Management Accounting Analysis for Business Performance and Growth

This report provides a comprehensive overview of management accounting, focusing on its application within a business context, using Innocent Drinks as a case study. It explores various management accounting systems, including inventory and cost accounting, and highlights their benefits. The report delves into different costing methods, such as marginal and absorption costing, with detailed calculations and reconciliation statements. It also examines planning tools like cash and flexible budgets, discussing their advantages and disadvantages in budgetary control. Furthermore, the report analyzes how organizations adapt management accounting systems to address financial challenges and improve performance. The analysis covers cost analysis techniques, break-even point calculations, and the application of management accounting techniques for profit maximization and decision-making.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Management accounting and types of management accounting systems..............................3
P2 Methods used for management accounting reporting............................................................4
M1 Benefits of management accounting systems.......................................................................5
TASK 2............................................................................................................................................6
P3 Costs using appropriate techniques of cost analysis..............................................................6
M2 Management accounting techniques.....................................................................................8
TASK 3............................................................................................................................................8
P4 Advantages and disadvantages of different types of planning tools......................................8
M3 Planning tools and their application...................................................................................10
TASK 4..........................................................................................................................................11
P5 Organizations are adapting management accounting systems.............................................11
M4 Financial problems, management accounting can lead organizations................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is provision of the financial data to company for use in company
and also business development. This consists presentation of the financial information for the
internal purposes that mainly used through management in order to main business decisions.
Management account is procedure of the preparing reports related to management and accounts
which give the accurate as well as financial information to the managers for making the long
term and short term decisions (Ameen, Ahmed and Abd Hafez, 2018). Innocent drinks is firm
that makes the juice and smoothies sole in the supermarkets, coffee shops and the different
outlets. There will be discussed about the management accounting and provide necessary needs
of the various kinds of the management accounting. Benefits and the disadvantages of various
kinds of the planning tools used in the budgetary control will be discussed in a detailed manner.
TASK 1
P1 Management accounting and types of management accounting systems
Managers use accounting provisions information to inform better themselves before they
decide the matters within company. It is used only through internal team of company and this
things makes it varied from the financial accounting. The main purpose of management
accounting is to help internal users to firm in making informed business related decisions.
Management accounting systems
Inventory management system: This is combination of the processes and technology that
oversee monitoring as well as maintenance of the stocked goods (Azudin and Mansor, 2018). In
context to innocent drinks, inventory management system track the quantities effectively in
storing the location. Essential requirement of the inventory management system mention below:
 Categorising the material together with managing an inventory of Innocent Drinks to give
the necessary inventory. To keep track of the available stock as well as manage the reorder level.
Cost accounting system: It is a framework that used through organisations to estimate
cost of goods for analysis of profit, cost control and inventory valuation. Its essential
requirements given below:
 Allocate cost according to activity that is related to traditional costing and activity based
costing.

 Track the cost and also control them by making better decisions which are related with
enhancing profitability and productivity of the Innocent drinks.
Job costing system: This is system for accumulating and assigning the manufacturing
costing of person (Bedford and Speklé, 2018). It is used when different items are manufactured
different from the each other and has significant cost. Essential requirement of the Job costing
system mention below:
 Ascertain the reliable estimation for the monetary values concerned to overheads,
information labour and direct material.
 Applying the information and accumulating for assigning cost to process the goods.
P2 Methods used for management accounting reporting
Management accounting reporting is process of giving information to different
management levels as to enable judging effectiveness of responsibility centres and taking the
corrective decisions. This emphasize on the inside information that received by financial
accounting. In regards to this, managerial accounting reports are used for the planing, decision
making, measuring the performance and also regulating. The different methods of management
accounting reporting used by Innocent Drinks mention below:
Performance report- This is related to the detailed statement that analyse outcomes
certain activities to its success within time period. In Innocent Drinks, management accounts
makes the use of budgets in order to comparing the actual expenditures with the revenues to the
budgeted variables. In context to performance report, managers plans the future demands of
juices and smoothies and then make changes in the cost accordingly.
Budget report- Budget report is comparison of actual result of business to pre-
established objectives. It is mainly issues to the everyone that responsible line item in income
statement. It is used to identify that which of the expenditure level is too high so actions can
taken to bring the level of expenditure (Bui and De Villiers, 2017).
Inventory management report- This is summary of the information of existing stock
like goods and quantity of the availability of stock which are selling the fastest and also grocery
performance concerned with status together to performance inventory. Good inventory reports
included the update information with high detail level and also use the visuals to make this clear
that number of items have in the stock. For development of the Innocent Drinks, this is important

to manage the inventory in accurate manner. Purchase manager is responsible to assure that the
stock is managed properly to manufacture as well as sell the variants of smoothies and juices.
Cost report- It is process that mainly used to inform client regarding magnitude of
project that predicted. This is financial report that determined cost as well as charges concerned
to the healthcare activities. The cost report gives information regards revenues and expenses
which are debited or credited from the cost centres (Cooper, Ezzamel and Qu, 2017). In context
to Innocent Drinks, managers are capable or effective to view the cost value of the smoothies and
juices. This method helps the administrators in planning as well as controlling profit margin.
M1 Benefits of management accounting systems
There are some benefits and the application of different management accounting system mention
below:
Management accounting
system
Benefits and application
Price optimisation system  The benefit of price optimisation system is that
Innocent Drinks can examine the behaviour and
attitude of customers for make changes in the cost and
then making decisions quickly in order to optimising
the costs for juices and smoothies on the basis of
demand.
 This is applied to search alternatives that how the
demand of customers for juices and smoothies can
changes at set price levels and then using the similar
information in order to set price after the profit.
 Inventory management
system
 The benefit of inventory management system is to
managing stock level at the several places with better
book keeping. This helps in prevents the shortage of
material as this optimise the stocks within the
organised stores (Dekker, 2016).
 Application of the Inventory management system in
firm depends on organising the data of inventory in

spreadsheets and neglecting the product out-stock with
outrages.
Cost accounting system  The main benefit of using Cost accounting system is
that it is beneficial to eliminating the wastages in
production of juices and smoothies in order to
increasing the profits through allocation of cost to
different products.
 This is applied in the innocent Drinks company in
order to capturing the cost of production through
weighing inputs cost in production stages.
TASK 2
P3 Costs using appropriate techniques of cost analysis
There are different methods used through company so that they can identify costs in
significant manner (Honggowati and et. al., 2017). There are different costing methods used by
the Innocent Drinks for determination of costs:
Marginal costing
April (£) May (£)
Sales 56000 70000
Less: Marginal cost of sales
Variable manufacturing cost 30000 30000
Closing stock 10000 15000
Opening stock 10000
Total marginal cost of sales 20000 25000
Contribution 36000 45000
Less: Fixed cost
Fixed manufacturing cost 18000 18000
Fixed non manufacturing cost 5000 5000
Net profit 13000 22000
Absorption costing

April (£) May (£)
Sales 56000 70000
Less: Cost of sales
Variable manufacturing cost 30000 30000
Fixed manufacturing cost 18000 18000
Closing stock 16000 24000
Opening stock 16000
Total cost of sales 32000 40000
Gross profit 24000 30000
Less: Fixed non manufacturing cost 5000 5000
Net profit 19000 25000
Reconciliation statement
April (£) May (£)
Profit/loss under marginal cost 13000 22000
Add/Less: Closing stock 6000 3000
Profit/loss 19000 25000
Profit/loss under absorption cost 19000 25000
Working note
Calculation of closting stock under marginal costing
April (£) May (£)
Total variable manufacturing cost 30000 30000
Total produced units 6000 6000
Per unit cost 5 5
Closing stock 10000 15000
April (£) May (£)
Calculation of opening stock under marginal costing
Opening stock units 0 2000
Per unit cost 5 5

Opening stock 0 10000
April (£) May (£)
Calculation of closting stock under absorption costing
Variable manufacturing cost 5 5
Fixed manufacturing cost (per unit) 3 3
Total absorption cost per unit 8 8
Closing stock 16000 24000
April (£) May (£)
Calculation of opening stock under absorption costing
Opening stock units 0 2000
Per unit cost 8 8
Closing stock 0 16000
Calculation of Break even point
Solution:
Variable cost 49
Fixed cost 140000
Selling price 60
Contribution: Selling price-variable cost per unit
Contribution 11
Break even point (In units): Fixed cost/contribution
BEP (In units) 12727.27
Break even point (In revenues): Fixed cost/PV ratio
PV ratio: Contribution/sales*100
PV ratio 18.33
BEP (In revenues) 763636.36

Margin of safety (In units): Budgeted saels (In units)- BEP (In units)
Budgeted sales 20000
BEP 12727.27
Margin of safety (In units) 7272.73
Margin of safety (In revenues): Budgeted sales (In revenues)-BEP (In revenues)
Budgeted sales (In revenues) 1200000
BEP (In revenues) 763636.36
Margin of safety (In revenues) 436363.64
M2 Management accounting techniques
In the innocent drinks, managers applied the cost analysis techniques of the absorption
and marginal costing in order to calculate the profitability. These techniques are helpful in
examining, recording and controlling the many operations. In context to this, reconciliation
statements is mainly prepared and examined that firm attained the £7000 in the April and profit
of the £ 17000 in month of May. The break even profit is calculated to know for the level under
which company will be on the situation of loss and profit.
TASK 3
P4 Advantages and disadvantages of different types of planning tools
Budget is a expenses and revenue estimation over particular time period and compiled as
well as re- evaluated on periodic basis (Hopper and Bui, 2016). This is helpful in identifying the
variance as well as overcoming adverse variance which develops negative impact on business
performance. Budgeting is main part of planning and controlling processes and used through
managers to plan, monitor and control different activities of company. It is necessary for
management to take the better decisions and also allocate resources in an effective manner. With
the helps of preparing budget, cost can be controlled and monitor effectively.
Budgetary control is process that mainly arranges the budget for future purpose and after
then compare with the actual outcomes in order to search variances. Main objective of the
budgetary control is to explaining objectives of company, coordinating activities and make

improvement in profit through eliminating wastage, fixing individuals responsibilities and
centralising the management system.
Different planning tools used for budgetary control with advantages and disadvantages
mention below:
Cash budget- The cash budget is cash flows estimation for business over particular time period.
This planning tool consists the expected disbursements and receipts of cash at the time of
particular period. These cash outflows and inflows involve the collected revenues, paid the
expenses, payment and loans receipts (Kostyukova and et. al., 2018). On the other hand, cash
budget is estimated projection of cash position of firm in future.
Advantages
 The cash budget is helpful in saving money as cash is better feedback mechanism.
Physical act of handling that the cash over is visceral experience which motivate directly
to spend minimum money. Using cash budget permit to see at glance as how much the money left for using for rest
of month. It lets plan a head and also keep within set the spending limits.
Disadvantages
 This develops danger of the theft. An individual should have documentation that track
cash movements in order to protect against the theft.
 This can be easier to be lose as there is chance to misplace the money.
Flexible budget- This budget adjusts with the change in activity or volume. It is sophisticated as
well as useful than static budget. It remain unchanged from amount that established at time that
static budget was developed and then approved.
Advantages
 The main benefit of flexible budget is that this accurately reflects finances state. This
budget is helpful in track where can be adjust in spending every month (Maas,
Schaltegger and Crutzen, 2016). The flexible budget is based on the assumptions, approximations and judgement. It is
basically prepared according to principle and knowledge.
Disadvantages
 This budget needs planning to track the expenses and also adjust the differences among
periods.

 Method of identifying variable and fixed cost components is arbitrary and flexed cost
bear less relation to right budgeted cost for flexed activity level.
Purchase budget
This contains inventory amount that firm should buy at the time of budget period.
Amount that stated in budget required to assure that there is a sufficient inventory to meet with
orders of customers for goods. This is forecast of the quantity and materials value that needed to
buy at the time of budget period. It is related to production budget.
Advantages
 This helps to an organisation to react quickly for neglecting to loosing consumers
because of less orders or the long production (Makrygiannakis and Jack, 2016). Purchase budget gives better control on inventory level to Innocent Drinks purchase
department.
Disadvantages
 Developing this budget is more time consuming and needs the extra manpower for
gaining the accurate estimates.
 The future estimated of planning tool are mainly done according to past performance due
to the changing condition of the poor forecasting that could impact negatively on decision
making of the Innocent drinks.
M3 Planning tools and their application
In an organisation, planning tools are mainly used for examine the objectives as well as
achievements. In context to the Innocent Drinks, there are different planning tools used for an
instance cash budget, flexible budget and purchase budget which are mainly applied to
forecasting the cash outflow and inflow. At the similar time, purchase budget is mainly applied
for forecasting regarding buying of inventory in future.
TASK 4
P5 Organizations are adapting management accounting systems
Financial problem is situation under which an individual or firm is not able to meet bills
on the time and also not afford the basic requirements. Main cause of the financial problem is
that people do not have skills for managing money. In regards to this, Innocent Drinks is small

firm that faces the difficult time due to the insufficient money for conducting business operations
effectively. There are some issues faced by innocent drinks because of finance mention below:
Spending more than income- To gain the competitive benefit at marketplace, the main
concern of business to spending more the the promotion, advertisement and marketing. In
regards to Innocent Drinks, it has the marketing team but this is exceeding than the budgetary
amount to advertise and promote for firm. It develops the negative impact on productivity of
company (Nitzl, 2016).
Missed the credit payments- There is a situation arise where the more merchandise sold
to clients so that needs and wants of old customers can be properly satisfied. There are various
Innocent Drinks client that makes the purchase of drinks and smoothies in the bulk quantity on
the credit basis. They do not make the payment timely that minimize profit and also arise
financial issues. From this, financial issues arise as it restricts the cash inflows.
Accounting approaches for resolving financial problems
Benchmarking: It consists running financial analysis and also making the results
comparison of result to assess competitiveness, productivity and efficiency of company. It can
take accurate approach through managers of the Innocent Drinks in order to resolve financial
issues by examining strategies that are executed through the other concern of business to
promote or marketing the goods with limited spending. This technique is helpful to an
organisation to resolve the issues and make the better promotional strategies (Turner and et. al.,
2017).
KPI: This technique is helpful for the organisational managers to analyse performance
for examining the success to gaining competitive benefits at marketplace. Through this,
managers of the Innocent drinks could make its financial position better. Company can develop
strategies for the creditors that will help in motivate them to make the payment on timely basis.
This helps in resolve the financial problem.
Financial governance: This is explained as process for collecting, classifying and also
controlling the financial data. Innocent Drinks accountant could resolve the financial issues by
using the financial governance because this explains the accurate phases for gathering and also
tracking with controlling the information with aim of implementing the strategic plan effectively
(Otley, 2016).
Comparison between Innocent Drinks and Wilson's Juice Company