Management Accounting Systems and Techniques: Oshodi PLC Report

This report examines management accounting systems and techniques employed by Oshodi PLC, a manufacturing company specializing in JOJO fruit juice. It covers various management accounting systems such as price optimization, job-order costing, inventory management, and cost managerial accounting. The report analyzes different types of management accounting reports including budget reports, performance reports, accounts receivable aging reports, and cost accounting reports. It details the benefits of these systems and reports, and how they are integrated to aid decision-making. The report further includes calculations of net profit using marginal costing, application of various management accounting techniques, and interpretation of financial reports. It also discusses planning tools used for budgetary control, advantages and disadvantages of these tools, and their use in forecasting budgets. Finally, the report explores how management accounting systems are used to resolve financial problems, analyzing how they lead to success. The report concludes with a summary of the key findings and recommendations for Oshodi PLC.

Management accounting
systems and techniques

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Different types of management accounting systems:.............................................................3
P2 Types of management accounting reports:.............................................................................5
M1 Benefits of management accounting systems:.......................................................................6
D1 Integration of management accounting systems with reporting:...........................................7
TASK 2............................................................................................................................................7
P3 Calculation of net profit with the help of management accounting techniques:....................7
M2 Application of various management accounting techniques:................................................9
D2 Interpretation of financial reports:.........................................................................................9
TASK 3..........................................................................................................................................10
P4 Advantages and disadvantages of planning tools used for budgetary control:.....................10
M3 Use of planning tools for forecasting budgets:....................................................................12
TASK 4..........................................................................................................................................12
P5 Ways in which management accounting systems are used to resolve financial problems:..12
M4 Analysis of how management accounting can lead to attaining success by responding....14
to financial problems:................................................................................................................14
D3 Planning tools used to respond financial problems:.............................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
In today's business environment, every organisation is required to manage its business
activities by preparing financial statements as it helps them to easily analyse the performance of
their company. For this purpose, management accounting is used which is defined as a provision
of both financial and non-financial information for the overall development of an enterprise.
Decision-making is a crucial aspect for every firm and an effective judgement can lead an
organisation to achieve greater heights. In the following report, a management accountant trainee
is selected who works at Oshodi PLC (Management accounting, 2019).
The manufacturing company specialises in the production of JOJO fruit juice across all
age gaps and offers them critical facts about the need of managerial decision-making. This report
highlights on various management accounting systems and reports opted by Oshodi PLC in order
to get clarification of information. It also includes various planning tools to identify and resolve
financial problems that may occur on a day-to-day basis. A calculation of net profit figures is
also done under this statement with the help of management accounting techniques.
TASK 1
P1 Different types of management accounting systems:
Management accounting: This refers to a practice where both financial and non-
financial information is identified, measured, analysed, interpreted & communicated among the
higher authorities for the pursuit of organisational goals & objectives. Its scope is quite wide and
varies among the three areas i.e. strategic, performance and risk management. It is required by
Oshodi PLC to analyse business cost & operations for preparation of reports or records which
aids the directors in taking valuable decisions for the welfare of company (Abdelhak, Grostick
and Hanken, 2014).
Management accounting systems: These generally consists of internal systems which
are used by an organisation to measure and evaluate its processes for the overall development of
a firm. Usually, this is required among the members of Oshodi PLC to produce goods as per the
need & requirement of the customer in order to get maximise consumer satisfaction. The
company also uses management accounting systems by providing accurate, timely, complete
data to the customers.

Price optimisation system: This refers to a system which is required by companies to set
value of their products & services after assessing need & want of the consumer. It is used as a
tool which does a deep study regarding customer perspective on using the goods. Also, this can
be affected by demand and supply factors as they usually fluctuate with rising or falling
conditions (Berry, Broadbent and Otley, 2016). This is required by management to estimate price
of products offered by rivals and set the cost of goods accordingly. Oshodi PLC uses price
optimisation system to evaluate price of various factors used while manufacturing JOJO fruit
juices like packaging, labelling, branding etc.
Job-order costing system: It is a system which aims at producing goods or services
according to the need & requirement of the user. Usually, all the activities performed under job-
order costing system are related to achievement of goals & objectives of the firm. The orders
placed by customers vary according to their desire, for example, some people can minimise on
the quality of products to get it for cheap however, other would want to get the best quality
products for which they can pay any amount. This technique is followed by directors of Oshodi
PLC to manufacture the production of JOJO fruit juices which can range from adding extra
quantity of product, offering multi packs etc.
Inventory management system: This is a system which ensures that stock is available
at the warehouse whenever in need. It confirms that adequate raw material for producing goods
are present at the right time and accurate place. To value inventory, various methods are opted by
a firm i.e. LIFO, FIFO, weighted average which are mentioned below:
LIFO: Last in, first out method states that the inventory which as arrived at the end is
consumed first.
FIFO: First in, first out method states that the stock which is arrived at the beginning is
consumed first.
Weighted average: This method divides COGS available for sale with the number of
units present during the time of sale.
Oshodi PLC values its inventory by using FIFO to avoid any products from getting
expired so sell those juices which are manufactured first (Braun and et.al., 2014). Usually, every
organisation follows and complies by this system and in this report, Oshodi PLC does the same
in order to maximise the production of JOJO fruit juice. The company ensures that appropriate
material, equipment is used in manufacturing the juice so that the quality is not compromised.

Cost managerial accounting system: It is a system which manages as well as set value
of various products and services & also considers fixed, variable cost etc. This is used by Oshodi
PLC to estimate price for their variant JOJO fruit juice after analysing the need & desire of the
user. The allocation of cost done by the company is based on either traditional or ABC approach
which calculates single overhead rate and applies that within each department. On the other
hand, the second technique involves calculation of activity rate as well as application of
overheads based on the usage.
P2 Types of management accounting reports:
Management accounting reporting: This is a process of reporting where different
forecasts are prepared by managers in order to analyse the performance of activities performed
by an organisation. It involves a variety of reports which are produced by higher authorities of
Oshodi PLC to measure the performance of their product i.e. JOJO fruit juice among the market
participants (Charifzadeh and Taschner, 2017). Every organisation like Oshodi PLC produces a
forecast for all the expenses or incomes that may arise in the future. This can be done with the
help of a budget report which aims at allocating funds to each functional unit after assessing the
need of that department.
Budget report: These reports determine how much funds should be allocated to various
functional units of an organisation. It also involves preparing a forecast for the future expenses &
earnings after a detailed analysis of prior year's expenditure. The selected company i.e. Oshodi
PLC produces a budget report for estimating the gains & losses which may occur during an
accounting year. The organisation also considers how much finances should be assigned to each
department like production, sales, human resource, marketing, research & development etc.
Performance report: These are the reports prepared by management accountants to
analyse substantive expenditure and revenue with the amounts allotted to each department within
an organisation. Oshodi PLC prepares a performance report to assess the execution of work done
by each and every employee (Eterno and Silverman, 2017). The company uses this report to get
an idea about how well their variant JOJO fruit juice is performing in the market which can be
attained by interpreting customer response or rating given by them on a particular product.
Accounts receivable aging report: These are the reports that keep a continuous check
on defaulters of a company by checking the duration of time in which they have paid their dues.
Aging report also aids the management of Oshodi PLC by determining the problems which could

arise in the company's collection cycle. It is essential to prepare for the benefit of the selected
organisation as the directors analyse any potential defaulters and offer them extended credit
terms which can help them in recovering their due amounts.
Cost accounting report: These reports are designed for providing internal information to
the user about the cost associated with different products or services. The major purpose of this
report is to help the management of Oshodi PLC by determining the value of goods to be kept
with effective planning, controlling and decision-making. The company prepares cost accounting
report to compute value of JOJO fruit juice produced on a day-to day basis which includes cost
incurred on packaging & labelling, overheads, labour, raw material etc.
M1 Benefits of management accounting systems:
Following mentioned are the benefits of using different management accounting systems:
Management accounting systems Benefits
Price optimisation The managers of Oshodi PLC use price optimisation
system as it helps them in saving time which reduces
the effort of internal manual resources. For this purpose,
the company selects appropriate pricing strategy to set
value of JOJO fruit juice lower than its competitors.
Job-order costing This is beneficial for the company as it helps in
reducing price of products by making proper
customisations in the product according to the need &
requirement of the user. It can be done with the help of
job-order costing system which is implemented by
Oshodi PLC.
Inventory management With the help of inventory management system
implemented by Oshodi PLC, risk of overselling or
overbuying the raw materials could be reduced as it
involves maintaining stock sheets which records how
much goods have been ordered or are present at the
warehouse.
Cost managerial accounting The managers of Oshodi PLC use cost accounting

system to ascertain the value of goods associated with
each and every level of production or department. This
helps them to evaluate the price which should be kept
fixed like packaging & labelling charges and variable
such as quantity of juice.
D1 Integration of management accounting systems with reporting:
Both management accounting reports and systems ate interrelated with each other in such
a way that it helps the organisation in preparing both simultaneously. The directors of Oshodi
PLC uses management accounting systems to set price of products & services as per the need
and desire of the user (Fayol, 2016). Since, customer satisfaction is considered to be the main
asset of a firm so the company aims at manufacturing JOJO fruit juices after making
customisations in it as requested by the consumer. For every package of juice manufactured,
funds are required. For that purpose, Oshodi PLC prepares a budget report and allots finances to
each and every functional unit. The company also ensures that performance of its products is
maintained better than its competitors which could be done after assessing ratings given by the
client.
TASK 2
P3 Calculation of net profit with the help of management accounting techniques:
Oshodi PLC Profit and loss account for the months November & December using marginal
costing:
Particulars November (£) December (£)
Sales 500000 600000
Less: Cost of sales
Direct Material Costs -180000 -216000
Direct Labour costs -40000 -48000
Variable Production Overheads -30000 -36000
Contribution 250000 300000
Less:
Variable selling overheads (10% sale value) -50000 -60000

Fixed selling expenses -14000 -14000
Fixed Administration Overhead -26000 -26000
Fixed production overheads -99000 -99000
Net Profit 61000 101000
Oshodi PLC Profit and loss account for the months November & December using
absorption costing:
Particulars November (£) December (£)
Sales 500000 600000
Less: Cost of sales -340000 -408000
Gross profit 160000 192000
Variable selling overheads (10% sale value) -50000 -9000
Fixed selling expenses -14000 -60000
Fixed Administration Overhead -26000 -14000
Under/over absorbed prod expenses 9000 -26000
Net Profit 79000 83000
Working notes:
1) Calculation of fixed production overheads:
Particulars Units
Normal level of production 11000
Fixed overhead cost 99000
Fixed production overhead absorption (99000/11000) 9
Total production cost = Variable cost + fixed production absorbed
2) Contribution (marginal):
Particulars Per unit Per unit
Sales price 50
Direct material cost 18
Direct wages 4

Variable production overhead 3
Total variable cost 25
Contribution 25
3) Total variable cost:
Particulars Per unit
Direct material 18
Direct wages 4
Variable production overheads 3
Total variable production overheads 25
4) Contribution (absorption):
Particulars Per unit Per unit
Sales price 50
Less: Production variable cost 25
Selling variable overhead 5 30
Contribution 20
5) Calculation of variable selling O/H:
Particulars Amount
Finding variable selling overhead 10% of sales volume
Variable selling O/H 5
6) Cost of goods sold:

M2 Application of various management accounting techniques:
Standard costing: It is a type of costing method used to determine price, material
variance etc. between cost of goods which are actually produced and the value which should
have been occurred. For Oshodi PLC, this comprises of direct material, labour, production
overheads as well as valuation of inventory (Wilson, 2014).
ABC costing: This is an approach where cost is assigned among various activities
happening in a firm. It ensures that each cost driver has been allotted funds in order to work
productively. The managers of Oshodi PLC allocate funds to each department for the
manufacturing of JOJO fruit juice.
D2 Interpretation of financial reports:
From the above financial reports i.e. marginal and absorption costing it can be interpreted
that in the first profit & loss account, valuation of inventory is not considered. Therefore, there is
a gap in net profit for both the years i.e. November and December. Also, fixed absorption
overheads are not deducted from cost of sales. Although, if we see the net profit figure calculated
by absorption costing, the rise in profit figure is much less as compared with marginal approach.
It is because this considers inventory calculation as well as deducts fixed overheads.
TASK 3
P4 Advantages and disadvantages of planning tools used for budgetary control:
Budget: It is a plan of action in the form of preparing a forecast for the future expenses &
losses during an accounting year (Fleischman and Parker, 2017). In Oshodi PLC, the managers
prepare budget which helps them in analysing and allocating finances to each functional unit of
the organisation. For the manufacturing of JOJO fruit juice, the company usually prepares a cash
forecast to analyse the financial performance of each department i.e. marketing, sales, R&D etc.
Budgetary control: This refers to a control procedure wherein various budgets are
prepared by the organisations for several purpose. It includes master, operational, fixed, flexible,
cash, capital budget etc. In order to achieve organisational growth and success, Oshodi PLC
follows a budgetary control procedure wherein forecasts are produced by the managers to get an
estimation of gains & losses associate with each department.
Following explained are the different types of budgets:

Cash budget: It is an estimation of cash inflows and outflows during an accounting year.
Every organisation needs to prepare cash flow forecast in order to assess cost associated with
different type of products & services (Galliers and Leidner, 2014). The management of Oshodi
PLC requires an estimation of how much funds should be allocated within each functional unit of
the organisation like production, marketing, sales, R&D etc. For better understanding of a cash
budget, some of the advantages and disadvantages are stated below:
Advantages:
 It help the managers of Oshodi PLC to stay in touch with reality by only spending the
allocated amount on raw materials for production of JOJO fruit juice.
 Any debts or uncertain expenses can be easily dealt with by maintaining a reserve out of
the profits which can be used in case of emergencies.
Disadvantages:
 There are higher chances of manipulation in this types of budget as it deals with cash on a
daily basis.
 It eliminates non-financial factors while preparing a cash budget as only monetary
transactions are considered.
Capital budget: These budgets are generally used when large expenses need to be
incurred. A capital budget helps management of Oshodi PLC to achieve organisational goals and
objectives by estimating how much funds are required by various departments in the company.
Usually, directors prepare these forecasts to identify potential projects with the help of
investment appraisal techniques like net present value, internal rate of return, pay-back period
etc. For better understanding of a capital budget, listed below are some of the advantages and
disadvantages:
Advantages:
 It helps the manufacturing company i.e. Oshodi PLC in better understanding of risks
involved in an investment project and what will be the outcome of it.
 With he help of various capital budgeting techniques like NPV, IRR, ARR, pay-back
period, it becomes an easy task for the company to invest in a potential project which will
provide efficient results in the future.
Disadvantages:

 Any wrong implementation of decision can affect in the long-term durability of Oshodi
PLC.
 It is introspective in nature due to subjective risk & discounting factor undertaken by
company to measure cash flows.
Zero-based budget: It is a type of budget which is prepared from zero values i.e. scratch.
This requires the forecast to be produced from a zero-base without considering any previous
year's records (Gupta, 2016). In the selected company i.e. Oshodi PLC, all the cost associated
with manufacturing of JOJO fruit juice needs to be justified in order to get effective & efficient
output. The advantages and disadvantages are mentioned below:
Advantages:
 This emphasises on co-ordination as well as communication among all the members of
Oshodi PLC.
 It boosts up staff motivation as this gives them more authority towards decision-making.
Disadvantages:
 Since this budget is prepared from a zero-base so it becomes a time-consuming process
for the managers at Oshodi PLC.
 This requires well-equipped personnels who carry a detailed understanding about each
individual business transaction involves in the preparation of the budget.
M3 Use of planning tools for forecasting budgets:
Planning tools play a crucial role in estimating the requirement of budgets. Different
types of forecasts like zero-based, fixed, flexible, capital, master operational etc. are prepared by
Oshodi PLC for different purpose to assign & allocate cost associated with production of JOJO
fruit juice. These planning tools help the company in producing forecast for income and
expenditure which may result in the future by analysing previous year's records so that there is
no misappropriation of funds. In relation to this, the company also chooses to opt some capital
budgeting techniques in case there is a need to invest in any potential projects.
TASK 4
P5 Ways in which management accounting systems are used to resolve financial problems:
On a day-to-day basis, every organisation needs to comply with some techniques in order
to respond through financial problems. Some of the issues are mentioned below: