Oshodi Plc: Management Accounting Systems and Techniques Report

This report provides a comprehensive analysis of management accounting systems and techniques applied to Oshodi Plc, a manufacturing company producing JOJO fruit juice. The report begins with an introduction to management accounting, defining its role in financial statement preparation and stakeholder analysis. It explores various management accounting systems, including job costing, cost accounting, and inventory systems, evaluating their advantages and disadvantages. The report further discusses different methods used for management accounting reporting, such as budget reports, job cost reports, and accounts receivable reports, and highlights the benefits of these systems within an organization. Additionally, the report provides a detailed calculation of income statements under both marginal costing and absorption costing methods, offering a comparative analysis of these costing techniques. The report also includes calculations for March and April using both marginal and absorption costing.

Management Accounting
Systems and Techniques

INTRODUCTION
It can be defined as those systems which help in preparation of Financial Statements. These
systems are generally used in order to prepare various financial reports for the company's
stakeholders. These reports are needed by stakeholders of company to analyse financial
performance. There are various tools and techniques are used in preparation of various financial
reports (Management Accounting Systems, 2019). There are several systems such as cost accounting
systems, financial accounting systems, Business accounting system etc. Oshodi Plc is a
manufacturing company who is engaged in mainly production of JOJO fruit juice. Company wants
to prepare financial reports to evaluate financial position of company at time of production of JOJO
fruit juice. The report includes all the Budgetary control planning can be used by company to
control the extra cost allocation by setting up standard budgets. It also includes the various
techniques to resolve the financial issues in company by using the best technique for company. It
also help in knowing Oshodi that which costing method will be presenting better net profits for
company. Thus, report covers all the management accounting tools and techniques can be used by
company to know the financial condition of company. It will also help investors in evaluating and
making analysis on company's financial position.
LO 1
P 1 Definition of MA and requirement of different types of MA systems
It is defined as the method where financial statements are prepared by company to analyse
their financial performance. It main aim is to record all the monetary transactions in books of
accounts (Kaplan, 2015). MA is the method where all transactions related to finance are identified,
analysed, summarized and recorded in the books of accounts to interpret it and develop annual
reports. It helps management in taking short term or long term decisions for Oshodi Plc. There are
three types of financial management such as tac, financial and management accounting. It also helps
management in taking decision related to cost reduction and cost elimination. By examining where
the extra are more and it is necessary or not to allocate the expense in that particular department.
This also help in preparation of various strategies and business growth models.
Management Accounting systems are required in oshodi Plc in order to prepare Financial
Statements by using suitable systems. The various systems are described below:-
Job Costing System
This system helps in knowing the various calculation of job departments in company. It
helps in allocation of different costs in particular department as per the need of cost in that
department. It also help in examining extra cost allocated in different department and avoid that

extra cost if it is not beneficial to company.
Advantages Disadvantages
 This system help in examining extra cost
in every department (Kavanagh, 2017);
 It is a basis for cost elimination or cost
reduction in all department of Oshodi
Plc;
 It provides brief information about direct
material, direct labour, fixed and variable
overhead charged in the different
departments.
 It is not suitable in small organization
where there are less number of
departments;
 This system is very expensive and also
very expensive to implement in Oshodi
Plc;
 Under this method, there is lack of job
standardization;
 It needs more professional experts in
order to apply this method in any
organization.
Cost Accounting System
This is used under which total cost used in every department and total production cost of
products are been calculated. There is preparation of different types of cost sheets for every
department in order to know where is need of extra cost allocation. It help in cost effective in
Oshodi Plc. Thus, it helps in identifying direct and indirect expenses related to production of each
product is calculated.
Advantages Disadvantages
 It helps in cost reduction in company by
evaluating extra cost allocated in every
department;
 The method help in knowing under
which department there is under
absorbed or over absorbed cost;
 It help in setting up the new price for
new products;
 Facilitates determining of production
cost per unit.
 This method very complex in nature and
takes a lot of time preparation of cost
sheets for each department (Fleischman,
2017);
 It is very lengthy process for preparation
of cost sheets for each department;
 It needs professional to prepare various
cost sheets for every department in
Oshodi Plc.
Inventory System
Inventory System refers to that system where different ledgers are preprepared for knowing

the inventory purchased, produced and sold in Oshodi Plc. Inventory ledgers can be prepared by
different methods such as LIFO, FIFO, Weighted Average Method, EOQ etc. in order to know
whole inventory management in company. It presents whole picture of inventory from purchasing
of raw material to sell of finished goods. Every organization uses different methods to prepare
inventory ledger in their company.
Advantages Disadvantages
 It help in tracking all the inventory
management held in Oshodi Plc (Barratt,
2018);
 Helps in setting up standard for cost
control and maximizes profit for the
company;
 Also help in knowing whole process of
raw material needed in order to produce
particular units in company.
 It is very lengthy process of preparing
inventory ledgers for each product;
 It is time consuming to prepare of
inventory ledgers and needs professional
expert for preparing inventory ledgers.
Price Optimization System
In this business arena, company can maximize its profit only when the management
provides products at reasonable price for its customers. Moreover, consumers are always in
search of retailers who provide them product at cheaper rates as compared to other retailers.
This method help in knowing that what price consumers should be provided product in order
to gain competitive edge.
Advantages Disadvantages
 It provides information to Oshodi that at
what price products should be provided
to consumers;
 It also sets new price for new products to
be implemented in market;
 The method help in creating strong base
for company.
 It is very expensive and time- intensive
process;
 It needs software for calculating price for
every new product (Campana, and et.al.,
2015).
P 2 Discussing different methods used for MA reporting
MA reports are prepared in order to prepare financial statements of company. These reports
help several stakeholders in knowing where the company is laying in terms of financial position of

company. It also help in that whether investors should more invest in company or not and also help
management in take decisions for Oshodi Plc to take major decisions for company.
Budget Reports-
Budget Reports are prepared to set the standards for Oshodi Plc in accordance with the sales,
costs and various expenses of company (Hayes, and et.al., 2016). These are set to attain future
targets by comparing it with past data and info. They also help in controlling cost of company and
maximize its profits. The reports are compared with actual reports to evaluate business
performance. If management finds any variations in actual and budgeted reports than corrective
actions are taken to remove those variations.
Job Cost Report-
Job Cost Reports are several reports prepared for every job or department in the company. It
helps in preparation of cost sheets for every job in Oshodi Plc. This reports helps in assessing
various expenses and costs allocated in every department (Dwivedi, 2016). The firm calculates the
actual job costing report with the budgeted reports which are set by management of company.
Accounts Receivable Reports-
These are reports which are prepared by management in order to know collection period
policy of company. It gives an insight about in how much time period company converts its debtors
into cash and evaluates whether all debtors are paying cash on time or not. It is useful for company
in maintaining cash liquidity so that there will be no problem at time of paying cash to current
liabilities (Xi, 2018). Considering all the aspects, Oshodi may create the policy which helps
company in collecting cash from debtors on time. It is also useful for manufacturing who needs
daily working capital for continue production of goods by management.
Inventory and Manufacturing Reports-
These are reports which are prepare to know the inventory used in manufacturing of every
product in Oshodi Plc. It is useful in knowing the units of raw material used for production of every
unit of finished products. It also helps in knowing minimum finished products to meet the
maximum demands of consumers. It helps in evaluating the whole picture of inventory management
by preparing inventory and manufacturing reports for company.
Benefits of MA systems and their application within an organization
The systems benefits company by preparing several job costing, inventory, price
optimization systems. These systems help in preparing financial statements of company which
further help in evaluation and analysing the various inventory management, cost allocation (Lees,

2017). These systems are useful to apply in company so that Oshodi' s management can take short
term and long term decisions for company. They are also helpful in cost allocation and pricing new
products which are going to be introduced in market. These are applied in organization to have
information about every department and about every system in company.
LO 2
P 3 Calculation of Income Statement under Marginal Costing and Absorption Costing Method
Cost is amount incurred in production of goods by converting raw material into finished
products. The costs comprises of direct material, labour, overhead, etc. Basically, there are two type
of cost that is fixed and variable. Fixed are those which is constant and variable varies with change
in activities. Alongside it, there are two types of costing methods available that is marginal and
absorption. It is used to calculate profit and loss. (Boardman, and et.al., 2017).
Marginal Costing and Absorption Costing Method
Marginal Costing is a method in which where all the variable expenses are charged at the
time of calculation. Under this method, closing inventory is calculated on marginal cost per unit.
Contribution is calculated after deducting all the variable production and Selling cost (Frischmann,
2015). These both costs are deducted from contribution from Net Profit.
Absorption costing method account all the fixed and variable production costs at the time of
calculation. Closing Inventory under this method is calculated on Absorption cost per unit. In this
method, Gross Profit is calculated by deducting fixed and variable production costs first and then
deducting Fixed and Variable Selling costs to calculate Net Profit (Ali, and et.al., 2018). This
method takes into account all the fixed costs which are been absorbed at time of production of
goods.
Calculation of Income Statement under Marginal Costing Method
Particulars Per Unit Cost (£)
Direct Material 18
Direct Wages 4
Variable Production Overhead 3
Marginal Cost Per Unit 25
Sales per unit 50

Less:- Marginal Cost Per Unit -25
Contribution cost per unit 25
Particulars March April
Sales per unit (10000*50) 500000 (12000*50) 600000
Less:- Cost of
goods sold
Opening Inventory 0 0 (2000*25) 50000
Variable
Production Cost (12000*25) 300000 (10000*25) 250000
Less: closing stock (2000*25) -50000 0 0
250000 300000
Add:- Variable
selling overheads (10000*5) 50000 (12000*5) 60000
300000 360000
Contribution 200000 240000
Less:- Fixed o /h
cost
Fixed production
cost 99000 99000
Fixed Selling cost 14000 14000
Fixed
Administration
cost 26000 26000
Total fixed o/ h
cost 139000 139000
Net Profit 61000 101000
Total Net Profit
under marginal
162000

cost
Calculation of Income Statement under Absorption Costing Method
Particulars Per Unit Cost (£)
Direct Material 18
Direct Wages 4
Variable Production Overhead 3
Fixed Cost Per Unit 9
Absorption cost per unit 34
Particulars March April
Sales (10000*50) 500000 (12000*50) 600000
Less:- Cost of
goods sold
Opening Inventory 0 0 (2000*34) 68000
Production cost (12000*34) 408000 (10000*34) 340000
Less:- closing
stock (2000*34) 68000 0 0
Gross Profit 160000 192000
Adjustments for
O/ H under
absorption 169000 183000
Less:- Variable
selling o/h -50000 -60000
Less:- Fixed
selling o/h -14000 -14000
Less:-Fixed
Administration o/h -26000 -26000
Net Profit 79000 83000

Total Net Profit
under marginal
cost 162000
Calculation of Reconciliation of over/ under Absorption of Fixed Production Overheads
Calculation of over/ under absorption of Fixed Production O/ H
Month Unit
Overhead
Absorption
Unit
Production
overhead
Absorption
Overhead
under
Marginal
Over/ Under
Absorption
March 12000 9 108000 99000 9000
April 10000 9 90000 99000 -9000
Interpretation of Net Profit under both costing method
Oshodi Plc should select presentation of Income Statement under Absorption costing
Method. This method is showing relevant data of Income Statement as compared to Marginal
Costing Method. In the month of March, Absorption costing method is showing higher because this
method takes into account fixed cost per unit whereas marginal costing method takes only variable
cost per unit. This is the main reason of Absorption costing showing higher profits because charges
fixed cost per unit. While Marginal costing charges total fixed costs in calculation of net profits.
In month of march there was over absorption of fixed costs and in month of April, there was
under absorption of fixed costs. Due to this under absorbed and over absorbed fixed production
costs company profit under both the methods are showing same. If Oshodi Plc is selecting
presentation of Income Statement under Marginal Costing the company should also show
reconciliation statement. Thus, Oshodi Plc should select Absorption Costing method.
LO 3
P 4 Pros and cons of planning tools used for Budgetary Control
Budgetary Control helps in setting up standards for company in order to compare those
standard budgets with actual performance of company. It help in finding out the various deviations
held in company and taking corrective actions by management to improve the performance of
company. There are various planning tools available Budgetary tools which can be used inn Oshodi
Plc.

Zero Based Budgeting-
Zero Based budgeting refers to planning tool in which each and every expense has top
be justified that what it is its need in a particular department (O'Shea, 2018). This budget has
a base of “Zero- Budgeting” which means that the expense has to be justified on the basis of
their need in any department. It helps in cost allocation of every expense in different units.
Advantages Disadvantages
 This method justifies each expense
before allocation of that particular
expense;
 It help in cost elimination by justifying
every expense in Oshodi Plc;
 The method also help in knowing that
which expense is needed or not needed
in department.
 It is very time consuming.
 It needs professional expert in order to
justify each and every expense in
company.
Incremental Budgetary Control-
It is calculated by charging a small percentage in previous year's budget to prepare
next year budget. This budget is suitable in organization's where seldom changes occur in
company i.e. suitable for small companies.
Advantages Disadvantages
 It is very simple to understand and
calculate incremental budgeting;
 It is suitable for small organizations
where seldom changes occur;
 Very easy to implement in any firm.
 It is not suitable Oshodi Plc because it is
a manufacturing company (de Campos,
2016);
 It does not take into several expenses
such as interest rates, inflation rates etc.
Activity Based Budgeting-
It is calculated by justifying each and every activity in organization in order to know
the several benefits related to those activities. Activities which are not giving enough benefits
to company are removed in order to allocate expenses in activities which are giving more
benefits to company.
Advantages Disadvantages

 It justifies each and every activity which
is needed in company;
 It help in determining extra cost
allocation for Oshodi Plc (Mahal, 2015);
 It is also useful for differencing in
activities which are benefiting company
and which are not benefiting company.
It is expensive and time consuming method.
It needs expert to justify each and every activity
in Oshodi Plc;
This method very rigorous and can be applicable
large firms.
LO 4
P 5 Different techniques that can be adopted by Oshodi Plc in order to resolve several financial
issues
There are various financial problems present in each organization and same are present in
Oshodi Plc. There are several tools which helps in solving these financial problems are as follows-
Benchmarking
Benchmarking is the process where company sets up certain standards for each
element present in the company. For example, benchmark is set in terms of sales that are to be
achieved by Oshodi Plc as those of achieved by companies competitors. Generally, benchmark
is set in terms of achieving targets as compared to those of competitors.
Advantages Disadvantages
 It help in achieving targets of companies
as those of competitors (Van Mechelen,
and et.al., 2018);
 Helps in assisting new paradigms for
Oshodi Plc;
 This method contributes in improvement
of performance of Oshodi Plc.
 This method adversely affects morale of
employees present in organisation;
 It is not realistic tool for measuring
company's performance.
Variance Analysis-
Variance Analysis is the method in which standard performance as set by management
are compared with those of actual performance of Oshodi Plc. Management finds deviations
between standard and actual performance and take corrective actions in order to remove all
such deviations from company.