Management Accounting Systems: Requirements, Methods, and Adaptation

This report provides a comprehensive overview of management accounting, focusing on its essential requirements and various management accounting systems. It discusses different methods used for management accounting reporting, including budget reports, accounting receivable ageing reports, job cost reports, and inventory and manufacturing reports. The report also covers cost analysis techniques for preparing income statements using marginal and absorption costs. Furthermore, it explores the advantages and disadvantages of different planning tools used for budgetary control and compares how organizations are adapting their management accounting systems to respond to financial problems, using innocent drinks as a case study. The report aims to provide a thorough understanding of management accounting principles and their practical application in a business context.

Management
Accounting

Table of Contents
INTRODUCTION......................................................................................................................5
MAIN BODY.............................................................................................................................5
TASK1.......................................................................................................................................5
P1 Explain management accounting and give the essential requirements of different types
of management accounting systems.......................................................................................5
P2 Explain different methods used for management accounting reporting...........................7
TASK2.......................................................................................................................................9
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs......................................................................9
TASK3.......................................................................................................................................9
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control...................................................................................................................9
TASK4.......................................................................................................................................9
P5 Compare how organizations are adapting management accounting systems to respond
to financial problems..............................................................................................................9
CONCLUSION..........................................................................................................................9
REFERENCES.........................................................................................................................10
Books and journals...............................................................................................................10

INTRODUCTION
Management accounting refers to the function in a business organisation which is
related to managing various accounting information and helps all the stakeholders of the
organisation to effectively identify the financial position of various accounts in the business
(Otley, 2016). When taking the following report into context innocent drinks which is a
company producing smoothies and juices usually sold at various retail sector is taken into
consideration. The report discusses about the requirements of management accounting for a
business and different types of management accounting systems. Various methods used for
reporting of management accounting is also discussed in this report along with appropriate
techniques for cost and Alices. A number of advantages and disadvantages of different
budgetary control tools are also discussed in the report along with comparison between
various management accounting systems which are adopted by an organisation to solve their
accounting problems.
MAIN BODY
TASK1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems
Management accounting is a process in an organisation which relates to valuation of
various accounts and determination of them in a financial term in order to understand
financial position of company and various information about its management of finance.
When taking organisation into context management accounting is in accounting which
provides the organisation with the particular process in which identification of the position of
company can be done in order to achieve its goals and objectives.
As per the Institute of management accounting management accounting is a field of
management in which management of finance and cost of accounts for an organisation is
taking place in order to take various decisions and increase the performance of business. The
following system is associated with the current financial position of the company and
analysis of financial accounting system which provides a standard in order to determine
position of company in competitive environment (Langfield-Smith, Thorne and Hilton,
2018). Management accounting is also affectively used in order to control and monitor

various cost of different products and services which are offered by an organisation and
different activities which can involve all the process of business.
When taking innocent drinks into context there are number of benefits which are
brought by management function mentioned below:
Profit maximisation: Management accounting can be effectively used by an
organisation to maximise their profits as the management of cost of an organisation is directly
related to different activities which are going on in the business. When taking the help of
management accounting and organisation can easily identify their cost and reduce them in
order to make sure that they are earning profit within the market.
Efficiency booster: management accounting is an effective tool which is used by
employs in order to increase the efficiency of business and various resources which are used
by the organisation. Management accounting also effectively helps in managing different
accounts and identifying all the cost which are involved and directly related to various
performances of individuals in an organisation (Hopper and Bui, 2016). It effectively helps in
increasing the efficiency of human resource while they’re working on a job as there are tools
present in management accounting which helps in measuring their productivity as well.
Arious systems which are used in management accounting:
Price optimisation: Prize optimisation is an effective tool in management accounting
which is used by businesses in order to identify the response of their customers as per the
services which is provided by organisation to them. It is necessary to understand and
calculate the satisfaction of consumers and the value they are receiving for the price they paid
(Cooper, Ezzamel and Qu, 2017). It is necessary for innocent drinks in order to deter mine
what can be the actual cost of their products to customers and how much are they ready to
expend for their products and services. The major objective for pride optimisation system is
to increase profits of a business. They use a number of different strategies as well as
structures for the products and services offered by them in competitive environment.
Inventory management system: Inventory management system is an important part
of accounting system in which major focus is paid upon managing various inventory is in
organisation including unfinished goods, work in progress, finished goods and so on. There
are a number of methods such as FIFO, LIFO which are used in inventory management
system. This helps in organisation of different inventory is in the business effectively.
Cost accounting system: cost accounting system relates to that part of accounting in
which all cost of the businesses identified and listed down in order to determine the cost
which is used for production of products and services in business. It is necessary for every

business to adopt a cost accounting system in order to determine various cost such as
operating cost, variable cost, fixed cost, absorption cost and so on. The management
accounting also include various diagrams and charts in cost accounting system. There is a
chart used called as marginal cost chart which can help in understanding the increase in cost
every extra unit produced (Quattrone, 2016).
Job costing system: Job costing system is a part of accounting system in which all
the cost and expenses in a business are identified based on various jobs. These expenses are
usually related to development of different products and services based on particular
activities in business. These activities usually include sales of different products, purchase of
various products and a number of operations in the organisation. This is an effective system
in management accounting which is used by a number of industries which follow a
manufacturing process (Nitzl, 2016). It is necessary for organisation to identify the cost
which is involved in different activities so that they can effectively cost the product which is
the end result of all those activities. Innocent drinks uses this system in order to identify and
determine what is the actual cost of all the activities in business and how can they manage
their expenses in order to earn maximum profit. It is also seen that there are a number of
different functions performed in management accounting system. Management accounting
system of a business has great impact on its working and it is necessary for businesses to use
an efficient system of management accounting in order to identify position of company in the
market.
P2 Explain different methods used for management accounting reporting.
Management accounting reporting
The account reports are considered to be a necessity for every organisation as it helps
in completing the performance picture of the business and its position in the market
effectively. When taking innocent drinks into consideration it is necessary for organisation to
make sure that a valid accounting report with perfect audits of every quarter is created in
order to identify the position of business in competitive environment. Accounting reports are
also often called as financial status of business which helps in representing specific data for a
specific period of time effectively. These reports can be used to determine financial position
of business in market. They also helps in data mining future position of business by
identifying its current position. Various reports of accounting are discussed below:
Budget report: budget report can be effectively referred to a fundamental report on
organisation which includes all the expenses and incomes which will be taking place within a

given time period. It is necessary for the owner of business to understand that they need to
control their expenses taking place in the organisation (Turner, Way, Hodari and Witteman,
2017). The following report helps to provide data in an organisation which can be used by all
the departments for decision-making and radius expenses. The valuation of past expenses and
forecast of future expenses is done in order to create a budgeting report for the company. It
also helps businesses in effectively identifying their cost and cutting down cost at every step
in various business departments.
Accounting receivable ageing report: these are another type of accounting reports
which are used in an organisation to deal with their credit customers. It helps the organisation
in identifying all the customers those who are debtors for the company and the company is to
receive the payment. The customers or who are debtors for company are divided into various
classifications such as 30, 60 and 90 days credit period. There are different credit policy is
derived in business for these different categories of customers and the customers paying late
are also charged differently with different interest rates in it.
Job Cost report: Job cost reports consist of all the different reports which are
somehow directly related to the total cost which will be used on a single project. However in
this the cost for every job or activity is divided differently into various small farms. It is
necessary that organisations are effectively performing in a retail industry while managing all
their costs (Hall, 2016). It is also helping all the leaders in a business organisation to evaluate
profits of different decision making in their business. Optimisation of all the resources of a
business is possible when job cost report is created and closure of different operations related
to different jobs in business can be effectively conducted with the help of a job cost report.
Inventory and manufacturing report: our inventory and manufacturing report
includes all the physical products in a business which is manufactured in the organisation. It
helps the organisation in identifying all the processes involved in inventory and
manufacturing which also helps the business to centralise all the data related to inventory cost
labour. There are a number of different production processes which are used by a business to
convert their raw materials into finished goods as well as management of all the machinery
and tool in business which is described in this following report.
With the help of other information it can be clearly evaluated that accounting reports are in
important function to be managing business which will also help in identifying future
opportunities available in business environment. The budget of a reports such as account
receivable aging reports and job costing report are also used to identify various cost, tools and

techniques which will be used by organisation in order to achieve all their objectives and
goals affectively (Qian, Hörisch and Schaltegger, 2018).
TASK2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs.
Income statement: Income statement refers to a document which defines profit of an
organisation for a stipulated time period. It describes all the revenues of the organisation
which is then converted into net income and the net profit after adjusting all the expenses
made in the organisation. Major purpose of an income statement in an organisation is to
depict the financial standing of the business in competitive environment. It is necessary for a
business to prepare its separate income statement in order to communicate the profits of
organisation to all the stakeholders and influence customers towards the business.
Absorption Cost: Absorption cost refers to a kind of cost that includes all the cost of
manufacturing in an organisation. It is not only the cost of materials and human resource used
for manufacturing but overheads including fixed and variable overheads are also included in
it. The major reason behind using concept of cost of absorption is to distribute all the
overheads to different departments and particularly identify what are the cost required by
each department in the organisation.

TASK3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
Budget: Budget refers to a statement which defines all the estimation of cost,
revenues, expenses and profitability in a business for a specific period of time. It is necessary
for an organisation to ensure that internal management in an organisation is managed
properly according to all the standards policies and procedures in business. Budgetary control
refers to a technique which is used to determine various expenses in organisation based on
revenues which is forecasted by the organisation. After this forecast the calculation for
budget is made.
There are various tools that are used for different purpose of budgetary planning:
Flexible budget: Budget is a tool used by businesses in order to manage all the
activities according to the requirement in the organisation. Innocent drinks uses it to monitor
their revenues based on the standards fixed by the organisation for a specific period of time.
Benefits: Flexible budget is used in a business in order to determine the level of
production which is required. Also revenues of a business for specific time can be predicted
with the help of flexible budget. Flexible budget is also used in organisations to minimise the
cost of inventory.
Limitations: in order to efficiently apply flexible budget in an organisation it is
required to train the staff in a proper manner and work accordingly for the requirements
which may arise in future. Flexible budget is financially viable to a number of organisations
as monitory compensation is required to pay trained staff using it.
Master budget: Master budget consist of a lower level of budget which is divided
into a number of different budget for different departments. A summation of all this budget is
combined together which is then known as master budget. There are a number of a financial
instruments used in master budget which include financial planning, budgeted statement, cash
of forecasting and so on. In context to innocent drinks the company firms a master budget
once a year which is applicable for financial year in the organisation.
Benefits: This budget is used as a summary of all the management information in an
organisation. It is also helpful in reflecting all the expenses as well as revenues for different
departments. It summarises all the different budget together so that the stakeholders can
verify budget at once.

Limitations: It is difficult to bring in changes in a master budget as the changes may
require a lot of time and effort’s. Flexible budget is more helpful in bringing in change from
time to time. It is necessary for organisations to change their budget as per the changing
moods of environment which cannot be done in a master budget.
TASK4
P5 Compare how organizations are adapting management accounting systems to respond to
financial problems.
Financial issues in a business are related to limited supply of resources of finance.
You are a number of issues which take place in an organisation due to default of financial
managers or miss presentation of data by the financial managers. Some of such issues are
mentioned below:
High expenses: It is often seen that the finances which are allotted to different
activities in a business are increased due to change in market situation. When taking innocent
drinks into consideration the company have to communicate their products and services into
market due to which they required to spend on various promotional tools. It is often seen that
the budgeted expenses for promotion is exceeded due to changing market environment.
Financial governance: National governance is a set of policy and procedure that is
used by an organisation in order to gather necessary information regarding to finance. It is
necessary for businesses to enhance the authenticity of all the financial information which is
gathered by the managers in order to take future decisions in the business. Financial
governance helps a business in fast decision making in order to grab the opportunities in
market.
Benchmarking: benchmarking is an approach which is used in business organisations
to carry on all the work according to the fixed standards and policies. It is necessary that
every organisation is creating benchmark regarding their financial usage in order to carry on
the Work effectively. A number of times organisations cannot fulfil the requirement of
benchmark due to which issues might arise.
In order to analyse two different organisations below discussed is a differentiation
table which will help in understanding various issues arising in companies in same industry:
Basis Innocent Drinks Mars Drinks
Introduction Innocent drinks is a
company dealing in
Mars drinks have specialised
in beverages such as coffee.

production and sales of
juices, SMOOTHIES which
are usually sold in various
coffee shops and
supermarkets. Coca-Cola
manages the brand.
They show their presence in
countries like Canada, USA,
UK and France.
Issues Company have noticed huge
decrease in their revenues
since the end of quarter in
March 2020. The reason for
this is COVID-19 as people
are now preferring to ear
inside.
Meeting the sales target
becomes difficult for the
organisation.
Management accounting Management accounting
refers to a branch of cost
accounting which is used by
businesses in order to
ascertain the cost such as
fixed cost and variable.
Innocent drinks is taking
benefits from management
accounting through creating
promise of scale and
spreading its fixed cost on
large quantities produced in
business. This helps in
reducing the variable cost
used for production bringing
in more profits for the
organisation.
Financial department in
mast drinks is effectively
using inventory management
system which helps them to
manage their inventory
including raw materials,
work in progress and
finished goods.

CONCLUSION
With the help of above-mentioned report it can be clearly concluded that management
accounting is important part for every organisation as it helps in identifying various factors
related to financial position of business in the market. When taking innocent drinks into
consideration it is found that management accounting is affectively helping business to
maximise its professional stability and increasing its efficiency as well. There are a number
of different systems such as inventory management system, cost accounting system, job
costing system and price optimisation system which are used by organisation to achieve its
business objectives affectively management accounting report is attention for a business as
The helps in functioning of business and managing all its expenses in order to achieve its
goals and objectives.