Management Accounting Report: Strategies for Innocent Drinks Success

This report provides a comprehensive analysis of management accounting principles, using Innocent Drinks as a case study. It begins with an introduction to management accounting and its role in analyzing and interpreting financial information for internal decision-making. The report then delves into the various accounting systems employed by Innocent Drinks, including cost accounting, inventory management, and price management systems, along with a discussion on the differences between financial and management accounting. The second part of the report focuses on the application of different management accounting reports, such as ABC costing, batch costing, budget reports, income reports, balance sheets, and cash flow reports. Furthermore, the report explains the concept of marginal costing and absorption costing. Finally, the report explores budgeting and budgetary control within Innocent Drinks, highlighting the importance of cash budgets and their advantages. The report provides insights into financial strategies, costing methods, and budgetary control.

Management
Accounting

INTRODUCTION
Management accounting is undertaken as the practice that is helpful in analysing,
measuring and interpreting the financial information of company for the betterment of prominent
goals and objectives. In regard of this, it is identified that financial accounting is the prominent
purpose which is intended to help several individuals internally to the company in terms of
getting proper information about business decisions (Otley, 2016). To carry forward this report,
Innocent drinks is considered that make smoothies and juice which is sold in supermarkets and
coffee shop and other outlets, headquarter in London, UK. Moreover, report cover various
concept of accounting which is required in terms of understanding the management system and
get various outcomes. It also tends to describe the financial problems and other business
activities that are addressed by the executives in terms of giving proper help to various system.
TASK 1
P1.
Financial accounting is undertaken as a important component as it is helpful in
managing and keeping records for the business transactions in the company. By undertaking this,
the suitable payments and reports are scheduled and also available quarterly for the financial
statement undertaking the statement of balance sheet& income with the assistance of structured
guideline.
Management accounting is the method that is used by the higher authorities in terms of
identifying the operations of an organisation. In undertake the aggregation of data from the
several departments and also review them with the assistance of an effective manner that is
advantageous in terms of taking decision by the directors (Maas, Schaltegger and Crutzen, 2016).
For Innocent drinks, various accounting systems are used which are helpful for the top level
authorities in order to develop effective strategies to attain success and growth. Some of them
are mentioned as under:
Cost accounting system: This method is assistive in terms of identifying the actual price
of commodity and other concerning activities. The significant kinds of functional costs including
production, marketing and distribution in which the variable and fixed cost of the functional
areas of company is included. For this, management accounting depicts the application of
accounting system in order to measure concerning expenses for effective arrangement. The
1

essential need of cost accounting system at Innocent drinks is to develop accurate cost for its
manufactured units by the company. Moreover, the system is also helpful for identifying cost to
the commodities with the aim of controlling cost and profitable analysis for effective valuation.
Inventory management system: Various types of inventories leads to include work in
process inventory, raw materials and finished goods that are required in terms of arranging and
maintaining all the prominent cost undertaking the stock level. Management accounting
recommend the prominent application of accounting system in order calculate and measure
various expenses prominently to manage stock effectively (Hopper and Bui, 2016). For this, the
essential requirements at Innocent drinks is to track commodities and other materials across the
warehouse or stock room for company. It is also useful in order to check out the effective flow of
stock in terms of making sure for the materials that are supplied to the demanded place of
company at the accurate time or minimum possible rates.
Price management system: This system is required in order to identify the least price
tags that are developed for the company by effective calculation to the relevant cost and also
apply significant profit margin. Management accounting depicts the proper application of
accounting system in order to calculate and also measure best price prominently. For this, the
essential need of price management system is to measure the ways in which demand offered at
the distinct level of cost (Cooper, Ezzamel and Qu, 2017). For this, the system is required by the
company in order to develop significant prices of goods that are planned in terms of developing
significant prices in market. Moreover, the system also helps in identifying the exact price of
commodities and services after researching regarding products of competitors.
Job order costing: There are various jobs within the production including collection of
raw materials, direct labour, factory overheads and so on including the cost which is needed in
terms of effective calculation. For this, management accounting suggests the application of
accounting system in order to measure cost of job effectively in order to assign each job. For
this, the effective requirement of Innocent drinks is to maintain record of all the significant
expenses that are concerned with particular commodity in terms of arranging and developing
separate record which is related with job and all the product line.
Comparison between management accounting and financial accounting
Financial accounting Management accounting
Within the respective organisation, financial This method tends to deal with the actual data
2

accounting is useful in terms of dealing with
the significant data in terms of calculating with
the overall performance of company to offer to
the external parties.
in terms of measuring the significant
performance that is provided by the internal
parties.
Its goal is to convince the investors to execute
the investment within an organisation.
Its goal is to persuade higher management by
effective measurement of internal functions
and concerning performance.
This report is required for the audit which is
registered with the purpose of government
acceptance and only financial information of
the company and concerning functions and
considered.
The prominent report of management
accounting is not needed to be audited by the
auditors but required to verified by the interns
of an organisation.
P2.
This tool is useful in order to understand the various numbers that are working and also
going to be with the organisation for the management accounting reports. In regard of this,
Innocent drinks need to develop reports in order to present the financial performance and
concerning information for the internal management by applying prominent reporting process:
ABC costing report: Within the production levels, there are various types of activities
and jobs that are required to offer effective cost to each and every activity. The report is
developed to delegate overhead cost and also leads to calculate activity cost in order to measure
the financial control over the activity which is based on the costs and other expenses of company
(Quattrone, 2016). For this, managers of Innocent drinks tends to develop ABC costing report
with the purpose of allocating cost in order to analyse suitable activities that are assigned to the
products and services of organisation. Furthermore, the reporting method is also helpful in
reducing any problem for the effective execution of system.
Batch costing report: For this, there are various units and batches of products that are
more different in volume and nature. The report is developed undertaking the cost of every batch
prominently which is assigned to determine the actual cost of product. For this, the manager of
innocent drinks tends to develop batch costing report with the purpose of identifying cost which
3

include production of commodities for various batches. Moreover, organisation also receive
orders from various customers as they have common products for their orders. For this, managers
also tends to generate the production orders for batches and also use the reporting mechanisms to
measure cost effectively.
Budget report: There are several functions that are required for the effective production
for the other areas of company. Report is developed to analyse the internal performance of each
and every function considering the significant budgeting tools like zero based production,
flexibility and cost budgets (Nitzl, 2016). Budget report is useful by Innocent drinks for
effectively recording various types of budgets that are depend on company considering the
financial needs. Moreover, it is developed according to the prominent need of business to
forecast the income.
Income report: Here, both the kinds of sources tends to generate revenues and incurring
cost by prominently completing their work. As it is developed considering the income and loss
that make difference among total revenues and expenses at the definite time. In terms of Innocent
drinks, their managers tends to develop income report for the objective of recording the incomes
that are received from various sources with several products. It is developed within the several
forms for the operating and net income report.
Balance sheet report: There are various resources that are against of retained earnings
and liabilities of company. This report leads to present a good balance among these assets and
liabilities of the accounting year in order to calculate the financial performance of company in an
effective manner (Honggowati and et. al., 2017). Balance sheet report is developed by the
finance department of Innocent drinks with the purpose of identifying that at which place
company is standing in market. For this, report leads to offer proper view financial position of
company and also prepare each end quarter for annual year.
Cash flow report: It depicts the proper need of sourcing cash in terms of meeting the
significant obligations of cash expenses of company. For this, report is develop to depict the cash
balance for the definite time by the effective assumption of cash source and needs effectively
considering the cash obligations. For Innocent drinks, cash flow report is developed in terms of
making the financial statement and annual report. The significant concern to develop cash flow is
to present the financial transaction that are occurred in business over designated duration.
4

TASK 2
P3.
Marginal costing: This function tends to undertake several types of expenditures such as
fixed and variable. These are measured by determining the actual cost of manufacturing. But as
per this, the rule of marginal cost technique and management accounts only and leads to evaluate
cost of unit by variable cost consideration (Malina, 2017).
Absorption costing: This function of company is also calculated considering the actual
cost of production. As per this rule of absorption tool, management accounting evaluate and
calculate unit cost the both fixed and variable cost.
5

6

TASK 3
P4
Budget: It is undertaken as the expenses of earning cost and other resources that are
helpful in acquiring towards the physical body undertaking the income that can be computed
towards the particular period that depicts the significant financial requirements which stand by
their side and effectively tends to attain the goals of an organisation (Dekker, 2016). It is
essential to classify the year as it is helpful to comprise the volume of cash flow and concerning
obligations and amount of earning assets and so on. In terms of this, effective responsibility for
7

the top level management of Innocent drinks tends to develop budget for each of the
organisational member in terms of undertaking the performance of considering activities.
 Budgetary control:
It depicts the significant result that is undertaken for effective picturing and also related
with the estimated expenditure that is helpful in uncovering the divisional opportunities that
tends to offer significant preparation in terms of managing the concerning opportunities. Along
with this, effective monitoring is helpful for Innocent drinks and their higher authority in terms
of planning the prominent strategies and also try to correlate overall expenses of management
with several operations (Turner and et. al., 2017). It is also helpful in terms of providing proper
cooperation between various departments considering sales development and so on which is
related with company. In regard of this, effective range of financial monitors are put-upon by
organisation are mentioned as:
Cash budget: It undertake significant knowledge which is related with cash inflows and
outflows for the particular period of time. In terms of this, Innocent drinks it tends to develop
predictions that is relate with the current position of monetary system in the competitive
marketplace for the particular time period (Hall, 2016). In terms of this, business perform several
operations as well as activities rather than money conditions & also tends to track all the
prominent payments & receipts for profit cash expenditure budget. Advantages: It is helpful for Innocent drinks in terms of identifying needs and
requirements of payment coming from the last time. It is also helpful in order to reduce
the disbursement for the relevant resources and expenses effectively in order to manage
the leverage conditions. Disadvantages: It involve the area through which company posses to misuse economic
funds & tends to look failure in relation of developing the goods for competitive market
and also getting ineffective outcome that occurs due to non-monitoring of credit
payments.
Operating budget: This tends to focus on the income & expenses for the particular
functionality undertaking the earning assumptions of production & many more. It tends to
consider the short-run funding and other outlets that are enclosed in the funding (Pelz, 2019). It
is assistive for the managing director of Innocent drinks in relation of identifying the probable
8

prices & incomes by adding important cost for the annual half year or yearly activities and
operations. Advantages: By considering the prominent budget permits the Innocent drink and its
specialist in terms of controlling over the current expenses for identifying the potential
expenses. It is assistive for the organisation to develop the monetary capital to deal with
the concerning uncertainties. Disadvantages: Apart from the potential, it involve production & budget about the whole
consistency that tends to spread in relation of revealing real cost as well as circumstances
for income.
Master budget: This budget tends to consider the overview of several reports and budget
plans that are needed for the prominent business performance. It depicts the monitoring for the
long term strategies which is acceptable by undertaking the effective use of several
organisational resources which is efficient for them (Qian, Hörisch and Schaltegger, 2018).
Along with this, in terms of Innocent drinks their corporate managers tends to support the new
concept undertaking the long term survival by organising the alternative methods in terms of
accomplishing the goals. Advantages: It is beneficial in terms of managing the operating budget which is helpful
for businesses and also plan considering the legal obligations.
 Disadvantages: In context of this, it is determined that operating budget assist an entity
to create a set of activities which is associated with daily living. In addition to this, it also
provide instruction directly to the corporation budget executive which is needed for
eliminating unnecessary expenses of a company.
TASK 4
P5.
Financial problem is undertaken as the situation in which an organisation tends to face
tough timing in terms of managing its operations because of limited availability of finance. For
this, managers of Innocent drinks leads to identify the significant financial problems because of
limited financial resources.
Poor fund management: For this, money is undertaken as the backbone for effective
sustainability in terms of achieving competitive advantages. Moreover, Innocent drinks need to
9

analyse that they tends to face significant crisis as their managers are not able to manage their
funds for the organisation. For this, when the funds are managed effectively then significant
financial issues tends to become barrier in success.
Uncertain expenses: Expenses occur anytime and it is natural to face uncertain expenses
that leads to cause huge damage for the financial post for the company in terms of overcoming
and deal with uncertain expenses (Azudin and Mansor, 2018). Managers of Innocent drinks need
to put huge money and tends to eliminate their profit margins.
In regard of this, managers tends to use various strategies in order to deal with financial
issues that are faced by Innocent drinks:
Financial KPIs: It is the technique which is useful for the company in terms of
identifying the performance of business that is more critical for the upcoming success in terms of
dealing with the financial issues. Moreover, various types of ratios are undertaken as the
financial KPIS which is used by Innocent drinks in order to find problems.
Benchmarking: This technique is used in order to analyse the types for the organisations
in same industry and also tends to manage funds to deal with prominent situations. Managers
with this technique leads to compare the working conditions of both the organisations and also
tends to execute the prominent strategies in order to overcome various problems that are related
with financial problems (Kostyukova and et. al., 2018). It is apply for the internal benchmarking
tools in order to find the internal weaknesses of production and marketing performance of
department with effective analysis.
Innocent drinks Vita Coco
From the above study it is identified that
managers of Innocent drinks use cost
accounting system in terms of identifying their
problems. For this, uncertain expenses become
the significant issues in terms of understanding
the cost that is involve in every activity. For
this, managers tends to adopt significant
strategies that are able to eliminate
unnecessary cost.
Undertaking Vita coco use job order system in
terms of identifying the uncertain expenses
then tends to eliminate them for accomplishing
successful outcome. For this system, managers
are able to recognise the significant activities
that are performed and tends to cause huge
uncertain expenses.
10

For Innocent drinks, price optimisation system
is undertaken as the appropriate purpose in
terms of managing funds and considered as the
prominent structure. With the help of this,
system organisation tends to sort out
significant problems. With this, organisation
tends to sort out poor funds for effective
management.
Management of Vita Coco, uses inventory
management system with the purpose of
managing its finance for various materials and
stock. For this, it is identified that company
fails in maintaining financial resources and
after the execution of this system, organisation
tends to deal with prominent issues.
For this, the managers of innocent drinks tends to opt price optimisation system for
managing the poor funds and solving critical issues for the uncertain expenses. For this,
managers of Innocent drink are suggested to opt job order system which able to recognise the
prominent activities that cause problems. Therefore, with the help of this, respective company is
capable in terms of dealing with various issues.
CONCLUSION
Management accounting leads to develop plans for the price, cost and other important
factors undertaking the application for various tools and techniques including budget and pricing
factors. In regard of this, types of expenditure include variable and fixed and it is calculated in
terms of determining the actual cost of production. Along with this, management accounting
leads to develop various types of budgeting such as incremental and flexible in terms of
controlling for the future risk with the help of suitable analysis. Management accounting tends to
develop various types of accounting system including job costing system for costing decisions
and price optimisation system for pricing decision.
11

REFERENCES
Books and Journals
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of
organizational DNA, business potential and operational technology. Asia Pacific
Management Review, 23(3), pp.222-226.
Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea: The
case of the balanced scorecard. Contemporary Accounting Research, 34(2), pp.991-
1025.
Dekker, H.C., 2016. On the boundaries between intrafirm and interfirm management accounting
research. Management Accounting Research, 31, pp.86-99.
Hall, M., 2016. Realising the richness of psychology theory in contingency-based management
accounting research. Management Accounting Research, 31, pp.63-74.
Honggowati, S and et. al., 2017. Corporate governance and strategic management accounting
disclosure. Indonesian Journal of Sustainability Accounting and Management, 1(1),
pp.23-30.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research, 31, pp.10-30.
Kostyukova, E.I and et. al., 2018. Improvement cost management system for management
accounting. Research Journal of Pharmaceutical, Biological and Chemical
Sciences, 9(2), pp.775-779.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production, 136,
pp.237-248.
Malina, M.A. ed., 2017. Advances in management accounting. Emerald Group Publishing.
Nitzl, C., 2016. The use of partial least squares structural equation modelling (PLS-SEM) in
management accounting research: Directions for future theory development. Journal of
Accounting Literature, 37, pp.19-35.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
Pelz, M., 2019. Can management accounting Be helpful for young and small companies?
Systematic review of a paradox. International Journal of Management Reviews, 21(2),
pp.256-274.
Qian, W., Hörisch, J. and Schaltegger, S., 2018. Environmental management accounting and its
effects on carbon management and disclosure quality. Journal of Cleaner
Production, 174, pp.1608-1619.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research, 31, pp.118-122.
Turner, M.J and et. al., 2017. Hotel property performance: The role of strategic management
accounting. International Journal of Hospitality Management, 63, pp.33-43.
12