Management Accounting Applications & Sustainable Business Success

This report provides a comprehensive analysis of management accounting principles and techniques, with a focus on their application within the context of Innocent Drinks, a mid-sized company producing juices and smoothies. It begins by explaining core management accounting principles, including inventory management, job costing, cost accounting, and price costing systems. The report then examines the role of management accounting and its systems, highlighting the use of cost accounting reports, performance reports, and accounts receivable reporting. It presents calculations for an income statement using variable costing to demonstrate how financial reporting supports business growth and success. The integration of management accounting within the organization is evaluated, emphasizing the benefits of inventory management, cost accounting, price optimization, and job order costing systems. Furthermore, the report compares and contrasts planning tools used in management accounting, such as marginal costing and absorption costing, and assesses their effectiveness through examples. Case studies are used to compare the application of management accounting in dealing with financial problems and preventing them. The report concludes with recommendations for organizations on which methods to apply for sustainable business success.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
An explanation of the principles of management accounting.....................................................3
The role of management accounting and management accounting systems...............................4
The use of techniques and methods used in management accounting by presenting
calculations for an income statement using variable costings to show how these financial
reporting and statements support business growth and success..................................................6
Evaluation of how management accounting is integrated within the organisation.....................9
The benefits of the function to the organisation..........................................................................9
Conclusions that critically reflect the application of management accounting.........................10
PART 2..........................................................................................................................................10
Compare and contrast three planning tools used in management accounting, indicating how
effective you judge each to be and why. Your judgements should be supported by examples to
demonstrate advantages and disadvantages..............................................................................10
Using specific case studies as examples, compare ways in which management accounting is
applied, the effectiveness of management accounting in dealing with financial problems and
preventing financial problems in organisations........................................................................13
Provide conclusions and recommendations to the organisation on which methods to apply in
order to achieve sustainable business success, based on your findings and evidence provided.
...................................................................................................................................................14
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is the documentation, review, selection and processing process
efficient analysis of company documents by which managers settle about the best solution for
company. The middle-sized company Innocent Drinks which produces juice and smoothies is
selected to recognise the MA idea. MA also learned business accounting administration or
operations. The rate, inventory and work expense accounting framework where described in this
paper. This article includes the ways in which business reports are structured and how expenses
are measured using fixed and termination rates. It takes into account the advantage and downside
of forecasting methods through the use of MA techniques to solve the financial market challenge
to accomplish targets and to deliver cash flow efficiently to ensure long-term viability in the
economy.
PART 1
An explanation of the principles of management accounting.
Management accounting activities include business goals such as recognising the financial
implications of organisational decision making, monitoring investment and optimising profit.
MA concept concerns the nature of financial data processing, records and expectations,
management inadequacy, incremental absorption costs and accounting methodology comparison
(Epstein and Lee, 2015). Innocent Drinks uses valuable MA method for making the correct
decision is mentioned below:
Inventory management system: The IAS plays a significant role in the regulation of
keeping expenses and sales of the company of Innocent Beverages. Manager will create
stockpiles and inventory of goods using a centralised supply chain management system.
Corporate goods are generally the household products that are difficult to put on sale, even
though they are distributed in shops and delivered from the manufacturer on request. This
association helps in reducing the cost of maintaining and promoting products quickly and
efficiently.
Job costing system: This MA method is software that discusses the costs of each operation
undertaken by an organisation (Drury, 2013). To track and control the spending of the company,
each expenditure collection is then analysed to assess the volume of expenditures generated
within it. This MA system is required for Innocent products, which helps this management team

to watch the costs of jobs such as wrapping and distributing. In able to identify its spending, the
company utilizes cost-per-take methodologies.
Cost accounting system: This system is necessary which businesses use to quantify the
costs related to the manufacture and selling of their products. This accounting metric is useful for
Innocent product management since it can assess which products are more price-involved, and
then it can decide whether they are actually worth spending a large portion or if they can gain a
considerable market share. This approach is often used by the business to calculate the value of
its products and to choose the range of products that is more efficient and competitive on the
marketplace.
Price costing system: This model of communication relies on a technique based more on
economic principles than on research and machinery (Hiebl and Richter, 2018). Innocent drinks
would need this initiative because even if, management set the standards on all their products in
a really way as to result in increased profits on the business which could also be a product with
the top importance for its efficiency, such that customer satisfaction can also be achieved.
The role of management accounting and management accounting systems.
MA records seem to be the documents produced by the collection of accounting information
within these documents so that managers can explain their proposals and actions as evidence of
policy growth. Different documents are published within MA of innocent drinks which serve as
financial management techniques since these papers are the method to help implement the
accrual accounting. These are discussed below:
Cost accounting report: This cost financial analysis process aids a corporation in
conductiThe benefits of the function to the organisation.ng its audit mission seamlessly,
since this research is created in an expense framework where almost all prices of each goods of
the company are listed (Jermias, Gani and Juliana, 2018). This report provides Innocent drinks
administrators with pricing of all the delivered products from the business and divides all other
things by static, semi-variable and also fixed operating expenses to assist in decision-making.
Performance report: This is one of the most important MA document not correlated with
numerical sales or expense concerns but correlated with growing employee productivity in a
sector. This research is generated by the HR department of a company, which focuses on the
performance reviews of the 360-degree staff. Innocent drinks sees their staff person as perhaps
the most important resource through which they establish this report to determine the

performance targets of their employees. This research seeks to efficiently enhance the
productivity of the workforce and the entire business.
Accounts receivable reporting: This form is considered appropriate to major corporations
or organisations engaged in multiple cash deposits collected regularly (Kaplan and Atkinson,
2015). This account receivables overview includes the inflow cash payments made by a
corporation to maintain a track of the funds the company regularly receives for its operations.
These two inflow properties impact company revenue. Innocent Drinks finance department is
responsible for setting up such a platform, taking into consideration the financial condition of a
company, it may well be that the organisation creates an integrated receivable accounts ability to
track the working capital in its business efficiently, rather than to continue to make successful
methods.
Management accounting
system
Benefits and application
Inventory management This system is beneficial as it helps to track the inventory,
improve performance and increase efficiency of business
organization. By applying this Innocent Drinks can get
information about inventory and track the stock for the purpose of
increasing sales.
Cost accounting This system helps to eliminate wastes and losses of production for
the purpose of increasing profits. By application of such system
Innocent Drinks improves method of production, identify reason
for profit and loss and, maintain a reasonable cost of products and
its services (Armstrong, 2014).
Price optimization system This system is useful to set the prices of products and services
that maintain demand and supply equally. By application of such
system organization can decide cost of JOJO fruit juice that
attracts people.
Job order costing This is beneficial as Innocent Drinks allocate cost in to separate
projects and determine the profitability by estimating cost of
products. By applying such system manager of such organization

can analysis cost of raw material and finished products for the
purpose of determine profits.
The use of techniques and methods used in management accounting by presenting calculations
for an income statement using variable costings to show how these financial reporting and
statements support business growth and success.
The cost can be mentioned as a company's monetary interest in creating information, so it
decided to donate some certain amount of money that a company often used construct or produce
goods and services. Most common cost approach that used innocent drinks for the preparation of
income statement for determining operating revenue is mentioned below:
Marginal costing:
This could be characterised as a costing system which describes the operational costs
whether as the stock cost, while fixed costs are seen as the period cost. Efficient business accrual
managers are using this costing process to develop the income statement of an organisation by
separating all of the accruing operating expenses of an organisation into just dependent variables
and variable groups (Novas, Alves and Sousa, 2017). Companies must use costing technique to
measure the projected income advantage and determine the firm's revenue from considering all
variable costs.
Absorption costing
It is a costing approach which here considers both variable and fixed operating costs as
commodity prices. That is an accounting costing tool used to identify all of an organisation's
borne expenditures. This system is known like a more progressive model mostly because it
separates the expenses of an organisation into both variable and fixed, but also separates an
organisation's expenditure into production and sales expenses, through which the level of the
share price is sometimes evaluated against the net revenue approximation.
Income statements
Marginal costing:
Particulars April £ May £
Sales revenue 56000 70000
Less: Marginal cost of sales 20000 25000

Variable manufacturing cost 30000 30000
Opening stock 0 10000
Closing stock 10000 15000
Contribution 36000 45000
Less: Fixed cost
Fixed Non-Manufacturing Cost 5000 5000
Fixed Manufacturing Overhead 18000 18000
Net profit 13000 22000
Working 1:
Marginal cost per unit April £ May £
Variable production cost 30000 30000
Number of units produced 6000 6000
Per unit cost 5 5
Absorption costing:
Particulars April £ May £
Sales 56000 70000
Less: Cost of goods sold 32000 40000
Variable Manufacturing cost per
unit 30000 30000
Fixed manufacturing cost 18000 18000
Opening stock 0 16000
Closing stock 16000 24000
Gross profit 24000 30000
Less: Fixed non-manufacturing
cost 5000 5000
Net profit 19000 25000

Working 2:
Absorption cost per unit April £ May £
Variable Manufacturing cost per
unit 30000 30000
Fixed manufacturing cost 18000 18000
Total cost of goods sold 48000 48000
Number of units produced 6000 6000
Per unit cost 8 8
Reconciliation statement:
The benefits of the function to the organisation.Particulars April £ May £
Profit/loss under marginal costing 13000 22000
Add/less: Closing stock 6000 3000
Profit/loss 19000 25000
Profit/loss under absorption costing 19000 25000
Calculation of BEP:
BEP (In units)= fixed cost/contribution per unit 12727.27
BEP (In revenues)= Fixed cost/PV ratio 763636.36
Calculation of MOS:
Margin of safety (In units)= Budgeted sales units-BEP in units 7272.73
Margin of safety (In revenues)= Budgeted sales revenue-BEP in
revenue 436363.64
Working 3:
Particulars £
Variable Materials 20
Variable Labour 14
Other Variable Costs 12

Variable Administration and Selling 3
Variable cost per unit
£ 49 per
pack
Working 4:
Particulars £
Fixed Production Cost 80000
Fixed Administration and Selling 60000
Total fixed cost £140000
Working 5:
Particulars £
Selling price 60
Variable cost per unit 49
Contribution per unit (S-V) 11
Working 6:
Particulars £
Selling price 60
Contribution per unit 11
PV ratio (C/S*100) 18.33%
Evaluation of how management accounting is integrated within the organisation.
After critical evaluation it can be concluded that management accounting system and
accounting reports are integrated with organizational processes. By using Inventory management
system and report manager of Innocent Drinks can track stock that helps in organization
processes. Organization uses different accounting system such as inventory management, job
order costing, cost accounting and price optimization system that are related with management
decision for organizational process. Accounting reports and systems helps Innocent Drinks to
focus on production by using all system and reports and improve profitability. They helps to give

information about raw material, cost of product and price then prepare accounting reports for the
purpose of good business operation within organization. The combine application of the
management accounting system and it reports are aligned with the function of the organization
process. These are integrated with each other to find the common objectives of the business. In
the Innocent Drinks, accounting reports like performance reports, inventory reports with the help
of accounting system of application of the cost effective system. This concept is explained as
costing system integrated in production to know the actual cost of the project of the organization.
By applying these tools in the business an organization can gain the capacity and productiveness
of the organization. That's the reason management accounting system and reporting are
connected within the organizational process.
The benefits of the function to the organisation.
Management accounting techniques are useful in preparing the financial statements. As
management tools provides a structure for the different kind of financial aspects. In this report
section of financial statements are prepared in in relevance with the company by using the
costing techniques marginal and absorption costing. These costing tools are based on the
activities based techniques. The activity based costing method is based on the calculative the cost
of every activities and task
Financial reports is consider as annual report which is prepared by managers end of year
to get profits and losses from business. The main aim is to use proper management accounting
system and prepare financial reports that helps to perform business activities effectively.
Innocent Drinks is a manufacturing company that provides different products to its customer also
manufacture fruit juice that attracts people and increase profitability. Income statement of
Innocent Drinks states that net profit in November month (79000) under absorption method and
in December net profit is 83000 that is higher than prior month. Where as by using marginal
costing technique profit in the November month was 61000 and in December month profit is
101000 which is higher than last month. Manager of such company prepare financial reports and
apply within organization for the purpose of maintaining profits. It also has been analysed that
financial reports helps to know the gap between income and expenses which can incurred within
business organization and make decision regarding production and profitability.

Conclusions that critically reflect the application of management accounting.
Organization uses different types of planning tools such as cash budget, master budget
and operating budget that helps to set the future plans for maintaining profits. By applying such
tools Innocent Drinks can estimate budgets and planning accordingly. Its aim is to analysis the
tools according to targets and forecast budget ahead. The manager of Innocent Drinks apply
planning tools for evaluating business performance and then prepare plans that helps to maintain
profits. Therefore, planning tools are useful for organization to make plans for future and run
business effectively. Planning tool and techniques are used in the business to approximation of
the budgeting control system in appropriate manner. These budgeting process related to forecast
the future situation of the processing and budgeting requited detail planning of the business
functional operation. As the master budgeted provides the detail of all budget that help in
estimation of cash, production unit, sales level and other expenses that may occur in the business.
PART 2
Compare and contrast three planning tools used in management accounting, indicating how
effective you judge each to be and why. Your judgements should be supported by
examples to demonstrate advantages and disadvantages.
A budget could be defined as an estimation of income and expenditures over a specified
timeframe which is determined on a timely basis. Budgetary analysis is a performance control
system in which the current sales and expense forecasts are calculated and compared with the
projected expenses and income, in order to identify volatility and variance and to take necessary
measures to raise productivity. Budgetary administration has several ways in which one can
control the company, such as having a comprehensive set of initiatives, carrying out fund
assessments, maintaining the funds open, and monitoring actual budget spending (Sims and
Smith , 2016). Methods of preparation are the instruments which an organisation uses to manage
strategies for the coming years. These methods are used to control a business's budget proposals;
in the sense of Innocent Drinks, a few of these strategies and their advantages and harms are
mentioned below:
Production schedule: This method of analysis aid the organisation such as Innocent Drinks
plan for its growth prospects by monitoring its currently estimated operating costs as well as the

anticipated manufacturing facilities. Creation of such manufacturing costs is often used as a
traditional method of estimating financial control in an organisation.
The benefit of such a framework will be that it allows the different production expenditures
such as direct procurement costs, direct production costs and other running costs to be quantified
separately where the Innocent drinks will be using that expenditure plan to assess the source of
the problem due to whereby the expenditure plan has already been run over. It also supports to
identify the manufacturing process that affects the company prices, such that measures are taken
to eradicate those processes. The downside of this approach is that it's really complicated to
divide each expense into a category, as the form of spending is also difficult to identify.
Master budget: This planning method is indeed a traditional budget designed to minimise
the activities of the top management of an enterprise (Soderstrom, Soderstrom and Stewart,
2017). All expenses are combined into one system, meaning the revenue is generated as
businesses like Innocent Drinks Management will wants to equate their respective budgets.
Regarding the above review, the benefits of master budget could be presumed to be because it
helps save space and presents a comprehensive summary within each procedure inside the
company. Like every other technique, this budget has its disadvantages which lack detailed info
due to that there is even more space for unpredictability. It also needs skilled personnel to
consider and predict potential estimates as a result about which the employee's work expense
rises.
Zero-based budgeting: This type of planning is a modern and creative way of fiscal
control, where all investment is clarified for each year not through replacing the usual formula
for particular years. This proposal includes elements that are primarily relevant to a certain future
period and making it more appropriate for project financial planning instead of whole
organisations.
Profit from this approach in the form of innocent drinks would be that it offers the
justification behind all expenses that saves the business from whatever economic crisis. It also
encourages creating a new expenditure plan for each new job or commodity that is introduced it
for the first period inside the organisation in orders to evaluate real profitability. The
disadvantages of this approach are that in short-term planning it also helps so this requires
producing high knowledge, money and energy (Yalcin, 2012).