Management Accounting: An Analysis of JOJO Fruit Juice

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Management Accounting
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Table of Contents
Introduction.................................................................................................................................................3
Scenario 1................................................................................................................................................4
Scenario 2................................................................................................................................................9
Conclusion.................................................................................................................................................14
References.................................................................................................................................................16
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Introduction
Following report demonstrates about the understanding of the management accounting system of
the JOJO Fruit juice which is a manufacturing company which works in all brackets, it is
important for an organization to make the managerial decisions so, this report explains the use of
the management accounting system in the organization and how it benefits in the operational
activities of the organization. The importance of principles and the integration of management
accounting are stated in this report.
The report reflects the various types of financial information and the effective cost techniques
which help a business in achieving the important goal of the organization. Reasons for the
importance of the financial information are explained through which an organization develops
and improves its financial statements.
The report discusses the various costs and inventory methods through which the company can
reduce its expenses and can increase its profit by using different cost techniques. It also shows
the analyse of the cost sheet of a company for two months under marginal and absorption costing
system.
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Scenario 1
Management accounting
It the process by which an organization applies the professional knowledge, concepts, and
strategies that help in making the accounting information of the company which further helps the
organization in making important managerial decisions and to make policies and regulations for
the operations of the business (Business jargons, 2019).
Management accounting system
These are the system through which the accounting statements are prepared in the organization
by using the different types of this system such as
Job costing
It is also known as job order costing; it helps in tracking the costs or the expenses which are
related to the specific jobs. It helps in knowing how the costs of different jobs should be reduced
(Debitoor, 2019).
Advantages
• It helps in determining the price of each job in the business organization.
• It helps in finding any kind of spoilage or the defectiveness in the jobs.
Cost accounting system
This system is very important in deciding the costs of doing the business. This system can be
applied to all departments of the business such as trading, manufacturing and delivering services.
Advantages
• It helps in identifying the products which are more profitable in comparison to other products.
• It helps in finding any kind of additional cost is being incurred in the organization or not.
Inventory management system
This system involves the costing about the stocks of the company from the start of the company
to the end of the period, it helps in reducing the expenses on the stocks of the company which
further helps in increasing the income of the company.
Advantages
• It helps in increasing the sales of the business by reducing the inventory costs.
• It makes the information's more transparent because this system knows when the assets are
received, packed, shipped and manufactured.
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Price optimization system
This system involves estimation or the observation about the customer's responses when the
prices of the products are changed through various channels. It helps the organization in
determining the prices of the product.
Advantages
• It helps in finding the products which are more profitable for the business and which are not.
• It helps in determining the prices of the various products after analyzing the customer
responses.
Integration of the management accounting system
JOJO Fruit juice uses all these systems, they use the job costing as it involves assigning the
costing of the different types of roles that are performed in the organization. It uses the price
optimization system as it finds about the fruit juice which will be more beneficial or profitable
for the business and which is not. It uses the inventory management system to find about the
opening and closing of the stocks of the fruits and ways to reduce the costs which help in
increasing the income of the firm. And finally, the cost accounting system helps the JOJO Fruit
juice in reducing the additional expenses in the organization by finding and analyzing them.
Principle of management accounting
1. All the accounting information, reports, and records should be designed and compiled to
meet the needs of the business.
2. Management by exception – it helps in comparing the performances in the predetermined
ways.
3. Control at source costing
4. Accounting for inflation.
5. Usage of the return on investment.
6. Utility and integration
7. Absorption of the overhead costs.
Financial accounting and management accounting
• Financial accounting helps in recording and classifying the financial affairs of the business
whereas management accounting helps in making important decisions of the business.
• Financial accounting shows the accurate and fair picture of the financial transactions whereas
the management accounting helps the organization to make important strategies and steps.
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• The scope of the financial accounting is pervasive whereas the scope of them, management
accounting is much broader (Wallstreetmojo, 2019).
Managerial accounting reports
Budget reports
The budget involves the estimation of the future scenarios and also by analyzing the past
financial conditions a full budget report is prepared which helps in making the important
decisions of the organization by the managers.
Account receivables aging reports
It is for the business which usually extends the credits to the customers so, it helps in identifying
the defaulters or the credit and if the defaulters are more in number than the expected then the
company has to stop the flow of the credit.
Cost managerial accounting reports
This cost report shows the detailed computation about the manufacturing operations such as the
cost of raw materials, labor, overhead, etc. it helps the managers to determine the selling price of
the product by comparing it with the cost price.
Performance report
This report helps the manager to make decisions regarding the future of the organization by
evaluating the performance of the company and its employees working in the different
departments of the organization. This also helps in finding the areas which should be enhanced to
improve the performance of the organization (Complete controller, 2019).
Management accounting techniques
Cost volume profit
This technique of management is used to forecasts about the future volume of activity, sales,
expenses and the profit received. It is a kind of mathematical equation that helps in evaluating
the changes in the sales and the expenses that can affect the revenue in the future course of time.
Budgetary control
It helps the managers of the firm to use the budget in observing and controlling the costs and
working. It is processed through which the managers can set the financial goals with the help of
the budget and helps in comparing the results and make adjustments in the performances as per
the requirement (Accounting course, 2019).
Cash budget
This budget helps in knowing about the future cash inflow and the outflows in the business. This
helps in deciding about the cash requirement of the business which is needed for the operations.
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A cash budget can be prepared with the help of the production and the sales forecast and by
taking the assumption about these expenses and the income of the business (Megginson, W.L.,
Ullah, B. and Wei, Z., 2014).
Marginal costing
This refers to the increase and decrease in the cost of the production of one more unit. These are
based on the production expenditures which are direct or variable costs such as labor, material
and equipment costs. It is computed whenever there is enough production to cover the fixed
expenses and the business is at the break-even point and where only the direct and variable
expenses are occurring.
Absorption costing
It is also known as the full costing, it helps in the valuing of the inventory. This system includes
labor, material costs, variable and fixed costs. This technique is very helpful in determining the
selling price of the products (Ruiz-de-Arbulo-Lopez, P., Fortuny-Santos, J. and Cuatrecasas-
Arbós, L., 2013).
Planning tools used in the organization
Benchmarking
This process involves keeping the tracks of the organization’s strategies which is leading in the
market, it helps in setting the standard in the organization by following those strategies of the
leading organization in different ways. It helps in finding the areas where the improvement is
required, analyzing the performance level of the organization and the use of information to
improve the quality of the performances.
Advantages
• It helps in increasing the competition levels in the market as the competition help the business
to improve its performance to be able to adapt to these competitions.
• Due to the benchmarking, it helps the companies to find the strengths and the weakness in
comparison with the other leading organization which helps in improving the quality of work in
the business firm.
KPI
Key performance indicator
It is a key indicator that helps in progress and the intended results. KPI helps in focusing on the
improvement of the performances by making the analytical basis of decision making.
It involves setting the targets and tracking the progress towards the target, it is also called the
leading indicator.
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Advantages
• KPI helps in breaking down the complex information into the understandable form, due to the
tracking of the progress towards goal it motivates the employees of the organization.
• It helps in providing the platforms for future strategies, it measures the strategies applied in
the current situation which may be successful in the long run.
Cash forecasting
It involves the analyzation of the future cash inflows of the company which helps in identifying
the future cash inflows and outflows of the company, its goal is to assist the management in
maintaining the liquidity of the organization which certainly helps in paying off the debts of the
company during the uncertainty period.
Advantages
• Removes the Jeopardy – for the small organization taking the risk are the biggest factors so,
for that with the help of this planning tool a company can make an accurate forecast through
which they can know how the money should be spent accordingly.
• Allows the time and focus on the other tasks – the company uses this planning system to save
time for the other works of the business as it is an easy process to forecast the cash needs which
saves time for the other business needs.
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Scenario 2
Marginal costing
It is the principle through which the variable costs are charged to the unit costs and fixed costs
that are connected to the given period.
It depends on the behaviour of the costs which changes the volume of output. Marginal cost is
also known as the variable cost only if cost per units are accumulated on the basis of the variable
costs.
Sometimes direct costs and the marginal costs are considered as the interchangeable terms. The
difference between the both of them is that, direct costs involves costs which are not fixed
whereas marginal cost involves the expenses which are of the variable nature also. So, the
marginal costs are classified into the fixed and the variable costs.
It helps in ascertaining the profit by making a difference between the fixed and the variable costs
which produces the output. The costs are classified under the fixed and variable costs in the
marginal costing system (Business dictionary, 2019).
Absorption cost
It is a part of the cost accounting system which helps in the valuation of inventory. It involves
the costs of the manufacturing products which includes both fixed and variable costs such as the
material costs and the overhead costs. To produce the inventories it provides a more accurate
report about the costs incurred (My accounting course, 2019).
Following is the calculation of the Oshodi PLC which is a manufacturing company shows the
statement of profit under the marginal and the absorption costing:
Production of units:
Particulars November December
Sales (Units) 10,000 12,000
Production (Units) 12,000 10,000
Opening Stock (Units) - 2,000
Closing Stock (Units) 2,000 -
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Absorption rate:
Particulars
Amount
(£)
Budgeted overheads 99,000
Normal level of Activity 11,000
Absorption rate 9

Cost Sheet as per Absorption
Costing:
Particulars November December
Amount (£)
cost per
unit Amount (£)
cost per
unit
Direct Material 216,000 18 180,000 18
Direct labour 48,000 4 40,000 4
Prime Cost 264,000 22 220,000 22
Variable Production Overheads 36,000 3 30,000 3
Fixed Production Overheads 108,000 9 90,000 9
Factory Cost 408,000 34 340,000 34
Fixed Admin Overheads 26,000 2.17 26,000 2.6
Cost of Production 434,000 36.17 366,000 36.6
Add: Opening Stock - 36.17 73,200 36.6
Less: Closing Stock 72,333 36.17 - 36.6
Cost of Goods Sold 361,667 36.17 439,200 36.6
Over/Under Absorption of Overheads -9,000 -0.9 9,000 0.75
Fixed Selling Costs 14,000 1.4 14,000 1.17
Cost of Sales 366,667 36.67 462,200 38.52
Profit 133,333 13.33 137,800 11.48
Sales 500,000 50 600,000 50
Cost Sheet as per Marginal Costing:
Particulars November December
Amount (£)
cost per
unit Amount (£)
cost per
unit
Sales 500,000 50 600,000 50
Less: Variable Cost
Direct Material 216,000 18 180,000 18
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Direct labour 48,000 4 40,000 4
Production Overheads 36,000 3 30,000 3
Add: Opening Stock - - 50,000 -
Less: Closing Stock 50,000 - - -
Total Variable Costs 250,000 25 300,000 25
Contribution 250,000 25 300,000 25
Less: Fixed Costs
Fixed Admin Overheads 26,000 2.17 26,000 2.6
Production Overheads 99,000 8.25 99,000 9.9
Selling Overheads 14,000 1.4 14,000 1.17
Total Fixed Costs 139,000 11.82 139,000 13.67
Profit/Loss 111,000 13.18 161,000 11.33
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Analysis
By analyzing the above data under the absorption costing system which shows in November the
company earned a profit of 133,333 on the sale of 500,000 and in December the company earned
a profit of 137,800 on the sale of the 600,000. So the profit difference is only of 4,467. In
November there is an under absorption of 9000 and over absorption of the 9000.
By analyzing the above data under the marginal costing system in which shows in November
company earned the profit of 111,000 and 161,000 in December, there is a difference of 50,000
in the profit. The contribution of the November month is 250,000 and 300,000 in December.
This analysis shows that the company performed very well in December by both marginal and
absorption costing statement of the company
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