Financial Analysis: Management Accounting Report for Oshodi PLC

This report delves into the realm of management accounting, focusing on its application within Oshodi PLC. It begins by defining management accounting and outlining the essential requirements of various systems, such as job costing, price optimization, cost accounting, and inventory management. The report then explores different methods of management accounting reporting, including budget reports, accounting receivable aging reports, cost managerial accounting reports, and performance reports. A significant portion is dedicated to cost analysis, comparing marginal and absorption costing techniques. Furthermore, the report examines the advantages and disadvantages of planning tools used for budgetary control and concludes with a comparative analysis of how companies employ management accounting systems to address financial challenges.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P1 Explaining management accounting and presenting essential requirements of different
types of system............................................................................................................................1
P2 explaining different methods used for management accounting reporting............................4
LO 2.................................................................................................................................................5
P3 Cost analysis using marginal and absorption costing............................................................5
Income Statement using absorption costing of Oshodi Plc for the month of November and
December....................................................................................................................................8
Interpretations.............................................................................................................................9
LO 3...............................................................................................................................................10
P4 Explain the advantages and disadvantages of different types of planning tools which are
used for budgetary control .......................................................................................................10
LO 4...............................................................................................................................................13
P5 comparison between companies adopting management accounting systems for responding
financial problems.....................................................................................................................13
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is presentation analysis of the financial data to make decisions
related to the management of business (Upping and Oliver, 2016).MA is application of the
professional knowledge and skills that prepare information in a way which assists manager in the
formulation of policies, planning and control of organisational operations (Phan, Baird and Su,
2017) . It creates various accounting charts which helps to forecast the sales and costing of the
company. Objective of management accounting is to aid in decision making of the company.
This report is based on the Oshodi plc Ltd. which is a manufacturing company of United
kingdom. Company is specialisation in JOJO fruit juice across the ages and brackets. This report
will include management accounting and presenting essential requirements of different types of
system and different methods used for management accounting reporting. This will also
highlight different methods used for management accounting reporting. Further report will
consider advantages and disadvantages of different types of planning tools used for budgetary
control and comparison between companies adopting management accounting systems for
responding financial problems.
LO 1
P1 Explaining management accounting and presenting essential requirements of different types
of system.
Management accounting:- MA provision for financial data and advice for a company that
use in the organisational development of the business. MA is presentation of analysis of business
activities to internal management that facilitates the decision making. In simple terms,
management accounting is application of the professional knowledge and skills that prepare
information in a way which assists manager in the formulation of policies, planning and control
of organisational operations (Armitage, Webb and Glynn, 2016). MA is also called managerial
accounting that focuses analysing cost associated with company’s operations and thereby
prepares financial reports that helps manager in decision making aspects.
Different types of management accounting system:-
There are various types of management accounting systems available which can be used
by Oshodi plc Ltd for the purpose of decision making. Such systems are discussed below.
Job costing system
1

This system focuses on assigning manufacturing cost to the each individual product while
keeping the track on expense monitoring. Oshodi plc Ltd can use this system when the products
are identical to each other to keep the records of the expenses. Job costing system is suitable in
the organisation where different types of products are produces and which in turn different from
each other and has significant cost. This is also called separate costing method because it results
the cost of the all the products on separate basis (Burney and Malina, 2019). Job costing is
compared with the estimated cost and indicate the whether the actual cost and estimated cost has
difference. Job costing is essential because of the helps in the evaluation of the costing of the
different products and different departments.
Advantages of Job costing
 Cost Analysis:- Job costing helps in the analysis of cost it determines the expenses
before producing a product. It helps in analysing cost pertaining to the material, overhead
and wages associated with different departments and production of different products in
Oshodi Plc.
 Cost control:- Job costing maintain the actual cost of products and helps to reduce the
cost of the production by estimating and facilitating the cost control.
 Profitability:- It reduces the extra cost incurred on production which increase the
profitability and also it finds out the profit position of the Oshodi. Cost estimation:- It helps in the estimating the future cost of the production by
evaluating past reports and changes of the prices.
Disadvantages of Job costing
 Complex system:- job costing is a complex system which take more time and extra
management effort of Oshodi Plc (Kaur and Lodhia, 2019). It also requires more clerical
works to record labour cost, overhead cost and material cost.
 Expensive system:- job costing is a expensive system because it of various paper works
required for the different products or department.
Price optimisation system
This system is used to take control of the prices of the different resources. The system is
assist into deciding the prices of different resources at same point of time. It also helps in
evaluating the demand fluctuation at the distinct price levels (Bedford and Speklé, 2018). It is
mathematical analysis which determine how consumers react to the different price levels. Oshodi
2

plc Ltd. use this system for the record the responses of the customers at the different price levels
and assist to maximise the operating profit of organisation.
Advantages of Price optimisation systems
 Time saving:- Price optimisation system significantly reduce the internal manual time of
development of prices in the organisation (Sands, Lee. and Fonseka, 2016). It fewer the
prices decision time of Oshodi plc Ltd. Market transparency:- when the prices are decided according the suitability of the
customers than it creates market transparency.
Disadvantages of Price optimisation system
 Crawling:- it means that the price of the products of Oshodi can be manipulated by a
group or persons of a group.
 Complexity:- uses of the price optimisation system is complex task in itself because
there is bulk of data available for the solutions.
Cost accounting system
This system helps the organisation to estimate the cost of the production and analysis of
the made of organisational profitability, cost control and inventory management. Estimation of
the accurate costing of products assist to evaluate the profits of the organisation (Nuhu, Baird
and Appuhami, 2016). Two system use by cost accounting is job order costing and process
costing. Job order costing means that to accumulate the manufacturing costs individually for
each job. Process costing done for the calculation of process cost of the each separate process. It
is essential for the Oshodi plc Ltd because it suggests new methods of production and reduce
cost.
Advantages of cost accounting system
 Reduce waste and losses:- It eliminates the waste, losses and inefficiencies by fixing the
standards of every aspects in Oshodi Plc. Reduce cost:- New and improved methods of the production helps to reduce the cost of
production of the organisation also, it helps in the cost control.
Disadvantages of cost accounting system
 It based on the past performance of Oshodi Plc which makes future decisions but it not
always helpful for the organisation.
3

Inventory management system
This management system is concerned with the supervision and management of stock and
non-capitalised assets of the firm. Oshodi plc Ltd. use this system to achieve the effective and
efficient flow of the inventory within the organisation and at sales stores (El-Shishini, 2017). It is
essential because it provides the details about re-ordering period and danger stock level of the
Oshodi . Different methods used in inventory are LIFO which means stock which comes at last
will go first. In FIFO stock that comes comes at first will go out first and another method is
average inventory method where inventory rates are taken on average and goods are moved out
at calculated average rate.
Advantages of inventory management system
 Inventory management keeps the business activities of Oshodi streamlined. It ensures the smooth production operations by maintaining reasonable stock.
Disadvantages of inventory management system
 Effective inventory control system can reduce the risk but cannot eliminate the risk in
company.
 It is a complex work because it has to perform many functions.
P2 explaining different methods used for management accounting reporting
The various management accounting reports are used for the regulating, planning
decision making and measuring performance. This reports is generated through the accounting
and book keeping period according to the requirements of the management because many critical
and complex decisions are taken on the basis of the accounting reports in the organisation (Leite,
Fernandes and Leite, 2016). Oshodi plc Ltd should carefully craft this report because these
reports are helping company to take future decisions. Managers analyse these reports and covert
this into the useful information. Different types of management reports are disused below.
Budget Reports
Budget is a managerial accounting report that contain the details about the overall budget
of company. It plays critical role in measuring performance of the business. It is generated as
whole for the small businesses and in the big size organisation it developed department wise.
Budget is created by Oshodi to understand the overall grand scheme of the business (Watts,
Bowrey and McNair-Connolly, 2015). Reports related to the budget guide managers for better
incentive for employees, renegotiate with the vendors and suppliers and cut cost so that it can be
4

says that budget reports are critical for the businesses. It helps to control expenditure of Oshodi
so that it does not make overspending.
Accounting Receivable Aging reports
This types of reports are concern with the managing the accounts receivable of the
companies which are engaged in the extending the credit sales. It is important report if Oshodi
Plc is engaged in the credit sales. Report breakdown the debtors on the basis of the time they
take credit sales from the firm. This will help Oshodi Plc to find out the defaulters as well as the
issues of collection process (Niblock, Sinnewe and Heng, 2017). If managers find many
defaulters than company should evaluate their credit policies and tighter the policies of credits.
There is always some bad debts that needs to be written off but the firm cannot make it habit.
Cost managerial accounting report
Managerial accounting computes the cost of the product that manufactured by the
operation department. All the raw material cost, labour cost, overhead cost and any extra added
cost of the products that is incurred on the production. Total cost is divided by the amount of the
products produced in the business. This report helps managers of Oshodi to realise the cost of a
single product and selling price of product (Ahmad, 2017). Profit margin is calculated as selling
price over the production cost, profits are estimated and monitored through the managerial
report. This report is giving clear the picture of all the expenses and all the incomes which is
essential for the better optimisation of the resources to Oshodi.
Performance Reports
This reports are created for the review of the performance of organisation. It assists to
ascertain the actual performance of the company as well as the employees working in firm.
Department performance reports also prepared in the large organisations (Durocher, Bujaki and
Brouard, 2016). Managers use this reports to measure the key strategic management decisions
about the future performance. Employees are always awarded for their performance in the
organisation also they get the works done in the times. Performance report is helping Oshodi to e
assess performance of employees and reward them accordingly.
LO 2
P3 Cost analysis using marginal and absorption costing
Cost
Cost refers to amount that is spent by company for producing goods or services.
5

Marginal Costing
Marginal costing refers to cost of producing one additional output unit. Concept is used
for determining optimal production quantity that company can produce with least cost for
producing each additional output.
Absorption Costing
It is also a cost accounting tool for expensing costs that are associated to manufacturing a
product. Some direct costs include wages, raw materials and all overhead costs. Absorption
costing has the tendency of including everything which is a direct cost and used in production of
goods.
Different techniques of cost calculations
A) Marginal Costing
Income Statement using Marginal Costing of Oshodi Plc for the month of November and
December
Marginal Costing
Profit or Loss statement of Oshodi PLC for November and December
November December
Particular
s
Price
per
unit Units GBP GBP
Price
per
unit Units GBP GBP
Selling
price 50 10000 500000 50 12000 600000
Less: Cost of goods
sold
Op. Stock @ 25 25 2000 50000
Cost of Prodn
variable 12000 300000 10000 250000
2000
Less: Cl. Stock @
25 2000 50000 300000
250000
Cost of Prodn 5 10000 50000 5 12000 60000
6

variable
300000 300000 240000 2400000
Contributio
n 200000 360000
Less: Cost of Prodn
Fixed 200000 240000
Production Cost 99000 99000
Selling
Cost 14000 14000
Administration Cost 26000 139000 26000 139000
Net Profit 61000 101000
Profit as per Marginal Costing of
Nov. and Dec.
November 61000
December 101000
162000
Calculations:
Marginal Costing
Particulars GBP GBP
per unit
Selling
Price 50
7

Direct Raw Material 18
Direct Labour 4
Producion Overhead
Variable 3
Total 25 25
Contributio
n 25
Working Note 1
Calculations of Variable Costing
Particulars GBP
Direct Raw Material 18
Direct Labour 4
Producion Overhead
Variable 3
Total Variable cost 25
Working Note 2
Particulars GBP GBP
Selling
Price 50
Production cost variable 25
Selling overhead variable 5
30 30
Contribution p.u. 20
Working Note 3
8

Selling overhead variable 10% of sales value
50*10%
5
Interpretations
Using the approach of marginal costing net profits of company for November is 61000
where for December is 101000. Company is having difference because of using marginal
costing. It does not give accurate results as all costs are not considered in this approach.
B )Absorption Costing
Income Statement using absorption costing of Oshodi Plc for the month of November and
December
Absorption Costing
Profit or Loss statement of Oshodi For November and December
November December
Particular
s Unit GBP GBP Units GBP GBP
Selling
Price 10000 500000 12000 600000
Less: Cost of goods
sold
Op. Stock @ 34 2000 68000
Absorbed Prodn Cost 12000 408000 10000 340000
2000 68000
340000 340000 408000 408000
Gross
Profit 160000 192000
Adj. for Under/Over
Absorption 9000 -9000
9

16900 183000
Less: Overhead Cost
Selling Overhead
variable 50000 60000
Selling Overhead fixed 14000 14000
Admin overhead Fixed 26000 90000 26000 100000
Net profits 79000 83000
Calculation for Under/ Over Absorption for Oshodi PLC for November and
December
Month
Units of
Prodn.
O/H
absorbed
p.u.
Total
Absorptio
n
Actual
O/H
Under/ Over
Absorption
November 12000 9 108000 99000 9000
December 10000 9 90000 99000 -9000
Calculations
Working Note 1
Normal Production
Level 11000 units
Overhead cost Fixed 99000
Fixed O/H absorbed
99000/1100
0
GBP 9
10