Management Accounting Report: Analyzing Innocent Drinks' Financials

This report provides a comprehensive analysis of management accounting practices, specifically focusing on the case of Innocent Drinks. The report begins with an introduction to management accounting, its objectives, and its significance in the context of Innocent Drinks, a company involved in the production and sale of smoothies and juices. It then delves into the management accounting system (MAS) employed by the company, highlighting inventory management, job costing, cost accounting, and price costing systems. The report further discusses various management accounting operations, including cost accounting reports and performance reports. A significant portion of the report is dedicated to cost analysis, comparing and contrasting marginal costing and absorption costing methods, including the preparation of income statements, calculation of break-even points, and margin of safety. The report also explores budgetary control tools, such as rolling budgets and flexible budgets, including their advantages and disadvantages. The document concludes with a comparison of how corporations adapt management accounting systems to address financial challenges. Overall, the report offers valuable insights into the application of management accounting principles within a real-world business context.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1. Management Accounting System
P2. Discuss Different Methods of Management Accounting Operations
LO2..................................................................................................................................................3
P3. Calculation of Costs Using Best Method of Cost Analysis to Make an Income Statement
LO3..................................................................................................................................................6
P4: Explanation about benefits and liability of different tools for budgetary control................6
P5 Comparing as to how corporations are effectively adapting MA systems for responding to
multiple financial problems........................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting explain and refer to the process of analysing, interpreting,
evaluating and expressing all information about the organisation to the upper manager. The main
aim of management accounting is to accomplish organisational goal and objectives within
decided budget. Financial and management accounting refers to managing business information
which helps in making better decisions (Yalcin, 2012). The term management accounting
framework is distinct with another framework that provides all information related with financial
and non-financial transactions. This assignment is written from perspective of Innocent Drinks
which is engaged in making smoothies and juice sold in supermarkets, coffee shops and various
other stores. Further, this report highlights on different form of managerial accounting system.
The report discusses the management accounting and reporting system along with its importance
in the context of chosen organisation. The report also describes cost accounting methods and its
different methods, various planning tool to control budget along with their merits and demerits,
comparison of usage of management accounting system between two organisations so that
proper actions can be taken for further improvement of an organisation.
LO1
P1. Management Accounting System and MAS
The management accounting activities can be defined as all those activities related to the
business which will include the goals of the company, monitoring and controlling the investment
and optimisation of revenue and profit. The Management Accounting is majorly related with
financial data processing, records and expectations, inadequacy of management and various
methodology of accounting. The MA method which is used by Innocent Drinks to ensure that
their decisions are correct in nature has been mentioned as following:
Inventory Management System: The most important role in monitoring the expenses
and sales of the Innocent Drinks is played by the inventory management system. Stockpiles as
well as good’s inventory by using a uniform chain management system will be created by the
manager of the Innocent Drinks. It is a fact that the corporate goods are a different type of
household products and it is very difficult to put them on sale. Then also these corporate goods
are being distributed to the shopkeepers by delivering them through the manufacturer(Hiebl and
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Richter, 2018). The process of inventory management system is very helpful in efficient and
quick promotion of the products and also it leads to decreasing the cost of maintaining.
Job Costing System: The Management Accounting can be regarded as such an efficient
way through which each organisation can assess the cost of each operation undertaken by them.
To track and evaluate the expenses of the organisation, every expense will be analysed to
identify the volume of expenses generated within it. The MA will be very helpful for Innocent
Drinks as through this the management team of this company can monitor the cost of jobs such
as wrapping and distributing. For identifying the spending of the organisation, generally this
method is being used(Jermias, Gani and Juliana, 2018).
Cost Accounting System: It is very useful in evaluating the costs of manufacturing and
selling of the products by an organisation. This management accounting will be very useful for
Innocent Drinks as by this they can come to know that which products are more price-involved
and on the basis of it they could be able to decide whether it is worth or not to spend such big
amount of money on that particular product. This method is generally adopted by the
organisations in order to determine the value of the products and from all the products choosing
the most cost efficient product so that the company can get an edge over its competitors in the
market.
Price Costing System: It is very necessary for Innocent Drinks that all its available
products must ensure the customer satisfaction at utmost priority. For this the organisation must
monitor the quality of its products so that they can cover more market share.
P2. Discuss Different Methods of Management Accounting Operations
Cost Accounting Report: This analysis which helps an organisation in doing its audit
mission in a smooth manner as in this research the major focus would be upon listing all the
available products of the company. This report provides Innocent Drinks managers with setting
the price of all the products of the business and dividing other things by static, semi variables and
also fixed operating expenses to help in the process of decision making(Kaplan and Atkinson,
2015).
Performance Report: It can be considered as the one of the most important document
related to Management Accounting which is not correlated with the numerical sales or expenses
but is linked to the enhancing the efficiency and productivity of the people working in the
organisation. Regarding Innocent Drinks, they can evaluate the performance of their staff from
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time to time. The Innocent Drinks must also figure out that what all problems are faced by the
employees due to their productivity is low. To deal with the low productivity, the company can
identify the root causes and can introduce various training and development programmes so that
their efficiency could be increased.
LO2
P3. Calculation of Costs Using Best Method of Cost Analysis to Make an Income Statement
The most useful approach regarding the cost that Innocent Drinks can be used to prepare
the income statement for identifying the operating revenue has been discussed as following:
Marginal Costing: It can be regarded as such system of costing which will explain the
operational costs such as stock cost whereas the fixed costs are seen as the period costs. The
managers of the company are efficiently using this process in order to enhance the income
statement of the organisation by accruing operating expenses of an organisation into just
dependent variables and variable groups. The Innocent Drinks must use this way of cost
accounting so that the income advantage of the company can be identified and it will also help in
determining the revenue of the firm in considering all types of variable costs(Vanderbeck, and
Mitchell, 2016).
Absorption Costing: In this approach of costing, it will see both the variable as well as
fixed costs of an organisation as commodity prices. It is such a tool of accounting which is very
useful in identifying all the expenses of the company either they are variable or fixed. This
approach is of such a kind which not only separates both the fixed and variable cost but also the
expenditure of the company into production and sales. It this system will be adopted by the
Innocent Drinks, the can focus more upon the expenses of the organisation which will further
lead them in the growth of the business.
Income statements
Marginal costing:
Particulars April £ May £
Sales revenue 56000 70000
Less: Marginal cost of sales 20000 25000
Variable manufacturing cost 30000 30000
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Opening stock 0 10000
Closing stock 10000 15000
Contribution 36000 45000
Less: Fixed cost
Fixed Non-Manufacturing Cost 5000 5000
Fixed Manufacturing Overhead 18000 18000
Net profit 13000 22000
Working 1:
Marginal cost per unit April £ May £
Variable production cost 30000 30000
Number of units produced 6000 6000
Per unit cost 5 5
Absorption costing:
Particulars April £ May £
Sales 56000 70000
Less: Cost of goods sold 32000 40000
Variable Manufacturing cost per
unit 30000 30000
Fixed manufacturing cost 18000 18000
Opening stock 0 16000
Closing stock 16000 24000
Gross profit 24000 30000
Less: Fixed non-manufacturing
cost 5000 5000
Net profit 19000 25000
Working 2:
Absorption cost per unit April £ May £
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Variable Manufacturing cost per
unit 30000 30000
Fixed manufacturing cost 18000 18000
Total cost of goods sold 48000 48000
Number of units produced 6000 6000
Per unit cost 8 8
Reconciliation statement:
Particulars April £ May £
Profit/loss under marginal costing 13000 22000
Add/less: Closing stock 6000 3000
Profit/loss 19000 25000
Profit/loss under absorption costing 19000 25000
Calculation of BEP:
BEP (In units)= fixed cost/contribution per unit 12727.27
BEP (In revenues)= Fixed cost/PV ratio 763636.36
Calculation of MOS:
Margin of safety (In units)= Budgeted sales units-BEP in units 7272.73
Margin of safety (In revenues)= Budgeted sales revenue-BEP in
revenue 436363.64
Working 3:
Particulars £
Variable Materials 20
Variable Labour 14
Other Variable Costs 12
Variable Administration and Selling 3
Variable cost per unit £ 49 per
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pack
Working 4:
Particulars £
Fixed Production Cost 80000
Fixed Administration and Selling 60000
Total fixed cost £140000
Working 5:
Particulars £
Selling price 60
Variable cost per unit 49
Contribution per unit (S-V) 11
Working 6:
Particulars £
Selling price 60
Contribution per unit 11
PV ratio (C/S*100) 18.33%
LO3
P4: Explanation about benefits and liability of different tools for budgetary control
Budgetary control- The term budgetary control is recognised as a method or process
which is used for establishing financial targets of business. With the tool of budgetary control, it
is also easy for respective organisation to compare actual performance and outcomes of company
operations with expected outcomes of business (Drury, 2013). There are different forms of
planning tools and methods are defined that are effective and efficient for Innocent drinks. Some
tools of budgetary controls are mention as follow:
Rolling budget
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The term rolling budget is recognised as the process which is used for formulation of
financial plan that are based on the comparable scale. This is used by organisation from several
years as a traditional method for development of plan. Along with this financial plan for current
year is based on the previous year finding and it is finished by organisation according to the
current accounting cycle period. Rolling budget encompasses all financial aspects by making
proper estimation for business (Nishimura, 2013). In the context of Innocent Drinks limited,
organisation is managing budget in an effective manner with the view of developing efficient
plans that helps to complete research with minimum resources. Some advantages and
disadvantage of rolling budget in context of Innocent Drinks are mentioned as follow:
 Advantage- This is beneficial for organisation because as compare to other budget
rolling budget is easy to understand. So for the Innocent Drinks employee's it is easy for
management to prepare and manage task with decided budget. Along with this budgets
are also rolled out with same way that are implemented in previous years.
 Disadvantage- One of the major drawback for budget preparation is that rolling budgets
are not appropriate for large business because it make delay in decision-making. Along
with this it is true that entire shift in accounting cycle impacts on business operations for
long term (Selto, and Curry, 2014).
Flexible budget
With the flexible budget approach an organisation is focused to complete their work with
variable budgeting. According to the flexible budget, monetary terms act in the same way that
are required for performing task according to current budget. This is also described as the form
of budget statement that helps for managing budgets according to the user group. Moreover,
management make significant adjustments for managing their work with right process and
functions. In context of Innocent Drinks, flexible budget is formulated to draw different activities
which are anticipated for adopting change in the future.
 Advantage- The main feature or benefit of financial budget is to make changes in the
budget according to the possible user that make changes as per appropriateness of
organisation. Example- for the financial year if any error is identifying among financial
transactions than it is essential to allow budget with significant modification.
 Disadvantage- One of the major issue in the flexible budget that it is complex for
organisation to work with comprehend bases (Kaplan and Atkinson, 2015). There is
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various task which are related with financial data like, change in staff members hide or
cover its actual performance by modifying changes as per requirement.
Fixed budget
It is recognised as the most complex form or way of budgeting that makes rigid system
for completing work with decided steps. Along with this organisation also not determine and
make any subsequent modifications to complete work by managing and controlling changes in
budget. This results that all departments perform work with constant aspects of business. In
context of Innocent drinks limited manager follow fixed budget according to subsequent
changes. Some advantage and disadvantage of fixed budget are mention as follow:
 Advantage- There are no changes is implemented within fixed budget so it is not
complex to provide respective areas for completion of task. This also refers due to non-
manipulation budget not make additional changes to perform work in an effective manner
(Manyaev, Piskuno, and Fomin, 2016).
 Disadvantage- The rigidity of the budget is one of the major disadvantage that generates
complexity among task to work with fixed budget. It creates challenge for Innocent
Drinks because in any of unfavourable circumstance it is complex to make change in
fixed budget.
P5 Comparing as to how corporations are effectively adapting MA systems for responding to
multiple financial problems
Financial problems- The term financial problem is classified as the issue that raise in
any organisation or business. One of the major aspect for business relates with lack effective
supervision for managing financial resources and activities. With such financial difficulty’s
organisation faced different issue that includes managing business issue that include failure of
business. Some issue that are faced by Innocent Drinks are mention as follow:
 Increase in storage cost- Innocent drinks is continuously faced issue and challenges
that regards with cost of business (Vanderbeck and Mitchell, 2016). One of the major
issue relates with inventory handling cost as the expenses for organisation is increased
due to difference in overall gross profitability as profits of business decrease in business.
 Unable to manage cash resources: It is also one of the major problems that is being
seen within the organisation like Innocent Drinks where they are unable to manger their
available cash resources and how those funds should be used. It is one of the reasons
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that organisation is suffering at the moment. The detail discussion has been mentioned
below in the table form as a part of comparison between two organisation’s where
management uses MAS to resolve the problem:
Basis Innocent Drinks Bulmers
Problems and tool
used to detect.
Company like Innocent Drink is
facing the huge problem for maing
the cash related resources
transformation. Here, for the purpose
of resolving this respective issue, the
manager level persons in the
company uses KPI through which
they can detect the main problem.
This will allow them to bring
improvisations (Wagenhofer, 2016).
In addition, all of the performance are
measured in it so that further
improvement can be brought in the
simplest form so that organisation do
not faces any of the problem.
It has been found that
organisation has been suffering
from number of problem because
they have been using more
number of material which is
allowing to increases
unnecessary competition in the
market. If company uses the
policy of separation of the
measure then there is huge
possibility that higher growth
and revenue can be generated by
the company through which
goals can be accomplished easily
(Leotta, Rizza and Ruggeri,
2017).
Implementation of
MAS
Although, company is facing
different types of problem at the
moment but they can certainly bring
improvisation with the help of
incorporating the cost accounting
system. As it will allow to monitor all
of the activity and according to that
strategies can be prepared for
resolving the issue.
It is said that addressing the issue
being faced by the organisation,
inventory financial reporting
process can be effective because
records can be overviewed at
each of the stage in a systematic
manner.
MA Technique As per the MA technique such as cost
accounting method, company can
For the more convenient result,
Financial Governance
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easily allow to track the inflow and
outflow of the cash which is crucial
for bringing the efficiency in the
business.
Management System should be
used as it allows to manage the
inventory system in the company
and secondly it will help to
resolve the problem related to
money issue.
Some of the points has been mentioned below, which can be really effective in overcoming
the issues that are being faced by the organisation Innocent Drinks.
 Benchmarking: It is the tool or even the process which is being used by almost all of the
organisation for the purpose of calculating the performance of a company. In context of
Innocent Drinks, they have the option to use this particular criterion for the purpose of
identifying the main reason behind unstable performance. Here, company can compare
them with other similar form and according to that they can find the main reason behind
the failure of the company. According to that they can set that how organisation needs to
perform so that goals and target can be accomplished (Novas, Alves and Sousa, 2017).
 KPI's Metrics: Whenever there is a discussion about business organisation, it is said that
KPI’s Metrics are being commonly used because it helps to identify that how company is
performing in current scenario. In simple words, this process will give extra opportunity
to identify that how employees are performing for attaining the targets. The main benefit
of KPI’s Metrics is that it helps to give rewards and benefits on the basis of performance
of any employee working within the organisation.
CONCLUSION
The above prepared file has allowed to identify the conclusion that management accounting
is and essential tool which can collect all of the required information through which necessary
decisions can be taken. There are number of other benefits that innocent drinks can obtain from
whole of this report is that they can easily allow to uplift the standard of the products that are
being delivered to the customers. With the helps of addition planning procedure, can be ensure
that how they need to improve their performance so that in any of the situation they will not
require to face any sort of problem.
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