Management Accounting Report: Decision Making for Oshodi PLC Success

This report provides a comprehensive analysis of management accounting practices within Oshodi PLC, a small manufacturing company. It explores various management accounting systems, including price optimization, cost accounting, inventory management, and job costing, and their benefits. The report details different types of management accounting reporting, such as budget reports, account receivable reports, performance reports, and job cost reports. It then produces income statements using both marginal and absorption costing methods for November and December, demonstrating how these techniques aid in financial reporting. Furthermore, the report examines planning tools for budgetary control and defines financial problems, comparing different organizations through the lens of management accounting, ultimately emphasizing the role of management accounting in achieving sustainable success.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting and different kind of management accounting system............1
P2: Different types of management accounting reporting.....................................................3
M1: Benefits of management accounting systems.................................................................5
TASK 2............................................................................................................................................6
P3: Produce income statement by using marginal or absorption costing method..................6
M2: Apply accounting techniques to produce financial reporting documents.......................8
TASK 3............................................................................................................................................8
P4. Planning tools for budgetary control................................................................................8
M3: Application of planning tools for preparing and forecasting budgets..........................10
TASK 4..........................................................................................................................................10
P5: Define financial problem and comparison different organisation by masking the use of
management accounting system...........................................................................................10
M4: Management accounting in response to solve financial issue that can lead to the
sustainable success...............................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
In the business world, there is a urge need of an effective and systematic approach which
enable management to control and manage different operation and activities in appropriate
manner and take decision to maximise output. Management accounting is refereed to be an
impressive approach that includes valid collection of financial information, making of
appropriate plans, taking useful decision that will help to increase the profit margin so easily
objective are accomplished (Alenius, Lind and Strömsten, 2015). To better understand the
importance of management accounting Oshodi plc have been selected that is a small
manufacturing company.
In this report, several management accounting system are discussed that help to make
decision and resolve financial issues, management report the analyse the internal performance
are elaborated. Costing techniques are used to prepare income statements which help in
determining the net profit for the year. In this report, planning tools are implemented in order to
prepare budgets and make effective solution to problems faced by company.
TASK 1
P1: Management accounting and different kind of management accounting system.
Management Accounting: It is also known as managerial accounting is a method which
prepare and present the historical and current financial and non-financial data in such a
professional way that it may assist the top administration in effective planning and decision
making process. The data and information provides by management accountant is used by
internal stakeholder specially the managers in order to strategic planning, risk management,
performance evaluation, etc. This accounting method uses various systems to help it in achieving
its objectives.
Management Accounting Systems: In order to provide information and content to
managerial accounting process, management accounting system has been evolved. With the help
of data provided by this system, managers are able to generate various accounts, reports, budgets
and strategies which eventually help the management in taking appropriate decisions and co-
ordination between revenue and expenses. The administration of Oshodi Plc. Uses different types
of this system so that impressive and effectively helpful accounts and statements can be created
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for assisting the management so that organizational objectives can be decided potentially. Some
of the systems that are used by respective company are described as under:
Price Optimisation System: Managerial accountants of the selected firm utilized this
system to decide the optimum price for its fruit juice products for different age brackets. In price
legitimisation system, different cost models and various sales price models are created and
presented to the customers (Arunruangsirilert and Chonglerttham, 2017). After that consumers'
reaction and behaviour is analysed towards different price brackets. Then again an optimum cost
and sales model is prepared which is according to the customer requirements and desired profit
margin of the company as well. This system is used to gain required profit and maximum
customer satisfaction.
Cost Accounting System: Cost accounting system is generally deemed as management
accounting system but it is just a part of managerial accounting which revolves around cost
calculation, cost optimisation and cost reduction. This system is used by the client company to
find out the cost incurred in manufacturing and production of its fruit juice products. This system
also assists the management to eliminate unproductive and unnecessary costs so that cost of
production can be reduced and profitability margin can be increased with available sources. In
order to control the cost, it also improve the performance of employees working within the firm.
Inventory Management System: In a manufacturing company like Oshodi Plc, its
inventory is the main source of its income hence a proper record and management of inventory is
crucial for the respective firm. Inventory management system helps the managers in tracking
each and every movement of a single unit available with the establishment. It keeps all the
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information from purchase of raw material to dispatch of finished goods and goods returned as
well. Further this method also helps in choosing optimum method to evaluate the value of
inventory. For better operations of inventory, the client company uses inventory management
software which also helps in solving customers' queries regarding products.
Job Costing System: This costing method is used when every unit of the manufactured
product is sufficiently different from the other units. In case of Selected company, different type
of juices differ from each other because of the age brackets hence job costing system is used by
the managers to find out the cost of every batch so that prices of the products can be decided
accordingly. Job costing system is also helpful in examining the performance of the employees
and rewarding them according to their efficiency (Sugahara, Daidj and Ushio, 2017).
P2: Different types of management accounting reporting.
These are internal reports made for the Oshodi PLC management body to take hard
decisions for the future based on the insights received from the reports. These reports help
management by giving them quantitative data needed (Chandler, 2017). This data is inferred by
the executives of the organisation to identify future growth potential of the firm, product
feasibility analysis, cost benefit modelling of the ideas and other tough managerial decisions.
Management accounting reports are of more importance to small business owners need critical
financial data to design its short term as well as long terms objectives and decide the longevity
line of the business. These are various kind of reports which are used by managers at Oshodi
PLC to gain business segment knowledge. Some of them are as described :
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Budget report: This report gives a brief knowledge about the budgets allocated to
different business activities in Oshodi plc. It gives the management an idea about the budgeted
targets for each department. This helps the management in monitoring the performance of each
unit by tracking their skewness from budgeted position to the actual outcome. Budget reports
also helps in checking the profitability of the business and measuring cost centre for cost
allocation to individual unit engaged in production and by product activities. Budget reports also
depends on the size of the organisation. In Oshodi plc. annual budgets report are prepared by
manager on a big scale so that monthly sales projections can be done and entire team member are
communicated regarding these targets.
Account receivable report: This report is prepared to ensure that the flow of cash
inwards and outwards be maintained at Oshodi plc. This report contains details about the bills
receivables, cash invoices, interest receivables, with due date and details of the debtors. It helps
the organisation in not missing any payment from receiving. This report also provides summary
of the total inflow and outflow of cash during a period which helps in conducting liquidity
analysis (Cooper, 2017). This report provides broad framework to manager of Oshodi plc that
helps them to make decision related to credit & cash management system. So that co0mpanmy
have enough funds which support to run other business operating profitable manner. This report
is used for 'ageing' the information for successive years. This report helps in establishing a
centralised data management system which is been built to track the funds processing via fluent
mediums.
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Performance report: This report is based on the key performance indicators which
provide quantifiable data set to discover the performance standards for evaluation. This report
helps Oshodi plc's management in restructuring or redesigning work related systems into more
precisely designed scientific system to ensure that they turn out to be more productive for the
firm. This report evaluates the total variation from the budgeted position to the actual position.
In Oshodi plc's this reports ascertain the imbalance in the performance parameters of each factor
of production and labour working on different production activities. This report ensures that all
financial and non financial benchmarks are met and the degree of non compliance owing to the
standards set.
Job cost report : This report helps the business in identifying the costs assigned to each
job factor and the conversion rate of the job into profit. This report defines the profit making,
cost effective and revenue enhancing capacity of each individual unit of production. This report
also helps the management in ascertaining the cost to profit conversion capacity of each project
which helps the organisation in prioritising the most profit making projects to least profitable
one's (De Loo, Cooper and Manochin, 2015). This reports helps in conducting each job category
accordingly in respective firm so that overall cost involved different jobs within specific time
period are determined. Job cost report also support to make better decision related to reduction
of cost that directly increase the profit margin.
M1: Benefits of management accounting systems.
Price Optimisation System  It is the mechanism that helps the Oshodi plc's to select
the appropriate price in order to increase the
company's general profit margin.
 In Oshodi plc's, in order to gather the information
regarding customer expectation related to product
price this system is most beneficial.
Inventory Management
System
 This can readily decrease the stock-keeping issue
within the Oshodi plc's that is beneficial to increase
revenue.
 It support to reduces the Oshodi plc's time, money and
even energy that is further used on other operating
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activities.
Cost Accounting System  In Oshodi plc's this system helps to determine the
actual cost incurred on different activities and remove
unwanted expenses.
 It help manager of Oshodi plc's in order to find
adjustments in the price trend within the organization
readily (Elmassri, Harris and Carter, 2016).
Job Costing System  Manager of Oshodi plc's can easily estimation costs by
measuring previous outcomes acquired by costing
jobs.
 This system in Oshodi plc's is effective to rise profit by
eliminating unprofitable activity and adding
professional jobs within
TASK 2
P3: Produce income statement by using marginal or absorption costing method.
Marginal costing:It relates to an approach to calculate income which specifically
classifies costs and expenses as variable and fixed.
Income statement by marginal costing for month of November and December.
Particulars November (£)
Sales 50 500000
Less: Cost of sales
Direct Material Costs 18 -180000
Direct Labour costs 4 -40000
Variable Production Overheads 3 -30000
Contribution 250000
Less:
Variable selling overheads (10% sale value) 10000*5 -50000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
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Fixed production overheads -99000
Net Profit 61000
Particulars December (£)
Sales 50 600000
Less: cost of sale
Direct Material Costs 18 -216000
Direct Labour costs 4 -48000
Variable Production Overheads 3 -36000
Contribution 300000
Less:
Variable selling overheads (10% sale value) 12000*5 -60000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Fixed production overheads -99000
Net Profit 101000
Absorption costing: Where as this approach of costing focuses on accumulation of all
fixed and variable production expenses as cost of goods sold (Vann, 2016).
Income statement by absorption costing for month of November and December.
Particulars November (£)
Sales 50 500000
Less: Cost of sales -340000
Gross profit 160000
Variable selling overheads (10% sale value) 10000*5 -50000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Under/over absorbed prod expenses 9000
Net Profit 79000
Particulars November (£)
Sales 50 600000
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Less: Cost of sales -408000
Gross profit 192000
Under/over absorbed prod expenses -9000
Variable selling overheads (10% sale value) 12000*5 -60000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Net Profit 83000
Working note:
Cost of good sold November December
Opening inventory - 68000
Sales units 340000 408000
(-) Closing inventory -68000 -
272000 476000
M2: Apply accounting techniques to produce financial reporting documents.
The financial manager of the business can pick different techniques that vary from one
organization to another for the preparing of the financial reporting record. These papers assist
both inner and external parties to create stable decisions and work effectively as inner members
can define their performance and set approaching standards (Grifell-Tatjé and Lovell, 2015).
With regard to the Oshodi PLC manager, retain the regular track that is lastly used to produce
statements such as economic or income statement that establish the corporation's real situation.
The economic manager can therefore opt for an effective accounting technique like marginal and
absorption costing to generate a reasonable outcome. In addition, marginal costing enables the
business define net operating income based on expenditure fixed and variable. On the opposite,
the cost of absorption is being used to achieve gross profit by which business can compromise on
the retail price. From the above income statements it has been determined that net profit from
marginal costing for month of November is 61000 and for December it is 101000 GBP
respectively. On the other side net profit by using absorption costing during month of November
is around 79000, whereas figures from absorption costing in month of December is 83000 GBP. It
has been observed that there is a major difference between the profit from both methods because in
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marginal costing fixed production overheads are considered while calculating net profit. In
absorption costing fixed production overheads are absorbed under cost of good sold.
TASK 3
P4. Planning tools for budgetary control
Controlling budgetary expenditure is an important measure which every organisation
must pursue in order to be cost effective along with being profitable. The Oshodi plc's
management has designed a system of planning tools which contains various budgets which all
together help the organisation in saving costs. These tools have different significance. Planning
tools assist the managers in planning for the big turns in pursuit of which an organisation
prepares a budget. Some major planning tools are as follows :
Operating budget: This budget contains operational costs of the business activities.
Costs like production cost, manufacturing cost, overheads, labour cost, administration cost etc.
form part of this budget. This budget satisfies the fund requirements of day to day operational
activities of the business. This budget can be formed as per the requirements which can be
monthly , quarterly, bi-annually or yearly. This budget creates a boundary line on the scope of
business activities of each budgeted functional unit to carry out its targets within the budgeted
amount for the period defined (Ionescu, 2016).
Advantages
 In Oshodi PLC this budget helps in managing costs in short run in order to oblige to long
run financial obligations. That helps to maintain a systematic control on each activity that
are beneficial to grow profit.
 This budget keeps the financial information in Oshodi PLC very accurately and precisely
and in regulated format which ensures better tax compliances for the organisation.
Disadvantages
 In Oshodi PLC it decides the scope of each function, sometimes departments gets choked
due to low availability of funds than actually required. This could lead to slow production
of valuables goods that will impact the overall image.
 It is sometimes difficult to assign costs to each factor of production in Oshodi PLC due to
variability of roles. As employees gets impacted and overall performance gets influenced
due to low productivity hours.
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Master budget: It summarises all the departmental budgets prepared within the Oshodi
plc premises. This budget is prepared after preparing all departmental budgets. All functional
units gives their recommendations about their funding needs, the areas they want to explore with
the funds and modification ideas in the main budget according to the timely needs. After this all
budgets are merged into a single budget which provides a broader picture of the organisational
objectives known as Master budget (Nuhu, Baird and Bala Appuhamilage, 2017). This budget is
also used to measure the deviation from the budgeted targets. If the deviation is much higher
than expected than management applies control mechanism to reduce the impact.
Advantages
 In Oshodi PLC this budgets is consider to be the most powerful budget which shows
total targets to be achieved in a given period which helps employee motivation and a
value to be realised with efforts.
 This budget helps the management of respective firm to make proactive plans and take
valuable decisions because it identifies possible problems in advance by showing total
figures.
Disadvantages
 By nature the master budget Oshodi PLC also faces major problem as this budget not
flexible and rigid in nature which makes it hard to alter.
 Being a big budget its figures and values can sometimes be inaccurate to the manager of
Oshodi PLC as they need more time and effort to make understand these changes.
Flexible budget: This budget is very lucrative in nature and can be changed according to
the movement of cost and volume. This budget is opposite of static budget or fixed budget. This
budget has a variable rate per unit system instead of fixed rate system which would flex itself it
the costs vary according tot he volume of production. This budget is very helpful in evaluation of
efficiency of the management (Advantages and disadvantage of flexible budget, 2019).
Advantages
 It is good for Oshodi PLC because manager can easily manipulate these budgets
according to there needs and requirements. This will bring more stability in business
operation as specific time can be given to important activity.
 In Oshodi PLC this budget is helpful to saves costs for the business by reducing the extra
costs which are not required for the time being.
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