Management Accounting Report: Financial Performance and Analysis

This report delves into the realm of management accounting, exploring its crucial role in financial reporting and decision-making within organizations. It begins by defining management accounting and outlining the essential requirements of different management accounting systems, such as cost accounting, inventory management, job costing, and price optimization systems, using Innocent Drinks Limited as a case study. The report then elucidates various management accounting reporting methods, including budget reports, accounts receivable aging reports, job cost reports, inventory and manufacturing reports, and performance reports. It further analyzes the advantages of management accounting systems and their integration with organizational processes. The report also examines appropriate techniques for preparing income statements, such as marginal and absorption costing, and explores the benefits and drawbacks of budgetary control planning tools. Finally, it discusses the implementation of management accounting systems to resolve financial issues and presents planning tools for responding to financial problems.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems. ..............................................................................................3
P2 Explain different methods used for management accounting reporting................................4
M1. Advantages of management accounting systems................................................................6
D1.Integration of management accounting systems and reporting with the organisational
process.........................................................................................................................................7
TASK 2............................................................................................................................................7
P3. Appropriate techniques to prepare the income statements...................................................7
M2. Management accounting techniques to produce the financial reports.................................9
D2. Financial reports and their interpretation.............................................................................9
TASK 3..........................................................................................................................................10
P4. Benefits and drawback of budgetary control's planning tools............................................10
M3. Use of planning tools for preparing the budgets................................................................11
TASK 4..........................................................................................................................................12
P5. Implementation of management accounting system with an aim to resolve the financial
issues.........................................................................................................................................12
M4. Management accounting in response to resolve the financial issue..................................13
D3. Planning tools for responding to financial problem...........................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
The term management accounting is a type of accounting system that is linked with the
preparing and presenting the report to the management (Gray III, 2015). The aim of this
accounting is to helping the managers of companies for better decision-making as well as in
effective planning. One of the important thing to know about this accounting system is that it is
not essential for the companies to adopt. This depends on the need of organisation. To
understand about the management accounting in better way, one company is selected that is
Innocent drinks limited company is selected that is located in the London, UK and
manufacturer of JOJO juice across all age brackets. In the project report, requirement of
management accounting systems as well as methods of reporting mentioned. As well as benefits
and drawbacks of planning tools are discussed, along with importance of management
accounting systems is included for overcoming the financial issues.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.
Management accounting is also known as managerial accounting through which
accounting data is gathered so that in order to make any decision within a company manager can
better understand the information which will help controlling management and performance
functions. Along with this, its main concern is with internal factors of the organisation and it is
important for managers to prepare and present financial statement of a company. In addition to
this, with the help of management accounting, managers of a company is able to prepare short
term decisions as well as day to day activities. The important requirement of various types of
management accounting system is as follows:
 Cost accounting system: It is define as a method of tracking of conversion of raw
materials into finished goods (Beaubien, 2013). Along with this, it is majorly applied by
manufactures in order to record production activities. This helps in determining the flow
of stock from different level of production. In respect of Innocent Drinks, managers adopt
this method in order to maintain record of raw material that is used in preparation of
drinks such as amount of fruits, liquid and many more. This implies that cost accounting

system is important for a firm to determine various cost that is involved in production of
goods.
 Inventory management system: It is define as management system which maintain
record which is related to stock such as recoding data of stock stored in warehouse,
supply of stock and many more. Management of inventory is very important for manager
of an organisation so that they can determine about storage as well supply of inventories
frequently. In context of Innocent drinks, manager has to maintain record of inventory
effectively so that it will be easy for them to determine about amount of stock that need
to purchase, sales and many other information. Along with this, they can also examine
the stage where they are lacking and improve it quickly.
 Job costing system: It is a process of analysing the cost and expense that is occurred in
production of goods and services (Aiken, 2013). In other words, it is a method which
categorise manufacturing cost into overhead, direct material and direct labour in order to
determine their actual cost. In regards of Innocent drinks, company consist of separate
department who is responsible to manage cost and expense of company.
 Price Optimisation system: It is define as a system which is used in order to maintain
prices that occur at time of production. This method helps in deciding the price of various
commodities at a particular period of time. As per respective company, this method helps
in determining prices of various foods and beverages that are used in production of
drinks.
Therefore, from above types of management accounting system it is easy to examine that
company one of these method in order to determine price of their resources. Along with this, it
also helps maintaining records of inventories.
P2 Explain different methods used for management accounting reporting
Management accounting reporting is define as a report which present data or information
about business performance (Needles, Powers and Crosson, 2013). Along with this, this report is
prepared in every quarter which present availability of finance in a company. This management
accounting report is mainly adopted by small scale business who prepare their strategies with the
help of these reports. In addition to this, with aid of management accounting reports, manager
can identify area of weakness which occur in a business. There are several methods that are
applied by using management accounting reports are as follows:

 Budget Report: These reports act as a assistance to managers through which they can
analyse and control the cost of resources. This helps in examining business performance
and their day to day cost. Along with this, this budget report is prepared on the basis of
expenses that occur in previous years. As per Innocent Drinks, as it is a small business
that is operating in London so they can prepare their budget report for future purpose in
order to get accurate outcomes.
 Accounts Receivable Ageing report:It is define as a tool of management accounting
report which prepare report on the basis of amount received from customers. Along with
this, this report manages the record of those customers who unable to pay their respective
amount. In context of Innocent Drinks, company has separate department who manages
respective reports. This department prepares separate columns of those customers who
didn't paid amount or are late in making payment.
 Job cost Reports: It is method of preparing those reports which display expenses of a
particular task that is adopted by small business (Law and Yuen, 2012). Along with this,
the revenue that is assumed by company usually gets matched with their expenses. In
respect of Innocent Drinks, if company is able to match their revenue and expenses then
there is possibility fro respective company to assess job's profitability. Along with this,
with the help of this method respective company will be able to focus on wider areas in
order to earn high margin of profits.
 Inventory and Manufacturing: In order to make management accounting report more
effective as well as efficient, Innocent Drinks company need to maintain record of their
stock and manufacturing process. Along with this, with help of this report respective
company will be able to analyse their overhead per unit cost, per hour labour cost and
many more. In addition to this, managers of respective organisation will be able to
compare their record with previous year and can determine the improvement that need to
be done. In addition to this, it also helps in making business performance effective.
 Performance report- This is a type of report that is associated with the management of
performance of the employees and overall organisation (Weil, De Silva and Ward, 2014).
In the performance report various kind of information is included such as estimated
performance level in the terms of income or sales as well as actual level of income. On
the basis of this data companies can easily find out about performance of their all

business activities and different kind of operations. Herein, the aspect of above respective
drink company, innocent drink limited they prepare this report. Due to this report they are
able to analyse about deficiency and efficiency of their human resource as well as of
different kind of activities. Hence, this report is useful in measuring the actual
performance that becomes a basis for future decision-making.
Hence, various methods of management accounting reports plays an important role in a
business in some way or the other. With these reports a company can control their cost,
improve areas where they are lacking as well as can also make their business performance more
better and efficient.
M1. Advantages of management accounting systems.
Management accounting system Benefits
Cost accounting system This accounting system is beneficial in keeping the total
cost under the estimation. In the innocent drinks limited
company this accounting system in controlling the cost of
their manufacturing activities.
Inventory management system It is related to track the quantity of raw material and
finished products (Ter Bogt and Scapens, 2014). Like in
above respective company, they are using this accounting
system and it is benefiting them in effectively manage of
their products. As well as it is helping them in reducing the
cost of storage.
Job costing system This accounting system is linked with the identifying the
cost of job of various activities separately. Such as in the
innocent drinks limited company, this accounting system is
beneficial for them in getting information about cost of job.
Price optimisation system Basic application of this accounting system is to setting the
prices of products and services. Same as in the innocent
drink limited company, this accounting system is helping
them in determining the price of their drinking products.
This accounting system determines the price on the basis of

customers need and preferences.
D1.Integration of management accounting systems and reporting with the organisational process.
The management accounting systems and reporting are linked with the process of
companies (Rayman, 2013). This is why because management accounting reports are produced
on the basis of accounting systems. As well as this is linked with the organisational process. This
is so because both helps in the activities and functions of companies. Like in the above
respective company, innocent drink limited they use different types of accounting systems like
cost accounting system, inventory management system etc. All these systems are linked with the
activities of organisations as well as different types of reports also help in managing the
performance of above respective company. So overall the management accounting systems and
reporting are linked with the organisational process.
TASK 2.
P3. Appropriate techniques to prepare the income statements.
There are various kind of techniques to produce the financial statements such as
marginal, absorption, activity based costing etc. Some of these are mentioned below:
 Marginal costing- It is a kind of technique of costing that is related to the preparation of
income statements by considering fixed cost as period cost (Jack, Davison and Craig,
2013). As well as variable cost as cost of unit.
 Absorption costing- This is a type of costing technique in which fixed and variable costs
are considered as cost of unit.
Income statement under absorption costing method for month of November & December
Particulars November (in £) December (in £)
Sales
Less: Cost of good sold
500000
376500
600000
349000
Gross profit 123500 250500
Less: Variable selling overhead(10% of sales) 50000 60000

Less: Fixed selling overhead
Less: Fixed administration cost
Under/over absorption fixed production
overhead
14000
26000
-9000
14000
26000
9000
Net profit 24500 159500
Working note:
1. Calculation of cost of good sold:
November December
Opening stock = Nil Nil
Direct material= 216000 180000
Direct wages cost= 48000 40000
Variable production cost= 36000 30000
Fixed production cost= 99000 99000
Less- Closing stock= 22500 -
(2000*11.25)
376500 349000
2. Under/ over absorption fixed production:
Per unit fixed cost(99000/11000) - 9 per unit
Production cost in November(12000*9)- 108000
So over absorption for November(99000-108000)- (9000)
In December,
Production cost(10000*9)- 90000
Under absorption for December(99000-90000)- 9000
Income statement under marginal costing method for month of November & December

Particulars November (in £) December (in £)
Sales
Less: Marginal cost of production
500000
344000
600000
310000
Contribution 156000 290000
Less: Fixed selling overhead
Less: Fixed administration cost
14000
26000
14000
26000
Net profit 116000 250000
Working note:
Calculation of marginal cost of sales
November December
Opening stock = Nil Nil
Direct material= 216000 180000
Direct wages cost= 48000 40000
Variable selling cost= 50000 60000
Variable production cost= 36000 30000
Less- Closing stock= 6000 -
(2000*3)
344000 310000
M2. Management accounting techniques to produce the financial reports.
The management accounting techniques are useful in the preparation of various kind of
financial reports (Cohen, 2012). Herein, the project report two techniques are used which are
absorption and marginal costing techniques. Both the costing techniques are used to produce the
income statements. These techniques provide a framework to prepare the income statements in a
systematic manner by applying a particular format. Hence, different techniques are crucial for
preparation of financial reports. Apart from it, there are some other techniques such as ABC
techniques, standard costing that are important for preparation of various financial reporting
statements.

D2. Financial reports and their interpretation.
As per the above mentioned financial reports of income statements of Oshodi plc
company, it can be interpreted that they are earning profit in both the months. There are two
types of costing techniques are used which are absorption and marginal costing technique. In the
absorption costing technique, the total net profit is of £ 24500 in November. As well as in the
December the net profit is of £ 159500. On the other hand, in the marginal costing method the
net profit is different from the absorption costing. In this costing technique, the net profit is of £
116000 in November month and in December month the net profit is of £ 250000. So in the end,
it can be interpreted that above mentioned company's financial condition is good because they
are earning net profit in both the months by both methods.
TASK 3.
P4. Benefits and drawback of budgetary control's planning tools.
The budgetary control is a kind of technique of managing the performance with the use of
different kind of planning tools. Eventually, there are different kind of planning tools of
budgetary control which are mentioned below:
 Cash budget- It is a kind of budget that contains information about total inflow and
outflow of cash of any organisation for a specific time period (Lerch and Gotsch, 2014).
Eventually, the main objective of this budget is to assessing the flow of liquidity in an
organisation as well as to evaluate about how much liquidity is available to fulfil the
working capital requirement. For example in the innocent drink limited company, they
prepare the cash budget to check the overall operational income and cost along with to
determine the cash position.
Benefits- One of the key advantage of this budget is that it is beneficial in assessing the need of
fund cash. As well as it helps in managing the liquidity of companies in an effective manner.
Drawback- Along with the benefits, this budget has some limitations like it effects the better
allocation of financial resources. Apart from it, this budget sometimes fail to estimate accurately
about cash need.
 Capital budget- The capital budget is a kind of budget that is related to the providing the
framework to companies for investing their financial resources in an effective manner.
Eventually, this budget is related to the making better investment to purchase the fixed

assets. In the capital budget, the profits are taken as the capital gain and losses are
considered as capital expenditure. Like in the innocent drinks limited company, they
prepare this budget with an objective to evaluate about inflow and outflow of capital.
Benefits- Its common advantage is that it helps in the taking crucial and risky decisions in an
easy and effective manner. Due to this companies can effectively make purchase of expensive
fixed assets.
Drawback- The main drawback of this budget is that uncertainty. Due to this sometimes
companies fail to take further decision about investment.
 Master budget- This is a type of budget that can be defined as a combination of all the
budgets (Gray, Coenenberg and Gordon, 2013). In a company, various kind of
departments such as human resources, marketing, finance etc. prepare this budget. This is
why because it is being used by all the departments and every department estimates their
future income and expenditure with the help of this budget. Like in the above respective
company, innocent drinks limited is involved in the manufacturing of JOJO juice and
they make this budget to automate their financial resources in each manufacturing
activity.
Benefits- This budget is beneficial in achieving the short and long term goals because it provides
a framework. As well as it prepares a wide perspective of company that can be useful for better
improvement.
Drawback- One of the key drawback of this budget is that it is difficult to make modification in
this budget. As well as preparation of this budget is an expensive process because it takes too
much time with cost. Apart from it, the master budget requires lot of workforce and knowledge
which is not possible for all types of companies.
So these are the planning tools of budgetary control which helps to the organisations in different
ways. Such as in the above respective company innocent drinks limited they use various kind of
planning tools of budgetary control that have some limits and benefits for them.
M3. Use of planning tools for preparing the budgets.
The planning tools of budgetary control are useful in preparation and forecasting of
budgets (Dai, Tangand Xiao, 2017). Due to this budgets companies can easily estimates about
future income and expenditures. For example in above respective company, they use some
planning tools like capital budget, master budget and cash budget. All these three budgets are

important for formulating the activities of forecasting and preparing other budget. As well as
they are able to make accurate forecasting of their budgets in less time and cost. Hence, it can be
said that planning tools of budgetary control are important in preparation and predicting the
budgets.
TASK 4.
P5. Implementation of management accounting system with an aim to resolve the financial
issues.
The management accounting plays an important role from solving the financial issues.
This is so because there are a wide range of accounting systems that becomes a suitable
framework to remove any kind of financial problem.
Financial problem- It can be defined as a kind of condition in any organisation in that
they get unable to implement their plans and policies into action (Sarkis, 2012). This is so
because of lack of fund. Eventually, there are various kind of financial issues and some of these
are mentioned below:
 Continuously increasing in expenditures- It is a kind of issue in which companies face the
problem of increased expenses. Basically, the expenses are common only if revenue is
generating more then the expenditures but if profits are low in compare to expenses then
it becomes an issue. Due to this, companies financial condition becomes weak.
 Poor management of stock- In this financial issue, companies face the problem of
effective management of raw material and prepared products. Due to the demand and
supply become unbalanced and it results in a financial issue. This is why because
companies can not get advantage of market condition when demand of products is high
and it results in a financial issue.
Techniques to find out the financial issue: Identification of exact financial issue is necessary to
overcome from the financial issues. Herein, below some methods to find out the financial issues
are mentioned such as:
 Ratio analysis- In this technique companies calculate and interpret the financial result of
different activities in the form of ratios. There are different kind of ratios like profitability
ratio, efficiency ratio etc. All these ratios are useful in reflecting the actual financial