Management Accounting Techniques for Business Decision Making

This report provides a comprehensive overview of management accounting principles and their application within a business context, using Jo-Jo Juice Centre as a case study. It begins by defining management accounting and exploring the essential requirements of different management accounting systems, including price optimization, inventory management (FIFO), cost accounting, and job order costing. The report then delves into various methods used for management accounting reporting, such as cost accounting reports, budget reports, and performance reports. It also demonstrates the calculation of costs using marginal and absorption costing techniques to prepare an income statement, providing numerical examples. Furthermore, the report examines different types of planning tools used for budgetary control, discussing their advantages and disadvantages. Finally, it explores how organizations adapt management accounting systems to respond to financial problems, offering valuable insights into business decision-making and strategic planning. The report is a valuable resource for students studying management accounting and business development, offering practical applications of key concepts.

Management
Accounting
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Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
P1) Management accounting and essential requirement of different types of management
accounting systems......................................................................................................................3
P2) Methods used for management accounting reporting...........................................................5
P3) Calculate Costs using Appropriate Techniques of Cost Analysis to Prepare an Income
Statement Using Marginal and Absorption Costs.......................................................................6
P4) Explain Advantages and Disadvantages of Different Types of Planning Tools Used for
Budgetary Control.......................................................................................................................9
M3 Use of different planning tools and their application for preparing and forecasting budgets
...................................................................................................................................................11
P5) Compare How Organisations are Adapting Management Accounting Systems to Respond
to Financial Problems................................................................................................................11
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16
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INTRODUCTION
Management accounting is the process of providing financial information and resource to
the manager into the decision making. It is only used by an internal team of an organisation and
this is the only thin which helps to makes it being different from the financial accounting. Thus,
the objectives of the management accounting is to utilises this statistical data and takes out the
better and accurate decision, controlling an enterprise, business activities and development. In
the current era, role of the management accounting is to be deals with managerial aspects of an
organisation and checks out accounting formulation into the management of a business function.
This report will be carry out on Jo-Jo juice centre with an agenda of producing juices products.
A report will cover concept of the management accounting and essential requirements of
a different types of management accounting system. Also, report will also cover different method
which is used for management accounting reporting and finds costs of appropriate techniques of
the cost analysis to prepares income statement with using of marginal and absorption methods.
Also, assessment will also led discussion on different types of the budgetary control and how
businesses are adapting managerial accounting system.
MAIN BODY
P1) Management accounting and essential requirement of different types of management
accounting systems
Management accounting
Management accounting is a process of determining, monitoring and controlling the
overall performance of a company to ensure generation of more profits in future. Manager of a
company need to provide several managerial reports or records, which helps shareholders to
measure the performance of company whether it is doing well or not (Zoni, Dossi and Morelli,
2012). The managers of JOJO fruit juice are timely conducting management accounting to assess
their performance and also provide suggestions to top level to achieve the targets.
Management accounting system
It is basically a management tool used to analysis the performance and actual status of an
organisation. It provides a base for effective decision making after proper analysis of accounting
records and budget. It also helps in determining the current operational level and profitability of
a company. In JOJO fruit juice, managers are using proper management accounting system to
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keep a record of its day to day transactions to properly analysis its profitability and to anticipate
the future challenges on time. Effective accounting system will help in determining and
controlling different costs included for various activities .Different accounting systems that are
used by JOJO fruit juice company are:
Price optimisation system : the main of this is to determine the price of manufacturing a
product after including all costs I.e. manufacturing cost, selling cost and also the promotion cost .
This also considers competitors price strategy, product life cycle and the goals company want to
achieve. If company wants to increase its sales they mainly keep low prices but if they want to
get higher profits they set high prices for their product. Price optimisation system is required by
all companies to determine the reaction and demand of customers at different price level (Bryer,
2013). Demand of a product is directly related with its price so, JOJO fruit juice is providing its
product at moderate price to maintain a balance between sales and profits.
Inventory management system: This concept is mainly used by manufacturing
companies as they have to keep a check on availability of raw material required to manufacture
the product. Proper inventory management ensures timely availability of product without any
shortage or wastage of material. There are many types of inventory management system which
are discussed below:
First in first out (FIFO): As per this method, the old inventory which enters the warehouse first
is on priority for the purpose of manufacturing of product.
Last in first out (LIFO): According to this method the recently or last bought stock is used first
for production of goods.
Average cost method (AVCO): For this method stock is used on average basis, i.e. average is
taken out after each movement (inward or outward) of inventory and on basis of this amount
inventory is put on priority for production.
Fruits are the raw material or inventory required by the JOJO fruit juice for
manufacturing. The inventory of JOJO is of perishable nature which can not be put on hold for a
long period of time, therefore for this company FIFO is most suitable for inventory
management .
Cost accounting system: This system is used for keeping a record of different cost
involved in manufacturing a product. Cost mainly includes expenses made on manufacturing like
labour cost, raw material cost, etc. It also includes selling and distribution cost. It is required by
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all entities to conduct cost accounting to minimize the cost by avoiding unwanted and
unnecessary expenses. It also help in deciding the price level which should cover all the cost and
also provide a sufficient amount of profit. JOJO fruit juice company is using this accounting
system to reduce its cost, by using raw material easily available at low cost, and they are also
hiring labours working at low salary (Grabner and Moers, 2013).
Job order costing system: It is mainly used when organisation is dealing with specific
customer orders or providing customised products. As each product is according to customer
needs and desire, it is considered as a job. For each job cost is separately tracked that how much
material, labour and overheads are spent for each job. JOJO being a fruit juice manufacturer it
has to make customised juice or shake as per the taste and preference of customers. So this
costing system helps it in determining its cost for each unit of product.
P2) Methods used for management accounting reporting
There are various methods available for managing accounting report used by business
managers in order to manage the business in an effective manner. This report shows complete
picture of performance of a particular enterprise which plays a key role in smooth functioning of
business. These methods helps in analysing overall activities of an enterprise in both short and
long run of an organisation. JOJO is an manufacturing company that manufactures fruit juice.
For proper analysing and managing its various activities, this organisation is using different
methods for managing accounting report. Some of these methods are discussed below-
Cost Accounting Reports- Management accounting serves an important part in analysing
the cost or price of product or service. It is impossible to price a product unless its real cost to a
company is known and for this purpose, companies prepare cost report in order to analyse cost of
product or service. This report will help the enterprise in taking decision about price of goods
and services of a company. It allows business managers in limiting unnecessary expenses and
gives them an idea regarding charges to be applied on a particular product or service. Inventory
costs, hourly labour costs and overhead costs are part of cost accounting managerial report (Lee,
2012). These reports help in understanding overall expenses which maintains appropriate
utilisation of available resources. JOJO fruit juice prepares cost report as it helps in ascertaining
cost that is incurring and allows management to take corrective and necessary measures in order
to reduce overall cost of a company and increase profits of a company. It includes summary of
all information related to expenses incurred in organisation and all raw material , overhead and
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labour costs are taken into deliberation while preparing this report. In JOJO fruit juice, this report
is prepared and on that basis price of different products are charged.
Budget Reports- This report is prepared by business managers in order to know an
estimation of different transactions like income, cash, sales, etc. Budget reports are made on the
basis of estimates of last year and with the help of these estimates future projections are
prepared. This aids the organisation to predict regarding cost occurred in future and level of
profitability and on that basis , different managerial action will be taken into action. The basic
aim of this budget report is to lower down the costs and increase overall profits of an
organisation in long run of a business. These budgetary estimates helps the business manager to
plan its expenses early and take managerial actions accordingly (Morden, 2016). This will lead
to increase in profits and take decision to take particular project or not. JOJO fruit juice company
prepares this budget report and on that basis it produce its products. This organisation prepare
budget on basis of previous experiences experienced by this company. It lists all earnings and
expenditures and given organisation tries to achieve its goal, mission and objectives while
staying with a budgeted amount.
Performance Report- It is prepared by accounting managers in order to ascertain various
kinds of results by evaluating the performance of company as well as employees. For instance,
management of JOJO fruit juice company analysis the performance of company and employees
that helps to achieve goals. Therefore, this report is important for organization to know the work
of employees and appraise them time to time, so that they retain for long term within
organization. If employees work well then management make decision to promote them and also
expand the business of organization.
P3) Calculate Costs using Appropriate Techniques of Cost Analysis to Prepare an Income
Statement Using Marginal and Absorption Costs
Marginal Cost:
Marginal Cost can be defined as the cost which is increase or decrease in the total cost of
production rum for making one additional unit of them. With the help of this cost, it will be
easily known that what amount of change has occurred in comparison to the last unit produced. It
is used by JOJO fruit juice for the purpose of calculating profits. In such company management
analysis the business information and get profits by calculating the expenses.
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Absorption costing: This is a costing method which is used by JOJO fruit juice company
to know the profits by selling its goods. It helps to calculate overall cost of organization while
manufacturing juice. It focuses on fixed and variable cost of organization and maintain them
effectively for the purpose of earning profits.
Opportunity Cost:
The following cost can be defined as the cost which provides benefit to an individual,
investor or business at the time of choosing an alternative over another.
Particulars November (£)
Sales 50 500000
Less: Cost of sales -340000
Gross profit 160000
Variable selling overheads (10% sale value) 10000*5 -50000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Under/over absorbed prod expenses 9000
Net Profit 79000
Particulars November (£)
Sales 50 600000
Less: Cost of sales -408000
Gross profit 192000
Under/over absorbed prod expenses -9000
Variable selling overheads (10% sale value) 12000*5 -60000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Net Profit 83000
Cost of good sold November December
Opening inventory - 68000
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Sales units 340000 408000
(-) Closing inventory -68000 -
Total 272000 476000
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P4) Explain Advantages and Disadvantages of Different Types of Planning Tools Used for
Budgetary Control
Budget is a kind of formal statement of an estimated income and expenses which are on
future basis and being aim to accomplish plan and objectives. In other words, budget is numeric
document that a management essentially makes to estimates the revenue and expenses for future
time period. Importance of the budget is to have right calculation of amount to be spend and also
realises return on investment out of the cost incurred (Lachmann, Knauer and Trapp, 2013). It is
being discussed to realises importance of revenue and expenses at the same time. This mainly
comes under responsibility of a finance department. They are different kind of budgets of which
explanation are as follows:
Production budget: It is a financial plan that helps to list the number of units to be
manufactured and at what cost during time period. Actually, this is a report which is helpful to
finds number of an units when a plant will prsoduce out of time to time. Operation Dept. is
mainly responsible for preparing production budget and estimating and saving cost and time
both. Advantage of the production budget is beneficial to estimate cost of raw material and
disadvantage is avoidance of other cost and expenses. It is mainly used to record costs at time of
making financial purchases.
Purchase budget: It is a formal plan which contains amount of inventory that firm must
go for purchase during the budget period. Mainly unit or operational manager is responsible to
prepares purchase budget. The advantage of the purchase budget is correct info and data of the
purchase made and disadvantage is major influence on credit purchases. In this, most transaction
are being based credit deals. The main agenda behind using of this budget is to records all types
of purchase, but most of the purchase are recorded as credit purchase.
Sales budget: Sales budget is defined as management estimate of sales for a long finance
period. A business mainly uses sales budget to sets out departmental goals, earning and forecast.
Mainly sales department is responsible for preparing sales budget. The purpose of this budget is
to estimate amount of sales which is need to be accomplish. This budget is mainly responsible to
affects both other operation budget and overall master budget. Advantage of sales budget is
helpful to farm sales programs, so as to achieves the sales target and disadvantage is burden on
sales department to rise sales to overcome cost made.
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Labour budget: This is a formal budget which is useful to multiplies number of units are
produced in each quarter by direct labour time by direct labour per hour. It is mainly used to
calculate number of labour hours which is need to produces units itemised in production budget.
The main idea behind making of the labour budget is estimating labour cost inquired in each time
period when they are working. The main advantage of the labour budget is an ease available
wage analysis statement and no extra labour cost is involved and disadvantage is no distinction is
made between skilled and unskilled labour.
Capital budget: It is a planning process uses to ascertain organisational investment such
as new machinery, replacement of the machinery, new plant, new product etc. This is technique
to allocating resources for big capital or investment and expenditure. This budget is being made
by CFO (chief financial officer) and in which planning to do longer investments. The major
advantage of this budget is to be helpful in understanding risk or its effects (Kober,
Subraamanniam and Watson, 2012). Also, it helps in making decision for an investment
opportunities and its disadvantage is taking time to makes out long term decisions in longer time
period and also in this tools and techniques are assumed, not real.
Marketing/distribution budget: This plan is a formal structure which has been classified
cost into two types such as marketing and distribution. In this case, marketing budget is estimate
amount of the cost that will be required to promote products so as to promotes product or service
s. Marketing budget is generally part of a marketing plan and also crucial part of a marketing
process. Basically, marketing department is being responsible for making of a marketing plan.
The major advantage of marketing budget is the ascertaining actual amount to be spent on
marketing and distribution related to goods or services. The major disadvantage is covering only
marketing aspect and avoiding other two.
Cash budget: This is a kind of budget is an estimation of the cash inflows and outflows
for a business over a specific period of time. This is the budget which are being used to assess
whether an entity which has the sufficient cash to operates. This is mainly prepared by financial
department of the firm and led to the development and fulfilment of the business objectives. The
major advantages of the cash budget is an clear and cut estimation of the total cash. The main
disadvantage of the cash budget is not involving credit transaction, which would be results into
major crisis in the future.
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Brief summary: In the discussed assessment, various important planning tools has been
discussed which is reality plays success role for any firm. Role of the planning tools is to do
planning for cost and budget to bear expenses. It would help Jo Jon juice centre to plan for good
purchase along with help them to achieve saving in cost and time both, Moreover, role of
planning tool is to led business to rise its growth and potential development to rise profits as well
as revenue.
P5) Compare How Organisations are Adapting Management Accounting Systems to Respond to
Financial Problems
Financial Problems:
These are the monetary emergencies which any organization, association or firm faces
when supply of money liquidity does not coordinate with the fundamental requests of activity
and creation division. The deficiency of assets or money related emergencies straightforwardly
influence the gainfulness in the piece of the pie. The monetary issue is explained as the trouble in
giving the bills. There are major money related issue which are referenced underneath:
Cash Flow Issues: It is related to the deficiency caused in cash in the cash flow
management. These kind of issues arises in front of an organisation when it is facing inadequate
amount of supply of funds that creates deficiency in the operations of the business and also leads
to an increase in debt equity ratio. The amount is paid to the government, shareholders and
stakeholders in the form of taxes.
 Risk management: Risk is prominently known as vulnerability. The council individuals
need to do conceivable estimating for introduction of risks, which could influence the
task of a business. Its necessary for administration of the Jo Jo juice centre to have an
appropriate arrangement, structure and blue print of money related portion in the
associations for continuing in the aggressive market. The risk components are assembled
with every one of the issues that may hamper the productivity of the organization.
 Money management: The point of account division in the association is obtaining and
assignment of assets in an efficient way, so as to adjust different assets in the
organization or association feedback. The cash, the board is otherwise called instrument,
which each supervisor uses to fulfil the factor of creation. for example, work cost, human
asset cost, crude material expense and a lot more while working out an activities to
accomplish the present moment and long term objectives of any association.
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 Working capital: The working capital is bookkeeping word which demonstrates the
distinction between the current assets and current liabilities of an organization. In
respects with keeping up the tasks adequately, the fund division needs to deal with the
money fittingly. The working capital issue result in not satisfying the transient obligation
of firm. In context of the Jo Jo Juice centre, its essential to have right calculation of the
working capital required for the same.
Financial governance: This is the methodology utilized for overseeing and dealing with
the liquidity in a suitable and precise habits in any firm or industry. The job of money related
supervisors is to distribute the assets precisely.
Management Accounting Approach: This strategy, is utilized for figuring answer for
viable progression of money in everyday tasks for accomplishing the associations objectives.
This strategy, will help the organization to beat the money related emergencies. There are
significantly two methodologies which is utilized and are depicted underneath.
This strategy is utilized for figuring answer for viable progression of money in everyday
tasks for accomplishing the associations objectives. This strategy, help the organization to beat
the money related emergencies. There are significantly three methodologies which is utilized and
are depicted underneath:
 KPI: It is the phrasing utilized for look at the organization execution. This strategy is
utilized to improve the general execution and expanding benefit of the association
through rehashed assessment of tasks (Vosselman, 2012).
 Benchmarking: This device is utilized for looking at execution from the rival in the for
support in the market. The connection of exhibitions on a similar premise bring about
breaking down the situation of organization. (Ward, 2012).
 Variance analysis: It manages distinguishing the reasons for variety inside pay and costs
that lead to emerge monetary issues inside a firm. This would help in building up the
better planning movement, with the goal that possibility of such issues in future can be
diminished.
To understand how different approaches of management accounting, a comparison is made
between two financial companies of UK that are – Ochodi Limited and Rites Limited.
Basis of Difference Ochodi Limited Rites Limited
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