Unit 5: Management Accounting Report - Innocent Furnitures Analysis

This report provides a comprehensive overview of management accounting principles and practices, focusing on their application within Innocent Furnitures, a company manufacturing wooden products. The report begins by defining management accounting and its systems, contrasting them with financial accounting, and exploring the role of management accounting in internal decision-making. It then delves into various management accounting systems, including inventory management, cost accounting, and job costing systems. The report further examines different methods of management accounting reporting, such as performance reports, budget reports, inventory management reports, and cost reports. The analysis extends to cost analysis techniques, with a discussion of different costing methods. Furthermore, the report assesses the advantages and disadvantages of various planning tools, including cash budgets, flexible budgets, and purchase budgets, used in budgetary control. Finally, it explores how organizations adapt management accounting systems to address financial challenges. The report concludes with a summary of key findings and recommendations for improving financial decision-making within Innocent Furnitures.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and types of management accounting systems...............................1
P2 Methods used for management accounting reporting.............................................................2
TASK 2............................................................................................................................................3
P3 Costs using appropriate techniques of cost analysis...............................................................3
TASK 3............................................................................................................................................5
P4 Advantages and disadvantages of different types of planning tools.......................................5
TASK 4............................................................................................................................................7
P5 Organizations are adapting management accounting systems................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Managerial accounting is another name of management accounting that is considered as
an approach for financial data used in company for development purposes (Busco and Quattrone,
2018). Internal team of venture makes more use of the provision as to make rational decision
about business future. Using this, accountant present data concerned with finance to management
in unique manner that makes it easy to devise better decisions about practices to be undertaken
for reaching success. This consists presentation of the financial information for the internal
purposes that mainly used through management in order to main business decisions.
Management account is procedure of the preparing reports related to management and accounts
which give the accurate as well as financial information to the managers for making the long
term and short term decisions. Innocent Furnitures considered entity for the project. It is a firm
that manufactures various kinds of wooden products including beds, desks, chairs and so on.
In the report, there is a discussion of management accounting along with provide
necessary requirements of various classes of the management accounting. Benefits and the
disadvantages of numerous kinds of the planning tools used in the budgetary control are
discussed in a detailed manner.
TASK 1
P1 Explaining what management accounting is and its systems
Managers use accounting provisions information to inform better themselves before they
decide the matters within company. In Innocent Furnitures, it is used only through internal team
of company and this thing makes it varied from the financial accounting (Abernethy and
Bouwens, 2015). Within the establishment, only requirement of management accounting is to
serve efficient data in concise and understandable format that helps in making significant
decisions for upcoming couple of years in competitive era. Through techniques that are
forecasting, analysis and so on, procedure of making decisions for investment, expenses, receipts
and hence forth are devised in more justified manner. The main purpose of management
accounting is to help internal users to firm in making informed business-related decisions. In
aspect to Innocent Furnitures, managers uses management accounting for planning practices and
some actions in order to rectify certain number of situations.
Management accounting systems
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Inventory management system: This is mixture of the processes in addition technology
which looks towards monitoring as well as maintenance of the stocked goods. In dynamic era,
inventory management system helps businesses to control stock by increasing order volumes and
expanding across wider channels of sales in departments with the attempt to manage operations
in best possible aspect (van Helden and Uddin, 2016). In context to Innocent Furnitures,
inventory management system track the quantities effectively in storing the location. Essential
requirement of the inventory management system mention below:
 Categorising the material together with managing an inventory of Innocent Furnitures to
give the necessary inventory. To keep track of the available stock as well as manage the reorder level.
Cost accounting system: It is a framework that used through organisations to guesstimate
cost that are related with goods with the hope of analysis of profit and inventory valuation
(Mowen, Hansen and Heitger, 2015). Its essential requirements given below:
 Allocate cost according to activity that is related to traditional costing and activity based
costing. Track the cost and also control them by making better decisions which are related with
enhancing profitability and productivity of the Innocent Furnitures.
Job costing system: This is system for accumulating and assigning the manufacturing
costing of person. It is used when different items are manufactured different from the each other
and has significant cost. Essential requirement of the Job costing system mention below:
 Ascertain the reliable estimation for the monetary values concerned to overheads,
information labour and direct material in Innocent Furnitures.
 Applying the information and accumulating for assigning cost to process the goods
(Shao, Wang and Feng, 2015).
P2. Different methods used in company in regards to management accounting reporting
In all businesses, management accounting reporting plays crucial factor in displaying
financial position or status of entity at current or over a particular time frame. Management
accounting reporting is process of giving information to different management levels as to enable
judging effectiveness of responsibility centres and taking the corrective decisions. This
emphasizes on the inside information that received by financial accounting (Hsu and Lin, 2016).
In regards to this, managerial accounting reports are greatly used in context for planning,
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measuring the performance, framing key decisons and also regulating. The different methods of
management accounting reporting used by Innocent Furnitures mention below:
Performance report- This is related to the detailed statement that analyse outcomes
certain activities to its success within time period. In Innocent Drinks, management accounts
makes the use of budgets in order to comparing the actual expenditures with the revenues to the
budgeted variables. In context to performance report, managers plans the future demands of
furniture products of Innocent Furnitures and then make changes in the cost accordingly.
Budget report- Another method that is comparison of definite result of business to pre-
established objectives is budget report (Desai and Yetman, 2015). It is mainly issuing to the
everyone that responsible line item in income statement. It is used to identify that which of the
expenditure level is too high so actions can taken to bring the level of expenditure.
Inventory management report- This is summary of the information of existing stock
like goods and quantity of the availability of stock. Good inventory reports included the update
information with high detail level and also use the visuals to make this clear that number of items
have in the stock. For development of the Innocent Furnitures, this is important to manage the
inventory in accurate manner. Purchase manager is responsible to assure that the stock is
managed properly to manufacture as well as sell the variants of smoothies and juices (Huang and
Vasarhelyi, 2019).
Cost report- It is process that mainly used to inform client regarding magnitude of
project that predicted. This is financial report that determined cost as well as charges concerned
to the healthcare activities. The cost report gives information regards revenues and expenses
which are debited or credited from the cost centres. In context to Innocent Furnitures, managers
are capable or effective to view the cost value of the smoothies and juices. This method helps the
administrators in planning as well as controlling profit margin.
TASK 2
P3 Costs using appropriate techniques of cost analysis
There are different methods used through company so that they can identify costs in
significant manner (Booth, 2015). There are different costing methods used by the Innocent
Furnitures for determination of costs:
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TASK 3
P4. Key advantages and disadvantages related to planning tools
Budget is a expenses and revenue estimation over particular time period and compiled as
well as re- evaluated on periodic basis. in Innocent Furnitures, this is helpful in identifying the
variance as well as overcoming adverse variance which develops negative impact on business
performance. Budgeting is main part of planning and controlling processes and used through
managers to plan, monitor and control different activities of company. It is necessary for
management to take the better decisions and also allocate resources in an effective manner. With
the help of preparing budget, cost can be controlled and monitor effectively (Appelbaum, Kogan
and Vasarhelyi, 2018). Using budgets, managers create spending plan of money for the venture
and ensures that all departments have enough resources for managing practices in the manner so
that none of activity is impacted.
Budgetary control is process that mainly arranges the budget for future purpose and after
then compare with the actual outcomes in order to search variances (Laudon and Laudon, 2015).
Main objective of the budgetary control in Innocent Furnitures is to explaining objectives of
company, coordinating activities and make improvement in profit through eliminating wastage,
fixing individuals responsibilities and centralising the management system.
Different planning tools used for budgetary control that are adhered by accountant of
Innocent Furnitures with advantages and disadvantages are mentioned below:
Cash budget- The cash budget is cash flows estimation for business over particular time
period. This planning tool consists the expected disbursements and receipts of cash at the time of
particular period (Gavidia, 2016). These cash outflows and inflows involve the collected
revenues, paid the expenses, payment and loans receipts. On the other hand, cash budget is
estimated projection of cash position of firm in future.
Advantages
 The cash budget is helpful in saving money as cash is better feedback mechanism.
Physical act of handling that the cash over is visceral experience which motivate directly
to spend minimum money.
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 Using cash budget, accountant of Innocent Furnitures permit to see at glance as how
much the money left for using for rest of month. It lets plan a head and also keep within
set the spending limits (Hoła, Sawicki and Skibniewski, 2015).
Disadvantages
 This develops danger of the theft. An individual should have documentation that track
cash movements in order to protect against the theft.
 This can be easier to be lose as there is chance to misplace the money.
Flexible budget- This budget adjusts with alteration in activity or volume. It is cultured
as well as useful than other types that is static budget. It remains unbothered from amount that
devised at time that static budget was developed and then approved.
Advantages
 The main benefit of flexible budget is that this accurately reflects finances state. This
budget is helpful in track where can be adjust in spending every month. The flexible budget is based on the assumptions, approximations and judgement. It is
basically prepared according to principle and knowledge (Rieckhof, Bergmann and
Guenther, 2015).
Disadvantages
 This budget needs planning to track the expenses and also adjust the differences among
periods.
 Method of identifying variable and fixed cost components is arbitrary and flexed cost
bear less relation to right budgeted cost for flexed activity level.
Purchase budget- This contains inventory amount that firm should buy at the time of
budget period. Amount that stated in budget required to assure that there is a sufficient inventory
to meet with orders of customers for goods (Maduku, Mpinganjira and Duh, 2016). This is
forecast of the quantity and materials value that needed to buy at the time of budget period. It is
related to production budget.
Advantages
 This helps to an organisation to react quickly for neglecting to loosing consumers
because of less orders or the long production. Purchase budget gives better control on inventory level to Innocent Furnitures purchase
department.
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Disadvantages
 Developing this budget is more time consuming and needs the extra manpower for
gaining the accurate estimates (Zimmerman, 2015).
 The future estimated of planning tool are mainly done according to past performance due
to the changing condition of the poor forecasting that could impact negatively on decision
making of the Innocent Furnitures.
TASK 4
P5 Comparing organizations are adapting management accounting systems
Businesses whether micro, small or large, faces certain financial problems that puts huge
pressure on carrying out set practices (Miśkiewicz, 2017). Financial problem is situation under
which an individual or firm is not able to meet bills on the time and also not afford the basic
requirements. Main cause of the financial problem is that people do not have skills for managing
money. In regards to this, Innocent Furnitures is medium sized firm that faces the difficult time
due to the insufficient money for conducting business operations effectively. There are some
issues faced by innocent drinks because of finance mention below:
Spending more than income- To gain the competitive benefit at marketplace, the main
concern of business to spending more the the promotion, advertisement and marketing. In
regards to Innocent Furnitures, it has the marketing team but this is exceeding than the budgetary
amount to advertise and promote for firm. It develops the negative impact on productivity of
company.
Missed the credit payments- There is a situation arise where the more merchandise sold
to clients so that needs and wants of old customers can be properly satisfied. There are various
Innocent Furnitures client that makes the purchase of its furniture in the bulk quantity on the
credit basis. They do not make the payment timely that minimize profit and also arise financial
issues. From this, financial issues arise as it restricts the cash inflows.
Accounting approaches for resolving financial problems
Benchmarking: It consists running financial analysis and also making the results
comparison of result to assess competitiveness, productivity and efficiency of company (Green,
2015). It can take accurate approach through managers of the Innocent Furnitures in order to
resolve financial issues by examining strategies that are executed through the other concern of
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