Management Accounting Report: Analysis of Innocent Drinks' Accounting

This report provides a detailed analysis of management accounting (MA) principles and their application to Innocent Drinks Limited. The introduction defines MA and its significance in financial and non-financial document control, setting the stage for the study. The main body is divided into three parts. Part 1 explores different types of MA systems, including cost accounting, inventory management, price optimization, and job costing systems, along with their essential requirements and benefits to Innocent Drinks. Part 2 delves into accounting techniques for preparing financial statements, such as marginal and absorption costing, and provides an interpretation of the data. Part 3 discusses differentiated planning tools, focusing on budgetary control and capital budgeting, and their advantages in guiding management decisions. The report highlights the integration of MAS and MA reports for organizational growth and provides recommendations for addressing financial problems within Innocent Drinks. The conclusion summarizes the key findings and emphasizes the importance of MA in effective decision-making.

Management Accounting

Contents
INTRODUCTION...................................................................................................3
MAIN BODY...........................................................................................................3
Part 1......................................................................................................................3
Part 2......................................................................................................................8
Part 3....................................................................................................................13
CONCLUSION......................................................................................................18
REFERENCES......................................................................................................19

INTRODUCTION
Accounting primarily connects with finance-related operations, but there are
other various accounting approaches that emphasize all forms of transfers, like
management accounting (MA). MA is an accounting system that is important for
monetary and non-monetary documents control and reporting. This description is
used when the supervisors are expected to produce inner reports at all time. MA is
intended specifically for managers to take corrective action pertaining to the use of
financial and non-financial sources. In this study a company named Innocent
Drinks Limited is chosen. This business is a consumer of AJ and sons’ that
provides accounting-related consultations. The report is divided into three parts
follows, and the first one deals with information relevant to MA systems and
reports. While many financial approaches and their practical impact on a given
data set are described in section two. In the end part of the report the role of
management strategies and MA systems was presented to solve the companies’
financial problems.
MAIN BODY
P1 Types of MA systems.
MA- This is the method of preparing reports on business operations to help
management making decisions in the long and short term. It helps a company to
accomplish its goals by identifying, assessing, interpreting and providing critical
knowledge to management.

There are a range of accounting systems which are used in business entities in
order to manage overall tasks and operations in more effective manner. Some key
systems are explained underneath such as:
Cost accounting system- This system of accounting is established by a process for
controlling and handling all those expenses that occur in a business over an
accounting cycle. The expense of each service is recorded under it and compared
with standardized values(Armitage, Webb and Glynn, 2016). Because of this,
managers may calculate the cost-effectiveness and performance of multiple
operations. This accounting method gathers information in manufacturing
companies about costs associated with raw materials, labor etc. In regard to
Innocent Drinks limited, financial managers may collect important information
about the costs of different operations alongside differences from this accounting
system.
Essential requirement- The need of this accounting method to control excessive
expenses in order to boost revenue. This becomes achievable when expense usage
is constantly tracked during each operation. This accounting information is linked
to lowering costs of unnecessary activities of Innocent Drinks limited to
accommodate.
Inventory management system- It is known as an accounting system that applies to
the management of all types of business sources and stocks. This is accomplished
through the frequently updated stock report, that also includes information on the
use of raw materials, collected stock, etc. In reference to this accounting scheme,
corporations can use inventory levels for manufacturing consecutively by using
separate approaches called FIFO, LIFO, etc. The main goal about such an

accounting approach is to maintain the storage costs lower by maintaining supply
available as per the amount of stock planned and demand available in the market.
Essential requirement- This accounting approach is critical for companies to make
effective use of the quantity of materials and goods produced. In the case of
innocent drinks limited, it is necessary to handle raw resources such as berries,
candy for storage, as well as to produce new products as per the quantity of
prepared drinks and juices stored.
Price optimization system- This accounting system is intended to place a price
ceiling on the basis of the market demand for each product. This is done in
combination with the input from buyers on the output of a company, as well as by
evaluating the pricing behavior of competition. The main benefit of this
methodology is that the rates under it are calculated by practical approaches such
as market forecasting, business growth and trade policies. By help of this a
business can set a price at a level acceptable for any segment of the customer.
Sales staff can apply it to a product in order to set the prices for innocent drinks
limited. It can be done by determining the buyer 's response to product quality,
price, etc.
Essential requirement- The object of this accounting is to increase customer and
revenue statistics by rising and reducing prices on the basis of different key factors.
It is compulsory for innocent drinks limited to the use this approach for such drink
whose selling is smaller or different. This can be accomplished by calculating the
reaction of customers to the existing price level and the predicted price for a given
product(Shil and Das, 2018.).

Job costing system- It is a technique that relies on the control of job or labor costs
involved with the implementation of a process flow. The aim of this accounting is
to quantify the costs per unit so that more efficient choices can be taken. Under the
context of Innocent Drinks limited above, this accounting approach can be applied
with the intention of defining task or project costs for each process, together with
per unit costing. The aim of this accounting system is described in the following
way:
Essential requirement- This accounting is important to assess the amount of
personnel allocated to carry out the task, as well as to quantify the cost of each job.
This accounting approach can be incorporated by innocent drink limited managers
in an effective manner since they provide a wide variety of items for various
beverages. It is also important that they will be able to measure the cost of and
drink they have made by help of this accounting system.
MA reporting.
MA accounting has conceptualized as a way for drafting different types of
structured written document comprises data of different elements of the
business. There are a variety of statements that are used by companies
according to their requirements. In particular, such statements are used by
the administrative authorities of organisations in place to gain effective
decision-making action(Kumarasiri and Gunasekarage, 2017.). Here is an
explanation of some reports:
 Inventory Management Statement: it is really a detailed document that
contain details across each type of processing in a structured way. It
provides information about the amount of material utilized, the remaining
material, the material required, etc., which is used by managers for decision-
making throughout the production cycle. In the sense of all of these Innocent

drinks controlled, individuals may organise this statement with an objective
of attaining informational data regarding storage of material for drinks
production, preparing items etc.
 Accounts receivable ageing report-This is a set of information which is
generally used by the finance department. Though this document gives
information relevant to the name of the debtors, the date of transactions, the
amount of interest payable, etc. Through use of such report, managers may
prohibit credit transactions with certain debtors who do not pay the debt on
time. For example, in the above-mentioned business, the financial
management team enables to prepare plannings for collecting the sum of the
debt from several debtors with the help of this report(Procházka, 2017).
 Performance report- .It could be considered as a type of formal document
containing details on the company's overall and specific results. This report
primarily relates to the assessment of the financial performance of a
business. It includes extensive understanding on profitability, return, loss,
availability of cash, etc. The manager of innocent limited drinks may depend
on such report in purpose of taking suitable decision accordance with the
situation.

Benefited criteria of MAS are as follows:
MAS Benefit
Cost
accounting
mechanism
This financial reporting tool is essential for businesses to resolve
specific aspects in which the corporation's costs are much higher.
For example, the above organisation will benefit from this costing
system by collecting the required data on the cost of the material
and evaluating it with the expected costs.
Inventory
management
mechanism
It's indeed valuable for manufacturers to make optimal use of the
amount of stocks available. Innocent drinks limited company
managers can benefit from such accounting by collecting data
regarding the daily use of input goods, the amount of drinks put
up for sale and the products available.
Pricing
mechanism
This accounting method is helpful for businesses to evaluate the
prices of goods according to external environmental factors. In
the above-mentioned business context, this accounting method
may be necessary to set prices in compliance with the study of
consumer reviews for various varieties of drinks and juices.
Job order
costing
mechanism
Such costing system refers to the cost assessment of every job or
assignment required to perform an operation. The managers
would access crucial data from such accounting system in regards
to the above organization. They can address the cost of each juice
or drink manufactured by innocent drink limited.
Integration of MAS and MA reports.
The different types of MAS and MA reports are consistent with the phase of
the organizations leading to organisational growth. A number of accounting

systems have been addressed as in context of the above phase of the analysis, like
managerial accounting method, which is associated with the financing of innocent
drinks company limited. In addition to MA statements, inventory surveys are often
related to the production division of organisations. Such kind of methodology acts
as the guidlines for managers which are crucial for betterment in process of
decision making regarding the sustainable and consistent working of the
organisation.
Part 2
Accounting techniques for preparing the necessary financial statements.
Marginal costing-It is a strategy required for the preparation of income statement
by recognizing contingent expenditures as key costs and fixed expenditures as
periodic costs.
Absorption costing- It is a process required for the preparation of the income
statement by recognizing the cost of variable costs and fixed expenses. This
method accounts for direct and indirect expenses, such as direct products, direct
labour, leasing, and insurance.