Management Accounting Systems, Techniques, and Financial Reports

This report provides a comprehensive analysis of management accounting principles and their application within Innocent Drinks. It begins by exploring various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, outlining their essential requirements and benefits. The report then delves into different types of management accounting reports, such as budget reports, accounts receivables aging reports, cost accounting managerial reports, and performance reports, emphasizing their role in analyzing and interpreting financial data. The core of the analysis involves a detailed comparison of marginal costing and absorption costing techniques, evaluating their advantages, disadvantages, and practical applications within the company. The report concludes by highlighting the significance of these accounting systems and techniques in enhancing efficiency, aiding decision-making, and supporting the financial health and strategic advantage of Innocent Drinks. The report emphasizes the importance of accurate financial reporting for data interpretation and effective management.

Management
Accounting

INTRODUCTION
Management Accounting refers to the use of various types of accounting provisions, tools
as well as techniques in order to ensure that the right decision is taken by the managers for the
purpose of increasing the overall level of efficiency and effectiveness in the organization without
problems and issues (Alawattage, Wickramasinghe and Uddin, 2017). Overall it helps for them
in ensuring that they take right decisions in the context of the company. In this way the firms can
ensure that they are able to take the strategic advantage over their rivals by maximizing their
profits and ensuring sustainable growth. In this report, Innocent Drinks has been chosen. It is a
company which provides various drinks to its customers in the market. In this assignment, a
detailed analysis will be made on demonstration of understanding of management accounting
systems, application of a range of its techniques. Additionally, the use of planning tools in
companies and comparison of ways in which they use the management accounting systems to
solve their financial problems will also be discussed as a part of this project.
TASK 1
P1: Management Accounting Systems
It uses different types of tools and techniques of accounting so that the organization can
achieve its aims and objectives without issues and problems and the right decisions can be taken
by the management.
There are different systems which are used in management accounting. An explanation of
these systems is as follows-
Cost Accounting System- In it, the managers make sure that they are able to use the
right techniques in order to control the overall costs and overheads in the organization (Azudin
and Mansor, 2018). The managers of Innocent Drinks can use this system effectively and
efficiently in the right manner so that they can achieve their goals and objectives.
Essential requirements-
 Cost Accounting System helps in the reduction of the overall costs in the company. In
this way it can help the managers of Innocent Drinks to maximize the level of profits.
 Cost Accounting System should ensure that the overheads in the company are absorbed
properly. By doing so it will help the managers of Innocent Drinks to optimize the costs.
Inventory Management System- In it, the managers make sure that they are able to
manage the level of stocks in the company. In the context of Innocent Drinks, it is required to be
ensured that the inventory in the company is properly managed.

Essential requirements-
 It should ensure that the inventory of the organization is managed properly so that orders
are tracked in the right manner. The managers of Innocent Drinks are required to ensure
this.
 It must be able to ensure that the level of inventory in the companies is maintained so that
there are no problems and issues in supply of goods. Thus the managers of Innocent
Drinks must ensure this.
Job Costing System- It is primarily used in those companies in which manufacturing of
goods are done (Bui and De Villiers, 2017). Thus the managers of Innocent Drinks can
make use of this system so that they are able to manage their job orders and ensure their
timely completion.
Essential requirements-
 Job Costing System must ensure that the job orders in company are managed effectively
and efficiently. In this way the managers of Innocent Drinks can properly manage their
job orders.
 Job Costing System is required to make sure that the job orders in the company are
completed on time. In this way the managers of Innocent Drinks can ensure the
satisfaction of their customers and clients.
Price Optimization System- It has to be used by the organizations so that they are able
to set a price for their goods and services which helps them in achieving strategic
advantage (Christ, Burritt and Varsei, 2016). In this way the management of Innocent
Drinks can make sure that they are able to earn higher level of profits.
Essential requirements-
 It is required in the organizations so that they can ensure that they are able to set a right
price for their products and services. The managers of Innocent Drinks are required to
ensure this.
 It is required in the companies so that they can ensure higher level of profits. The
management of Innocent Drinks has to ensure this.
P2: Management Accounting Reports
These Reports are used by the companies so that they are able to analyze and interpret the
relevant information effectively and efficiently (Cooper, Ezzame and Qu, 2017). In this way the
management of Innocent Drinks can ensure that it is able to analyze and interpret the information
to increase the overall efficiency and effectiveness without issues and problems.
The various types of Management Accounting Reports are as follows-

 Budget Reports- In these reports the different types of budgets are considered. They can
be used in the right manner so that they can be used in the right manner which will lead
towards increase in the overall level of efficiency and effectiveness (Granlund and
Lukka, 2017). Thus the management of Innocent Drinks can ensure this in the company.
 Accounts Receivables Aging Reports- They are used by companies so that they are able
to track their accounting receivables in the company (Hall, 2016). They can be used by
them so that they are able to properly track their debtors and the due payments.
Management of Innocent Drinks can make use of these reports so that an analysis can be
performed on this basis which will make sure that aims are achieved and the payments
are received from trade receivables on time.
 Cost Accounting Managerial Reports- They are used by the organizations so that they
are able to analyze the level of costs (Hopper and Bui, 2016). They can be used in the
right manner to analyze and interpret the why the overall costs have increased. Therefore
techniques to reduce the costs can be used so that the level of profits can be maximized.
The management of Innocent Drinks can make the right use of these reports to find out
their excessive costs and taking the corrective actions as required so that the goals and
objectives can be achieved. For the maximization of profits the managers are required to
take the correct steps which will make sure that the costs are reduced and profits are
increased.
 Performance Reports- Companies make use of them so that they are able to analyze the
overall performance (Järvenpää and Länsiluoto, 2016). They can be used to evaluate and
compare the performance to find out if there are any deviations and variances. If the
deviations and variances are found then the rectifying actions are taken. Thus In Innocent
Drinks, managers can make use of these reports so that they can ensure that performance
is increased without problems and issues which will lead to obtaining of a strategic edge
over the competitors in the future time period and ensuring sustainable level of success.
M1: Benefits of Management Accounting Systems
They offer different types of benefits to the organizations. Cost Accounting System can
help the companies to make sure that the costs are reduced. Also it ensures the reduction of
overheads. Inventory Management System ensures that the inventory levels are properly
managed. Also tracking of stock is made possible. Job Costing System ensures that the job
orders are properly tracked. Also it makes sure that job orders are managed without problems
and issues. Price Optimization System ensures that prices are optimized effectively in the
organizations. Also it makes sure that the benefits of setting a right price are available to the
companies by increase in their profits.
D1: Evaluation of management accounting systems
Management accounting systems can be used by the companies so that they are able to
get the required level of efficiency and effectiveness. These systems are required to be applied in
the right context by the managers of Innocent Drinks. The managers of firm can make sure that

they take the correct decisions. This will surely help in enhancing the productivity and thus the
aims which the company has set for the future time period can be achieved. This happens due to
the application of appropriate techniques.
TASK 2
P3: Calculation of costs by using appropriate techniques
Marginal Costing-
It is a technique in which the marginal cost is charged to the units of cost and the fixed
cost is written off against the contribution (Järvinen, 2016). This technique can be used by the
managers of Innocent Drinks to make sure that they are able to calculate the profits.
Advantages-
 It is very simple to understand and this is an advantage for Innocent Drinks as it can be
easily applied in the context of the organization. Thus this helps the companies in
effectively determining the level of profits without problems and issues.
 Marginal Costing Technique helps in determination of the profits in the organization
which offers an advantage for the managers of Innocent Drinks so that they are able to
make an accurate assessment. Therefore this helps the organizations as this can lead
towards adoption of right approach for determining the profitability with accuracy so that
analysis and interpretation can be performed easily and the decisions can be taken.
Disadvantages-
 Marginal Costing Technique can be disadvantageous for the organizations because it
relies on different types of assumptions which may not always be true.
 Marginal Costing Technique can create disadvantage for the companies because it is not
able to treat the overheads in the right manner.
Absorption Costing-
It is a technique which is used by the organizations so that they are able to identify the
full production cost incurred in the different types of processes (Kostyukova and et.al.,
2018). The managers of Innocent Drinks can make sure that they use it correctly so that
profits can be determined and the proper treatment of overheads can be ensured.
Advantages-
 Absorption costing technique can be advantageous for the companies because it makes
sure that they are able to identify the full cost of production (Maas, Schaltegger and
Crutzen, 2016). Therefore Innocent Drinks managers are able to make sure that they can
calculate the total cost using this technique.

 Absorption costing technique creates an advantage for the organizations by ensuring that
the proper treatment of overheads is done (Messner, 2016). Thus for the managers of
Innocent Drinks this creates a benefit as by ensuring it they can effectively calculate the
profits with the required accuracy.
Disadvantages-
 Absorption Costing Technique creates a disadvantage for the organizations as it is not
that simple to apply like Marginal Costing Technique. The managers of Innocent Drinks
therefore face a problem here regarding the application of this technique in the processes
of the organization.
 Absorption Costing Technique relies too much on different types of assumptions which
do not result in accuracy in obtaining the desired results. Therefore for the management
of Innocent Drinks this creates an issue.
Thus, overall both of these techniques can be highly useful for the companies because
they ensure that profitability is determined and the comparisons can be done with the
previous years and with the competitors. Deviations and Variances can be identified so
that the correct rectifying action is taken for removing them.

M2: Application of techniques of management accounting
They can be applied in the right manner so that the goals and objectives can be achieved.
Innocent Drinks can use them to analyze and interpret and thus detailed plans can be made for
ensuring the growth of the organization. Therefore it is required from the management that they
are able to achieve the required efficiency as well as effectiveness by the proper use of these
techniques and can ensure sustainable success in the future time period which will lead to
obtaining of a strategic edge over the various types of competitors.
D2: Producing of financial reports for application and interpretation of data
They can be used by the organizations so that they can apply as well as interpret the data
effectively and efficiently. Thus in this way they can make sure that they are able to achieve the
desired goals as well as objectives without problems and issues. In the context of Innocent
Drinks, it becomes quite important that its managers are able to use the financial reports to
improve the overall performance in the company and thus achieve a strategic edge over the
competitors.

TASK 3
P4: Advantages and Disadvantages of planning tools for budgetary control
There are different types of tools which can be used for the purpose of budgetary control.
These tools are as follows-
Cash Budget-
It is prepared by the companies so that they are able to get an estimate of the overall
receipts and payments during a particular period of time which is mostly a year (Nitzl, 2016).
The managers of Innocent Drinks can use this budget so that they are able to achieve their
desired goals as well as objectives and can manage their liquidity level without problems and
issues.
Advantages-
 A Cash Budget can be used by the companies so that the liquidity level is maintained.
This is an advantage for the managers of Innocent Drinks.
 Cash Budget can be used by the organizations so that they are able to maintain the
desired level of efficiency as well as effectiveness in their business operations.
Disadvantages-
 A Cash Budget does not provide the flexibility to the organizations in their cash
operations which can create a disadvantage for the organizations like Innocent Drinks.
 It is a time-consuming as well as costly process. Therefore not every firm can afford it.
This is also a disadvantage for a company like Innocent Drinks.
Production Budget-
Production Budget can be used by the companies so that they are able to forecast their
various types of requirements which they have regarding the level of production during a
particular period of time (Nuhu and et.al., 2017). The managers of Innocent Drinks can
use this budget for making accurate forecasts for the future time period.
Advantages-
 It helps the organizations to identify their various types of requirements which they have
regarding the production of goods. Thus it is advantageous for an organization like
Innocent Drinks.
 Production Budget can help the companies in making sure that the production happens on
time and according to the requirements. Therefore this creates an advantage for the
organizations like Innocent Drinks.
Disadvantages-