Financial Problem Solving via Management Accounting at Innocent Drinks

This report provides a comprehensive analysis of management accounting practices at Innocent Drinks, a medium-sized enterprise specializing in smoothies and juices, particularly in the context of challenges posed by the COVID-19 pandemic. It examines the essential requirements of various management accounting systems, including financial, tax, cost, and management accounting, and their application within the organization. The report also explores different methods for management accounting reporting, such as inventory reports, job cost reports, and account aging reports, highlighting their benefits and applications. Cost calculations using absorption and marginal costing techniques are presented, along with a discussion of break-even points. Furthermore, the advantages and disadvantages of various planning tools like flexible budgets are analyzed, emphasizing their role in performance management and decision-making. Finally, the report discusses how organizations, including Innocent Drinks, can adopt management accounting systems to manage financial problems and improve financial resource utilization. This document is available on Desklib, a platform providing a wealth of study resources for students.

Management Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Management accounting and essential requirements of various management accounting
systems........................................................................................................................................3
P2 Various methods used for management accounting reporting ..............................................4
M1 Benefits of management accounting systems.......................................................................6
TASK 2............................................................................................................................................7
P3 Calculation of cost and income statement using absorption and marginal costing...............7
M2 Application of management accounting techniques and production of appropriate
financial reporting documents...................................................................................................10
TASK 3..........................................................................................................................................10
P4 Advantages and disadvantages of various planning tools....................................................10
M3 Analysation of use of various planning tools and their application on budget...................11
TASK 4..........................................................................................................................................11
P5 Ways in which organisations adopt management accounting systems to manage financial
problems....................................................................................................................................11
M4 Ways in which management accounting helps in reducing financial problems ................13
CONCLUSION .............................................................................................................................14
REFERENCES .............................................................................................................................15

INTRODUCTION
Management accounting refers to a function that contains a number of different tasks and
activities. Collection of data, analysing the data and reporting the financial information that is
obtained from various business operations are various activities included in it. Implication of
management accounting can be seen on internal as well as external functioning of an
organisation (Fleischman and McLean, 2020). The following report takes into consideration
Innocent Drinks that is a medium enterprise manufacturing and selling smoothies and juices. In
current pandemic of COVID 19 the business is facing some losses. The following report includes
various ways in which business can make better use of the financial resources that are available
with them. Various ways to increase the financial resources are also discussed in report. Along
with it calculation of cost with different techniques, benefits and drawbacks of budgetary control
and different management accounting systems are also discussed.
TASK 1
P1 Management accounting and essential requirements of various management accounting
systems
As described by Institute of Management Accounts, Management accounting is
incorporated with functions such as planning, analysing as well as creation of financial reports
that are used by management to gain assistance while in process of effectively implementing
different organisational strategies.
There are a number of different functions included in management accounting. The Key
functions of management accounting are:
Providing data: Management Accounting incorporates of all the information that is
related to a number of different functions of business activities. The information available helps
all other functions of business to run smoothly. They help different managers of all different
functions in organisations to plan, control and then take decisions.
Analysing and interpreting data: An analysis is conducted on the data collected in order
to provide relevant statements so that decision making can be supported with the help of it.
Methods for Communication: The information which is gathered and in management
accounting and analysed is then required to be communicated efficiently in order to make sure
that every one in the organisation is effectively working towards a common goal and objective.

Facilitating control: Management Accounting also helps is successfully managing
various expenditure of business in order to control all of those expenses which are not necessary
and can be avoided or controlled up to to maximum limit possible (Hutaibat and Alhatabat,
2019).
There are a number of different accounting systems available which can be effectively
used by organisations to manage the functions of their accounting. Some of such common
accounting systems used by Innocent drinks are mentioned below:
Financial accounting system: The main objective of this system is to maintain financial
accounts in order to collect the feasible data of various different transactions which consists of
debit and credit of account balances in order to specifically create income statement, profit and
loss, cash flows and other financial statements that are required.
Tax accounting: This system majorly focuses on managing taxes. All the rules and
regulations in this are governed with the help of an Internal Revenue Code while preparing for
tax returns. The tax accounting system is very helpful in making calculations in order to deal
with various government interventions.
System of Cost accounting: This is a system that can be effectively used by Innocent
drinks in order to find out an estimated cost of various products that will be produced by the
company. This also helps in deciding the profits margins of product and maintaining it for a
longer period of time. It will also enable business in different stages of production in order to
efficiently manage their wastes.
System of Management accounting: System of management accounting is helpful in
measuring and evaluating processes in order to timely communicate various information to
managers in an organisation. The reports of organisation are also prepared based upon various
financial activities. This will allow Innocent drinks to manage all their expenditures
appropriately.
P2 Various methods used for management accounting reporting
Management accounting reporting is referred to a process in which preparation of
different reports that is to be used by managers in future for decision-making process takes place.
Below mentioned are various methods of management accounting reporting:
Inventory Reports: In the following report various information about inventory is
provided in order to make sure that inventory availability is matching the demands of customers.

In Innocent drinks this report will consist of various information including overhead cost per
unit, labour cost as well as whatever wastage have formed the part of inventory. This is also
helping organisation to effectively reduce its wastages and any burden that is put upon
organisation due to improper management of inventory (Geddes, 2020).
Job cost Report:This is a report that is used by organisations in order to identify various
expenses that are incurred by organisation. This also helps an organisation to effectively increase
the financial efficiency of organisation. With increasing efficiency in each job the overall result
of project can also be made more profitable. The evaluation of wastage that is conducted by
organisation can be managed in order to control overall cost.
Account Ageing Reports: In the following report all the details regarding credit
transaction is maintained. This detail is then used by managers later on in order to analyse the
amount that is required to be realised by their debtors. Innocent drinks can effectively use this
report in order to develop collection policy and reduce total bad debts of organisation. Liquidity
in organisations can also be managed with its help.
Different objectives of financial statement
P&L accounts:This is used to understand the criteria of net profit in organisation. In this
at the end of year profit or loss that business have to face is derived.
Cash flow statement: In this statement the position of cash in business is mentioned in
detail along with all the inflows and outflows of cash.
Cost of products sold:In this information related to cost of the products that are sold in
market are done.
Balance Sheet: This is a financial system in which liabilities and assets are evaluated at
the end of financial year.
Types of system of management accounting
Price Optimization: In this system determination of prices as per the product of company is done
according to the demand that is fluctuating in market place. In innocent drinks this is used in
order to tailor the prices of product as per the demand of customers (Matsuoka, 2020). In this
various techniques such as initial pricing, discount pricing, promotional pricing etc. are used.
System of inventory management: In this process various costs are maintained with the use of
technological processes. The changes can take place within different processes of production in
it. Innocent drinks can use it to reduce cost and also make optimum use of resources.

Job costing system: In this system determination of price of all the individual product of an
organisation is done. It will effectively help Innocent drinks to keep record of expenditures based
on units costs.
M1 Benefits of management accounting systems
Systems of management
Accounting
Benefits Application on Organisation
(Innocent Drinks)
Cost Accounting Cost accounting is helpful
while policies and procedures
to manage over all costs
(material, labour etc.) are
calculated.
Innocent drink uses this
system to calculate fixed cost
per unit. (per bottle of
smoothie)
Inventory systematic Inventory system can help to
reduce the storage costs of
inventory.
Maintenance of stock in
innocent drinks is organised
as per the expected demand.
This also makes raw
materials available as per
demand.
Job Costing Job costing is effectively used
to determine profit of
individual jobs or projects.
Innocent drinks uses job
costing to calculate cost of
different products.
Price Optimization Determination of prices of
products based on demand of
customers can be calculated
which will help in maximizing
profits (Taschner and
Charifzadeh, 2020).
Innocent drink uses price
optimization in order to keep
a check on their prices as
well as costs.

TASK 2
P3 Calculation of cost and income statement using absorption and marginal costing
Cost refers to the total amount that is used to produce any product which is required in
monetary terms. In order to calculate costs a number of resources are used which includes raw
materials, opportunity cost, labour and so on (Pasch, 2019). Various methods such as marginal
costing and absorption costing are used to prepare income statement from the data gathered.
Marginal Costing: Marginal costing is an efficient technique to understand variable as well as
marginal cost that have occurred in production of one additional unit of product. When
producing in high quantity variable cost might change total cost as well. Whenever there is
increase in units for production changes can be reflected on marginal costing.
Absorption Costing: This is a method used to calculate the amount for production of one unit of
product. It takes into account bot variable and fixed costs. Product cost is directly associated with
accumulated cost in this method of costing.
According to the figures provided for Innocent drinks below mentioned are calculation of
absorption and marginal costing. Break even point is also used in order to discuss the
circumstance when no profit and no loss situation fro innocent drinks arises.

M2 Application of management accounting techniques and production of appropriate financial
reporting documents
Various accounting techniques can be used to maintain operations in financial reports in
order to make sure that position of organisation in market is analysed to accommodate further
decisions that are to be taken in organisation. When considering costing as a tool marginal
costing can be used as compared to absorption costing as it takes into account both fixed and
variable cost for calculating profits (Souza and Araujo, 2020). While calculating total cost of
production this technique helps the manager to take various decisions.
TASK 3
P4 Advantages and disadvantages of various planning tools
Budget refers to a statement that contains various estimated future amount of revenues,
liabilities, expenditures etc. in an organisation which is also for a specific period of time. It can
be helpful for internal management and decision making within an organisation. Performance
management is also made possible with the help of a budget. Budgetary control on the other
hand refers to determination of actual sales as well as other figures for a pre determined period in
an organisation. Various tools used in the process of planning budget are mentioned below:
Flexible Budgets: This is a budget that is created and used to imply various controls over
an organisation. It helps in effectively controlling various volumes as well as activities in the
organisation according to their requirements and objectives. Innocent drinks can effectively use
this method in order to keep a regular check upon all the figures of their revenues. Benefits: This is beneficial for organisation as it provides the requirement of material and
other resources for targetted sales volume (Dressler and Rachfall, 2020). This also
allows possibilities to make required changes as per the requirement or changes in
demand. In innocent drink it supports organisation to facilitate and understand the
required quantity to increase their profits.
 Limitations: There are some limitations attached to it too. They require competent and
skilled staff in order to make sure that the employees are equipped enough to deal with
the changes that is required to be brought in. the cost of flexible budget to an organisation

is also higher than that of a regular budget. Also if certain financial disclosures are not
made in various situation it could lead to the entire budget lapsing.
Master Budget: There are a number of different budgets of lower level included in a
master budget. It can be said to be a divisional budget which is then added up to form a single
budget in which various different functions of different departments are combined together. This
budget consist of various features including financial planning, cash flows, a budgeted statement
for profit and loss account and so on. Innocent drink also uses master budget which is prepared
for a period of one financial year. Benefits: This budget also provides information for owners and other stakeholders in a
summarised manner. There ate reflection made of all the expenses and revenues relation
to different functions and departments in the organisation. This critically analyses all
these functions of different departments and creates budgets for each of them to solve
problems with in those departments (Ertl and et. al., 2020).
 Limitations: Making changes in master budget can be troublesome. However, due to
dynamic environment and changing situations organisations need to make some changes
in budgets so that decisions could by taken timely in different circumstances. Master
budget bounds from making those alterations.
M3 Analysation of use of various planning tools and their application on budget
A number of planning tools are available to an organisation so that the best fit for their
functions and activities can be chosen. A number of issues regarding duplication or overlapping
of processes is also possible. Innocent drinks used master budget and flexible budget to deal with
any such situation. This helps in dealing with changes without having any effect on the overall
organisation.
TASK 4
P5 Ways in which organisations adopt management accounting systems to manage financial
problems
Financial issues are related to problems that are caused in an organisation due to
unavailability of various financial resources. These are common issues which are often the
results of various defaults in plans, inadequate plans, misrepresentations which are usually made

by financial manager or any other employee in financial department. Financial issues commonly
faced by organisations are mentioned below:
High expenditures for promotion: promotional expenses refers to all those expenditures
that are made by an organisation in order to make their target customers aware about the new
product or service they are going to launch in market. This is cost incurred to communicate the
product and service in target market. When taking Innocent drinks into consideration there are a
number of product launched by company in regular routine which is to be communicated to all of
their customers. Marketing department requires high budget so that they can advertise products
via television, radio, newspaper and digital media. They also need to adopt various promotional
activities such as providing free samples which might generate customers for company in future.
Benchmarking: This is an efficient tool that determines the effects and objectives that
will be based upon other competitors in industry. This approach provides competitive benefit to
individuals. When taking Innocent drinks into consideration company might face some situation
of losses and then they might require to set up various benchmarks which might help to
determine a budget for each department. This will set a standard and help organisation in limiting
their expenses.
Financial Governance: It is an effective method used by organisation in order to collect
financial information which will further assist in developing accounting requirements.
Authentication of data is also devised with the help of it (Aureli and et. al., 2019). Future
decisions are made based on these authentic data and all these activities are managed well so
that no delay in decision making occurs.
Expansion: it is often possible that expansion plans of organisations are not resulting in
profits for organisation. Even after financial investments businesses do not succeed. Therefore
businesses are required to deal with such situation and invest smartly.
Comparison of two organisations of same industry:
Basis Innocent drinks Mars drinks
Introduction The products of innocent
drinks include juices and
smoothies. These are available
in supermarkets, coffee shops
and such stores. 90% shares of
Mars drinks deals with coffee
business. The company have
its operations in a number of
places including UK, Japan,
France, Canada and so on. The

company are acquired by Coca
Cola.
company approximately
consists of a workforce of 900
employees.
Financial issues Due to lock-down which is
caused due to pandemic of
COVID -19 people are
avoiding eating packaged
products which have resulted
in downfall for company too.
Company is facing
complications in meeting their
overall targets. Their profits
are differing from plan due to
incompletion of targets.
Management accounting
system
Company needs to efficiently
use cost accounting system so
that distribution of cost
including fixed, variable and
manufacturing can be done.
This helps is calculating
profits as well as revenues of
the organisation.
Company uses inventory
management system
effectively to make sure that
they reduce carrying cost
which is charged upon
inventory that company
posses.
Tools used Company can effectively use
tools such as promotion,
budget controls in order to deal
with the problems that
company is facing in the
present scenario.
Companies can effectively set
up benchmarks and focus on
attaining them by making
proper utilisation of resources
and making strategies for the
same.
M4 Ways in which management accounting helps in reducing financial problems
Financial management effectively helps an organisation in estimating and forecasting
their budgets. When considering budgetary decisions operational data is used by management
accounting in order to quickly determine the situation and take essential steps. There are a
number of other standard metrics that include present value, net present value, internal rate or

return and so on which helps in determining the actual amount of expenses organisations can
make. Financial planning when conducted properly also helps in decision making process within
an organisation.
CONCLUSION
The above report helps in concluding that there are a number of options present for
businesses in the field of finance with the help of which they can effectively increase their
productivity. Various tools of financial accounting will help management of a business to deal
with the problems that are coming their way. The pandemic caused due to COVID -19 is one
such external factor that has resulted in a number of businesses facing losses. This makes it
necessary for businesses to manage various aspects of financials and work on it in order to run
business smoothly in this crisis. This helps in concluding that financial management is a factor
that helps businesses to make best use of resources available and find out various ways to
manage resources.

REFERENCES
Books and Journals
Fleischman, R. and McLean, T., 2020. Management accounting: theory and practice. Routledge.
Hutaibat, K. and Alhatabat, Z., 2019. Management accounting practices’ adoption in UK
universities. Journal of Further and Higher Education, pp.1-15.
Geddes, B.H., 2020. Emerging Technologies in Management Accounting. Journal of
Economics and Business, 3(1).
Matsuoka, K., 2020. Exploring the interface between management accounting and marketing: a
literature review of customer accounting. Journal of Management Control, pp.1-52.
Taschner, A. and Charifzadeh, M., 2020. Management accounting in supply chains–what we
know and what we teach. Journal of Accounting & Organizational Change.
Pasch, T., 2019. Organizational lifecycle and strategic management accounting. Journal of
Accounting & Organizational Change.
Souza, G.H.C. and de Araujo PhD, J.G., 2020. Roles and Attitudes in the Management
Accounting Profession: An International Study. Management Accounting
Quarterly, 21(3), pp.1-9.
Dressler, S. and Rachfall, T., 2020. Improved Learning Performance Based on a Flipped
Classroom Concept—A Case Study Based on the Course Introduction to Management
Accounting for Business Engineers. In Flipped Classrooms with Diverse Learners (pp.
183-201). Springer, Singapore.
Ertl, C. and et. al., 2020. Ensuring the Success of Management Accounting Change in IT
Departments of Public Organizations. International Journal of Service Science,
Management, Engineering, and Technology (IJSSMET), 11(1), pp.142-156.
Aureli, S. and et. al., 2019. Traditional management accounting tools in SMEs’ network. Do
they foster partner dialogue and business innovation?. Management Control.