Unit 5 – Management Accounting L-4

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems...........................................................................................1
P2 Explain different methods used for management accounting reporting...........................3
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context.............................................................................................................4
D1 Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes..........................................................5
TASK 2............................................................................................................................................5
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs......................................................................5
M2 Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents................................................................................................7
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities..................................................................................................................................7
TASK 3............................................................................................................................................8
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control....................................................................................................................8
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets...............................................................................................................10
TASK 4..........................................................................................................................................10
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems................................................................................................................10
M4 Analysis of usage of management accounting to deal with financial issues faced by the
company...............................................................................................................................12
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.........................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is regarded as the application of professional techniques,
knowledge as well as aspects to prepare information related to accounting in such a way that
assists entities administration in such a way that assist their administration to formulate plans and
policies, controlling its business operations, decision making, optimal utilisation of resources ,
disclosure to administration as well as safeguard the assets. It includes formation as well as
facilitating time to time financial and statistical data to the manager of enterprises in order to
develop regular and short term decision of administration (Andersén and Samuelsson, 2016). As
per the given scenario the undertaken organisation for this report is OSHODI PLC which is
manufacturing firm. It is mainly specialises in producing JOJO fruit juice across whole age
bracket. This report covers various topics that are management accounting system, management
accounting reporting, computation of costs with the assistance of cost analysis. Moreover,
several tools of planning for budgetary control with its benefits and drawbacks are described.
Apart from this, application of management accounting system for an intent to respond the
financial issues are discussed in this report.
TASK1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems
Management accounting is considered as the processing as well as presentation
accounting and economical information. It will aids in assessing management performance,
preparing plan of action, performing comparison, budgeting, forecasting and many others. This is
vital for entities like OSHODI PLC to focus upon the effective management accounting at
continuous basis so that its stakeholders may examine actual performance of firm.
The entities internal system that is followed to perform practices in predetermined way is
known as management accounting system. With the assistance of this manager may evaluate
recent enterprise position as well as try to accumulate described data for business so that they can
able to develop strategies for future betterment (Chan, 2015). In OSHODI PLC, various kinds of
system that is utilised through administration to perform practices in appropriate way. Some of
these systems and its essential requirements are described underneath:
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 Cost accounting system: This is regarded as the vital system that is usages through
manufacturing entities for keeping cost records which are utilised to manufacture and
other practices. Thus, manager of OSHODI PLC used cost accounting system to analyse
the actual cost of overall bottles units that re produced through respective entities.
Moreover, it will aids them in reducing expenditure that are not so much essential or
outcomes into cost reduction. This is needed through OSHODI PLC as it facilitates
direction to their manager for formulation decision to minimise the unnecessary expenses
that may outcomes in reducing useless cost in futuristic period.
 Price optimisation system: For all entities whether large or small, this is vital to fix
efficacious prices of whole goods which are sold through them to their audiences. For
instance, price optimisation system is utilised through managers to fulfil the users desires
(Chiwamit, Modell and Scapens, 2017). Therefore, manager of OSHODI PLC used this
particular system to set the efficacious price for their goods which are produced by them.
It will aids them to get knowledge regarded its audiences in terms of JOJO fruit juice
cost. Moreover, it will also aids them to attain longer objectives like increasing
profitability by grabbing the attention of more audiences.
 Job order costing: It is regarded as the system that is basically utilised for maintaining
the all practices records that is carries out through them. So, the manager of OSHODI
PLC applied this particular system for analysing the manufacturing process outcomes that
are carried out as per the audiences specification. This is vital for entities as it aids them
in as ascertaining their practices cost.
 Inventory management system: It is regarded as key element that influence product
cost net income and many more related to entities. Inventory management system aids
them in formulating controlling framework over inventory procedures in order to justify
several types of issues. Many entities are so much concentrated towards personal
utilisation through staff members, loses of stock and many more. In addition to this, with
the aids of this system firms may become competent for developing process which help
them in controlling inflows as well as outflows of stock and also ascertain the re-ordering
period of stock (Christ and Burritt, 2015). The manufacturing company such as
OSHODI PLC manufacture JOJO fruit juice so this is vital for them to used this to
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manage their inventory appropriately and efficaciously. This facilitates direction to them
for formulating proper decision to accomplish organisational stock needs.
P2 Explain different methods used for management accounting reporting.
Entities higher authorities needs get information related to practices into single document
as it saves their time. Management accounting is regarded as the methods of manufacturing
various report which are represented in front of stakeholders in order to understand real status of
entities. The OSHODI PLC manager applied this to assure that whole information associated
with organisational actual position is kept through them or not. There are many management
accounting report which are usages by manager of undertaken entities to produce various
effective reports. Few of them are described underneath:
 Budget report: It is regarded as the vital intrinsic report which are formulated by the
team of management for comparing the real and standard condition of entities (El-
Shishin, 2017). It is develop into OSHODI PLC through its managers in order delegate
finds to several practices according to their requirements so that overall task may be
performed efficaciously by employees. It is beneficial for entities as with aids of this
monetary resources may be utilised efficacious. In addition to this, it is utilised by
enterprises for an aim to estimate futuristic capital requirements for decreasing extra
expenses.
 Performance report: It is regarded as management accounting reporting which performs
entities data and performance of workers. With the aids of this, it render bonuses,
incentives and others to their staff member. So, the manager of OSHODI PLC
developed this report through its manager to examine their efforts outcomes in optimistic
and pessimistic manner. It is beneficial for entities as by using this administration may
determine that their decision is efficacious for them or not. Also, this assists respective
organisation to increase the stockholders engagement within enterprises as it directs them
to determine that their staff are performing appropriately or not.
 Inventory management report: Into manufacturing entities, it is also regarded as the
vital report as this assists OSHODI PLC manager to examine real status of stock. Also, it
can be formulated through respective entities management to assures that organisation is
competent to acquire stock to manufacture fruit juice based on audiences needs. It is
beneficial for entities as this assists them in tracking the actual position of goods (Gow,
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Larcker and Reiss, 2016). The vital aim to generate respective report is to render
information to its manager regarding inventory requirements for business practices.
 Account receivable report: It is regarded as the report which is developed to keep
records of an amount which is outstanding through users. The essential aim to generate
this report is to examine debts that are owned through many audiences. As OSHODI PLC
is leading entities it manager develop this report so that they become competent to render
credit facilities to its suppliers and also track the outstanding amount. It is beneficial for
entities to to determine its finances which are going to received at futuristics duration. In
addition to this, this assists them they can make strict credit policies by administration for
decreasing the possibilities of debts.
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context.
The benefits and application of management accounting system within OSHODI PLC
are described underneath:
 Price optimisation system: This is regarded as the system that is associated with setting
methods and revise the level of prices that can aids in enhancement of overall revenues
and sales. In relation to OSHODI PLC, their sales manager juice bottle prices with the
aids of respective system.
 Cost accounting system: This is regarded as system that is affiliated with relevant cost
and expenses of administrative various activities and procedures (Kieso, Weygandt and
Warfield, 2019). Such as in OSHODI PLC, their finance department analyse the key
information with aids of cost accounting system and try to maintain its cost of all
activities and operations.
 Inventory management system: It is regarded as system that is related with efficacious
stored inventory management in proper and effectual manner. Into OSHODI PLC, their
manufacturing department used inventory management system to do optimal utilisation
of available inventory.
 Job costing system: It is associated with aligning job cost methods to compute cost of
each units. In respect of OSHODI PLC, their manager implement job costing system to
acquire information in regard to cost of each produced units.
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D1 Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes
Into management accounting, the vital system and report are included that assists entities
to get efficacious information related to various aspects to internal management. For example:
OSHODI PLC are using various kinds of system related to management accounting such as job
costing, cost accounting and others whole these are aligned with many division. Such as price
optimisation is integrated with sales one and others (Kraus, Håkansson and Lind, 2015). Also,
the management accounting reports are also incorporated within OSHODI PLC production
process. This is because the account receivables report is associated with finance division and
performance report with human resource department. It represents that both system and reports
of management accounting are incorporated with production methods of undertaken entities.
TASK 2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs
Costing techniques is referred as methods which is utilised for determining cost to control
cost as well as for formulating decision. It may be applied to make efficacious decisions,
appraisal of price, negotiation as well as evaluate performance of buying (Mitter and Hiebl,
2017). The OSHODI PLC used few costing techniques which are described underneath:
Income statement by absorption method:
Absorption costing is also regarded as conventional techniques to ascertain cost.
Moreover, this is referred as the vital costing techniques in which whole producing cost is
assigned to each and every produced units. It aids OSHODI PLC to generate income statement
through focusing upon both the cost that are non fixed as well as fixed.
Particulars November (£)
Sales 50 500000
Less: Cost of sales -340000
Gross profit 160000
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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 December (£)
Sales 50 600000
Less: Cost of sales -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
Income statement by marginal method:
Marginal costing is referred as the costing techniques in which cost of variable are
charged to cost units and fixed cost of certain duration were written off against the combine
contribution (Osadchy and Akhmetshin, 2015). It assists OSHODI PLC to calculate the two
months income statements.
Particulars November (£)
Sales 50 500000
Less: Cost of sales
Direct Material Costs 18 -180000
Direct Labour costs 4 -40000
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Variable Production Overheads 3 -30000
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
Particulars December (£)
Sales 50 600000
Less: cost of sale
Direct Material Costs 18 -216000
Direct Labour costs 4 -48000
Variable Production Overheads 3 -36000
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
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M2 Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents.
The entities accountant produce income statement with the assistance of absorption and
marginal costing. Therefore, OSHODI PLC accountants formulate income statement according
to used costing techniques. Instead of these techniques, the cost of futuristic techniques is
estimated and based upon this variance is calculated by comparing the actual results. Whiles
applying some more techniques such as activity based costing, the cost were delegated as per
each activities. Due to this, manager have knowledge about whole person cost and cost of each
output.
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities
After examining OSHODI PLC income statement , it is clarify that with the help of
absorption costing the profitability within November is (79000). Where as with the assistance of
marginal the profit will be (61000) in same month. So, as an outcomes it is less than absorption
costing. Also, the profitability into December is (83000) while computing through absorption
costing where as in same month the profit is (101000) with the aids of marginal costing. This is
so the cost of fixed overheads is considered differently within both methods. Therefore, the
consequences of this is that several amount is considered to calculate closing and opening stock.
Therefore, after analysing results of both costing techniques, this have been analysed that
marginal costing technique is more suitable to generate OSHODI PLC income statement.
TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
Budget is regarded as the monetary plan which is set up by manager to carry out the
overall futuristic practices efficaciously. For whole entities, it is so much vital to analyse that this
is formulated effectively to determine the real position of the entities (Ratnatunga, Tse and
Wahyuni, 2015). Into firms such as OSHODI PLC develop budget to anticipate the futuristic
expenses and revenue to attain their goals which are targeted for longer duration.
Budgetary control is regarded as the methods of determining various exact results with
budgeted amount for futuristic duration of entities and set the standards thereafter compared the
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budgeted figure with real performance for computing the variances. In addition to this, it is an
ongoing process which aids to plan and coordinate. It will aids OSHODI PLC in obviating
unnecessary expenses of financial resources as its essential intent is to enhance profit as well as
control desirable expenses. With assistance of this, it may become competent to assure that
whole resources are used effectively. Thus, during developing budgets OSHODI PLC manager
has to examine real status of entities as well as find requirements so that needs resources may be
available on appropriate time. In order to formulate budgets undertaken entities have to explain
and gather proper information in respect of entities needs. Thereafter gather data are examined
through them for evaluating its accuracy (Speckbacher, 2017). Thus, it formulate budget
consequently as well as represent its top executives for taking approvals form them. So, when
this get approved the OSHODI PLC manager prepare budget appropriately.
Several planning tools
There are many planning tools for budgetary control that are utilised through OSHODI
PLC manager are described underneath: Cash budget: It is regarded as cash flows estimation such as inflows and outflows for
entities across certain time duration yearly, quarterly and monthly. This is used to
evaluate whether firm has effective cash to perform practices. The main intent of
respective budget is to render the status of entities cash position (Taylor and Scapens,
2016). Therefore, the OSHODI PLC manager produce budget to avoid the lack of funds
during period when they has to bear higher expenditure. In addition to this, it formulated
for dividing as well as improving weaker areas and reduce the chances of pessimistic
results within cash flows. Its benefits and drawbacks are discussed underneath:
Benefits:
 It will aids OSHODI PLC in accumulating cash to manage as well as control their
futuristic practices efficaciously and also preclude them from lack of liquidity. Moreover, this assist OSHODI PLC to keep the records of overall transaction which is
related to cash for efficacious management of cash.
Drawbacks:
 At the time of developing cash budget, overall transaction is not undertaken only some
are considered and it is so much time taking. Also, it bound the consumers buying power and OSHODI PLC as well.
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Capital budget: It is regarded as budget that is produced through entities to keep records
of huge investment. Thus, OSHODI PLC prepare respective budgets for formulating plans for
futuristics duration to increase entity's performance. The benefits as well as drawbacks are
discussed underneath:
Benefits:
 It assists OSHODI PLC to know about many forms of risk that is included within
projects to obtain various opportunities. Also, with aids of it, they may become competent to identify project that is profitable for
OSHODI PLC then do investment in order to gain profitability.
Drawbacks:
 The main drawbacks of capital budget is that OSHODI PLC can formulate this after
longer planning as it may not render optimistic outcomes in lesser duration.
 Moreover, this is considered as an costly budget as well as all kinds of entities can not
able to afford this particular tool easily.
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets
Into the planning tools of budgetary control, many forms of budget are included which
aids to develop other budgets. Such as OSHODI PLC accountant usage different budget types
such as sales, capital and many others for doing the effectual anticipation of realised outputs. It is
only possible for undertaken company as based on last financial information their accountant
may able to track the anticipated outcomes for developing many types of budget in effectual as
well as efficient way.
TASK 4
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems
Monetary issue- In the business entities vital range of issues occurs and financial issues is
one of them. Under this issue, companies fail to complete their activities and functions on time
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that results in lose. Main cause of these financial issues is poor management of available
resources. Some general problems are mentioned below in such manner:
 Lack of control over expenses: It can be defined as a kinds of issue in which company
gets unable to control over expenditures. If amount of expenses exceeds over income then
it becomes a financial issue (Wood, 2016). Basically, main reason of this financial
problem is ineffective allocation of monetary resources as well as poor projection of
further expenditures. In the OSHODI PLC, they faced this monetary issue which is
effecting their monetary performance in a negative manner.
 Lower amount of sales revenue: This is a type of monetary problem in that graph of
total sales revenue of company start to decrease year by year. Main cause of this issue is
ineffective pricing strategies because customers buy products from those entities whose
price is affordable. Eventually, it becomes essential for companies to sort this issue as
soon as possible other this may lead to cause of dissolution.
Techniques to identify financial issues: Benchmarking: It is a type of approach of assessing monetary issue in which two
companies monetary performance is compared with each other. By help of this
comparison, it becomes easier to find out actual level of difference which contributes in
finding monetary issue. Such as in the aspect of above OSHODI PLC, they have used this
technique in order to finding actual monetary issue.
 Ratio analysis: This is defined as a way of finding monetary problem in that various
number of ratios are calculated such as profitability ratio, investors ratio etc. By
computing and interpreting actual results, it becomes easier for companies to find out
actual monetary issue and finding alternative to overcome problems in less time period
(Yigitbasioglu, 2016). Such as the above mentioned issue of lack of sales revenue can be
identified by calculating sales turn over ratio.
Comparison:
Basis OSHODI PLC TPG plc
Monetary
issue
The company is facing issue of lack
of control over expenditures. Due to
this, they are unable to manage over
This company is facing issue of lack of
sales revenue. Because of it, their funds
are getting low as they do not earning
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all cost. As well as their level of
generating revenues is also
decreasing in a significant manner.
enough amount in return.
The finance department of this
company has implemented cost
accounting system. By use of this
system, they focused on those aspects
which are causing as higher cost. As
well as they accurately predicted their
cost which helped them a lot in
sorting financial issue.
They have applied price optimisation
system because cause of lower sales was
ineffective pricing strategy. By applying
this accounting system, they revised their
prices in accordance of market demand
which helped them in increasing total
sales revenues.
M4 Analysis of usage of management accounting to deal with financial issues faced by the
company
The manager of OSHODI PLC applied various management accounting system and
other planning techniques like financial governance, Key performance indicators and so on to
acknowledge and considering action against financial problems such as lack of control over
expenses, lower amount of sales revenue and others by utilising whole these tools the personnel
of administration may become capable for observing or analysing adverse situation within
company and bring new changes by effectual decision to sort out issues appropriately
(Vasarhelyi, Kogan and Tuttle, 2015). As KPI that is key performance indicators facilitates
direction to administration personnel to analyse both aspects of problems that are favourable and
unfavourable. On other hand, benchmarking render guidances to formulate comparative analysis
of decision and policies of entities while considering their competitors plans.
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.
There are various budgetary control planning tools such as sales budget, operating budget
and many more which are applied by OSHODI PLC for an aim to control budget but it may be
usages within process to respond financial issues such as lack of control over expenses, lower
amount of sales revenue and others thus, whole these techniques aids managers of OSHODI
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PLC in delegating funds to whole practices of enterprises in appropriate manner which results in
minimising possibilities of issues related to finance as well as may become competent to survive
for long period properly (Velasquez, Suomala and Järvenpää, 2015).
CONCLUSION
As per the above report, this have been concluded that management accounting is a
systematised framework that is usages through entities of business for an intent to keep records
of overall intrinsic practices. Moreover, there are many types of management accounting system
such as price optimisation, inventory management,cost accounting system and many others. All
these systems aids them to evaluate the present business position and formulate effective
strategies for future. Also, there are many management accounting reports such as performance
report, account receivable report and many more. Marginal as well as absorption costing are
costing techniques which are applied through manager for analysing the business actual cost.
Budgetary control is regarded as the methods of determining various exact results with budgeted
amount for futuristic duration of entities and set the standards thereafter compared the budgeted
figure with real performance for computing the variances. In addition to this, it is an ongoing
process which aids to plan and coordinate. In addition to this, for preparing as well as forecasting
budget for responding financial problems.
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REFERENCES
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