Analysis of Management Accounting Techniques for Innocent Drinks

This report provides a detailed analysis of the management accounting practices employed by Innocent Drinks, a company known for its smoothies and juices. The report begins with an introduction to management accounting, its essential requirements, and a comparison between management and financial accounting. It explores various management accounting systems like cost accounting, inventory management, and job costing systems, highlighting their benefits and applications within the context of Innocent Drinks. The report then delves into management accounting reporting, covering account aging reports, job costing reports, and inventory management reports. The analysis continues with an examination of cost analysis techniques, including marginal and absorption costing, and their application in preparing financial statements. The report further explores the use of wider management accounting techniques such as standard costing, budgeting, and cost-volume-profit analysis. Planning tools like budgets and budgetary control are also discussed. The report concludes by addressing financial problems and their solutions, evaluating the use of planning tools for dealing with accounting issues. Throughout the report, there is a focus on how these concepts are applied and integrated within the business operations of Innocent Drinks.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of systems...........................................1
P2 Management accounting reporting.........................................................................................3
M1: Benefit of management accounting systems and its application..........................................3
D1: Integration of system of management accounting & reporting of organisation process......4
TASK 2............................................................................................................................................5
P3: Cost analysis techniques........................................................................................................5
M2:Applying wider management accounting techniques...........................................................9
D2: Application & reading of financial reports:..........................................................................9
TASK 3..........................................................................................................................................10
P4: Planning tools......................................................................................................................10
M3: Analysis of planning tools..................................................................................................11
TASK 4..........................................................................................................................................11
P5: Financial problems and solutions........................................................................................11
M4 : Analysing the financial problems and management accounting.......................................14
D3: Evaluation of use of planning tools for dealing with accounting issues.............................14
CONCLUSION..............................................................................................................................14
REFERENCE................................................................................................................................15

INTRODUCTION
Management accounts is regarded as a function which includes collection of data,
analysing the data collected and then reporting of the collected information. It helps in managing
the financial resources of a organisation (Maas, Schaltegger and Crutzen, 2016). Present report
deals with with Innocent Drinks that is offering products like smoothies, juices that are offered in
supermarkets, coffee shops, cafes and such type of outlets. They are able to sale approximately 2
million smoothies each week. There is discussion of management accounting system & different
types of methods that are used for accounting purposes. There is a critical analysis of budgetary
control and further comparison is made on the way organisation are willing to adapt system of
management accounting.
TASK 1
P1 Management accounting and essential requirements of systems
According to institute of management accountants (IMA) Management accounting is
described as a profession that consist of partnering with decision planning, management decision
making, performance management system and offering expertise of financial reporting (Uyar
and Kuzey, 2016). All this is used to assist in controlling and further formulation &
implementation of strategy of a organization.
According to chartered institute of management Accountants, London cost is defined as
the amount of expenditure both notional and actual that is attributable or incurred on a particular
activity or a thing.
Evolution, Role and principles: Management accounting concept was evolved in the
period of 1900s in order to guide and serve strategic directions to business. Key role of
management accounting is to serve major requirements to internal managers so to devise rational
decisions for organisational betterment. Principle of Analogy and Principle of Causality are two
principles of the concept that all types of businesses adhere.
Management accounting vs Financial accounting: In Innocent Drinks, management
accounting comprises internal systems which are essential to measure together with evaluate
processes for venture management. In contrary, approach of financial accounting provides
information to extrinsic parties such as creditors, stockholders and so on.
Management accounting systems are mentioned below:
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Management accounting systems refers to internal systems which are used by managers
for the purpose of measuring as well as evaluating processes and practices related to transactions,
employees, etc (Alsharari and Al-Shboul, 2019). Within Innocent Drinks, some of management
accounting systems with essential requirements are as elaborated: Cost accounting system: It is used for estimation of product cost so that overall profits
can be calculated. Inventory is manage and cost are controlled. It helps in reduction of
cost on unnecessary expenses (Quattrone, 2016). In Innocent Drinks, cost accounting
system is essentially required for preparing budgets, determination of actual cost,
standard cost that can further help in identification of operations cost, activities, process
and products cost. Inventory management system: This is a system that is focusing on management of
stock by following of all the regulations and rules. 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. In association to Innocent Drinks, the system have
essential requirement of maintaining the storage costs lower by maintaining supply
available as per the amount of stock planned and demand available in the market.
 Job costing system: A management accounting system that relies on the control of job or
labor costs involved with the implementation of a process flow is job costing system. The
aim of this accounting is to quantify the costs per unit so that more efficient choices can
be taken (Salterio, 2015). Under the context of Innocent Drinks, this accounting approach
can be applied with the intention of defining task or project costs for each process,
together with per unit costing. It is essentially required in the enterprise for assessing 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.
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P2 Management accounting reporting.
Management accounting reporting is a basic process of internal reporting that is adopted
by accountants to assist them in decision making. In Innocent Drinks, it is believed that
accounting is a term associated with classifying, recording & allocation of expenses to determine
the product cost. Further there is presentation of suitable arranged data for the objectives of
management guidance and laying controlling measures. Some of types are mentioned below:
Account aging report: This is a report which includes the details of all the credit
transaction of a organization so that managers are able to make a analysis of total receivables. It
is also helpful in reduction of bad debts and managing overall liquidity position. In Innocent
Drinks, accounting ageing report shows clear records of unpaid invoice balances with date they
have been outstanding. Through this, managers identify invoices which are open and keep
priority on slow paying clients.
Job costing report: These are management tools for evaluation of projects and production
performance against a estimated standard. This is used by specific industries. The main purpose
is to identify beneficial results and discrepancies in form of financial values (Messner, 2016)
These are customized reports driven by respective standards of industry. Through job costing
reporting, accountant of Innocent Drinks timely identifies all the expenses, cost and ensuring
financial efficiency so that profitable projects can are given more attention. It leads to prevention
of wastage of available financial resources and controlling of cost.
Inventory Management Reports: Inventory control reports are used for showing the stock
of inventory. It is used for ensuring that valuable capital is invested. There are different element
such as stock book that is used in case of small business for tracking manually the inventory. In
Innocent Drinks, inventory management report saves times to keep record of potential and
prospective stock by having better understanding of available addition to demands that causes
higher inventory turnover. Barcodes are also used for tracking of stock and stock on hand is a
inventory management software that is used for exactly showing up the stock. This is a report
that provides information related to inventory of business so that there is a balance between
customer services and inventory management (Abou Taleb, Gibson and Hovey, 2015).
M1: Benefit of management accounting systems and its application
Management accounting Benefits Application
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Inventory This system helps in reduction
of storage cost of raw
materials and finished products
(Gibassier, and Alcouffe,
2018).
Organisation can help in
maintaining of stock level
according to demand. In case
of holidays and weekends
demand is high so there has to
be more stocking.
Cost accounting This system is used to form
policies in order to manage the
labour cost, overhead cost and
material cost.
It helps in situation of fixed
cost in every unit of
production.
Job costing This is used to determine the
profits of individual projects
Each job has associated cost
that is determined based on
producer requirements.
D1: Integration of system of management accounting & reporting of organisation process
Reporting type Integration with the organisation
Accounts receivable It helps in collection of receivable accounts.
According to trade receivables there is
formation of policies.
Inventory management It is used for managing of the manufacturing
cost and maintaining of the inventory cost of
the wide range of products.
Job costing This technique is used to determined the prices
of products according to the variants. The
manufacturing prices will be affected by the
cost of raw materials if prices of fruits increase
then it leads to overall increase in prices to be
paid by customers of that particular
variant(Balios, 2021).
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TASK 2
P3: Cost analysis techniques
Cost is the total monetary value that is used in manufacturing of products and application
of recourse such as raw materials, labour, financial resources etc. this helps in preparation of
income statements by use of marginal and absorption costing as techniques (Nørreklit, 2017). In
case of Innocent drinks there are below mentioned statements that have been prepared:
Marginal costing: It is used for understand the marginal cost and variable cost of each
unit of product. Variable cost leads to changes in total cost when large quantity is produced. It
varies with every additional production.
Absorption costing: This method consist of cost that has both the element of variable
and fixed cost. There is association of product cost with accumulated cost (Alsharari, and Al-
Shboul, 2019).
According to the given figures there is preparation of financial statements for Innocent
Drinks as stated below:
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Product costing refers to an accounting procedure that determines all expenses related to
creating products of an enterprise. In Innocent Drinks, various costs incurred in producing
smoothies and juices. Some includes fixed cost, variable cost and many more. With the
enterprise, cost allocation are done through analysing machine time used, units produced,
involvement of direct labour and so on aspects.
Inventory cost can be referred to the cost relevant with holding stock or tied up stock
(Ratnatunga, Michael and Wahyuni, 2015). With the help of calculating most economic order
quantity, managers of Innocent Drinks makes attempts for identification of order size which will
help in reducing totality of inventory costs. When inventory costs are reduced, it benefits in
saving organisational carrying costs, elimination of obsolete stocks and maintaining cash flow.
M2:Applying wider management accounting techniques
There can be use of techniques of management accounting for preparation of financial
reports. It is very helpful in determination of organisation's position. In Innocent drinks,
accountants uses management accounting techniques such as standard costing, budgeting & cost
volume profit are some of the measurements that are used as integrated approaches in Innocent
drinks to calculate their actual cost against some pre set standards (Malmi, 2016). There are
further approaches such as Just in time, Activity based costing that helps in allocation of cost
according to specified activities.
D2: Application & reading of financial reports:
Financial reports are very helpful in determination of techniques of absorption costing
and marginal costing so that per unit cost of every product can be identified. Variable cost is the
most important element in marginal costing (Gamayuni, 2019). It is the guiding factor that helps
in fixing the selling prices. It helps in making a decision whether there should be investment or
not. In Innocent drinks, there is comparison of suppliers prices with the marginal cost of each
product. Decision making is process that consist of making a choice among different available
options and then choosing the most suitable option. Financial managers in Innocent drinks are
focussing on focusing a level that covers marginal cost but also is making a contribution towards
covering of fixed overheads.
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TASK 3
P4: Planning tools
Budget: It is statement that consist of estimation of sales, cost and total expenses for a
specified time period. It helps a organisation in the process of internal management of Innocent
Drinks to measure the performance.
Budgetary control: It is used for determination of actual sales according to budgeted
figures. Some of the planning tools that are part of budgetary planning of Innocent Drinks are
discussed below:
Master budget: It is the aggregation of all the different types of lower level budgets that
are produced by different functional areas of a organisation (Suryaputra, 2019). It consist of
budgeted financial statements, forecasting of cost and preparation of a financial plan.
Benefits: Master budget helps in identification of issues and plans. It depicts the budgeted
statements beyond one department. Within Innocent Drinks, master budget benefits in
understanding the expected expense and revenue figurers of different department.
Limitation: It is sometimes difficult to timely update the budget and make smaller
Changes as there are lot of steps that are involved and has to be taken to deal with whole budget.
Flexible budget: It is used as a planning tool of budgetary control where activity and
volume are changes according to requirements. Innocent drinks can apply this budget to make
modification in sales level, production level according to changes of business functions (Erawati
and Krisnadewi, 2018). It leads to proper planning & controlling.
Benefits: It helps in determination of production level so that production level can be
easily modified. Innocent drinks quantity can be adjusted to achieve higher profitability level.
Limitation: There is need of competent and skilled staff so that Changes can be
frequently managed. Flexible budgets are costlier and sometimes not accurate that can lead to
ambiguity for the organisation.
Alternative method of budgeting:
Zero based budgeting: It is also a technique that can be used in case the estimated
revenue is equal to future estimation of expenses, this difference is generally zero. If there is any
excess of amount that has to be adjusts, this technique is helpful in controlling the amount spend
every year. The planning tool have wider chances of assisting financial analysts of Innocent
Drinks to prepare budget from scratch.
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Benefits: There is use of flexible budgets at lower cost. There are more focused
operations that helps in disciplined execution. In Innocent Drinks, use of zero based budgeting
helps in reducing all kinds of unnecessary costs through focusing on aspects where it could be
cut effectively.
Disadvantages: It consist of the possibility of intensive use of resources, biased towards
short run planning and manipulation by savvy managers that can affect the authenticity of zero
based budgeting.
M3: Analysis of planning tools
There are different types of planning tools that includes financial planning the main
objectives is to analyse the Present cash postilion of a business organisation (Richardson, 2017).
Such as master budget can be adopted by Innocent drinks to get a summary of all the different
budgets in one single budget. Manage information system as a part of the planning tools is also
used for the purpose of collecting the necessary information and then using it to discharge duties
and make quality decisions. It helps in avoiding any type of duplication and increasing
effectiveness of all the functions.
TASK 4
P5: Financial problems and solutions
Financial problems are those that occur when there is difference between supply and
demand of financial resources in business. There are some common issues that can arise in
organisation if there is no proper planning (Alsharari and Al-Shboul, 2019). These occur because
of defaults, petty mistake of financial managers and financial departments. Some of common
issues in financial management in relevance to Innocent Drinks are discussed below:
High promotional expenses: There is need to conduct lot of expenses when Innocent
drinks is making a new launch of product. There is requirement to form a strategy that can help
in creation of awareness for the target segment of customers.
Financial governance: This is a method that can help a organisation in collection of
information so that all the accounting requirement are timely complied (Qian,, Hörisch and
Schaltegger, 2018). It helps in making financial statements more authentic and further strategies
formed based on such information will also be correct.
Management accounting approaches
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Benchmarking: It is a approach where organisation has to determine several objectives
or standards that have to be achieved on course of organisational functioning. In case of medium
sized organisations like Innocent drinks there are situation of losses that have to be dealt by
setting of benchmarks is that expense take place in the identified benchmarks only. It also leads
to providing information regarding the specific budgets for each functional departments.
KPI: It is a measurable system that explains about the ways a business effectively
achieves objectives. Use of the approach benefits Innocent Drinks in evaluating strategies to
reach set targets.
Financial governance: An approach that assist ventures to collect, manage, monitor and
control data about finance or funds is termed to financial governance (Hopper and Bui, 2016).
With this approach, analysts of Innocent Drinks are able to track all financial transactions so that
entire performances are managed by disclosure of information.
Comparison of organisation:
Innocent drinks Vita coco
Products Innocent drinks is dealing in
juices and smooths that are
sold in coffee shops,
supermarkets. It is owned 90
percent by the coca cola brand.
Smoothies are primary product
of Innocent as it consist of
crushed juices and fruits with
special use of ginger and
carrots in some of their drinks.
Vita coco is a producer of
coconut drinks and is
distributor of healthy products.
They are serving different
nutrient flavours that is
helping their customers in
living a healthy lifestyle.
Financial issues Presently in Innocent drinks
because of the situations of
COVID-19 Virus there has
been complete lock-down
since march 2020. this has lead
Cost has been serious issue in
the category of coconut
market. Though sales have
been very high since 2004 but
there has been issues of
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to a sudden downfall in their
sales and this situation
continues till end of year 2020
because of the low preferences
of people towards outside
eatables.
consistency of raw material
and fragmentation of supply
chain in delivering of raw
materials to their manufacture
and changes in the cost of raw
material.
Management accounting Different aspect of
management accounting
techniques are used by
innocent drinks in order to
manage overall cost of
organisation such as fixed and
variable cost. It helps in
inculcation of profits from
total revenue.
Inventory management system
is used in order to effectively
manage the available limited
sources with the organisation.
Tools There is use of techniques such
as budgetary control methods
that can help in dealing with
all the issues that are faced by
medium sized organisation like
Innocent drinks.
There is use of variance
analysis to deal with overhead
and labour cost.
There is a similarity between Innocent Drinks and Vitacoco that MA is used for solving
financial issues pertaining within business. Key purpose of using MA in the entities is to frame
decisions for maximising profits as well as minimising losses.
Comparison between Innocent Drinks and Vitacoco related to differences of using MA is
that in Innocent Drinks managers uses MA for manage overall cost of organisation such as fixed
and variable cost. It helps in inculcation of profits from total revenue. In contrary, managers of
Vitacoco uses MA for to effectively manage the available limited sources with the organisation.
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M4 : Analysing the financial problems and management accounting
It is very crucial for organisation to make a financial analysis in order to estimate the
overall budget requirement and then analyse it to reach to specific conclusions. There are
different ways to manage the tasks and available budget in a effective manner. Financial
problems can be easily identified by a management accountant by use of present P&L
statements, balance sheets and this can be submitted to top Management this report actuality
disclose the weakness and strength of different functional areas of Innocent drinks. So, that
further cations can be taken based on these results. This helps management in enhancing better
control and further carry on the function of decision making.
D3: Evaluation of use of planning tools for dealing with accounting issues
Financial problems are those that are very commonly faced by organisations and have to
be resolved by use of different management and accounting tools. Planning tools help in making
correct estimation of sales and other financial figurers. Further comparison has to be made in
order to locate the deviations. If there is decline in sales then reasons for such decline have to be
identified so that proper and accurate planning can help in the proper decision making. Financial
statements help in understanding the financial stability that can lead to preparation of future
budgets.
CONCLUSION
It is concluded that organization can adopt different management accounting methods
and techniques that can help in effective decision making. Organization has to use different tools
to deal with financial issues. For this different accounting systems can be adopted to evaluate
the performance. The main objective of management accounting and all the aspect of
management accounting is to understand the Present and future earning capability of a
organization. It leads to getting insights of the present financial position so that future results can
be foretasted.
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