Management Accounting Systems, Techniques, and Report Analysis

This report provides a comprehensive overview of management accounting, focusing on its application within the context of Innocent Drinks. It begins by defining management accounting and its role in facilitating informed decision-making through financial analysis and interpretation. The report then delves into various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, outlining their essential requirements and benefits. It also examines different types of management accounting reports, such as budget reports, accounts receivable aging reports, cost managerial accounting reports, and performance reports, highlighting their significance in analyzing financial data. The report further explores the benefits of these systems and reports. The report concludes with a critical evaluation of these systems and reports, emphasizing their importance for effective financial management. Finally, the report includes calculations using marginal and absorption costing techniques to prepare income statements, offering a practical application of the concepts discussed.

Management
Accounting

INTRODUCTION
The technique which makes use of the different types of financial provisions are used by
the managers to facilitate the relevant analysis and interpretation in order to take decisions in the
future time period is known as Management Accounting (Trisanti, 2019). It helps the managers a
lot by enabling them to be able to take different types of decisions. Its usage is also helpful in
analysing and interpreting the available financial information and making valid conclusions as
well as recommendations. This is helpful for the management in the future time period as it can
make significant improvements wherever necessary. For attainment of sustainable level of
success in the future time period it is absolutely necessary to be used by the managers. This
report is based on Innocent Drinks. Different types of smoothies and juices are provided by this
company to its various customer and clients. This project will put its focus on demonstration of
understanding of management accounting systems, applying a range of its techniques.
Additionally, the use of planning tools and comparison of ways in which the organizations make
the use of management accounting systems to solve their financial problems will also be
discussed as a part of this assignment.
TASK 1
P1: Management Accounting Systems
It is a process through which the managers can take decisions through the proper analysis
and interpretation of the available financial information (ter Bogt and Tillema, 2016). In
Management accounting there is an use of various types of systems. These systems are as
follows-
Cost Accounting System- In this system, there are various types of techniques and
methods which can be used so that the computation of the costs can be done in a highly effective
manner (Su, Baird and Schoch, 2017). In Innocent Drinks, the managers make use of it so that
they are able to reduce their costs in an effective manner. This allows the organizations to be able
to raise their available level of profits. Also when this system is used appropriately, it results in
proper identification and apportionment of overheads of the different types of departments in the
organization.
Essential requirements-
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 The use of this system must be able to help the managers to ensure that various types of
costs in the organization are identified and ensure their segregation . In the context of
Innocent Drinks, this will make sure that its managers can make the use of it so that the
costs can be identified effectively.
 The managers by using this system will be able to identify the ways through which they
can reduce the costs in an effective manner (Schaltegger and Hörisch, 2017). In Innocent
Drinks, this is required so as to facilitate the reduction of the various types of costs.
Inventory Management System- It is the combination of technology, processes and
procedures which ensure the monitoring and maintenance of goods whether assets, raw materials
and supplies or finished products which are required to be provided to the vendors or the
customers (What is an Inventory Management System? Definition of Inventory Management
Systems, Benefits, Best Practices & More, 2020). In this system, the managers of an organization
use the various types of techniques so that they are able to properly manage the level of
inventory in the company in an effective manner. It has systems like LIFO, FIFO etc. which can
be used for tracking the inflows and outflows of the stock items. In Innocent Drinks, this system
has to be used so that the managers are able to identify their inventory requirements and track the
inwards and outwards movement of the stock items.
Essential requirements-
 The use of this system within the organizations helps in the proper management of the
stock level (Remenarić, Kenfelja and Mijoč, 2018). This has to be done so that there is
neither a shortage of the stock nor it is excessive. It should be present in an appropriate
quantity. Thus the managers of Innocent Drinks are benefited in this manner.
 For the purpose of reduction in the cost of maintenance of inventory the use of this
system must be made within the organizations. In this way their overall costs can be
controlled thereby leading towards an enhancement in the profits. Therefore, in this
manner this can be very advantageous for the managers of Innocent Drinks.
Job Costing System- The managers of an organization are able to identify the various
costs which are associated with the different types of job orders by making its use (Paiva, Reis
and Lourenço, 2016). This is useful for those firms which are indulged in the production of
products and services. In the context of Innocent Drinks, this system can be quite helpful to
ensure that various types of job orders are managed in a proper manner. Thus the firm can
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identify its excessive job costs and can apply the correct techniques for ensuring their reduction
in an effective manner.
Essential requirements-
 This system should help the managers in making sure that the inwards and outwards
movement of job orders can be properly managed (Ozdil and Hoque, 2017). In Innocent
Drinks this can be very helpful.
 This system must be helpful for the management so that the techniques through which the
costs can be reduced are identified. In Innocent Drinks, this can be very useful.
Price Optimization System- In this system, there is an use of various types of
mathematical models and techniques so that the managers are able to identify the right price to
be used which will be quite helpful for the purpose of raising the level of profits in an effective
manner (Mohr, Raudla and Douglas, 2018). Forecast of prices is done through the use of this
system within the organization. For Innocent Drinks, the use of this system is helpful in ensuring
that profits can be raised by setting the right price.
Essential requirements-
 This system should be able to identify and forecast the demand level of various goods in
the organization (Misra and et.al., 2017). This will help the managers of Innocent Drinks.
 This system must help the managers in setting the right price so that the profits can be
maximized. For the managers of Innocent Drinks, this can be quite helpful.
P2: Management Accounting Reports
These reports are quite helpful for the managers to be able to identify and analyse the
different types of findings in an effective manner (Li and Yang, 2016). They summarise
the given information and thus this helps them to identify the main points on which they
can put their focus. Their use is helpful for the management of Innocent Drinks to be able
to analyse and interpret the findings in a proper manner.
Different types of reports are used in Management Accounting. These are explained as
follows-
Budget Reports- In these reports, there is a complete analysis of the budgets which are
made within the organizations (Kiranmai and Swetha, 2018). Cash Budget, Production Budget,
Operational Budget, Master Budget are the forms of various budgets which are prepared within
an organization. In these reports an overall summary of all of them is desired so that the findings
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can be used appropriately by the managers. This creates help for them in doing better planning in
the context of the organization. An overall report of findings of various budgets is made here in
the right manner so that the management in the organization can ensure that it maintains a good
financial position within the organization. When these reports are used within the organization
they are quite helpful for the managers to do proper analysis and interpretation and make valid
recommendations and conclusions to be used in the future time period. In the context of Innocent
Drinks, these reports are very helpful in ensuring that the expenses can be kept in check and the
incomes are forecasted effectively and efficiently.
Accounts Receivable Aging Reports- In these reports, detailed analysis of the accounts
receivables of an organization is made (Karp and et.al., 2018). A list of debtors is prepared and
the amount which is due is mentioned. Thus those debtors can be identified who have not paid
their dues since a long time in the organization. This can help the managers to be able to make
recoveries of their dues within the stipulated period of time to maintain regular inflow of cash.
With their usage, the managers of an organization are able to ensure that proper records of the
debtors are maintained. For the managers of Innocent Drinks, these reports are highly useful
because they are required to identify the debtors who have not paid their dues on time. Thus in
this way a proper track record of debtors can be maintained in a highly effective manner.
Cost Managerial Accounting Reports- With the use of these reports, a proper analysis
of the various types of costs is made within the organization (Iswati, 2017). A company's
management can make sure that by identifying these costs they are able to make use of
appropriate techniques to be able to reduce them which will be very helpful in raising the overall
level of profits. In this way variations and deviations in the costs can be identified and the
techniques can be used to rectify them. The management of Innocent Drinks can ensure that they
can properly manage the costs when they make the use of these reports. Also a proper analysis of
the overheads can be made within the company which will be quite helpful in ensuring that the
right segregation can be done.
Performance Reports- By making the use of these reports, analysis of overall level of
performance can be done in a highly effective manner (Hyndman and McKillop, 2018). If there
is any scope for the improvement then the managers can ensure that the improvement is carried
out specifically in the respective area so that the level of performance can be enhanced. This will
help them in making sure that the company is able to attain sustainable success in the future time
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period. There are various types of departments within an organization such as Production,
Finance, HR, Sales, Marketing etc. For the managers of Innocent Drinks it is quite important that
the performance can be effectively analysed and thus it will help them a lot in identifying
deviations and variances if any and using rectifying techniques to remove them.
M1: Benefits of Management Accounting Systems
Cost Accounting System is helpful in finding out various costs. Also it helps a lot in
reducing the costs in an effective manner. Inventory Management System helps in finding out
the stock level and ensuring their management. Also it is helpful in maintaining a track record of
inflows and outflows of the inventory level. Job Costing System is helpful in identification of the
right job costs in a proper manner. Also it helps a lot in proper maintenance of job orders. Price
Optimization System is helpful in finding out prices using models. Also it ensures that that the
right prices are set in the organization with the use of appropriate techniques.
D1: Critical evaluation of management accounting systems and management accounting reports
These systems and reports are very much crucial for the managers so that they are able to
make their right use by ensuring their proper integration within the processes of the organization.
For the managers of Innocent Drinks it is quite helpful to ensure that this is done so that they are
able to take the right decisions which will help them to ensure the achievement of sustainable
success for the organization by maximization of the available profits.
TASK 2
P3. Compute the costs through utilise the appropriate techniques of cost analysis to prepare the
income and statement of marginal and absorption costs
Marginal costing
April (£) May (£)
Sales 56000 70000
Less: Marginal cost of sales
Variable manufacturing cost 30000 30000
Closing stock 10000 15000
Opening stock 10000
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Total marginal cost of sales 20000 25000
Contribution 36000 45000
Less: Fixed cost
Fixed manufacturing cost 18000 18000
Fixed non manufacturing cost 5000 5000
Net profit 13000 22000
Absorption costing
April (£) May (£)
Sales 56000 70000
Less: Cost of sales
Variable manufacturing cost 30000 30000
Fixed manufacturing cost 18000 18000
Closing stock 16000 24000
Opening stock 16000
Total cost of sales 32000 40000
Gross profit 24000 30000
Less: Fixed non manufacturing cost 5000 5000
Net profit 19000 25000
Reconcilation statement
April (£) May (£)
Profit/loss under marginal cost 13000 22000
Add/Less: Closing stock 6000 3000
Profit/loss 19000 25000
Profit/loss under absorption cost 19000 25000
Working note:
Calculation of closting stock under marginal costing
April (£) May (£)
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Total variable
manufacturing cost 30000 30000
Total produced units 6000 6000
Per unit cost 5 5
Closing stock 10000 15000
April (£) May (£)
Calculation of opening
stock under marginal
costing
Opening stock units 0 2000
Per unit cost 5 5
Opening stock 0 10000
April (£) May (£)
Calculation of closting
stock under absorption
costing
Variable manufacturing
cost 5 5
Fixed manufacturing cost
(per unit) 3 3
Total absorption cost per
unit 8 8
Closing stock 16000 24000
April (£) May (£)
Calculation of opening
stock under absorption
costing
Opening stock units 0 2000
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Per unit cost 8 8
Closing stock 0 16000
Calculation of Break even point
Solution:
Variable cost 49
Fixed cost 140000
Selling price 60
Contribution: Selling price-variable cost per unit
Contribution 11
Break even point (In units): Fixed cost/contribution
BEP (In units) 12727.27
Break even point (In revenues): Fixed cost/PV ratio
PV ratio: Contribution/sales*100
PV ratio 18.33
BEP (In revenues) 763636.36
Margin of safety (In units): Budgeted saels (In units)-
BEP (In units)
Budgeted sales 20000
BEP 12727.27
Margin of safety (In units) 7272.73
Margin of safety (In revenues): Budgeted sales (In
revenues)-BEP (In revenues)
Budgeted sales (In revenues) 1200000
BEP (In revenues) 763636.36
Margin of safety (In revenues) 436363.64
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Interpretation- From the above calculations, it can be interpreted that profits for April
and May is 13000 and 22000 with the use of Marginal Costing technique. By making the use of
Absorption Costing Technique the profits are 19000 and 25000 respectively. Thus it has been
seen that there has been a considerable increase in the level of profits between April and May in
a span of 1 month.
As there are several methods of costing which is assort and optimise by the specific
company where they can particularly detect the cost in an effective manner. In Innocent Drinks
as usually used as well as they follows two types of costing to measure and control their internal
and external cost incurred:
Marginal Costing: According to this cost method, it fluctuates the variable cost to the units of
production where the written off fixed cost is behalf of level of contribution (Hoang and Joseph,
2019). As per this method is optimise through Innocent Drinks company is to measure the actual
profit generates from the expenses reduction.
Advantages: Easy to Adapt: The marginal cost is tool which easier to understand by the financial
expertise or manager to operate (Gurd and Helliar, 2017). It having objective as enhance
the benefit to identify involvement of fixed cost in cost of production aspect.
 Useful for Public orientation: The marginal cost is highly assorted for public utility for
undertaking. It support to enhance the increasing of capacity of utilisation as it only
happens when company implies the lowest charge in their product. Through this strategy
or benefit people can easily approached their product as per their buying capacity.
Disadvantages: Difficult to cost differentiation: By the time of calculating of fixed and variable cost it
makes very difficult to measure and compare the total cost factor of product.
 Lack of Understanding: As per the marginal costing perspective, it needs to having
better understanding about its concept to the managers and financial expertise where it
not convinced as well as not potential enough by assorting to the management.
Absorption Costing: In this cost method, it helps to provides the better understanding of overall
cost incurred in the organisation background (Feeney and Pierce, 2016). It undertakes the direct
and indirect cost to the company expenses aspect. In the context of Innocent Drinks management
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team as well as financial department can analysis the overall costing involvement to detect the
profits.
Advantages: Provide optimum calculation: To optimise this costing method, it helps to enhance the
facilitates the right form of calculation in the situation of sales prediction in future aspect
and differentiate with variable cost (Ebaid, 2016).
 Helps to manager: It support to the work of manager as it make them more responsible
for the providing the cost and services to the particular department of the organisation . It
also helps to measure the gross and net profit from the income statement.
Disadvantages: Not having support in Managerial Decision: According to the Absorption decision
making is not enhance any help to making managerial decisions at the time of final stage
of product selection in context of design, buy the raw materials choices of alternatives
and sold to earn desired profit.
 Disturb the preparation of Flexible budget: It will not support to forming the structured
of fixed and variable cost in terms of final budgeting, as it disturbs the balance between
them without not factor of distinction.
M2: Application of Management Accounting Techniques
Organizations can make use of these techniques to find out the costs and their level of
profits in the future time period. Through their use, financial reporting documents like
Cash Flow Statement, Fund Flow Statement etc. can be prepared which help in analysis
and interpretation. Thus in the context of Innocent Drinks it is helpful for the management
to use these techniques properly so that the results can be obtained. Thus profits can be
enhanced by making appropriate use of these methods which will ensure that the firm
attains a much-desired strategic edge over its various types of competitors in the market
without problems and issues.
D2: Producing of financial reports
With the use of these techniques the management of organizations can make sure that it is
able to prepare reports for the purpose of right analysis & interpretation. For the managers of
Innocent Drinks, it becomes highly crucial that they are able to use them for making valid
recommendations and conclusions which can be helpful in the future time period. They can
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