Management Accounting Report: Oshodi Plc and Accounting Systems

This report provides a comprehensive analysis of management accounting principles and their practical application within Oshodi Plc, a fruit juice manufacturing company. It explores various management accounting systems, including inventory management, cost accounting, and price optimization, and evaluates their benefits in improving operational efficiency and strategic decision-making. The report examines different management accounting reporting methods, such as budget reports, performance reports, and inventory reporting systems, highlighting their role in evaluating departmental and individual performance. Furthermore, it delves into cost analysis techniques, budgetary control, and the integration of accounting systems with organizational processes. Through case studies and critical evaluations, the report demonstrates how management accounting contributes to financial problem-solving and sustainable success within the organization. The report also provides detailed comparisons and analysis of Oshodi Plc's financial operations.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
P1. Explain management accounting and requirement of different types of management
accounting systems in the organization.......................................................................................1
P2. Evaluate those methods which are used for management accounting reporting...................3
M1. Benefits of management accounting system and its application in the organizational
context..........................................................................................................................................4
D1. Critically evaluated that how accounting systems and reporting integrated with each
others............................................................................................................................................5
TASK 2............................................................................................................................................5
P3. Calculate cost by using cost analysis techniques and prepare income statement by using
absorption and marginal cost method..........................................................................................5
M2. Evaluate the range of management accounting techniques and produce financial reporting
documents....................................................................................................................................6
D2. Develop financial report which accurately interpret data for different business activities...7
TASK 3............................................................................................................................................7
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control..........................................................................................................................................7
M3. Use of different planning tools and their application for preparing and forecasting budgets
......................................................................................................................................................9
TASK 4............................................................................................................................................9
P5. Companies are adopting management accounting system to respond financial problems....9
Comparison between Cambridge manufacturing with Oshodi plc............................................10
M4. Management accounting can lead organizations to sustainable success............................11
D3. Planning tools for accounting respond appropriately to solve financial problems.............11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is the managerial application which helps the manager to
perform according to the rules & regulation. It also provide various benefits where organizational
stakeholders takes advantage of it. With the helps of management accounting, manager use
various provisions that provide accounting information for the further decision making process
(Arena and Arnaboldi, 2014). It also helps in improving individual performance as well as
controlling managerial functions. For the better understating Oshodi Plc selected for this report
and company produce a wide range of fruit juice.
JOJO fruit juice is one of the selected produce that produced by Oshodi Plc
manufacturing company. This report include various topics such as management accounting
system as well as its requirement in the manufacturing company in order to improve efficiency
and effectiveness. Accounting report helps the manager to record performance of individual as
well as whole organization in order to develop future strategies. In addition, it includes the
planning tools that required for budgetary control or financial problems which impact business
operations.
MAIN BODY
TASK 1
P1. Explain management accounting and requirement of different types of management
accounting systems in the organization
Management accounting is the process which provide financial information and those
resources which required to perform business activities. It is basically used for internal analysis
purpose because it is different from financial accounting (Armstrong, 2014). It helps the manager
to develop various strategies on the basis of available information with the helps of management
accounting. Manager of Oshosi Plc, follow various management accounting principles or
standards in order to maintain their accounting records for future understanding.
Introduction: As per given scenario, management accounting plays very important role
in the business and decision making process which provide accurate information to develop
strategies. Management accounting systems consist internal analysis of various systems where
organizational users measure and evaluate its process for effective management. This task
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include the different types of accounting systems which helps the manager to improve
operational performance and it further helps in achieving business goals & objectives.
There are various types of management accounting systems followed by organizations
and some of them discussed below:
Inventory management system: It is the inventory management control system which
helps the manager to review stock level on regular basis. It essentially required to keep records
of inventory which helps the manager to perform according to the requirement of production. By
using this system, management able to measure or monitor business performance. In context of
Oshodi plc, manager follow inventory management system to record their inventory level and
develop strategy accordingly. This system also include three types of managing inventory such
as LIFO, FIFO and AVCO. JOJO fruit juice manufacturing company adopt FIFO ( First In First
Out) which helps in reducing wastage from warehouses and it will reduce product cost that
automatically increase the profit margin (Azudin and Mansor, 2018). By using inventory
management system business able to prevent the situation such as shortage or wastage of raw
material.
Cost accounting system: It is also costing system because it helps the manager to
estimate product cost. It is one of the effective framework that used by the business for
inventory valuation, cost control and profitability analysis. This system required to measure
product cost and further helps the manager to develop their strategy accordingly. In context of
JOJO fruit juice manufacturing company, manager estimate juice cost on the basis of various
activities (Bierstaker, Lowe and 2014). So they try to minimise or control product cost over the
production period. Cost accounting system helps in estimating accurate cost which further utilize
in decision making process. If produced goods are profitable then it will be proceed further
otherwise they identify other ways to minimise cost or maximise profit margin.
Price optimization system: This model used to analyse that how customer's demand will
change due to change in the price of product. For this analysis, manager required data or
information regarding cost of product and inventory level which helps in improving profit
margin. In context of Oshodi Plc, manager set product price which meet customer objectives and
satisfy their need. Along with this, it helps the company to analyse buying pattern and the range
which is suitable to maximise business productivity as well as profitability. This accounting
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system required to analyse buying pattern of customer and suitable price range of product which
meet customers expectation regarding price.
Above discussed accounting system helps the organization to improve their operational
activities which further increase efficiency as well as effectiveness. It further helps the manager
to develop strategy and decision making process.
Conclusion: Above discussion helps the manager to evaluate internal performance of
business as well as individuals. By using inventory management system, manager regularly track
stock level and then further actions will be based accordingly (Chenhall and Moers, 2015). These
systems help in reducing product cost which automatically increase the demand and profit
margin.
P2. Evaluate those methods which are used for management accounting reporting
Introduction: Management accounting reporting used by the top management in order to
evaluate internal performance of the business. Decision of top management will be based on
various aspect where they evaluate individual performance as well as whole organization. This
task include different types of management accounting reporting that followed by Oshodi Plc
company.
There are various reporting methods available which help the management to evaluate
performances and develop their future strategies accordingly. Some of them discussed below:
Budget report: It is one of the most fundamental report that used in managerial
accounting. It help the manager to understand cost control process in the business for entire
production period. Everly business has several department so manager use this report to evaluate
each department expenses as well as performance. By using budget report, manager of Oshodi
Plc estimate each activity cost and prepare budget where every department heads need to follow
this budget to perform business activities and achieve business goals & objectives. By using this
budget, manager able to complete their task in specified budgeted amount. Along with this, it
helps in developing strategies and achieving goals & objectives.
Performance report: It is a measurement tool which helps the organization to evaluate
the performance of individual as well as whole organization. Individual performance helps in
analysing the effectiveness of their work and what changes they required to improve their
performance in order to achieve business gaols & objectives (Cooper, 2017). Manager of Oshodi
Plc, use this report in order to evaluate individual performance and the area of improvement to
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enhance their skills and other competencies. Manager develop strategy on the basis of current
performance of employees and provide training to improve their performance as well as
productivity.
Inventory reporting system: In this report, manager include all the relevant information
of manufacturing products. With the help of centralised data manager able to collect information
that used in future decision making process. In context of JOJO fruit juice manufacturing
company, manager regularly maintain stock level records which provide them clear idea to order
raw material for production. If ordered quantify will be high more then its requirement then it
will generate the situation of wastage of goods. On the other hand, low quantify will generate the
situation of shortage which further impact the production and profitability (Fullerton, Kennedy
and Widener. 2014). By using inventory management report manager able to develop effective
strategy and it further helps in taking decisions regarding ordered quantify for production. It will
improve operational activities and further it helps in achieving business goals & objectives.
Job costing report - Such report is important for organization which can be used to
allocate the cost in to particular section. It helps organization to track the costs and revenues by
job and reporting profitability. The manager of JOJO fruit juice uses this to assigned the cost in
to different sections and make profits.
Cost accounting report - It is adopted by all organization in order to calculate accurate
cost of organization. It helps to define the overall cost of organization while running a business.
In JOJO fruit juice company manager calculate accurate cost of products and services with the
help of cost accounting report. It helps to maintain the productivity and profitability of
organization in effective manager. Therefore, it is important for organization to prepare cost
accounting report.
Account receivable ageing report – This is used to keep records of all creditors who
have used the products and services on credit. JOJO fruit juice uses this report to maintain the list
of all creditors and run a business effectively. It helps to maintain the productivity and
profitability.
From the above discussion, management accounting reports required to prepare because
it helps the manager to develop strategy and use these information in decision making process. It
further helps in maximising productivity as well as profitability and minimise the product cost
through reducing operational expenditures.
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Conclusion: From the above discussion it has been concluded that different types of
accounting reports help the manager to evaluate performance and decision making process.
Budget or performance report use to evaluate departmental or individual performance which
further helps the manager to analyse the area which required improvement.
M1. Benefits of management accounting system and its application in the organizational context
Management accounting system Benefits
Cost accounting system This system helps the managers through providing product
cost and it required for further decision making process.
Because it helps in funding and estimating cost as per the
required of product. Manager try to minimise cost and
maintain over the period of manufacturing goods.
Price optimization system By using this model, company able to analyse a range of
product price which meet with the objective of customer.
Manager also analyse the buying patter which helps in
developing strategy for future (Heinzel and mann, 2017).
Inventory management report Manager of Oshodi Plc use this accounting system in order
to evaluate the required of raw material to manufacture
goods. As well as, it helps in monitoring inventory level on
regular basis and develop future strategy for it.
D1. Critically evaluated that how accounting systems and reporting integrated with each others
As per the discussion of above mention topics accounting reports or management
accounting systems are integrated with organizational process which helps achieving operational
goals & objectives. By using inventory management system, manager evaluate the requirement
of material for production and it will be recorded in inventory management report. So basically,
accounting systems or reporting methods help the manager to evaluate performance and develop
strategy to improver production as well as profitability (Hitomi, 2017). Manager also use these
information for further decision making process in order to achieve business goals & objectives.
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TASK 2
P3. Calculate cost by using cost analysis techniques and prepare income statement by using
absorption and marginal cost method
Marginal Costing Method: It is used by managers of business organization to know the
cost of one extra unit of output. In other words, marginal costing recognises that fixed cost vary
time to time instead of business activities.
Income statement by using Marginal costing method:
Particulars Units November (£)
Sales 50 5000000
Less: Cost of sale
Direct Material Cost
Direct Labour Cost
Variable production overheads
18
4
3
(180000)
(40000)
(30000)
Contribution 250000
Less: Variable Selling overheads (10% sales value) (5*10000) -50000
Fixed selling expenses -14000
Administration overheads -26000
Fixed production overheads -99000
Net Profit 61000
Income statement by using Marginal costing method:
Particulars Units December (£)
Sales 50 6000000
Less: Cost of sale
Direct Material Cost
Direct Labour Cost
Variable production overheads
18
4
3
(216000)
(48000)
(36000)
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Contribution 300000
Less: Variable Selling overheads (10% sales value) (5*12000) -60000
Fixed selling expenses -14000
Administration overheads -26000
Fixed production overheads -99000
Net Profit 101000
Absorption Costing Methods: This technique is used by managers to calculate the
profits by absorbing all production cost in to each unit of output. It involves direct material,
direct labour and direct expenses to know the profits.
Income statement by using Absorption costing method:
Particulars Units November (£)
Sales @ 50 units 10000 500000
Less: Cost of sale
Variable production cost @ 34 408000
Less: Closing stock @ 34 (68000)
12000
340000
Gross Profit 160000
Under or over absorption 9000
Less: Fixed Overheads
Selling expenses
Selling overheads
Administration overheads
(50000)
(14000)
(26000)
Net profit 79000
Income statement by using Absorption costing method:
Particulars Units December (£)
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Sales @ 50 units 12000 600000
Less: Cost of sale
Variable production cost @ 34
12000
408000
Gross Profit 192000
Under or over absorption -9000
Less: Fixed Overheads
Selling expenses
Selling overheads
Administration overheads
(60000)
(14000)
(26000)
Net profit 83000
Working notes:
Fixed production overheads absorption rate = Fixed production overheads
Production
= 99000 / 11000
= 9
M2. Evaluate the range of management accounting techniques and produce financial reporting
documents
In order to produce financial report for stakeholders manager use various accounting
techniques which provide better understanding and it will be mentioned below:
Standard costing: It is one of the effective traditional costing method which include
various types of cost such as direct material, direct labour or manufacturing overheads. By using
this costing technique manager able to evaluate performances. Manager analyse the gap between
actual or standard performance and then develop their future strategies accordingly.
Historical costing: In this type of costing method assets should be valued at their
purchase price. By using GAAP accounting principle, manager record actual value in the balance
sheet for accurate results (Ismail and King, 2014).
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Above mention accounting techniques helps the manager to produce their financial report
which helps the manager as well as stakeholders for further decision making process.
D2. Develop financial report which accurately interpret data for different business activities
From the above calculation it has been found that net profit of the company will be high
by using marginal costing method. 61000 or 101000 net profit of the month of November or
December respectively. On the other hand, net profit by absorption method are 79000 in the
month of November and 83000 in the month of December. Marginal costing method used to
evaluate contribution cost per unit and absorption for gross profit.
TASK 3
P4. Advantages and disadvantages of different types of planning tools used for budgetary control
Budgets – A document which describes plans and financial data for the purpose of saving
and spending money on future goals are known as budgets. It is the estimation of amounts which
can be used by manager while running business activities. In addition, it is quantitative
expressions that helps managers to define the operational and financial plans for upcoming
accounting period (Nitzl, 2016). It mainly based on preceding time frame which are used by
companies to achieve business goals. In Oshodi plc managers prepares budgets that guides to
realize objectives. It helps to establish priorities, controlling expenses, receiving income, guiding
management and maintaining profits.
Planning tools are the set of techniques are used by managers to make effective plans and
manage various types of business operations. The main aim of using planning tools is to control
over excess budget which are prepared by managers. It helps to analysis the performance and
budgetary control. It is important for any business entity that to collect financial information,
prepare different types of budgets and make decision process. In Oshodi plc managers are using
planning tools for the purpose of setting goals and achieve them effectively that helps to increase
profits. Various planning tools are used by selected company that are as defined:
Master budget – The aggregation of all lower level budgets which is manufactured by
company's functional area for the purpose of making correct business decisions is consider as
master budget. In Oshodi plc managers prepares master budget that helps to judge the
performance of its responsibility centres. This budget includes financial statements, financial
plan and cash forecast for setting objectives and attain them in stipulated period.
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 Advantages – It helps Oshodi plc to know how much company is earning and spending
as whole in order to make right business decisions. Moreover, it helps managers to
identify the problems and make plans according that can be used to solve problems.
 Disadvantages – Lack of specificity is a major disadvantages that does not specify the in
which department or particular activity are needed spending more. It is difficult to read
because all small budgets are involves in master budget.
Zero base budget – Such budget are usually prepares in new business entity who has no
prior budgets. It is prepared on the basis of zero base which ignores past figures and make efforts
to achieve goals. In Oshodi plc accountant and managers can prepare such budget at the time of
preparing JOJO fruit juice that will helps to to attract customers and make profits by estimating
full transparency.
 Advantages – Zero base budget are widely used to justify the all operating expenses and
helps to define the area of company in order to generate revenues.
 Disadvantages – It has drawbacks that it is resource intensive that takes times and money
to justify every budget element instead of modifying budgets.
Cash flow budget – This budget is used to identifies the cash outflows and inflows
within a specified period (Otley, 2016). It is the estimation of cash receipts and payments which
occur in fixed period and helps to make plans accordingly. Oshodi plc is using this budget by
preparing yearly plans that helps to maintain the inflows and outflows of cash. This budget helps
to meet with cash requirements and set the plans for entire business in order to make profits.
 Advantages – This budget helps Oshodi's manager to manage cash that helps to continue
business operations.
 Disadvantages - This focuses only money movements not net income due to which
managers can not get accurate position of business firm.
M3. Use of different planning tools and their application for preparing and forecasting budgets
Planning tools are usually used and controlled by managers within organization who set
the objectives and make plans according that helps to achieve business goals. For example, in
Oshodi plc manager has decided to increase sale by manufacturing the JOJO fruit juice so
manager set the different planning tools that are cash, master and cash flow statement. All
planning tools are applied by accountant to respond properly against financial problems and
forecast the budget in order to maintain the productivity and profitability (Quattrone, 2016).
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