Management Accounting Systems, Costing, Planning and Financial Report

This report provides a comprehensive overview of management accounting, focusing on various systems, methodologies, and their applications within an organizational context. It delves into different management accounting systems such as price optimization, cost accounting, inventory management, and job costing, examining their benefits and drawbacks. The report also explores different management accounting reporting methodologies, including performance reports, budget reports, and inventory management reports. It applies marginal and absorption costing techniques to prepare financial income statements for Oshodi Plc, a manufacturing entity. Furthermore, it analyzes the advantages and disadvantages of various planning tools utilized for budgetary control and evaluates how companies adapt management systems in the face of financial issues, culminating in an assessment of how management accounting systems contribute to sustainable organizational success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
P1. Various Management Accounting Systems and their essential requirements:......................4
P2. Different Methodologies utilised in Management Accounting Reporting:...........................6
M1. Evaluating benefits of Management Accounting Systems and their application in
organisational context..................................................................................................................7
D1. Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes;..............................................................8
TASK 2............................................................................................................................................8
P3. Computing Costs through Marginal and Absorption Costing to prepare financial income
statements:....................................................................................................................................8
Marginal Costing ............................................................................................................................8
M2. Application of management accounting techniques to produce appropriate financial
reporting documents...................................................................................................................10
D2. Produce financial reports that accurately apply and interpret data for a range of business
activities:....................................................................................................................................10
TASK 3..........................................................................................................................................10
P4. Advantages and Disadvantages of various planning tools utilised to exercise budgetary
control:.......................................................................................................................................10
M3. Analysing use of different planning tools and their application for developing and
forecasting budgets....................................................................................................................12
TASK 4..........................................................................................................................................13
P5. Examining how companies adapt to management systems in the face of financial issues. 13
M4. Analysing how management accounting systems contribute towards sustainable
organisational success................................................................................................................15
D3. Evaluating how accounting planning tools help in resolving financial problems:.............15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
The concept and notion of 'Management Accounting' is directly linked to the procedures
and structures taken by the organizations to guarantee that their inner activities function
smoothly. It therefore involves processes/tasks that recognize, appropriately measure, controls,
assess, explicate and transmit to executives at all levels crucial data about corporate operations.
This enables them to make informed choices and facilitates the effective fulfilment of
organizational objectives within a specified time-frame or period (Achleitner and et.al, 2014).
The study explains management accounting's concepts and its purpose, ways through
which management accounting's system contributes in success of entity, planning tools and
costing techniques in context of Oshodi Plc. It is manufacturing entity, engaged in production of
fruit juice under the brand name JOJO fruit-juice, for all age of customers. Using data of
respective company, applying Marginal and Absorption method's of costing net income is
generated. This study also describes how advantageous or disadvantageous planning tools are for
company and compares distinct business entities embracing systems to react to different
economic and financial issues.
TASK 1
P1. Various Management Accounting Systems and their essential requirements:
Management Accounting can be described as a processes that facilitates the evaluation of
different corporate operations in order to allow business personnels to make better choices from
a short/long-term view. In this context, to transform raw or unclassified data into meaningful or
useful information, it is vital for a manager and some other personnels to analyse their trade
environment's internal and external elements effectively. It finally assist business to attain
benefits in competitive environment (Aouni, McGillis and Abdulkarim, 2017). As Oshodi Plc is
selling its fruit juice with brand label of JOJO fruit-juice so adopting management accounting
can help company's owners to achieve targeted expansion. Company being a production oriented
entity carrying on wide processes and tasks which useful in accomplishment of goals. Below
discussed are important management accounting systems used by respective company, as
follows:
Price Optimisation System: Price determination is part of management's strategies and
they make changes in prices to set a most effective value of product while maintaining profit

margin. Price optimisation system evaluates effect on demand of company's items and product
with planned fluctuation in prices. Customers compare various companies' product on the basis
of prices, so company prepare strategies to determine prices to face competition. Through it
Oshodi Plc determines price of fruit-juice at different market segments. Managers in respective
company analyses the relation of product's demand and supply with price of its different fruit-
juice. This system not only help in maintaining effects of market competitiveness, but also
generates comparative benefits for improving share in market. Ultimate aim of such system is to
increase productivity in producing products while increasing demand.
Cost Accounting System: Every manufacturing concern like Oshodi Plc internally
analyse its incurred costs and expenses with aim to evaluate whether company is effectively able
to control its costs to make targeted profits. Adapting this system facilitates company to organise
its costs and develop a base for making reliable estimation of costs to manage budget. As a
manufacturer, the Cost accounting system adopted by respective organisation has paramount
significance for company as it determines general pricing policies and strategies while
combining its goals. Annual budgets are formulated by corporates applying information of this
system.
Inventory Management System: Handling of stock is significant practice for business
entities because companies specially production units have large quantity and variety of
inventories. A ineffective stock managing can results in excessive loss of stock-items, storing
costs and handing expenses etc. It help to evaluate how effectively inventory is utilised by
company (Datar and Rajan, 2014). Oshodi Plc by inventory management system managing its
inventories like raw items to prepare fruit-juice, items in production processes, closing
inventories, finished products etc. It is required to organise company's inventories because it can
result in profit graph of company. Recognising elements leading to increase in inventory's costs
can be easily done through this system.
Job Costing System: This includes the process of collecting cost data specifically related
to the manufacturing and delivery of such costs to specific work or task. To determine
accountability in operations this system is placed by company by summarising and allocating
expenses to particular work or job. Direct materials, overheads and labour are required
information in adaption of Job Costing System. In such context, following is discussion:

Direct Material: Tractability of direct components of material and labour, particularly
those discarded or used during accomplishing tasks, must be simple for an ideal job costing
system. Enabling business officials to match expenses with their respective tasks in effectively
way.
Direct Labour: It provide data for labour expenses incurred by entity to complete any
job. It help to asses how much costs are incurred on different tasks
Overheads: These are overall expensed sum by entity to complete any specific job task.
Combining overheads information with direct labour and materials provides entire cost of work
task.
P2. Different Methodologies utilised in Management Accounting Reporting:
Management Accounting Reporting relates to trade practices which enables managing
officials to report fiscal and other monetary informations to top level personnels of company's
management structure. Customised reports are also used by company to target any particular
problem. Reporting process is wholly based on report preparing task using systems' informations
(Ge and Kim, 2014). Two major requirement of reporting is accuracy and understandability,
fulfilment of these key requirement can provide reliable and trustworthy reports to stakeholders.
For internal and external assessment different sort of reports are used by corporates. Oshodi Plc
reports its fiscal results for attacking stakeholders. It also reports matters for internal analysis of
company's operating efficiencies. Following discussed are major reports framed by respective
organisation, as follows:
Performance Report: This report facilitate assessment of company's performance while
covering its employees and labour performance. A continuous review of employees is necessary
to asses employee's efficiencies and get them benefits for their performances in order to promote
them. In Oshodi Plc, company set targets for employees and evaluates how effectively they are
attaining set tasks and targets. It assures proper utilization of company's human resources with
objective of achieving predetermined productivity level. Incorporation of such reports can allow
management to recognize star employees of entity and determine reward for personnels who are
performing fabulous within entity and in their particular fields. Encouraging employees is aim of
this report to increase overall efficiency.
Budget report: A reliable forecast of company's fiscal data is significant to take instant
and important managing decisions. For this budget reports are considerable reports which also

facilitates a comparison. A budget of entity includes all data about company's sales, incomes and
expenses along with estimation bases on past scenarios. In Oshodi Plc, to take long and short
term decisions manufacturing process and other processes heads form budgets and send these
reports to higher managing officials. Sometime to asses the root-cause of any problem
management directs to prepare budgets (Guragai and et.al, 2015). Budgets can be prepared for
each material or significant element of entity as sales budgets, overhead budget, labour budget,
purchase budget etc. It brings easiness in formulating charts, graphs and other graphical
presentation.
Account Receivable Ageing Report: It is major report which exhibits about how much
time entity's debtors normally takes to make payment of their dues and debts. Its break downs the
the ageing cycle of company's account receivables. Recognisance of suspicious debtors who may
be insolvent, can be easily traced with this report. It simply determines the status of company 's
all debtors. Manufacturing corporates like Oshodi Plc classifies their debtors as per their ageing
of payment and recognise any possible bed debts using this report. Thus, it is essential for entity
to formulate such accounts to ensure that its present short term debt strategies are powerful
enough for the lending parties to adhere to them or not.
Inventory Management Report: Inventory reports are vital practice which assist in
fixing economic stock quantity in respect of company, re-order levels presented in report ensure
easy trace of stocks. In Osholdi PLC, such assist in organising record of raw items and materials
used and other expense or overheads in context of them in a complete comprehensive manner.
This report complaisant for business entity as it provide ease in finding the actual or real status of
stocks in warehouse, goods which are in transit or that delivered to different clients effectively.
M1. Evaluating benefits of Management Accounting Systems and their application in
organisational context
Different accounting systems Advantages Disadvantages
Inventory Management
System
It prevents loss of theft of
goods and waste.
Safety stock calculation and re
order level, practically do
not provide realistic
results (Hiebl and
Mayrleitner, 2017).

Price optimisation system Its beneficial in Increasing
entity's customer base.
Analysing effects on demand
at different price label can
lead to shift in customer
base.
Job Costing System It provide proper
accountability in different
works.
Simultaneous use of job
costing and other normal
processes creates conflicts.
Cost accounting system It act as raw material for
preparation of annual
budgets.
An inappropriate assumption
in can results in wrong
decisions.
D1. Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes;
All the process heads are responsible for providing information for management
accounting's systems. By doing this they provides easiness in implementation of such systems
(Hrasky and Jones, 2016). As in Oshodi Plc accountants providers fiscal data to managing
personnels which is further applied by them to prepare budgets and in different systems. While
effectively adapting, different systems managers directly gathers relevant data to formulate
strategies for operating processes in business entity.
TASK 2
P3. Computing Costs through Marginal and Absorption Costing to prepare financial income
statements:
Marginal Costing:
As per this technique, contribution per unit is ascertained by taking into account only the
variable costs incurred on the production of an additional unit of output.
Particulars November (£)
Sales 500000
Less: Cost of sales
Direct Material Costs -180000
Direct Labor costs -40000
Variable Production Overheads -30000
Contribution 250000

Less:
Variable selling overheads (10% sale value) -50000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Fixed production overheads -99000
Net Profit 61000
Particulars December (£)
Sales 600000
Less: cost of sale
Direct Material Costs -216000
Direct Labour costs -48000
Variable Production Overheads -36000
Contribution 300000
Less:
Variable selling overheads (10% sale value) -60000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Fixed production overheads -99000
Net Profit 101000
Absorption Costing:
Under this costing technique, both fixed and variable costs are taken into account
that facilitate the determination of net profit earned per unit on an output by a business
(Hu and et.al, 2015).
Particulars November (£)
Sales 50 500000
Less: Cost of sales -340000
Gross profit 160000
Variable selling overheads (10% sale value) 10000*5 -50000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Under/over absorbed prod expenses 9000
Net Profit 79000
Particulars December (£)
Sales 50 600000
Less: Cost of sales -408000

Gross profit 192000
Under/overabsorbed prod expenses -9000
Variable selling overheads (10% sale value) 12000*5 -60000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Net Profit 83000
M2. Application of management accounting techniques to produce appropriate financial
reporting documents
Interpretation of financial reports provide help in preparation of blue print of major
strategies. As above presented tables it analysed that company should apply different methods of
management accounting to cover performance of company in all perspective (Khalil and Simon,
2014). In Oshodi Plc to calculate net income generated by company through production and
selling of fruit juice is calculated to analyse the overall effectiveness.
D2. Produce financial reports that accurately apply and interpret data for a range of business
activities:
Under results of Marginal and Absorption Costing method, It is found that there is
considerable variation in resultant figures. It can be easily observed that under Marginal Costing
method profit amounting £111,000 and £161,000 is being computed in respect of November and
December severally whereas in scrutiny to Absorption costing net profit is £143000 and £29000
in respective same periods. These variation are result of distinct treatment of fixed expenses
amount's.
TASK 3
P4. Advantages and Disadvantages of various planning tools utilised to exercise budgetary
control:
Production Budget : It is a statement prepared by analysts at Oshodi PLC which
describes the number of goods that has to be produced for a given period of time. Production
budget is made up of from deriving sales forecast and the final products inventory. It is designed
for push manufacturing system which is used in a material necessity paradigm. It decides a scope
for the production department as to how much volume of products they have to produce keeping
costs in check simultaneously (Oler and et.al, 2015). At Oshodi PLC It is prepared after the

preparation of sales budget. The advantage of a production budget is that the plant and
machineries can be used to their full potential. And the disadvantage of this budget is that it
doesn't include the qualitative factors of producing a good like work conditions, level of hazards
etc.
Purchase budget : It contains figures about the inventory which needs to be purchased
by the procurement department of Oshodi PLC during a budget period. The purchase budget
outlines the scope for the company to purchase sufficient amount of inventory required to
produce goods to the satisfaction of the clientele. A typical budget has to consider beginning
balance, service levels, product terminations, cash usage as its core to draw a map for the budget.
It is most preferred by retailers or wholesalers who refrain from manufacturing their own
products. Its advantage is that it saves money from being wasted by creating a boundary line on
spending and its disadvantage is that it restricts the scope of procurement because of which
important things needed could not be purchased.
Sales budget : A sales budget made by Oshodi PLC's management to estimate the sales
per unit of a budgeted period and the expected revenue to be generated from the sales.
Meanwhile, the company produces a large variety of products, it segregates its total expected
sales into minimized quantities of product categories or regional division (Ponisciakova,
Gogolova and Ivankova, 2015). A sales budget is prepared quarterly as well as monthly at
oshodi. Making a yearly sales budget would make it too cumbersome to take constructive actions
on it. It benefits are that it decides sales targets for each period which gives a vision, It greatest
short coming is that it sometimes sets figures which may be very harsh on employees to achieve.
Labour budget : It is a quantitative statement which is needed to evaluate the number of
man labour hours needed to produce the number of units of the products identified in the
production budget. A comprehensive labour along with calculating labour hours per unit also
provides manned information by breaking down the work in labour category. It is useful for
Oshodi's management in forecasting the number of workers who will needed to be staffed in
order to fulfil the requirements of the manufacturing department. It helps in designing job hours,
overtime schedule and lay off policy. It helps in deciding hourly wages for the workers .
Meanwhile its drawback is that depreciates the human element out of the budget which can't be
quantified.

Capital budget : A capital budget is prepared to create a scope for the acquisition of
capital assets in a year. It defines the border line for the management on proposing fixed assets.
It helps the management in acquiring profitable fixed assets and declining loss making entities.
Capital budgets are of great importance to corporations at they mark up in the balance sheet as
long term asset (Rampini, Sufi and Viswanathan, 2014). And their impact can be so large that a
good capital budget has the capacity to decide the future of any organisation. Since they are
irreversible in nature so it will very costly if it fails. It is crucial budget and if implemented well
it would bear handsome profits, It drawbacks are that it very static and rigid in nature.
Marketing budget : Marketing budget is an estimate of the funds required to promote
products via various marketing channels like media, newspapers, advertising campaigns, online
marketing etc. it includes all the costs which are needed to grow the product in the market and
among the customers. It is always consistent because a product has to be promoted throughout.
Marketing budget at Oshodi Plc is made according to the percentage of sales or revenue. It is a
very critically important budget for the organisation as this ensures that adequate money is being
spent on promoting the products which will eventually bring profits. It is beneficial to the
business in a way that it is only activity through which profits can be secured whereas its
drawback is that it doesn't guarantee returns in comparison to the level of money invested.
Cash budget : It determines the net inflow-outflow of cash transactions which will take
place in a period at Oshodi plc. This budget is prepared to ensure the liquidity position of the
company. The cash inflow & outflow includes revenues received, expenses incurred and loan
details of the business. Its advantage is that it defines the liquid position of the firm and gives
data about liquidity whereas its disadvantage is that it lowers the credit limit of the organisation.
M3. Analysing use of different planning tools and their application for developing and
forecasting budgets
Different sort of planning tools assisting in formulating different report budgets that
provide way to plan organisation's activities. These described budgets also help to set norms to
improve and maintain the efficiency of staff and whole company (Seal and Mattimoe, 2016). The
Oshodi Plc also using these as managerial process to face economic difficulties. Budgets defines
organisation's tasks and structures as per company's goals. As master budget, is prepared at the
end of accounting period to determine objectives of company and compute vital results.