Comprehensive Management Accounting Report on Innocent Drinks Business

This report provides a comprehensive analysis of management accounting principles and their application to Innocent Drinks, a company specializing in smoothies and juices. The report begins with an introduction to management accounting and its significance, followed by an examination of various management accounting systems, including cost accounting, inventory management, job costing, and price optimization systems. It then discusses different methods of management accounting reporting, such as budgeting, job cost reports, performance reports, and opportunity reports, highlighting their benefits. The core of the report delves into cost calculation techniques, comparing marginal and absorption costing methods. It explores the advantages and disadvantages of each, providing insights into cost control, overhead treatment, and cost segregation. The report also examines planning tools for budgetary control, including their advantages and disadvantages, and analyzes how organizations like Innocent Drinks can address financial problems through management accounting systems. Finally, the report concludes by summarizing the key findings and emphasizing the importance of effective management accounting in making informed business decisions and achieving financial goals. The report integrates the various systems and reporting methods to provide a cohesive understanding of management accounting in practice.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
P1: Management Accounting Systems........................................................................................1
P2. Discuss briefly about the different methods used for management accounting reporting....1
M1: Benefits of Management Accounting Systems....................................................................2
D1: Integration of Management Accounting Systems and Management Accounting Reporting
......................................................................................................................................................3
TASK 2............................................................................................................................................3
P3: Calculation of costs...............................................................................................................3
M2: Application of management accounting techniques.............................................................8
D2: Producing of financial reports...............................................................................................8
TASK 3............................................................................................................................................9
P4. Demonstrate the advantages and disadvantages of Planning Tools for Budgetary Control.9
M3: Analysis of planning tools..................................................................................................12
TASK 4..........................................................................................................................................12
P5. Compare how organizations resolve their financial problems by using management
accounting systems ...................................................................................................................12
M4: Analysis of response to financial problems........................................................................14
D3: Evaluation of planning tools...............................................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management Accounting means making the use of varied types of financial provisions in
a highly effective manner so that the right decisions can be taken for the organization (Armitage,
Webb and Glynn, 2016). The managers must be able to make use of its appropriate methods so
that they are able to bring more efficiency and effectiveness in the processes of the company.
This report is based on Innocent Drinks. It is a company which makes smoothies and juices and
provides them to customers in the market. Due to the impact created by the COVID-19 pandemic
many businesses have had to close their outlets. Innocent Drinks also had to suffer losses due to
it. Thus the firm has to make use of management accounting techniques to be able to bring the
required changes in its processes. In this report, focus will be made by the organizations on the
demonstration of understanding of the different systems, application of specific techniques.
Additionally, explanation of the use of planning tools and comparison of ways in which the
companies can make use of it to solve financial problems will be discussed as a part of this
assignment.
MAIN BODY
P1: Management Accounting Systems
There are different types of systems which should be used within the organizations for
specific purposes. These are explained as follows-
Cost Accounting System- In it, the cost accountants of a company make use of different
methods and techniques so that they are able to make a proper estimate of the costs. There are
various types of costs within an organization such as Fixed Costs, Semi-Variable Costs and
Variable Costs. There is a requirement that it use must be made to reduce the costs effectively
and efficiently. Also in the various departments of the firm the proper apportionment of
overheads needs to be done with its use. Thus it is required that Innocent Drinks must be able to
make use of this system to identify its costs and use the right techniques to reduce them.
Essential requirements-
 This system should include input measurement basis which can ensure that the different
types of inputs can be included in the computation of the costs.
 This system must also make the use of cost accumulation method so that the different
types of costs are accumulated in the organization.
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Inventory Management System- It is used by the companies so that they are able to
ensure the proper management of inventory levels within the organization (Chiwamit, Modell
and Scapens, 2017). In the context of Innocent Drinks, it is highly necessary that its management
is able to identify the appropriate techniques to be applied for proper monitoring of the stock
inflows and outflows.
Essential requirements-
 This system must make sure that an inventory management software is used within the
organizations for the effective management of the inventory level.
 In this system, there should be the use of techniques like LIFO, FIFO, Weighted Average
Cost etc. In this way the required help can be provided to the managers of the companies.
Job Costing System- A job costing involves the process of accumulating the information
about the costs associated with a specific production or service job (The job costing system,
2020). With this system, the firms can identify, track and manage its different types of job orders
in an appropriate manner (Cooper, Ezzamel and Qu, 2017). Therefore for the managers of
Innocent Drinks the use of this system is preferable so that the company is able to properly
organize and fulfil its job orders within the stipulated time.
Essential requirements-
 This system should ensure that there is a detailed information of job costs available
within the organizations. Thus the management of the companies can thereby ensure that
these costs can be reduced.
 With the use of this system the firms are able to find out their job performance. The
managers of firms should be able to make its use for bringing the improvements in it for
the satisfaction of clients.
Price Optimization System- This is useful for identifying the mathematical and
statistical models to be used so that the organizations are able to make sure that they set an
appropriate price for their products and services giving them the chance to earn maximum profits
(Kostyukova and et.al., 2018). Managers of Innocent Drinks should be able to make the use of
this system so that they are able to identify techniques of earning higher profits.
Essential requirements-
 With the use of this system the companies should be able to make the use of
mathematical models for the determination of price.
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 This system should be able to ensure that the firms can collect the historical data in an
effective manner.
P2. Discuss briefly about the different methods used for management accounting reporting
The background of Management Accounting Report is basically utilised by the manager
where they get to measure about their internal business activities in terms of administration,
financial and operations as it support for better decision making. There are different kinds of
reports as follows:
 Budgeting Report: This kind of report is basically prepare the optimum business plan
towards the company's performance at the time of the assessment about particular
department's performance in terms of employees productivity and dominant the cost
(Kumarasiri and Jubb, 2016). Apart from it, budget preparation by the manager to
measure the previous expenditure pass off to get it assorted as well as this will generates
the extra incentives for employees to motivate them as they can accomplish their
desirable goals. As with the perspective of Innocent Drinks company's manager can form
a budget report as it will provide them a authentic plan related with investments, previous
record expenditure and analyse the overall performance of company internally and
externally which will guide for better further forecasting and improvise decision making.
 Job Cost Reports: It is the type of report which is considered to investigate the cost in
terms of expenses occurs in training program, recruitment and profitability in each
specific job (Leotta, Rizza and Ruggeri, 2017). This will help to assess for earning aspect
from the driven project in which company can introduce their contribution on which
company reduces on the profitable business activities. Job Cost reports can help to
Innocent Drinks venture for evaluating the cost which have been incurred at the time of
hiring employees, conducting projects , posting advertising about the recruitment and
other official aspect for effectively maintain and eliminate the unwanted cost.
 Performance Reports: It guide to form a budgeted performance report first and after
compare with the actual outcomes for analysation purpose and inserted all the
information as final performance report set up on a monthly, quarterly or yearly basis. In
perspective of Innocent Drinks Company, performance report will generates the actual
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data in facts and figures of overall performance of company along with its workforce . As
it gives an idea about the present condition of a company performance (Malmi, 2016)
(Manyaeva, Piskunov and Fomin, 2016). The Human Resource and Operation manager
of Innocent Drinks will play an important role to compiled the Performance report in
which these managers are used to collect the data from previous and actual format and
compare the the probability of development basis.
 Opportunity Report: In the situation the report is been formulate for organisation's
management team aspect where they can be well aware of the implication on a specific
event (Mokhtar, Jusoh and Zulkifli, 2016). The Opportunities report commence in
Innocent Drinks company for providing help to their managers at the time of undertakes
the essential business decisions making which it will generates positive outcomes to the
company for long term aspect. This report requires the expertise which generates the
productive information from external business environment to improve the operating
profit of the organization so that an overall level of efficiency and effectiveness may be
raised.
M1: Benefits of Management Accounting Systems
Cost Accounting System-
 Helps the firm in identification and segregation of the various types of costs.
 Helps in the application of appropriate techniques for the reduction of costs.
Inventory Management System-
 It is helpful for the management of inventory of the organization.
 It is advantageous for the managers to facilitate the tracking of the inflows and the
outflows of the stock level in the company.
Job Costing System-
 It is helpful for determination of the costs of the job orders.
 It helps a lot in the tracking of inflows and outflows of the job orders in a proper manner.
Price Optimization System-
 It helps in the management of price in an appropriate manner.
 It creates an advantage as it can forecast the prices in the future time period.
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D1: Integration of Management Accounting Systems and Management Accounting Reporting
These can be integrated by making the appropriate use of the right system wherever
applicable by the management. The managers of Innocent Drinks need to use the correct system
which will ensure that they take the decisions in an effective manner. Also the use of
Management Accounting Reports should be made by the managers so that they can analyse and
interpret the given information and thus are able to attain specific goals and objectives.
TASK 2
P3: Calculation of costs
There are different types of techniques which are used by the managers for the purpose of
determination of their costs. These techniques are as follows-
Marginal Costing-
It is a technique where the variable cost is charged to the units and the fixed cost is
completely written off against the contribution (Nielsen, 2018). The managers of Innocent
Drinks make use of this method for the estimation of the overall costs.
Advantages-
 Cost Control- The use of this technique can be made for the purpose of controlling of
various types of costs. Therefore the managers of Innocent Drinks can use it for
controlling costs.
 Simplicity- This technique is very simple to apply. Therefore due to this reason it offers a
distinct advantage for the management of Innocent Drinks.
Disadvantages-
 Classification of costs- The use of Marginal Costing technique cannot be made for the
purpose of classification of costs. For the management of Innocent Drinks this is a
disadvantage.
 Recovery of overheads- The use of this method creates problems related to the recovery
of overheads. In the context of Innocent Drinks, this is a disadvantage.
Absorption Costing-
It means a method through which an estimation of the overall costs of the organization can be
made effectively (Otley, 2016). Through its usage, the management of Innocent Drinks can
estimate the total costs of the company in an effective manner.
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Advantages-
 Treatment of overheads- The use of this technique is helpful in enabling the right
treatment of the different types of overheads within the organization. In the context of
Innocent Drinks, this will make sure that the right segregation of the overall overheads
can be done.
 Segregation of costs- With the right use of this method, a company can easily segregate
the different types of costs without problems and issues. For the managers of Innocent
Drinks this offers an advantage.
Disadvantages-
 Difficult to compare costs- It is quite difficult to compare the different types of costs of
the organization with the use of this technique. This creates a disadvantage for the
managers of Innocent Drinks.
 Does not helps in taking decisions- The use of this method does not helps the
organizations to take the decisions in an effective manner. For the management of
Innocent Drinks, this is a disadvantage which is created.
Justification- The use of both of these methods is made by the management of Innocent
Drinks so that they are able to find out their level of profits. Also they can draw out the
recommendations and conclusions on the basis of which analysis and interpretation can be done.
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M2: Application of management accounting techniques
Both of these techniques should be used by the managers for the purpose of
ascertainment of the profits and to prepare the financial statements. Trading A/C, Profit and Loss
A/C and Balance Sheet can be prepared by making the use of these methods. These are helpful
for the managers of Innocent Drinks so that they can use them for the purpose of specific
comparison with the other competitors so that strategies can be used for the attainment of
strategic edge over the various types of competitors in the market.
D2: Producing of financial reports
With the use of both of these methods the organizations can produce financial reports.
These reports can be prepared on the basis of different types of financial statements. Through
their preparation, the management can make sure that they are able to analyse and interpret so
that they are able to find out variances and deviations and in this way can use the rectifying
techniques to remove them. Thus the management of Innocent Drinks is in benefit by making the
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correct use of these reports. They can aim to improve the overall processes of the organization
effectively through the right application of the findings of these reports.
TASK 3
P4. Demonstrate the advantages and disadvantages of Planning Tools for Budgetary Control
A Budgetary Control is refers as influence to control the actual outcomes for compare
with the budgeted outcomes through which proper action can be undertaken by particular
company's managers.
Financial Budgets: It is the framework of budget to predicting the incomes and expenses
towards the perspective of business on a long term and short term basis (Pavlatos and Kostakis,
2018). As this process of budget is very supportive for the Innocent Drinks company where they
predict and balance their budget.
Advantage:
 For better planning orientation: Every organisation needs to plans for the orientation in
advance by management for short term or day to day period aspect (Phan, Baird and Su,
2017). As assorting by Innocent Drinks company manager it can help to efficient
planning for estimate the funds in positive manner.
 Enhance Profitability review: By applying the financial strategy can brings the
profitability review from management perspective. It will allows benefit to the Innocent
Drink company while getting positive outcomes from their strategy implementation if
decision making is proper executed by manager.
Disadvantage:
 Huge Time investment: In the process of forming the financial budget it would take
time if the organisations are not well organised. As Innocent Drink company need to
professional and efficient to making financial budget otherwise it will consume more
negative implication.
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 Not well Strategy prepared: the financial budget there is chances of strategy failure due
to less decision making power. By opting any strategy by Innocent Drink's manager need
to rectify their plans before implements in any project.
Operating Budget: The process of operating budget involves for analysation of operating
revenue and expenses in a allocate estimation of time (Qian, Hörisch and Schaltegger, 2018). By
Innocent Drinks company this form of budget guide for making the better operations which
regulates in efficient enough.
Advantage:
 Investing factor: It is the important and very beneficial operating budget which
presumes at the time of investing the money (Quattrone, 2016). In the perspective of
Innocent Drinks venture, the manger scrutinize deeply the market before investing as
manager get expert and explore the market with their pros and cons.
 Increases the accountability: To handling the operating budget by efficient manager
holds the responsibility of consequences which occur in the business to recover it. It will
increase the efficiency of Innocent Drink manager to having power to owns the errors to
recover purpose.
Disadvantage:
 Absence of specialisation: In the time of preparing an optimum operating budget of an
particular organisation provides a information on a specific specialisation on a particular
field where it require. Due to un-professionalism or not having any experience in a
manager can create an issue for Innocent drinks company.
 Changes of Norms create distract: Through government regulation the operating
budget norms changes in month or days wise that create the huge barriers for the
company. It requires to regulates the norms of operation budget it will helps to Innocent
drink manager otherwise it will disengaged the budgeting plan.
Non-monetary budgets: According to this budget it comprise about the non financial or non
sales activities which does not have any link profit maximisation (Schaltegger, 2018). Innocent
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Drinks company can regulates this budget in their business if there is not having the profit
motive activity.
Advantages:
 Help to justify the Operating Expenses: It assures about the manager perspective about
how much they spend for every budgeting period. If the Innocent Drinks are preferred for
pursuing the business in Non-monetary format it will guide to investing the capital in
external market.
 Support for extra saving factor: To make the integrate for the saving by utilisation
purpose for reduce the crises. Through the perspective of Innocent drinks, they extra
saving support them for further assumption utilise for recovering purposes.
Disadvantages:
 Impact the lack of Resource: Through this factor affects about the shortage of resources
closely analysed and maintain the each actual budget aspect from existing budget.
Innocent Drinks have to face the shortage of resources that occurs inactive and more time
taken.
 Less Decision making involved: As in Non-monetary budget there is another drawback
of lack of decision making which makes the organisation suffers in their further objective
aspect. Without having any effective influence of manager in Innocent Drinks company
have to face more challenges in negative aspect.
Justification: In above discussion of planning tools of budgeting for Innocent Drink
company context the Financial Budget would be better as it will allows the proper financial
planning through manager for short and long term aspect where company get forecast their
further expansion.
M3: Analysis of planning tools
The use of planning tools should be made in the organizations so that the correct
forecasts can be made in an effective manner. Thus the managers of Innocent Drinks should be
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able to use them to make short-term, medium-term and long-term plans for the future time
period. Thus in this way the management of the company will be able to facilitate comparison
with the competitors and will be able to apply the right methods for the purpose of enhancement
of the available profits.
TASK 4
P5. Compare how organizations resolve their financial problems by using management
accounting systems
Financial problems: When any organization suffered from financial crises which affect
their operational performance and profit margin (Šiška, 2016). It will be because of financial
problems company currently face and it is very essential to resolve as fast as they can. There are
some common financial issues which affect the company’s profitability or production.
 Uneven cash balance: Ineffective management of company’s account leads to uneven
balance of cash, which maximise the expenses or minimise the cash inflow. Managers
need to implement effective strategies which help in reducing expenses or maximise the
profit margin.
 Wastage of raw material: In this financial problems, company face the situations where
stock will be waste sue to several reasons. So managers need to done proper inventory
management to reduce the wastage or resolve this financial problem.
Techniques:
Key Performance Indicators (KPIs): These indicators show the progress towards an
intended outcome. KPIs provide a forum for operational and strategic development, provide an
objective basis for decision-making and directly reflect focus on what matters required most. It
helps the managers to identify some financial or non-financial factors and then made their
decisions accordingly which is more effective.
Balance scorecard: It is a strategic planning and evaluation system used by organisations
to convey that what they are trying to achieve. Balance a day-to-day job with strategy that
everybody does. Make projects, goods, and facilities a focus. It helps the organization to monitor
their daily basis performance and made decisions accordingly to resolve financial issues which
company is currently facing.
Financial governance: It is the company’s standard and way of managing and colleting
the financial performance which help the managers to manage everything (Speckbacher, 2017).
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By using this, management able to control financial information and disclose the accounts which
required attracting inventory.
Comparison or organizations:
Basis Aldi Wal-Mart
Problem Company currently facing the
issues where overall cash inflow is
less than cash outflow which makes
a uneven cash balance.
In Wal-Mart, management face
the issues that raw material
wastages increase due to lack of
proper record of stock.
Management
Accounting Systems
By using cost management system,
Aldi able to manage their each
product cost and try to minimise
overall cost or maximise the profit
margin. It helps the managers to
make decisions which minimise the
operational expenses or increase the
cash inflow.
In order to resolve the issues
regarding wastage of material,
Wal-Mart need to implement
inventory management system to
resolve this issue or keep track
their stock level and order further
quantity when it required. It helps
in preventing wastage as well as
shortage situations.
Techniques Company use the KPI techniques to
resolve this issues which helps in
measuring financial or non
financial indicators.
Balance scorecard used to resolve
such issues and makes sure that
further strategies will build by
using this.
In order to resolve the financial issues, large organizations follow the several accounting
systems such as inventory management, cost management, price optimization etc. These systems
help in resolving the problems like wastage of material, higher cash outflow etc. In addition, by
using several management accounting techniques help the organizations to maximise their profit
margin through identifying the factors which become barrier in maximising overall performance
in production.
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M4: Analysis of response to financial problems
The companies should be able to identify the financial problems and must identify the
appropriate techniques to be applied for the purpose of solving them. The managers of Innocent
Drinks has to ensure that it identifies its financial problems and makes use of the right methods
of management accounting to be able to solve them. Thus the organization will be able to
progress on the path of sustainable success in the long-term period.
D3: Evaluation of planning tools
The planning tools should be used by the companies so that they are able to frame plans
and identify their financial problems. Thereafter rectifying techniques can be used appropriately
by the firms like Innocent Drinks in which they can solve these problems. Through this, the
organizations will be able to progress towards the achievement of sustainable level of success in
the future time period.
CONCLUSION
From the above project, the conclusion is that management accounting is a process
through which the managers are able to take the right decisions by making the use of right
methods as well as techniques. Through its usage the problems and issues can be ascertained and
the solution to them can be also found out. Interpretation of the financial data, facts and
information can also be made by making the use of its different provisions. There are different
Management Accounting Systems which can be used in the companies. Its reports offer the
managers a chance to analyse and interpret the given information. Its techniques can be used
appropriately so that the company's profits can be ascertained. Different sorts of planning tools
can be used for framing of plans. Also, the organizations are making the use of systems of
management accounting so that they can identify and solve their financial problems.
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<https://www.accountingtools.com/articles/what-is-a-job-costing-system.html>
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