Management Accounting and Essential Requirements of Management Accounting Systems

Unit 5 – Management
Accounting

Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
TASK 1.......................................................................................................................................................3
P1. Management accounting and essential requirements of management accounting systems................3
P2. Management Accounting Reports.....................................................................................................5
M1. Effective evaluation of vital benefits of explained MA-systems in case of Innocent Drinks:...........6
D1. Evaluate how systems and reporting of MA are effectively integrated within enterprise's processes:
.................................................................................................................................................................7
TASK 2.......................................................................................................................................................7
Usage of the techniques of cost analysis to prepare income statement by using marginal and absorption
costing.....................................................................................................................................................7
M2. Accounting techniques to prepare financial statements..................................................................11
D2. Interpretation of financial data........................................................................................................11
TASK 3.....................................................................................................................................................12
P4. Benefits and limitation of planning tools of budgetary control........................................................12
M3. Various planning tools and their application for projection of budgets..........................................15
TASK 4.....................................................................................................................................................16
P5 Adoption of management accounting systems to respond financial problems..................................16
M4 Contribution of management accounting in sustainable success of the organization while
responding financial problems...............................................................................................................19
D3 Application of planning tools to respond financial issue along with attainment of sustainable
success...................................................................................................................................................19
CONCLUSION........................................................................................................................................20
REFERENCES........................................................................................................................................21

INTRODUCTION
Management accounting term is often widely recognized as concept of management
accounting and may be clearly interpreted as a framework for delivering finance reports and
details to the managerial team mostly for supporting decision-making phase. Additionally,
strategic framework of management-accounting is employed by the organization 's internal staff,
and that's what makes it distinct from processes of financial accounting (March.Kure, Nørreklit
and Raffnsøe-Møller, 2017). The whole study-report is centered on Innocent Drinks Plc, a
corporate entity which is engaged in making smoothies, drinks and juice that are primarily sold
by company in cafes, malls, supermarkets and its different outlets. This study will address a
range of aspects like managerial-accounting and the basic criteria requisite of the distinct-distinct
management-accounting systems as well as the reporting methods/approaches. Moreover, study-
report includes an insight of the multiple budgetary planning tools along with an evaluation
about how all such planning tools and specific accounting-systems, are being used to respond
fiscal issues. It also provides 2 instances of how large multinational companies are
adopting management-accounting frameworks/systems to respond/resolve to financial problems.
MAIN BODY
TASK 1
P1. Management accounting and essential requirements of management accounting systems.
Management accounting can be demonstrated as framework model for conveying and
reporting financial information/data or essential facts to managing personnel to aid in decision-
taking tasks. Further this concept is being used by the enterprise's internal personnel with aim to
fulfill organizational goals and objects.
MA concept proposed systems which act like a assistance and guiding framework for
managers to accomplish critical organizational tasks as well as to generate key information for
managing and decision-taking tasks. MA Frameworks/systems are models that involves timely
monitoring and recording of financial losses on the related data used by business-people and key
stakeholders for the correct budgetary, decision-making procedures, which also provides
corporate performance reviews. The primary goal of MA-systems is to retain integrity and
oversight of expenses and to have a clear image of the profitability of the company (Monden,

2019). In this regard below explained are certain MA systems that must be adopted by Innocent
Drinks Plc:
Cost Accounting system: This system relates to costs and could serve to control costs and
increase productivity. From using this framework, administrators can determine the costs of each
single product that can help to support their operations. Such a framework is used by companies
to measure cost of their all products in order to assess their efficiency. This is important to the
organization's cost estimation and planning of all tasks. In Innocent Drinks such a system
facilitates effective controlling of costs and keep track of allocation of costs. This also assist to
asses the main factors which are leading increase in overall costs of making smoothing and
drinks. It's essential requirements involves proper recording, reporting and allocation of different
costs along with appropriate description about classification of multiple costs (Aifuwa, Embele
and Saidu, 2018).
Price-optimization system: Such a framework relates to establishing the effective rates and
costs of items produced by organization with aim to enhance demand of its products. It's also
vitally important for corporation to determine right prices while maintaining profitability level.
This system can facilitate Innocent Drinks with processes which are focused towards analyzing
the minor as well as major impact on product's demand because of shift/change in its products'
prices. This system requires use of interpretation tools and analytical methods to identify key
factors and changes occurred due to change in prices of its different products along with setting
prices to gain competitive advantages.
Job-costing system: This is unique but essential system which all corporation like Innocent
Drinks to allocate costs to their major job-process with aim to enhance the accountability. In
corporate entities like Innocent Drinks, this is system is effective in recognizing how much costs
are incurred towards a particular job-process. Essential requirement of this system is to adequate
categorization of all the business job-processes and assignation of multiple costs to such
recognized job-processes (Kumarasiri, 2017).
Inventory management system: This system primarily proposes effective management of
inventories and related items. This system facilitates effective controlling over all the processes

which are directly or indirectly concerned with managing and utilizing inventories in business
purposes. This is a means that lets corporations like Innocent drinks to track it’s all inventories
like items to make smoothies, packing materials, finished goods etc. through supply chain within
enterprise. It develops the entire series from making requests with different wholesaler to ensure
the fulfillment of its customer demand, displaying 's entire path of making of finished goods.
Organizations can minimize repetition by carefully reviewing products, separating cases and
agreeing on more genius key choices. This system vitally require recording of each movement of
stock/inventories in or out at different level and also reasonable classification of inventories
within an organization context (Harrison and Lock, 2017).
Difference in management accounting and financial accounting:
Basis Management accounting Financial accounting
Necessary This accounting is not essential for
companies to implement in their
operations.
While financial accounting is essential
for companies to implement.
Informatio
n
Under such accounting financial and
non financial information included.
On the other hands, under such
accounting only financial information is
included.
Rules and
regulation
In this accounting, there is no specific
role and regulation to prepare internal
reports.
There are different kinds of rules and
regulations which need to applied in this
accounting.
Outcome Under this accounting, internal reports
are prepared when company needs.
In this accounting, financial reports and
statements are prepared in the end of
accounting period.
Essential requirements of Management Accounting systems:
Relevance- Knowledge for one and everyone is valuable. Management accounting reviews the
best available tools for details related to the action being made, the decision-makers and the
process of decision-making being used. The most important and valuable information for
judgment is decided, collected, and organized for assessment by coming to terms with the criteria
of shareholders.

Value- It forecasts the effect on valuation. Management accounting ties the operations of the
enterprise to its fundamental business model which involves an in-depth view of the larger
macroeconomic climate. It includes analyzing knowledge along the road of value creation,
calculating future prospects, and focusing on costs, expenditures, and the probability of value
generation opportunities.
Credibility- Stewardship shapes authority. In making the judgment process even more
purposeful, transparency and oversight support. Trust and stability are enhanced by balancing
near-term market interests toward lengthy value for shareholders. Specialists of strategic
management are considered to be ethical, accountable, and mindful of the values, necessities of
government, and relational responsibilities of the company.
P2. Management Accounting Reports.
Management Accounting Reports: MA is a comprehensive concept which emphasizes on
reporting of information thus reports are essential aspects of it. It proposes multiple kind of key
reports which are also linked with above explained systems. Innocent Drinks should also apply
these reports to properly adapting such systems. Here below are several crucial reports linked
with MA, as follows:
Inventory management report: In order to effectively manage a corporation, it's really
critical to control and manage inventory as carefully and efficiently as practicable. One means to
do so is to use and prepare inventory management report. Reliable, up-to - date as well as
appropriate inventory management report can help managers to uncover trends, recognize
deficiencies and capabilities, and patch gaps and inventory wastage. With these insights,
manager can take action to increase profitably while reducing unnecessary costs. This in case
Innocent Drinks, allow managing team to track movement of stocks and to minimize inventories
costs and wastage.
Cost Report: This report is also act as fundamental requirement for manufacturing
enterprise like Innocent Drinks to manager their production costs. This report basically records