Comprehensive Management Accounting Report: Innocent Drinks Case Study

This report provides a comprehensive analysis of management accounting principles applied to Innocent Drinks, a manufacturer of smoothies and juices. It begins by defining management accounting and explores different types of management accounting systems, including cost accounting, inventory management, and job costing. The report then examines the benefits of management accounting for Innocent Drinks, highlighting the advantages of cost reduction, inventory management, and job costing. It discusses various management accounting reports such as inventory management, cost, and accounts receivable reports, and critically evaluates the integration of management reports and management accounting. The report also delves into cost calculations using marginal and absorption costing methods, including break-even analysis and the interpretation of financial information. Furthermore, it evaluates planning tools related to budgetary control, such as production budgets, and discusses the use of different planning tools. The report concludes by analyzing how financial issues can lead to better performance and evaluates tools that contribute to success.

Management
Accounting
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Table of Content
Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
Main Body.......................................................................................................................................3
P1 Describe management accounting and kinds of management accounting system.................3
M1 Determine the benefits of MA in accordance of chosen organisation..................................4
P2 Discuss methods of management accounting report..............................................................5
D1 Critically evaluate how management report as well as MA would integrate........................5
P3 Calculate cost using marginal and absorption cost.................................................................6
M2 Management accounting techniques.....................................................................................9
D2 Interpretation related to financial information.......................................................................9
P4 Evaluate planning tools related to budgetary control.............................................................9
M3 Discuss the use of different planning tools.........................................................................11
P5 Comparison of different organisation to deal with different financial issues......................11
M4 Analyse the way financial issues would result in better performance................................13
D3 Evaluate several tools which provide a great success..........................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
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INTRODUCTION
Management accounting is the process in which the manager undertakes several
decisions related to finance and is responsible for carrying and managing the overall activities so
that they could bring desirable output (Berry, Broadbent and Otley, 2019). This report is based
on Innocent drinks which is a manufacturer of smoothies, juices and so on. This report includes
kinds of management information system and several planning tools used in it. This report
covers several ways that the management could resolve financial problems.
Main Body
P1 Describe management accounting and kinds of management accounting system
Management accounting is defined as the process in which managers facilitate decision
making by devising proper planning as it provide expertise knowledge related to financial
matters which assist the management in preparation and execution of strategy at a proper period
of time (Ciller and Lumbreras, 2020). The role of management accountant is to carry and
managing the overall financial activities as it involves preparation of various financial aspects
such as income statement, cost statement and so on. Another major role is to render a business
advice in order to ensure long term sustainability of a business which drive a vast growth.
Management accountant are most valuable for the firm as it renders a specialised knowledge plus
skills that provide assistance to the management in undertaking the activities of an enterprise.
The objective of such aspect is that it aids the management to make proper accuracy of
data by making comparison of past and current financial statement so that they could determine
the performance of business and also through this they could identify the weakness and make
corrective actions by analysing deviations. The basis function of using management accounting
is that it assists the senior authority to apply certain level of knowledge as well as several
techniques while preparing financial statement in a best possible manner which provide a proper
accuracy and transparency of a business (Dejaco, Cecconi and Maltese, 2017). The manager of
Innocent Drinks would make an effective planning by allocating the resources and analysing
financial statements so that an effective decision could be made. This ensure prosperity of
success and derive an ultimate growth of the company to the next level and thus they would
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attain goals in a short span of time. In the context of Innocent Drinks, the kinds of management
accounting are as follows:
Cost accounting system: A cost accounting system is a procedure which is considered by
firm in order to determine the cost of merchandise with the help of several measures such as cost
control, inventory valuation as well as profitability analysis. This approach is used by Innocent
Drinks as the manager has to be careful while evaluating the cost or price of goods as there is lot
of fluctuation in market but this is due to the reason of demand and supply of products.
Inventory management: This process refers to storing, ordering and delivery of
inventory at the right place till the consumers within a limited time (Del Pero, and et.al., 2018).
The manager of Innocent Drinks would track the stock and take care of its packaging so that it
would not lead to defects and spoilage of items. It would maintain an appropriate record of stock
and reviewing them so as to make sure that it is available to the customers in a best possible
manner.
Job costing system: This is most crucial aspect which is used by corporation such as
Innocent Drinks which track the overall cost of a merchandise and determine the profitability. In
other words, it is understood as the procedure of evaluating the material and labour cost for each
job performed by them. In an emerging corporate world like Innocent Drinks, this is most
efficient method which aids in determining the cost that is incurred in relation to job process.
M1 Determine the benefits of MA in accordance of chosen organisation
MA Evaluation of Benefits/advantages
Cost Accounting This prove to be advantageous for Innocent Drinks as they tend
to minimise the cost of production so that their profit margin
increases.
Inventories Management This provide benefit for the company as they tend to take
insurance of inventories in case of occurrence of any abnormal
losses and maintain proper storage cost.
Job costing system This would aid Innocent Drinks to maintain proper accountability
in their working procedure through systematic allocation of each
job.
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P2 Discuss methods of management accounting report
Management accounting would provide essential information that are related to business
aspects as it is interlinked with preparation of several other reports such as inventory
management report, cost report and so on. With reference to Innocent Drinks, the same is
elucidated as follows:
Inventory management report: The financial management has to maintain such type of
report in order to manage the inventory carefully and most efficiently (Hanif, Rakhman and
Nurkholis, 2019). The reliable and timely delivery of inventory without any sort of wastage
would assist the management to take an appropriate action by eliminating unnecessary cost. The
manager of Innocent Drinks would track the movement of inventory and produce in small
quantities so that there is no wastage and spoilage of product.
Cost report: This kind of report provide information regarding the different types of cost
incurred in making and creating a product as the focus of Innocent Drinks is to decrease the
production cost as it is associated with different sectors. This report could be enhanced by the
manager of Innocent Drinks so that cost is optimized in order to maximise the profitability.
Account receivable report: Account Receivable is the sum of money as the services has
been received to customers but amount is due from them. This is a fundamental analysis which
has ability to cover aspects of short-term obligations as it is shown in balance sheet in asset side.
In respect of Innocent Drinks, this report would aid the company and to eliminate unnecessary
issues related to collection of debt (Isoni, 2019). The key aspect is that the manager of respective
firm would collect the payments as quickly as possible so as to maintain the liquidity and cash
flow position.
D1 Critically evaluate how management report as well as MA would integrate
As from the above discussion, it can be analysed that management accounting plus report
provide the similar framework as a whole. But the things that must be taken into consideration is
that each management system as well as designing of report would help in overcoming several
challenges as it maintains a proper hierarchy and systematic procedure of activities in a
sequential manner. This help in maintain a proper recording a transaction which depict a fairness
and coordination in a business enterprise properly. So, the management of Innocent Drinks
would tend to combine both so that target is achieved within a shorter period of time.
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P3 Calculate cost using marginal and absorption cost
Marginal costing: It is defined as the process of producing an additional cost of unit by
sacrificing one unit of output. It is a system in accounting in which variable cost are charged in
terms of units while fixed cost is charged as they are fully written off.
Absorption costing: This method of accounting is for the purpose of valuation of
inventory as it includes both fixed as well as variable cost (Kumarasiri, 2017). In this aspect, the
cost remains same with similar level of output but it changes when there is change in level of
output as fixed cost tends to remain same. This method of costing also aids in calculation of
gross profit plus net profit in an income statement separately.
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Calculation of Break-even point
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M2 Management accounting techniques
The calculation of marginal costing and income statement is done on the basis of income
statement so that proper accuracy of data could be determined. The break-even analysis is a
situation which depict a point at which company is at no loss as well as no profit situation as it
provides the stability of information. As it helps in forecasting the information about changes
made in sales which directly affect the profitability of a firm.
D2 Interpretation related to financial information
In case of marginal costing, there is net profit of 13000 pound as well as 22000 pound in
the year of April and may whereas the absorption cost in case of April and May tends to be
19000 and 25000 pounds. The reason for such determination is that the expenses are taken as
different under both methods. The total break-even point that is estimated is to be 12728 and the
value of margin of safety is 436363. One of the benefits of break even analysis is that it has the
ability to cope up with changes that are taken place which is beneficial for the firm.
P4 Evaluate planning tools related to budgetary control
Budgetary control is understood as the process in which the manager involves the
preparation of budgets for a specified period of time in which if there is arise of any deviation
then corrective actions would be taken immediately (Maas, Schaltegger and Crutzen, 2016). It is
necessary for the management of Innocent drinks to take an immediate action without any kind
of delay with the aid of budgetary control. The main objectives of budgetary control are to
eliminate the waste by emphasise on making judicious usage of resources and also it assists the
monitoring the overall activities of departments. Therefore, this facilitate proper coordination
and improve the overall feasibility of a business which in turn accelerated more productivity.
The senior authority of Innocent drinks would prepare a wide range of planning in advance
regarding the expenditure incurred or requirements of funds so that they would not face any
difficulties. In respect of Innocent drinks, the different planning tools are presented as follows:
Production budget: This is a financial measure which provide an information regarding
the number of units that should be manufactured during a particular time period. This type of
budget provides the information about the units that are produced in case of Innocent drinks as it
is done on the basis of future estimated sales. Here, the main role of production manager is to
make an estimated planning regarding future about the availability of goods so that they would
not face any shortage and thus provide timely delivery of such items. The production budget
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tends to show the total sales and budgeted sales instead of just instead of total revenue or cost of
production. The pros and cons of same is as follows:
Advantages: One of the benefit of production budget is that it provide a proper guidance
about the number of upcoming targets that are to be achieved. By setting the targets, this provide
a way to staff to work with zeal and determination so that goals are attained within shorter time.
By using such budget would aid the company to make efficient utilisation of labour and
machines to produce maximum output.
Disadvantages: The disadvantage is that preparing production budget require lot of
efforts and time consuming process. This is done on the basis of judgements which require the
accurate forecasting level which become difficult in an unpredictable market. Also, it is difficult
for a new venture who started its business as it does not have any previous data or experiences.
Operational budget: In this, a plan which is related to expenditure is prepared that
provide an information about the functioning of a business aspect (Mack and Goretzki, 2017).
This kind of budget is used by business entity which provide a net estimate about the expenditure
incurred as it improves the working capital. This is a broader term that includes several activities
like sales, production plus finished goods inventory.
Advantages: The significance aspect behind this type of budget is that it helps in
managing day to day expenses of a business such as office rent, staff salaries and so on. This also
help in getting an idea about the future expenses so that estimate could be prepared accordingly.
Disadvantages: It is a complicated process which create difficulties in decision making as
forecasting cannot be done accurately and also it is not valid for those activities which are
undertaken for a longer duration.
Flexible budget: This approach results in varying the activities that changes with
changes in volume. This budget renders information about the estimated revenue as there is
constant changes in output and it is also regarded by another term that is variable budget. This
help in providing details about the financial status of a company in future so that an appropriate
decision could be taken. The management of Innocent drinks could use such budget by
comparing their actual performance with budgeted figures so that they could make further
improvement.
Advantages: In this aspect, the manager of Innocent drinks would emphasise on making
fast changes in business in a dynamic environment as the volume of output changes.
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Disadvantages: The drawback of flexible budget is that it a complex process and
shortage of a skilled staff is a problem in this aspect. There is limited discipline as quick
adjustment in a shorter time would create more difficulties.
M3 Discuss the use of different planning tools
The business enterprises use different tools of planning like operational budget, master
budget and flexible budget as each has different uses in case of Innocent drinks but the main
purpose is to make effective planning so as to bring positive consequences. This is possible due
to the reason that the budget contributes in making a estimation of expense incurred or revenue
earned. The production budget would help the company to set targets and make projection of the
activities related to financial matters as it aids in judicious usage or resources. While operational
budgets deal with daily aspects of a business which determine the efficiency and improve the
overall business performance. The manager would use flexible budget so that it could make
necessary adjustment on a daily basis which facilitate smooth flow in an entity.
P5 Comparison of different organisation to deal with different financial issues
There are various challenges that are faced by the manager as it has to deal with each sort
of problem calmly and patiently. The senior executive of Innocent drinks is a firm that provide
juices smoothies as it deal with several financial problems so this need to be resolved in a proper
time period. One major aspect that firm deal is that shortage of funds and liquidity would affect
the overall operations of a business in an adverse manner (March.Kure and et.al., 2017). The
company faces the problem that it is unwilling to implement the task in a proper time period
which hamper the growth of a firm and thus decline the productivity. In relation to Innocent
drinks, several financial issues are detailed below:
Decline in sales: The result of declining the sales in product is due to fluctuation in a
marketplace, inefficient management, excessive competition present in a marketplace and so on.
The manager of Innocent drinks must identify the root cause of problem and must take corrective
action as early as possible as in this case, the reason would be poor staff and poor quality of
products.
Improper stock management: Sometimes due to excessive production, the huge
companies suffer as they produce in bulk quantities. The senior authority of Innocent drinks
would analyse the closing stock and must have proper information regarding the availability of
goods as in case of lack of any kind of information would result in improper financial decision.
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Also, if the respective firm produce products in a large quantity then the outcomes are negative
and would result in financial risk.
Techniques
Innocent drinks would numerous tactics in order to resolve the financial issue which are
more detailed as follows:
Key performance indicator: This is a measurable outcome which track the performance
of a business and determine the success by analysing the current performance. A high KPI would
depict positive outcome as it review all the financial statement and documents so that proper
decision could be taken. It has been analysed that a healthy financial performance and positive
cash flows would assist the firm in meeting its obligations (Nyamwanza, Madzivire and
Madzivire, 2020). This provide assistance to the management of Innocent drinks to gain an
insight knowledge regarding financial matters which in turn improves the current ratio.
Benchmarking: This is another technique which is used by a firm like Innocent drinks to
determine the actual results by comparing the actual performance against standards. The
manager of a respective firm would judge the overall accuracy and light the deviations which
ensure a greater ahead of success in future.
Basis Innocent drinks limited Shital drinks limited
Financial problems The financial issued faced is
due to the reason that it has
lack of trained staff which
affect the overall sales.
The financial problem in this
case is due to the reason of
maximisation of inventory
cost which result in low
turnover.
Technique In this, the respective firm
would use key performance
indicators so as to solve
complicated problems.
The manager in this case
would use benchmarking as it
would compare the
performance with previous
one and the set standards
accordingly.
Resolving issues The senior executive would
use inventory management
system so that it could
The manager would use cost
accounting system so that they
could determine the cost of
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