Management Accounting Report: Oshodi Plc Financial Analysis

This report delves into the management accounting practices of Oshodi Plc, a UK-based production company specializing in JOJO fruit juice. The introduction outlines the importance of management accounting in decision-making and performance monitoring, highlighting various systems like cost accounting, inventory management, and price optimization. Task 1 examines these systems in detail, along with different methods for preparing accounting reports, such as performance reports, accounts receivable aging reports, and budget reports. Task 2 focuses on cost calculation techniques, comparing marginal and absorption costing methods, and providing income statements using marginal costing. Task 3 analyzes planning tools used for budgetary control, including their advantages, disadvantages, and applicability in constructing and predicting budgets. Finally, Task 4 compares how organizations adapt accounting systems to resolve financial issues, evaluating the use of planning tools to address problems and drive business success. The report concludes with a comprehensive overview of management accounting's role in organizational effectiveness and financial management.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting..................................................................................................1
P2. Methods for preparing accounting reports.......................................................................3
M1. Benefits of systems with their applicability....................................................................4
D1. Evaluation of accounting systems as well as accounting reporting that are integrated with
organisational processes.........................................................................................................5
TASK 2............................................................................................................................................5
P3. Cost calculation with distinct costing techniques............................................................5
M2 Applications of management accounting techniques.......................................................7
D2 Data Interpretation............................................................................................................7
TASK 3............................................................................................................................................7
P4 Pros and shortcomings of planning tools that are utilised for budgetary control..............7
M3 Planning tools usages as well as applicability for constructing and predicting budgets. 9
TASK 4............................................................................................................................................9
P5. Comparison between organisation in the ways they adapt accounting systems for
resolving financial issues. ......................................................................................................9
M4. analysis of ways problems are responded through accounting to attain success..........11
D3. Ways planning tools are used to resolve problems such that business success is leaded.11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is a procedure of gathering, analysing, supervising activities of
company and functions are utilised through managers for the decision-making process (Beattie,
2014). It is applied by every organisation in order to smoothly run their functional and
operational activities. Through the reports get all detailed information that will help for decision
making and further invest for generate profit. Current time, the atmosphere of the company
impact on the culture and they tries to monitor performance of business that price-based data. It
is supplied by traditional financial accounting data from historical general ledger systems. Good
management accounting consists of different systems that will use by business to understand
operational activities effectively and consist of several techniques like marginal costing &
absorption costing.
To understand the concept of management accounting selected organisation Oshodi plc,
which is UK based production company and specialise into JOJO fruit juice brackets. Different
topics are going to cover in the report such as different management accounting systems and
reports, calculation of cost by using marginal and absorption costing method. Along with,
advantages and disadvantages of planning tools and how it is utilised for budgetary control.
Additionally, the management accounting system responds to financial problems and application
management tools.
TASK 1
P1. Management accounting.
Management accounting is a procedure of creating reports and accounts which presents
reliable and well-timed financial and statistical information needed by director to take decisions.
As per the management reports analysing the performance of company then take prepare
effective strategy to enhance performance. Oshodi Plc apply it on routine basis to measure actual
performance of company.
Management accounting systems: It defines as organise study of accounting
information that is used by an organization to measure and evaluate the performance to manage
business activities. It is applied by the manager to deal with information that comes out from the
company such as creditors and stakeholders. To smoothly run business activities Oshodi plc
applied different types of management accounting systems.
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Cost Accounting system – This type of system applied by the manager of Oshodi Plc in
order to determine how an organization is doing and allows managers make decision on the basis
of cost of the company. The approach of cost accounting system applied every type off business
whether it is manufacturing or trading goods or whether it is delivering services. To understand
of this system, it is essential to analysis the differences between fixed costs and variable costs
(BenDavid-Hadar, 2015). It is mainly designed for manufacturers to record the flow of stocks
continually direct the several phases of manufacturing.
Inventory management system - An inventory management system is a instrument for
tracking products around the value chain of an enterprise. It simplifies the entire range from the
positioning of orders with seller to the shipment to client, tracking the overall product path. This
system mainly designed for production companies due to track production activities and know
about material utilisation. Oshodi Plc applied this system to arrange inventories, commodity and
work in process goods in suitable way. The purpose of this system to track record of material and
timing from starting to finished goods. To calculate inventory apply three methods such as LIFO,
FIFO and AVCO. LIFO (Last in first out) – The particular method states that which was purchased
recently that is used firstly for production activities. FIFO (First in first out) – This method defined that company sale product first which
was purchased firstly or consumed during production.
 AVCO (Average cost) – According to this method company sell out their products and
services on average cost.
The selected company applied FIFO method due to maintain inventory effective manner
and reduce wastages.
Price optimization system - As its name suggests, it is primarily used to set optimal rates
for all trade good that produced by the organization. It is also known as mathematical analysis
that are applied by organizations to analysis the reviews of different types of customers for
different products and services. Prices are very delicate variables that promote customers to buy
these products and services. It has an important organizational necessity to fix prices for goods
and services that assist to attract clients. The manager of Oshodi plc set the price of JOJO fruit
juice by using this system which assess customers and help to meet with objectives like profit
maximization.
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Job order costing system - This is another system of management accounting that
designed for tracking costs and income as per job to boost productivity per job. In certain words,
this is a technique that managers use to track production work costs rather than system costs. It
has vital necessities such as no organisation can keep a record of the expenses of each work
without this system, a manager keeping information which is more valuable for organisation.
The manager of Oshodi plc determine the cost of specific jobs which helps in tracking expenses
within company and take appropriate decision to present business operation efficiently.
P2. Methods for preparing accounting reports
Managerial Accounting Reports: These accounting statements are the consequence
reports which include deviation between estimations and actual results in relation to various
operations and activities and are created by managerial accountants to assist the establishment in
planning befitting strategies and guidelines and controlling for improvement of the workers and
the processes as well (Bredmar and Et. Al., 2014). Following are the description of some
managerial accounting reports:
Performance Report: These reports are like the report card that provide the information
about the efficiency and performance of an individual or an activity. This performance report is
provided to the person so that the employee can evaluate the work performance deliver by the
employee. The management of Oshodi Plc prepares this report for all of its employees and
evaluate the performance of the workers. It also ensure the execution of any remedial activity if
required.
Accounts Receivable Aging Report: When an establishment deals in terms of credit
transaction, it is essential for the company to keep an adequate record of all the information
about debtors, trade receivables or clients. An accounts receivable aging report includes all the
information about due receipts, interest on dues, upcoming receivables' dates, contact details of
the debtors, doubtable amount of debt, etc. The management of Oshodi PLC prepares and
updates this report so that liquidity of the firm and debtor turnover ratio can be improved, due
receipts can be recovered on time and credit policies can be modify regularly.
Budget Report: Budget report can be described as a detailed statement that includes the
information about the variances and reasons behind the variances between estimated budget and
actual outcomes. The managerial accountant prepared an estimated budget with the help of
previous budgets and reports that is compared with the actual reports at the last of the financial
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year to find out the variances between them. Managers of Oshodi Plc follow this practice so that
rewards can be determined for the favourable results and remedies can be adopted for the
adverse outcomes. It also helps in understanding market changes and trends.
M1. Benefits of systems with their applicability
Accounting system Benefits
Cost accounting system With this system, wastages as well as production losses are
reduced with the aim to enhance profits. It is applied to
improve manufacturing methods and maintaining costs. It
benefits Oshodi Plc to identify causes of huge losses along
with keeping record of associated costs in manufacturing
products (Hirsch, Seubert and Sohn, 2015).
Inventory manufacturing system It is used to record all the transactions associated with
inventory. Application of such system at Oshodi Plc is to
analysing inventory requirements in advance for
manufacturing activities so that situations of material
shortages are eliminated. It benefits the company by
forecasting demand and accordingly planning stock
requirements.
Price optimising system It is applied by managers of Oshodi Plc to analyse buying
behaviour additionally to customer perception in order to
frame quick decisions about optimising product prices. It
benefits respective firm to plan work activities, control
materials as well as optimise prices to expand products.
Job costing system The system is used by managers to ensure coverage of
costs and monitoring expenses so that products are
produced to fulfil orders of clients. It is usually applied at
Oshodi Plc to track complicated jobs or expenses and
sorting them to attain revenues.
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D1. Evaluation of accounting systems as well as accounting reporting that are integrated with
organisational processes
Managerial accounting is a crucial concern of the establishment that provides managerial
accounting systems and reports which both helps in assessing and controlling the effectiveness
and performance of the company (Jamil and Et. Al., 2015). Managerial accounting system
provides structure, policies and information for the reporting activities, on the other hand,
accounting reports provide the information regarding variances and reasons behind those
variances. For the example, it management accounting system does not provide adequate policies
and techniques for maintaining the system, it will be difficult to report appropriate results and
without sufficient variance reports and performance evaluation, it will not be possible to manage
the systems accurately. Therefore, it is crucial for the administration of the selected firm to
develop co-ordination between the managerial accounting reports and systems.
TASK 2
P3. Cost calculation with distinct costing techniques
Cost – An expenditure needed to manufacturing or sell a product or get an asset ready
for normal use is cost. In another words it is the amount paid to produce a product, buy stock,
sell commodity or get equipment ready to use in a business procedure. There are different types
of costs that is calculated during to manufacturing products such as fixed cost, variable cost.
These costs are recorded as expenses.
Marginal Costing – Cost involved in production of one additional product unit is said to
marginal costing. It involves changes in opportunity cost at the time additional single additional
unit is attached in manufacturing. The technique is adopted at Oshodi Plc to make decisions by
analysing cost data.
Income statement prepared by using marginal costing technique:
Particulars November (£) December (£)
Sales 500000 600000
Less: Cost of sales
Direct Material Costs -180000 -216000
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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
Absorption Costing – The technique of costing entails full costs to produce goods
addition to providing services is stated to absorption costing. It not only comprises material or
labour values but considers manufacturing overheads also (Kuipers and Et. Al., 2014). It is
utilized at Oshodi Plc to ascertain fair pricing by covering all associated costs additionally
providing accurate profitability.
Income statements calculated through absorption costing are:
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M2 Applications of management accounting techniques
Oshodi Plc managers opts numerous accounting techniques with tools so to calculate
accurate profits earned in financial year. All the operations or transactions are properly analysed,
correctly recorded and appropriately controlled (Kundukchyan and Et. Al., 2014). Financial
reporting documents are the key statements which are produced through costing techniques
including marginal and absorption. While preparing such documents, both the techniques are
used by accountants in proper manner. These reporting mechanisms helps in analysing,
understanding with interpreting present position of business and are prepared to bolster
competitive position by attaining huge revenues.
D2 Data Interpretation.
Financial reports records financial activities addition to position of entity. These are
presented in organized style that are easy to understand by others. They communicates actual
results associated with profits or losses attained by organisation during budget period. Above
income statements interprets that marginal costing methods shows profitability of 61000 £ in
November addition to 101000 £ during December. Other than this, absorption costing methods
also shows profits in both month such as 79000 £ during November as well as 83000 £ in
December. More profitability is achieved in December by applying costing techniques.
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TASK 3
P4 Pros and shortcomings of planning tools that are utilised for budgetary control
Budget – Comprehensive and written plan which is primarily stated in numerical terms
for resources together with operations of business for particular specified future duration is said
as budget. It acts as blue map that provides directions for spendings and earnings. It is designed
to execute various functions including planning activities, communication, authorising actions,
implementing plans and monitoring. With budget statements, Oshodi Plc finance department
identifies availability of capital in current time, estimating expenditures and anticipating income
revenues.
Budgetary Control – Procedures or tools to set performance with financial objectives by
using budgets and comparing actual results in order to make further adjustments is expressed to
budgetary control. It starts with preparing budgets, recording actual outcomes, comparing true
figures with budgeted estimates, finding discrepancies, taking remedial measures. Respective
planning tools facilitating budgetary control at Oshodi Plc are:
Cash Budget – Written estimate about organisations future cash position is termed to
cash budget. It is used at Oshodi Plc to predict sources from where cash can be received,
different purposes where cash will be disbursed and final results of cash position. During stable
cash flows, it prepared for annual period but in uncertain outlooks, projections is done for
quarterly basis.
Advantages: It helps in establishing sound basis to control position of cash in current
period by setting limits for cash disbursements (Matano, 2016). Finance team of Oshodi Plc with
such budget determines surplus additionally fund shortages and accordingly undertakes suitable
actions.
Disadvantages: Using such budget, managers fails to predict time segments associated
with cash flows. Chosen organisation can not rely on on cash forecasts as future is uncertain and
anticipates forecast may be incorrect.
Master budget - Aggregate of other individual budgets is master budget. It helps in
providing directions or judging performances of responsibility centres residing within Oshodi Plc
as to have decent control on allocation of funds. It is preferred by management to coordinate
activities of overall business in order to reach stated objectives.
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Advantages: Entire year estimations are done with master budget that helps managers to
identify problems in early time and fix them with effective planning to attain long term goals
with appropriately channelizing resources.
Disadvantages: Preparing master budget requires financial analysts who can track
variances within all other budgets. It can adds overhead expenses resulting in decreasing profits.
Operating budget: Summary schedules including projected revenues additionally
associated expenses are recorded in operating budget. In context to Oshodi Plc, it recorded daily
transactions including revenues or expenses generated through sales. It shows transactions such
as staff salary, raw material purchase, administrative expenses, processing cost and loan interest.
Advantages: At Oshodi Plc, it benefits in improving efficiency by controlling expenses as
well as encouraging revenues through sales.
Disadvantages: Managing operating budget requires additional costs while running
different divisions that may not match with set allocations which can hamper estimates and
becomes impossible to control variances.
M3 Planning tools usages as well as applicability for constructing and predicting budgets
Planning tools are mainly used by management of Oshodi Plc to interpret plans towards
successful achievements. These are the instrument that guides actionable steps concerned with
implementing schedules or new innovations (Neogy, 2014). Such tools comprises logics that
breaks programmes or schemes into smaller conveyances which helps in accomplishing typical
objects conveniently. Planning tools like operating budget, cash budget along with master budget
are preferred or used while projecting future additionally planning ahead. Master budget at
selected entity is used to determine performances as well as coordinating activities with other
budgets and controlling variances.
TASK 4
P5. Comparison between organisation in the ways they adapt accounting systems for resolving
financial issues.
Financial Problems: Financial difficulties are the fund or money concerned obstacles
which give the tension to the management in operating and managing its regular day-to-day
operations and transactions. These difficulties can be created by the internal factors and external
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factors as well. Some of the major financial problems that are being faced by the respective firm,
are mentioned below:
Business Cycles: Business cycles which are also known as economic or trade cycles can
be described as the rises and falls in production results or outcomes in an economy and these ups
and downs affect the overall gross domestic products or adjusted GDP which is the major reason
for inflation or recession in the economy of the nation. This is one of the biggest challenge for
the Oshodi Plc to plan the strategies for the inescapable cyclic downswings so that the
establishment can proceed business activities through bad economical situation (Quaye, 2014).
Unforeseen Expenses: Unforeseen expenses are those which have not been taken into
consideration at the time of preparation of the budget for the expenses but they have arise
meanwhile the financial period due to some unexpected events such as machinery breakdown,
technology changes, regulatory alterations or decisions, natural disasters, etc. These unexpected
events or expenditures create huge problems for the establishments such as Oshodi Plc when the
company is already facing the financial problems due to the trade cycles.
Late payments from the customers: The companies which rely on the credit term
business, have to render services and products to the consumers for the approved period.
Sometimes these customers or debtors fail to make the payment on the given time that affect the
budget and transactions of the organization itself. These situations can arise within the firm due
to weak management of the credit policies. Regular practise of late payments from the debtors
can create high failure in the survival of the business of the selected firm.
Management accounting provides various methods, techniques and measurements that
can help the professionals in identifying these financial problems even before they take place
within the organization or get bigger (Schwartz, Connolly and Valgardson, 2018). Some of these
techniques, which can assist the managers of Oshodi PLC in determining these financial issues
are mentioned below:
Key Performance Indicators (KPI): KPI is a method that assists the administration in
examining the performance and efficiency of whole business in respect to level of success in
attaining objectives and goals. Key performance indicators aids the management to measure
deemed significant components which are extremely required and functional in relation to
accomplish business targets. The management of Oshodi Plc firm apply KPI method to assist the
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upper management in identifying captious economic cycles and industrial requirements
accordingly.
Benchmarking: This is the activity to decide several efficiency and effectiveness
standards for the establishment by comparing the strategies and functioning to the operations and
designing manner of the competitors or well developed business entity operating in the identical
industry. Benchmarking measurements can be can be based on quality, time, performance, cost,
etc. The directors of the selected company apply benchmarking procedure in relation to
recognize sudden expenditure and delayed payments from the debtors that can grow in the
business by examining & investigating the cause chronicle of the business competitors. It assists
to render the sortable occurrence which can arise meanwhile the accounting period.
Financial Governance: Financial governance can be explained as the policies and
procedures that organizations utilise to collect financial information and to ensure that the
information is right and updated. It involves the activities such as external an internal audits,
internal controls, creating effective financial policies, managing the workflow, data security,
tracking and validation, etc. Financial governance in Oshodi Plc, assists the management to
comply with all the accounting proceedings by producing regulatory reports and disclosures that
helps in creating appropriate provisions for unforeseen expenditures and maintaining effective
credit policies. With frequent monitoring and controls, it is able to identify the risks of inflation
and recession.
Comparison of different organizations:
Oshodi Plc JC Dudly
Oshodi Plc is facing the problem of late
payments from the debtors because of the weak
credit term policies. Management is using
financial governance techniques to make the
policies firmer (Sohn, 2016).
The organization is feeling difficulties is
deciding optimistic prices for their juice
products which can be set by using the price
optimisation method.
The company is also having the issues in
identifying the cost of the JOJO juice products
for various age brackets. Management is
advised to apply the job costing techniques to
JC Dudly is also facing the problem of sudden
expenses due to the contingent liabilities
having by the firm. Management can use the
KPI technique in order to avoid the issues in
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find out the identical cost of the products. near future.
M4. analysis of ways problems are responded through accounting to attain success.
Managerial accounting techniques are crucial for an establishment to resolve the fund
related matters and attaining sustainable success since this activity supplies various planning
instruments such as reports and budgets which manoeuvre the directors in planning and
forecasting profitable targets for the attainment of entire firm and these managerial accounting
techniques such as break even analysis, marginal costing, standard costing, absorption costing,
etc. help in impressive decision-making abilities (Takeda and Boyns, 2014). It also implements
financial governance principles and methods which ease in informing fund related matters and
proposes strategies for breakdown those difficulties.
D3. Ways planning tools are used to resolve problems such that business success is leaded.
Management accounting provides various strategic planning tools that helps the
organization in forecasting and preparing effective budget and sort out the financial problems.
Where various budgets such as cash budget and operational budget provides the help in
estimating the requirement of the funds for operating regular activities and operations on the
other side master budget presents the overall view of the business targets and helps in fair
allocation of resources (Ylinen and Gullkvist, 2014). These managerial tools also helps in
determining the financial problems that can be faced by the selected firm such as unexpected
expenditures, delayed payments, etc. Financial governance motivates the administration to apply
accounting principles and prepare appropriate accounts in order to defeat the money related
difficulties that helps in achieving sustainable success.
CONCLUSION
With the help of above description, it can be concluded that managerial accounting is a
process that is applied by the internal users and managers to manage the internal financial as well
as non-financial content and activities in order to control the cost and improve the organisational
efficiency. Various accounting systems like price optimisation, job costing and cost accounting
provides necessary information to prepare and present the accounting reports that helps in find
out the deviations and control them. Various planning tools such as budgets, KPI, benchmarking
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helps to maintain the financial governance within the establishment so that financial problems
can be identified and resolved on time.
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