Report on Management Accounting Systems and Techniques - Finance

This report delves into the realm of management accounting, focusing on systems, techniques, and their practical applications within Oshodi plc, a fruit juice company. It explores various management accounting systems such as inventory management, cost accounting, and price optimization, along with different reporting methods like cost accounting reports and performance reports. The report also highlights the merits of these systems, providing insights into their application in different organizational contexts. Furthermore, it covers the preparation of income statements using absorption and marginal costing techniques, planning tools for budgetary control, and the role of management accounting in addressing financial problems and achieving sustainable success. The report includes a Gantt chart and a detailed analysis of how management accounting systems can be integrated into organizational processes to enhance efficiency and decision-making.

Management
Accounting Systems &
Techniques

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1 ...........................................................................................................................................3
P1 Management accounting and essential requirements of different types of management
accounting system..................................................................................................................3
P2 Different method used for management accounting reporting..........................................5
M1 Merits of management accounting system and its application in context of various
organisations:..........................................................................................................................6
D1 Evaluating of Management accounting system and management accounting which may be
integrated within organisational process...............................................................................7
Gantt chart:.............................................................................................................................8
P3 Preparation of income statement using absorption and marginal technique.....................8
M2.Applying Management accounting techniques and preparing documents of Financial
Reporting:.............................................................................................................................10
D2 Interpretation of income statements: .............................................................................10
TASK 3..........................................................................................................................................11
P4 Planning tools for budgetary control :.............................................................................11
M3 Usage of different planning tools and their usage and application in preparing budgets:13
D3 Planning tools for accounting assist to resolve issues and support for sustainable success:
..............................................................................................................................................13
P5 Management accounting systems to responds to financial problems. ...........................13
M4 Use of management accounting in solving financial problems and ultimately lead to
sustainable success...............................................................................................................16
CONCLUSION..............................................................................................................................17
.......................................................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting is a process that measure the operating business activities in
preparation of annual reports and other financial statements. It help in the decision making
process to management. It provide various managerial information as well as tools and
techniques to increase the business operations. In this report Oshodi plc is selected as base
organisation which provide the goods and services of fruit juice for all kind of age bracket. This
report focus on management accounting system and reporting, financial issue of the business,
income statement of the selected business by using marginal and absorption costing. In addition
to it covers the budgeting tools and techniques for the relevant business and giant charts. Further
it includes advantage and disadvantage of planning tools and adaptation of management
accounting system for respond the financial issue.
TASK 1
P1 Management accounting and essential requirements of different types of management
accounting system.
It is a process that describes as detailed research of the management performance in order
to control the business activities so profit can be higher in the long term. Management
accounting is important for the monetary and non monetary aspect of an organisation. Various
activities of the organisation is to depends on management accounting and those are like
planning, organising, directing, controlling and many other things. Beside it management
accounting system help the organisation to control day to day working process. Management
accounting systems refers to systematic utilisation of accounting information and records in
order to achieve targeted objects as per organisational policies and regulation.It also provide
framework to business for evaluation of the business static data (Takeda and Boyns, 2014).
There are various kind of management accounting system and its brief explantation are as given.
Inventory management system: As per this management accounting system, it traces
the stock of goods at stores, inward and outward inventory. It further assure the availability of
the stock at right time with right quantity. This system is too much important for the
organisation. Through that they can manage the inventory of the organisation by tracking the
inventory and raw material as well as in supply chain management. It also help to Oshodi plc in
reducing its cost of JOJO fruit juice item with the help of inventory management system in

effective manner. This system assure that stock is ordered from the creditors before the lead
time to obviate stock-out. For the purpose of valuation, different types of techniques are used i.e.
LIFO, FIFO, Weighted average method which are defined as follows:
LIFO: It means Last in, first out. It is a method that states the product which is last in at
the stores should be manufactured first.
FIFO: It means First in, first out. It is a method which states that the goods which are
produced at the occurrence at beginning should be use in the production first. This is the best
method to use in the business organisation.
Weighted average method: It is a method which divides the cost of goods sold from No.
of manufacture units.
Cost accounting system: This is the most essential system of management accounting
that based on the cost composition of a company. In the particular system of accounting,
company includes various aspects related to business to find out the cost of manufacturing of the
fruit items, provided services with the its effective strategies of cost like cost control. It play an
important role in the organisation. It provide framework in estimation of cost of products for
organisation. Oshodi plc is using this system in proper recording of the cost and price structure
of the JOJO fruit juice and it uses the data in preparation of cost sheet and other costing system
to find out the profitability in the business.
Price optimisation system: This system is helpful for the organisation in providing
correct pricing of the product and services. As per this system, organisation charge different
price for different product and services. It also keeps the price of the product and services which
it is in high demand and also focusing the quality of product and services. Oshodi plc is using
this system to assure the exact price of JOJO fruit juice with the profitability of the organisation.
As Customer satisfaction is obligation of an organisation so they manage all these things.
Job costing system: Job costing system is the process of management accounting system
that accumulated the cost data that is related with particular goods and services. In this method
the production cost is basically find on the no. of finished projects and task. This system is more
beneficial for the organisation because it identify the accurate cost of a specific job. All the
information is provided related to the product and services of a particular organisation. Oshodi
plc is using this system to manage the various expenditure that are allocated with JOJO fruit
juice.

P2 Different method used for management accounting reporting.
There are various methods of management accounting report that are help in the control
the operational business activities. Among of all these method an organisation can make the
report by using the detail related to business operations. Some of the methods of management
accounting reporting are as given.
Cost accounting report: It is helpful for the managers of an organisation for finding the cost
related to production cost, labour cost and various kind of variable productions. By using this
report they can reduce the overall cost of the organisation. This report impact on the growth of an
organisation in a positive manner. Oshodi plc is implementing this report to identifying the total
cost of JOJO fruit juice incurred by the organisation and the cost of manufacturing and other
relevant cost. Along with this it help an organisation to reduce their unnecessary expenditure so
there is increase in the profits of the organisation.
Performance report: This performance report help the organisation to evaluating the
performance of workforce and particular organisation. The object of this report is to know the
current performance and assist in the current issue and risk involved in particular task. By using
this report Oshodi plc can increase capacity of the employees as well as increase the
performance in effective manner. By utilization of this report organisation can meet with high
output with low cost by ascertaining the risk involved in the JOJO fruit items in the market
which is beneficial for the growth of organisation.
Inventory reporting system: This report system is too much beneficial for the
organisation in various manner. With the help of this system, mangers of the organisation can
take effective decision related to the inventory like cost holding, inventory holding and many
other. By using this system, organisation can make the valuation of closing stock. The method
of the valuation of stock are LIFO, FIFO and weighted average method. By assessing all these
method, business management can choose the best method of valuation of stored inventory
(Bryer, 2013).
A/C receivable ageing report: The main motto of preparation of this report is to find the
total no. of debtors with outstanding amount with them. This report provide the information
related to customer such as owed money, credit period. In the Oshodi plc , the report is used to
asses due with its customers so it is easy to recover the outstanding amount as per their credit
policy. Mangers can calculate all the information through this reporting system (Takeda and

Boyns, 2014). Furthermore it is also useful to make policies in relevance with debtors to identify
the number of bad-debtors that are present in the organisation.
.
M1 Merits of management accounting system and its application in context of various
organisations:
Cost Accounting system  In Oshodi plc cost accounting system
helps in estimation of various costs
associated with operations of
company.
 It also provides company information
for planning its operations.
 It also helps concerned managers to
know in which area expansion can be
done.
 If there is increasing costs then helps
company to take into account various
reasons for it and take corrective
measures for it.
Price optimisation system  It helps Oshodi plc in estimation of
various prices of its products.
 Company can test its market on
changing its prices and observing
customers response (Bryer, 2013).
 Customers can be categorized on
basis their reactions and demand on
product which helps in increasing
overall sales of company.

Inventory management system  Managing inventory is very
important in every company as
increased inventory always increases
cost for its maintenance and storage.
 Oshodi plc is a FMCG sector
company that provide fresh products
to its customers to increase their
brand loyalty.
 Minimization of costs is biggest
benefit of inventory management this
has a direct impact on increased
profitability of company.
Job costing system  Job costing is very helpful for
Oshodi plc in calculating cost
associated with material, lobar and
overhead in company.
 It helps management in calculating
cost of individual jobs to know
which particular job's cost is
exceeding its standard cost.
 If any variations are there then know
reasons and take corrective measures
for future.
 It is also helpful in increasing
employees effectiveness in various
jobs they are performing.
D1 Evaluating of Management accounting system and management accounting which may be
integrated within organisational process.
Management accounting systems and its reports are integrated with each other as both
help in attaining the objective and common goals. The main function of management

accounting system require in an organisation is to collect various kind of data related to business
management. These system help in formulation and implementation of the business and financial
strategies. And monitor the operating business activities in relevance of these management
accounting systems (Maskell, Baggaley, and Grasso, 2017). These systems also help in
controlling the function of production and workforce of the organisation in effective manner. By
applying these tools in the business, an organisation can increase the capacity and productivity
of the organisation effectively.
Gantt chart:
It is a bar chart that includes project schedule of an organisation. This chart shows the task is
going to be perform by a company during time interval.

P3 Preparation of income statement using absorption and marginal technique.
Cost is monetary value of expenses of the firm that is subject purchase of items and for
other disbursement like services labour, equipment to manufacturing the good at production unit.
Cost includes different expenses like direct expenses.
Absorption costing: This concepts is refers to, it is related with manufacturing cost of a
particular product. In this method certain costs are included variable and fix cost which is
linked to the manufacturing cost. It also covers the other overhead and raw material cost for
production. This is also known as management accounting method as well as direct cost of
production.
Marginal costing: It is a important technique of costing. In this techniques, variable cost
is charges to production cost. In order to preparation of income statement it cover both the cost
variable and fix.
Income statement by absorption method:
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 production expenses 9000
Net Profit 79000
Particulars December (£)
Sales 50 600000
Less: Cost of sales -408000
Gross profit 192000
Under/over absorbed production expenses -9000
Variable selling overheads (10% sale value) 12000*5 -60000
Fixed selling expenses -14000
Fixed Administration Overhead -26000

Net Profit 83000
Income statement by marginal method:
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
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

M2.Applying Management accounting techniques and preparing documents of Financial
Reporting:
There are many types of management accounting techniques that are using in their daily
operations activities, accounting purposes, decision making, Financial planning. There are lot of
decisions to be made by company's management in their day to day accounting. These decisions
are very crucial as they affect overall functioning of Oshodi plc. In management accounting
system, the marginal and absorption both techniques can be used while preparation of financial
reporting documents. After evaluating the above question, it can be said that marginal costing
technique is better as compared to absorption technique. As it provides the actual profit and help
to management related to various aspects of business operations.
D2 Interpretation of income statements:
On observation of income statement of Oshodi plc, it can be clearly said that in month of
November profits are 79000, which are more than profits in December month 61000 in the
marginal costing techniques. As per absorption costing profits are 83000 in December which is
less than profits of 101000. This type of differences occur because of fixed production overhead
costs being treated differently in both techniques. After analysis of both techniques, absorption
and marginal, it can be concluded that marginal technique is best for manufacturing business.
(Endenich, 2014)
TASK 3
P4 Planning tools for budgetary control :
Budgetary control: Budgetary control is used by various companies in comparing their
forecasted numericals with actual ones to know their deviations. In relation to this, accounting
managers of oshodi plc estimates various figures and then make comparisons when such
expenses actually occur. Many types of different tools and techniques are available with
management team and they use them in making appropriate and timely decisions. Budgetary
control measures are essential for companies as it helps them in setting up of control of expenses
and set specific parameters for it. This can put restrictions on overall effectiveness in operations.
Budget: Budget is an estimate of all expenditures in a particular period of time. They
play a very important part of every company as it helps management to run various business
operations effectively and efficiently. Budgets also play a very important role in increasing

productivity of company. Budgeting helps managers of oshodi plc in making important decisions
and also superior authorities in forecasting future requirements of companies.
 Merits: Budget is helpful in estimation of expenses of company and taking control on
different expenses.
 Demerits:Budget planning requires a lot of time and also results in increasing cost for
companies.
Capital Budget: This budget is defined as allocating the fund for purchase of the fix
assets. There are various types of investment that needs to be made by company to enhance the
profitability structure. It includes fixed assets such as land & building, machineries, plants etc.
Oshodi plc has appropriate management which usually makes capital budgets to know various
requirements in acquisition as well as maintenance of such fixed assets.
 Merits: Fixed assets are very important part of every company as they form basis of all its
operations. Especially for a company like oshodi plc which deals in beverages. capital
budgets are used to make effective decisions related to it(Cleary, 2015)
 Demerits: people with adequate skills and knowledge is required in preparing capital
budgets. As this activity requires strong knowledge of various accounting policies and
practises to be applied in preparation of these capital budgets.
Master Budget: Master budget is basically aggregation or combination of all types of
budgets in every company. They are usually prepared on monthly or quarterly basis depending
upon company. Oshodi plc also prepare their master budget while taking into account various
expenditures in different activities of company.
 Merits: In oshodi plc the management of company that consolidation of all different
budgets. It plays a very essential role in preparing other subsidiary budgets.
 Demerits: There are changes in working capital of company which have to be taken into
consideration. This affects already set budget, it becomes very difficult to make changes
in set budget.
Sales Budget: Sales budget includes the estimated sales of company. These estimations
are made on basis of past sales data available with company. It plays a very important role in
estimating future level of sales of company. On estimated sales level planning of various other
operations can be done by managers (Endenich, 2014)