Management Accounting Report: MAS Application for Innocent Drinks UK

This report examines management accounting practices within Innocent Drinks UK, focusing on various management accounting systems (MAS) such as cost accounting, price optimization, investment management, and job costing. It analyzes different types of management accounting reports, including cost accounting, inventory management, and accounts receivable reports, highlighting their benefits and applications. The report delves into the calculation of costs using absorption and marginal costing methods, providing income statements and reconciliation statements. It also explores planning tools like budgetary control and cash budgets, discussing their advantages and disadvantages. Furthermore, the report compares how organizations adapt management accounting systems to address financial problems and achieve sustainable success. The conclusion summarizes the key findings and reinforces the importance of effective management accounting for financial management.

Management Accounting

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
TASK 1............................................................................................................................................1
P1 Concept of management accounting and its essential requirements......................................1
P2. Explain the different types of management accounting reports which are used for reporting
purpose.........................................................................................................................................3
M1 Benefits of MAS and its application.....................................................................................3
D1. Accounting systems and reporting........................................................................................4
TASK 2............................................................................................................................................5
P3. Calculation with help of absorption and marginal cost.........................................................5
M2. Various management accounting techniques for financial documents...............................8
D2. Financial reports for various business operations.................................................................8
TASK 3............................................................................................................................................8
P4. Benefits and disadvantages of various planning tools...........................................................8
M3. Use of various planning tools for forecast........................................................................10

TASK 4..........................................................................................................................................11
P5. Comparison of various organization are adapting management accounting systems.........11
M4. Management accounting systems leads to sustainable success by responding financial
problems....................................................................................................................................13
D3. Planning tools helps in solve financial problems...............................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting has several methods in the field of finance that are employ by
organisations. Further, this can be regarded as a process of accounting where professionals
analyze financial & non-financial data for management aspects reporting (Arnaboldi, Lapsley
and Steccolini, 2015). For corporate organizations this accounting has specific number of
functions and responsibilities. For the better understanding of this concept, Innocent Drinks UK
selected which offering dairy free range of smoothies. The report includes numerous forms of
MAS and organizational positions. In addition, different kinds of accounting reports used for
reporting purpose. Furthermore, financial statements are also generated in accordance with MAS'
commitment to the resolution of financial problems encountered by business entities.
MAIN BODY
TASK 1
P1 Concept of management accounting and its essential requirements
Management accounting:
It may be interpreted as a method of accounting process wherein qualitative knowledge is
routinely handled to be implemented in order to produce internal reports (Busco and Quattrone,
2015). Management accounting plays a vital role in several aspects where it helps in business
planning, decisions making process, for better control of operational process etc. There are
several accounting systems which are followed by the managers of Innocent Drink UK, these are
discussed below:
Different management accounting systems:
Cost accounting method: It is known as a framework which is best related to the
calculation process for potential spending by corporate organizations. The function of this
accounting system is not restricted until calculation, but also helps in identifying cost variance.
This accounting system is important in businesses to help control operational activities, such that
the sum of expenditures can be minimized. Underneath the Innocent Drinks UK, this
management accounting system is presented with the objective of minimise the cost of their daily
free products in comparison to the estimate.
Price optimization system: This accounting system is correlated with a method of
determining price of their product & service according to the product's demand and reliability. It
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is feasible as it gathers data regarding the demand of the consumers and the price is fixed. As for
all the selected company, on the support of this quality, their sales team uses valuable
information regarding their daily products such as Smoothies and classify their demand in
various market segments.
Investment management system: It is another type of system which is concerned with
the method of retaining power of all items that are purchased and shipped out by organisation for
a particular time. In Innocent Drinks UK, stock valuation is done in combination with various
techniques, including the LIFO, FIFO method and the (WACM) weighted average cost method.
These techniques play an essential role for businesses to monitor precise quantities of inventory
required at the moment. As in the case of the Innocent Drinks UK, their production team uses
crucial knowledge regarding storage raw material for production.
Job costing method: This can be interpreted as some kind of management accounting
system which is correctly related to the measurement cost process within each unit generated.
The aim of MAS is to help reduce total job costs (Cooper, 2017). Owing to small range of
products this method is not appropriate for small companies. It is effective for enterprises that
have a broader product range. In respect of the above-mentioned business, this accounting
scheme is extended to tackle the expense of every product of Smoothies made by the
manufacturing unit.
Essential requirements of MAS:
 Reliable: One of the main essential requirements of management accounting systems is that
collected information is reliable and which represent the final outcomes are accurate.
 Up-to-date: For the correct results, accountant should use updated data or they need to
update their financial statement on quarterly or yearly basis for effective decisions making
process.
 Accountable: Accounting experts and managers need to accountable for their actions,
berceuse of this accountability of financial information is essential for management
accounting system.
 Accurate: Collected information should be accurate which leads towards accurate results
and further managers made their decisions accordingly to achieve their business goals &
objectives. It will be only possible when data is accurate.
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P2. Explain the different types of management accounting reports which are used for reporting
purpose
Reports of management accounting can be interpreted in systematic manner as those
detailed reports that contain of data information and facts. This information is commonly used
against business enterprises or management team to take appropriate action. In the Innocent
Drinks UK, their accountants use the following reports for reporting purpose:
Cost accounting report: This analysis is being compiled using cost accounting framework
incorporation. The study provides reports on expenditures that result in the execution of critical
sales and operational tasks (Fleischman and Parker, 2017). All activities are classified as per the
expenditure’s amount intentioned in this report. Main goal of this study is to focus on specific
elements in terms that absorb higher cost volumes. With respect to the Innocent Drinks UK, this
report uses key details from their accounting department that allows them reduce overall expense
or further formulate strategic decisions accordingly.
Inventory management report: This could be interpreted as another type of report
containing information on estimated amounts of material contained in warehouses. This report
was also compiled with the support of the inventory management system. The main goal of this
research is to help in the production department to take proper measure to determine the number
of unites needs to be manufactured. Within the range of the selected organization, production
department produces Smoothies by absorbing critical details through such a report in a
economical manner.
Accounts receivable report: This is a report that correctly organizes details about the
amount of borrowers that are responsible by corporate companies for the date of sale. The task of
drafting this document is to help the department of finance in keep the plans & practices correct.
Finance team of Innocent Drinks UK, uses crucial details of business in this report, which helps
to allow plans to raise debt from specific debtors. It further helps the managers to make strict
credit policies to deal with defaulters list.
M1 Benefits of MAS and its application
MAS Benefits & Application
Cost accounting system By measuring correct amount of differences, it is consistent with
the dimension of managing total costs of specific activities (Gray
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III, 2015). They are using this accounting system respect of
Innocent Drinks UK to have control over the manufacturing
expenses to deal with specific operations whose expense is far
more than estimate.
Price optimisation system This is effective for undertake the issue of product price in line
with the latest industry cycle. The sales department fixed the price
of Smoothie as per consumer demand in context of Innocent
Drinks UK. In addition, organization also considers the actions of
their rival organizations.
Inventory management
system
Under this system, value of company’s retained stock is examined
in a better manner. The purpose of inventory management system
is to hold down the cost of inventory. With regards to Innocent
Drinks UK, their marketing team is incorporating this method in
their operations so as to reduce cost of production.
Job costing system It is effective for organizations to quantify cost of every product
manufactured. They use this accounting system in the sense of
Innocent Drinks UK to calculate the expense of each beer created
by assigning and calculating the cost of the work.
D1. Accounting systems and reporting
There is a broad variety of management accounting systems and reports which comply
with the processes and activities of the business (Gullberg, 2016). With regard to Innocent Dinks
UK, their separate divisions are related to individual department’s vital resources. In order to
maximize sales revenue, such as price optimization system is incorporated into the sales team
and formulate strategies accordingly. Management accounting reports are indeed related to
corporate operations, close to the accounting structures. For example, the inventory report is
related to the manufacturing department in selected organization such as Innocent Dinks UK, to
take corrective measures on production. It is linked to finance department as well as expense
analysis.
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TASK 2
P3. Calculation with help of absorption and marginal cost
Absorption Costing:
Income statement for month of April as per absorption costing:
Income statement for month of May as per absorption costing:
Marginal Costing:
Income statement for month of April as per marginal costing:
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Income statement for month of May as per marginal costing:
Working note:
Calculation of cost per unit under marginal costing:
Fixed manufacturing cost (18000/6) = 3
Variable cost per unit= 5
Total cost per unit (3+5) = 8 pounds per unit
Reconciliation statement:
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Calculation of BEP and MOS:
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M2. Various management accounting techniques for financial documents
Many income statements are compiled in the form of financial reports as per the absorption
and marginal expense processes. In relation to Innocent Drinks UK, their profit statements are
drawn up using absorption and marginal expense methods. All these methods have some
advantages and disadvantages. There are several other ways to prepare income reports, such as
regular costing process, activity-based costing process, etc., apart from these approaches. This
can be claimed in the context of traditional costing as it is linked to the estimate of revolutionary
costs as was used as forks for contrast. Although, expenses are distributed and calculated for the
various categories and it further helps in making strategic decisions to maximize the production
as well as profit margin.
D2. Financial reports for various business operations
According to the income statement of Innocent Drinks UK, the number of net income can be
viewed as varying in 2 months (Harrison and Lock, 2017). The income statements are formulated
by using cost analysis strategies such as absorption and marginal costing methods. The
estimated net loss of April months by using marginal value approach is £7000 and for the month
of May, it was profit of £17000. Apart from this, the measured net income of organization for
the month of April and May is £13,000 loss and £15,000 of profit by using absorption method.
Here, it is important to recognize this study that in all approaches the value of the financial
information is comparable but the volume of net income is distinct. That is because of the total
expense of operational activities under absorption and marginal costs are known.
TASK 3
P4. Benefits and disadvantages of various planning tools
Budgetary Control: It is a process that are used to determine that the real sales and
expenses of an entity conform strictly to its budget schedule. Budgetary control is a cost-control
concept that integrates budgeting process, team collaboration and reporting, matching overall
performance with expected performance, and acting on outcomes to maximize profitability. In
order control their budgetary system; managers adopt the several planning tools which help in
achieving their goals & objectives. In context of Innocent Drinks UK, there are various tools of
planning that could be employ for budgetary control and it has several advantages and
disadvantages which are as followed:
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Cash budgets: This type of budget is an an approximation of flow of cash for a specific
time period. (Hoque, 2018). This budget is being used to examine that there is enough amount of
cash in the organisation to function. It is really significant to have cash budget particularly for
businesses that operate on a small level. It helps a business to decide the line of credit it may lend
to its business clients without facing any issue of liquidity. A cash budget effectively prevents a
cash crunch during times where a business faces a significant amount of expenses. This planning
tool ahs some advantages and disadvantages which are as follow:
Advantages Disadvantages
It is a tool that involves regular attention
in detail, monitoring particular spending
patterns and careful management must ensure
that adequate funding is still responsible for
taking care of any need.
They have to consider ways to conserve cash,
meaning organization have to remove all the
waste within the budget. Through tracking
each penny (or equivalent) that goes in and out
of the working capital, companies find how
they can better monitor spending and discover
new forms of production.
Currently, several firms have avoided taking
cash for such operations. They could find it
difficult to purchase things without getting at
least one debit card at the disposal to access the
cash.
However, if organization wants to make the
order online, cash won't be an acceptable
choice. Many, but not yet, regional areas have
abolished the method of cash on delivery
(COD), which involves direct payment for
goods or services. It was almost useless to seek
to accept a cash transfer on an e-commerce
platform.
Master budget: This budget incorporates all the lower budgets within the company and
transforms them through an aggregate budget, helping them to have a detailed rundown
of finances of their company (Hoque And et.al., 2017). To generate an aggregate cohesive
budget, the budget contains the HR, marketing, and all departmental budgets. It has various
advantages and disadvantages which are required to evaluate by the managers of Innocent Drinks
UK and these are as follow:
Advantages Disadvantages
One of the advantages of master budget is to
provide an outline of the firm’s spending to the
One of the limitations of master budget is
that lack of information. The revenue
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