Management Accounting Report: Financial Strategies for Innocent Drinks

This report provides a detailed analysis of management accounting principles and their application within the context of Innocent Drinks. It begins with an introduction to management accounting, its essential requirements, and different management accounting systems, including price optimization, job costing, and inventory management. The report then explores various methods used for management accounting reporting, such as budget reports, account receivable aging reports, performance reports, and cost accounting managerial reports. The advantages of management accounting systems are highlighted, as well as a comparison between management and financial accounting. Furthermore, the report delves into the formulation of an income statement using appropriate cost techniques, including cost volume profit, flexible budgeting, product costing, and standard costing. The role of costing in setting prices is also discussed. The report also explores different types of planning tools and their advantages and disadvantages. Finally, it examines how an organization can adopt a management accounting system, culminating in a comprehensive conclusion and references.

MANAGEMENT ACCOUNTING
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Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Management accounting and essential requirements of different management accounting
system.....................................................................................................................................3
P2 Different methods used for management accounting reporting........................................5
TASK 2............................................................................................................................................7
P3 Formulation of income statement by using appropriate techniques of cost......................7
TASK 3..........................................................................................................................................12
P4 Explain the advantages and disadvantages of different types of planning tools.............12
TASK 4..........................................................................................................................................15
P5 Compare of organisation to adopt management accounting system...............................15
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18
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INTRODUCTION
The term management accounting is a process of formulating reports related with
business operations which helps manager to make financial decisions. The prime focus of
management accounting is to transfer all financial information among all departments of
organisation for accomplishment of business goals within decided budget. Management
accounting utilise various tools, financial reports, analyse of monetary funds to generate
decisions that increase organisation growth. Innocent drink is selected as an organisation for this
report (Abbasi, Zamani and Valmohammadi, 2014). Moreover, the report will focus on
management accounting and different methods related with management accounting and
reporting. Cost calculation for formulate of an income statement is also included in the upcoming
report. In the last, advantages and disadvantages of different planning tools used for budgetary
control will be understood by this report to perform company operations in a cost control
method.
TASK 1
P1 Management accounting and essential requirements of different management accounting
system
Management accounting is explained as a practice of measuring, interpreting, identifying
and analysing financial information to the manager for accomplish of organisational goals and
objectives in an organised manner. In simple terms, management accounting is to assist and
explain all financial aspects to internal managers for formulation of accurate decisions. Innocent
drink utilise managerial accounting because it aids to match organisation financial value and
modify it according to need of internal user.
Management accounting system- This is used by the business to provide critical and
essential information to the management for utilising operational decision-making (Ahmad,
2017). Innocent drink performs manufacturing operations and it use the management accounting
systems that increase in costing as well as managing of company process. It governs organisation
utilise systems for gather all information related with specific project. Types of management
accounting system are mention as follow:
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Price optimisation system- It is used by organisation for deciding right or accurate prices of
their services and products. With formulation of an appropriate price optimisation system,
Innocent drink financial division improve their profits by offering products at a right price.
Essential requirements
 Price optimisation system is utilised by organisation so they are able to identify sweet
spot of pricing to increase their profits. Also, price optimisation develops and handles
cost of products through deciding them according to calculations (Alsharari and Youssef,
2017).
 Another important factor related with price optimisation is to improve company financial
terms by calculating them by use of effective methods.
Job Costing system- It is primarily used by the organisation which performs their work in the
manufacturing industry or they produce goods. Therefore, manager of Innocent drink use the
system for managing all order and their delivery in minimum period. It also results that work is
done on the basis of production and number of orders.
Essential requirements
 Job costing ensure that job is done on the basis of decided standard so all work is done in
an efficient and effective manner. This also results manager also ensure that all orders are
managed and placed by job in a proper manner.
 On the other side, job costing is to ensure that all orders are completed according to
decided time. This results buyer needs are fulfilled in less time that satisfy needs and
wants of consumer by placing job in minimum time.
Inventory management system- According to inventory management system, managers is able
to ensure that all tasks are completed with less use of minimum resources. Innocent drink ensures
their work is managed with low wastage of resources (Charifzadeh and Taschner, 2017).
Moreover, inventory management is required by organisation to manage overall inventory of
organisation.
Essential requirements
 All orders are tracked or monitored by organisation through use of inventory
management system. It ensures task is completed according to right number of
requirements with right number of resources.
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 Inventory management ensure all inventory levels within organisation is maintained
and it results all department will face no problems at the time of production due to lack
of resources.
Cost accounting system- With formulation of cost accounting system manager ensures to use
right techniques and methods for controlling overall overheads and cost. From the perspective of
Innocent drink management ensure that all task is completed in right manner to achieve their
goals in minimum cost (Hiebl, 2014). This also results management is able to increase their
profits by performing work with low cost operations.
Essential requirements
 Overall cost of the organisation is managed by use of cost accounting system and
according to this management improves their products value that also improves cost and
profits of business.
 In context of cost accounting system this also improves the financial conditions of
organisation through absorbing the overhead cost of business. Moreover, manager of
innocent drink utilise all cost of business.
P2 Different methods used for management accounting reporting
Manager utilise the management accounting report for perform all work according to
relevant and reliable information. This determines that management reporting system ensure all
information which is gathered is consistent and also used in an efficient and effective manner.
This results innocent drink management is able to enhance overall effectiveness and efficiency of
organisation without problems and issue related with business. Some effective methods of
management accounting report are explained as below:
 Budget report- This report is prepared according to different types of budgets that is
related with organisation. Production budget, Master budget, cash budget, etc. are
included in the budget report (Lukka and Vinnari, 2014). Moreover, with use of
appropriate budget this is easy for organisation to improve overall cost of business by
performing work according to control cost. Innocent drink management ensure work is
completed as per budget to improve their overall work efficiency.
 Account receivable aging report- The account receivable report is used by organisation
to identify the number of debtors among business. It results account receivable report is
aid towards track their account receivable for collection of all amount related with
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business. Moreover, report also supports manager to ensure that all objectives and goals
are achieved with no financial problems and also payment is collected from debtors on
time.
 Performance report- The performance report are utilised by the organisation to monitor
overall performance of business. This is used to compare as well as evaluate overall
performance for identify the gaps or deviations that generate problems for accomplish of
desired results. So if any recurring issue is identified by financial departments than
management will focus on identifying the solutions to overcome from gap in order to
improve their performance (McLaren, Appleyard and Mitchell, 2016). Manager of
innocent drink utilise performance report for formulation of competitive-edge in market
through monitoring all departments of business. Further, constant monitoring of
performance also aid towards performing work according to sustainable level of business.
 Cost accounting managerial report- This report is used by organisation for analysing
the overall cost. It also consider that work is managed according to cost accounting
through interpret of overall cost related with business. It results all techniques which are
applied by management is used for reducing cost by identifying the areas that relates with
excess cost. In context of innocent drink controlling cost action is achieved by
management through inducing and taking corrective actions related with business. On the
other side, cost accounting reporting also help to take right and accurate steps for
enhancing company profits.
Merits of management accounting system
Management accounting system offers various advantages to a business that directly
maximise the financial performance of organisation. From the perspective of cost accounting
organisation ensure that their business cost is reduced by reducing the overhead and other
unnecessary cost from organisation. Similarly, inventory management system ensures all
resources are managed in an appropriate manner by tracking the required number of resources
related with project (Modell, 2014). Moreover, job costing ensure that all orders are monitored as
well as completed in proper manner so customer needs are fulfilled with no issue and problem.
In the last, merit offered by price optimisation system is to decide right cost of products so
profits margins are managed in an organised manner.
Difference between management accounting and financial accounting
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Topic Management accounting Financial accounting
Objective The primary objective of
management accounting is
providing information to
internal departments to
generate right decisions.
Objective of financial
accounting is to generate
periodical reports for
providing information to
external parties.
Time focus Management accounting focus
on future related decisions.
Financial accounting relates
with past activities.
GAAP This is not mandatory for
management accounting to
follow GAAP rules.
Financial accounting follows
all rules and principle related
with GAAP.
Audit Audit is not mandatory for the
management accounting.
Financial accounting audit is
done by the professional CA
or financial experts.
TASK 2
P3 Formulation of income statement by using appropriate techniques of cost
The term cost denotes amount of money which is spending by the organisation for the
production and creation of products and services. The profit margins are not included in cost of
business. Innocent drink considers cost as a sum of money which is spent for producing their
energy drinks.
Costs and the cost analysis are two different approaches which sound same, perform
similar functions, etc. but they are different from each other (Novas, Alves and Sousa, 2017).
There are two different techniques exists and according to this cost include only the operations
expenses. On the other side, cost benefit analysis includes the economic factor of a given policy.
In simple terms, cost-effectiveness analysis focuses on certain amount related with business
policy and profit analysis.
Cost volume profit
The term cost volume profit is explained as a method of cost accounting which looks at
different impacts that vary from different levels of cost and also they relates with operating
profits of an organisation.
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Flexible budgeting
A flexible budget is identified as the area among which some amount that are dynamic
and changes in future such as increase or decrease in price. This also consider change in activity
level of innocent drink help management to perform work in an easy manner through performing
task according to flexible budget.
Product costing
This plays an important role for an organisation to complete task and according to this it
is identified by management that right product costing aid an organisation for completion of all
task with decided budget (Pelz, 2019). In simple terms, product costing is done according to right
product value so this results customer are also attracted through right product cost and value.
Moreover, fixed and variable are two types of cost.
 Fixed cost- The term fixed cost includes resources that are not change and also included
in all factors such as rent, machine cost and many more.
 Variable cost- This system includes only those resources which are uncertain and relates
with only organisational aspects of business. Innocent drink marketing cost is considered
as an example of variable cost.
Standard costing- The term standard costing is explained as an important technique and it is
used by organisation to perform all task according to number of target and standards decided by
innocent drink. Similarly, standard costing system implement benchmark related with
performance measurements. Innocent drink also performs work according to procedures and
paperwork to complete task in a simple manner.
Activity based costing- The term activity based costing identify all key activities which is
consumed by an organisation such as number of resources, overhead cost, purchase of inventory,
etc. This also define activity based costing is viewed according to refinement of all cost objects.
Role of costing in setting price
Within price setting of Innocent drink products, costing perform an important role as it includes
most important elements. Some roles of costing to set prices are mention as below: Price determine cost that is incurred- All products are offered to the public to consume
so innocent drink analyse the pay capacity of individuals. So more number of individuals
purchases the products (Procházka, 2017). On the other side, quality of product is also
improved by including all cost factors.
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 Relevant cost- In the short run, managerial decisions is impacted by direct cost of the
organisation. This includes all those cost which is directly monitored in an individual
product. Moreover, selling prices include all direct cost which is fixed and variable that is
related with products.
Inventory cost
Inventory cost engages the cost of order and the number of inventories which is hold by
organisation. This is also used for examine about all management factors in order to evaluate
overall inventory cost. It results changes are induced by organisation for fulfil of order numbers
or needs with minimum number of resources.
Definition- Inventory costs engage all the cost which is related with storage,
procurement, management of inventory. This includes ordering cost, shortage cost and carrying
cost of products.
Types of inventory cost
 Ordering cost- It refer to the cost that is incurred for formulation of producing inventory
and this include cost of purchase and inbound logistics. Innocent drink minimise
ordering cost through utilising economic order quantity concept.
 Carrying cost- This type of inventory cost relates with storage of inventory and
maintenance. Further, innocent drink typically includes rent and other infrastructure cost
that is used for preserving inventory.
 Shortage cost- This undertake cost and replenishment of products related with unusual
circumstances. Usually, it includes a small section of inventory cost.
Benefits of reducing inventory cost
 Innocent drink consider that inventory management aid to complete all work with small
number of products through including only those that are important for formulation of
product (Quattrone, 2016). This support management to control operating cost of
business by reducing inventory wastage.
 Organise warehouse is another benefit that is efficiently accomplished by the
organisation and according to this innocent travel manage unnecessary travel expenses.
Also, number of damaged inventory is controlled through managing warehouse in
systematic manner.
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TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools
The preparation of budget is using planning and controlling is processed under which
profit generation and further investment both get controlled with adequateness. It is related to
different basis and it is as explained below as:
Preparing a budget: It is processed by management under which budget is allocated as
per the market requirement and need of marketplace which maintain perfect balance in between
debt and credit of business with appropriateness (Kahila-Tani, Kytta and Geertman, 2019).
Different types of budgets
Operational budget: It is a budget that is developed to maintain balance in between
income statement as by covering certain element such as expenses and revenue.
Financial budget: It is related to budget that consist element of balance sheet thus it
deals with assets, stockholder’s equity and liability.
Alternative methods of budgeting
Value proposition budgeting: It is dependent on the amount that is required to create
effective value for staff, customers and stakeholders. In this business get control its deliverables
as by avoiding un-required expenditure in précised manner.
Cash budget: It is expected with support of inflow and outflow within stipulated period
of time in which different section get considered such as disbursements, cash surplus receipts,
deficit and financing section that collectively assist to balance out repayment and borrowing.
Behavioural implications of budgets: The designing of budget is dependent on
behaviour of people through which market gaol and conformity is developed in progressive
manner (Cherepovitsyn and Ilinova, 2018). It is used to processed accomplishment of
standardised objective and goal in favoured manner.
Pricing is a strategy that is used by business to attain higher compensation as in return of
goods and services. In addition the pricing strategy of Innocent drink is related to premium
prices that are processed within specific market. The price used by competitors affects the profit
margin and attainment of revenue generation. The pricing strategy used by competitors induces
direct impact over the possibility to attain customer preference and market share collectively.
Innocent drink and its management consider both supply and demand as with this market
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