that needs to address by management. This issue may
generates the financial crises in the organization (Jones, 2014). Oshodi plc is facing the
particular issue in processing cost of JOJO juice items, as its cost is relatively higher than other
product of juice items. Such as in the aspect of fruit juice JOJO, they stuck with this financial
issue and their profits are decreasing constantly due to this issue. This issue is required to
address by company to lower the operating cost.
Lower sales: As per this financial issue, company is facing financial hurdles regarding
the increasing of the cost of manufacture and lowering the business profits. The reason behind
the financial crises is ineffective management in the business. By increment in the functional
cost the sales is getting lower. Due to this problem sales is getting lower and lower day by day. It
may become serious issue when it is not controlled by the management of the business. Oshodi
plc needs to resolve the issue as soon as possible to get rid of this.
Methods to detect the issues: There are various issues that are present in the company
of Oshodi plc that needs to address by the management. Some of the methods that are used by
management of the enterprise to deduct financial issues are as classified:
Ratio analysis: It is the structure that helps in determine particular issues such as
liquidity, profitability addition to operational efficiency. Under such analysis, certain ratios are
computed together with interpretations with the help of which actual financial problems are
clearly identified (Klemstine and Maher, 2014). For this case, if Oshodi plc ascertains net profit
ratio for continuous years then they can analyse reasons of decrease in net profits. In this tools
the management of the company identified the problem of lower sales in the business.
Benchmarking: The approach is used to compare organisational policies, strategies,
programs and performances with another entities performing activities in similar sector. Using
benchmarking approach, Oshodi Plc can detect financial issues through ascertain several aspects
that are weak. Through this tools company identified the problem related to higher operational
cost.
Financial governance: It is a tool that helps in collecting, monitoring including
controlling information concerned with financial terms. It is used by Oshodi Plc to track
transactions, controlling data and disclosing performances in systematic manner.
12

Base Oshodi plc Airdri limited
Financial issue Company has facing the financial
issue regarding higher operating
cost in the business. This is the
financial issue that may decrease
the profit of the business (Lennox,
Francis and Wang, 2011).
In the company, it is facing the
financial issue related to less cash
sale in the business. As per this
issue company is not able to pay
the direct and indirect expenses. It
effect to the profit structure of the
company.
Techniques To find out the financial issue
company is using the tools of Key
performance indicator. It is
standard that compare the data with
another successful industry.
Company is finding the issue of
higher amount of fix cost in
manufacture at industry.
This problem is identified the
financial hurdles through Ratio
analysis with last year data. This is
most used tools in the business that
identifies and measured the current
year data with previous one.
Management
accounting system
To sort out the financial issues,
company should be apply cost
accounting system. This system
will help in managing the cost
structure in a systematic manner so
that profit can be higher. It will
definitely resolve the problem of
operational or functional cost by
controlling the activities.
This problem can be assorted by
activate the management system of
price optimization system of
management tool by assigning the
correct price to particular product
and plan the budgeted revenue
(Malina, 2018).
M4. Management accounting to solve the financial issues.
In order to achievement of the sustainability growth in the market, it is required to resolve
the financial problem in the enterprises. To solve the financial problem, management accounting
13

system play a important role to settle these hurdles. In the context to oshodi plc, company should
use the cost accounting system so their operational cost can minimized at certain level. And by
apply the tools of price optimisation system, institution can set a fix price to the product so its
gross receipts can be high (Modell, 2014). By applying these tools, company can achieve better
profitability and growth in the future.
D3. Planning tools to resolve financial problems so to lead the organisation towards sustainable
success.
Planning tools helps in providing guidelines in order to implement initiatives and new
programs. Oshodi Plc managers uses certain tools like master budget, operation budget together
with cash budget in order to increase business effectiveness (Panaretou, Shackleton and Taylor,
2013). For instance, cash budget helps Oshodi Plc to determine problems related to with cash
flows as well as to resolve such issue through remedial actions in order to leads the business to
meet sustainable success.
CONCLUSION
From this report, it is articulated that management accounting system play a important
role in operating the business function in the production units. By using the different tools and
techniques of management accounting a enterprises can attain the business goals and objectives.
Income statement of the company provides the data related to profit and expenditure that are
earning during the year. In further, this report also concludes the benefits of planning tools such
as budgetary control that help in the estimating the sales and production unit of the company.
Other techniques like KPI, and analysis that help in the assort the financial issues. By settle down
all the issue , a organisation can be operate in a effective manner.
14

REFERENCES
Books and Journals:
Baird, K., Jia Hu, K. and Reeve, R., 2011. The relationships between organizational culture, total
quality management practices and operational performance. International Journal of
Operations & Production Management. 31(7). pp.789-814.
Baird, K., Schoch, H. and Chen, Q., 2012. Performance management system effectiveness in
Australian local government. Pacific Accounting Review. 24(2). pp.161-185.
Basu, S., 2012. How can accounting researchers become more innovative?. Accounting
Horizons. 26(4). pp.851-870.
Bierstaker, J., Janvrin, D. and Lowe, D. J., 2014. What factors influence auditors' use of
computer-assisted audit techniques?. Advances in Accounting. 30(1). pp.67-74.
Bloomfield, R. J., 2015. Rethinking managerial reporting. Journal of Management Accounting
Research. 27(1). pp.139-150.
Boučková, M., 2015. Management accounting and agency theory. Procedia Economics and
Finance. 25. pp.5-13.
Chiu, P. C., Teoh, S. H. and Tian, F., 2012. Board interlocks and earnings management
contagion. The Accounting Review. 88(3). pp.915-944.
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
Contrafatto, M. and Burns, J., 2013. Social and environmental accounting, organisational change
and management accounting: A processual view. Management Accounting Research.
24(4). pp.349-365.
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
practices. Journal of Operations Management. 32(7-8). pp.414-428.
Håkansson, H., Kraus, K. and Lind, J. eds., 2010. Accounting in networks (Vol. 7). Routledge.
Jacobs, K., 2012. Making sense of social practice: theoretical pluralism in public sector
accounting research. Financial Accountability & Management. 28(1). pp.1-25.
Jones, M. ed., 2014. Accounting for biodiversity. Routledge.
Klemstine, C. F. and Maher, M. W., 2014. Management Accounting Research (RLE
Accounting): A Review and Annotated Bibliography. Routledge.
Lennox, C. S., Francis, J. R. and Wang, Z., 2011. Selection models in accounting research. The
accounting review. 87(2). pp.589-616.
Malina, M. A. ed., 2018. Advances in management accounting. Emerald Publishing Limited.
Modell, S., 2014. The societal relevance of management accounting: an introduction to the
special issue. Accounting and Business Research. 44(2). pp.83-103.
Panaretou, A., Shackleton, M. B. and Taylor, P. A., 2013. Corporate risk management and hedge
accounting. Contemporary accounting research. 30(1). pp.116-139.
Shi, L., Zhang, H. and Guo, J., 2014. International Accounting.
Van der Stede, W. A., 2016. Management accounting in context: Industry, regulation and
informatics. Management Accounting Research. 31. pp.100-102.
Ward, K., 2012. Strategic management accounting. Routledge.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
15