Analyzing Management Accounting Practices at Innocent Drinks Ltd

This report provides a detailed analysis of management accounting (MA) systems and their application to Innocent Drinks Limited, a client of AJ and Sons. It covers the principles of management accounting, including designing and compiling systems, management by exception, and the role and purpose of MA. The report distinguishes between management and financial accounting, explores various MA systems such as cost accounting, inventory management, price optimization, and job costing, and discusses MA reporting, including inventory management, accounts receivable aging, and performance reports. It also examines accounting techniques for preparing financial reports, focusing on marginal and absorption costing, and interprets the resulting financial data. The integration of Management Accounting Systems (MAS) and MA reports to enhance financial decision-making is also explored. Desklib provides past papers and solved assignments for students to enhance their understanding.

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
Part 1.......................................................................................................................................................3
Part 2.......................................................................................................................................................8
Part 3.....................................................................................................................................................12
CONCLUSION........................................................................................................................................17
REFERENCES........................................................................................................................................18

INTRODUCTION
Accounting deals predominantly with activities that are related to financing, although
there are other distinct accounting methods such as management accounting (MA) that prioritize
all kinds of transactions. MA is an accounting that is essential for the monitoring and
documentation of financial and non-financial records (Cescon, Costantini and Grassetti, 2019).
This detail is used if the managers need to generate internal reports at any time period. MA is
primarily structured for administrators to take disciplinary action relating to the use of financial
and non - financial resources. A company called Innocent drinks Limited is selected in this
report. This company is a client of AJ and sons that offers accounting-related consulting services.
Below, the study is classified into three sections and the first one covers details related to MA
systems and reports. While part two includes several financial methods and their functional
effects on a given collection of data set. The role of planning methods and MA systems was
addressed in the final part of the study in order to resolve the financial issues of the firms.
Part 1
Principles of management accounting-
Designing and compiling- It means that the management accounting framework is set up in a
way that enables the required documents to be accessed. If this is the case, there is a particular
concern that must be tackled. Accounting data should also be revised and applied to satisfy
management's desires.
Management by Exception- To detect exceptions, the actual outcome is contrasted to a pre-
determined one. The root of the problem is determined and controlled exclusively on the basis of
the unacceptable variations. If this is the case, administration has spent more time operating on
the data rather than reading and analyzing it.
Role of management accounting

MA- This is the practice of writing reports on corporate activities to help administrators to make
decisions for the short and long term. It enables an organization to achieve its objectives by
defining, evaluating, assessing, understanding and forwarding key information to management.
Purpose of MA- The primary aim of this accounting is to perform a vital role in decision-making
process for the internal members (Wang, Wang and Wang, 2019). This accounting contributes to
administrators by supplying them with required time knowledge that is used as a decision-
making tool. In addition, this accounting also provides a mechanism for regulating companies
that contributes to efficiency improvements. In respect of the above Innocent Drinks Limited,
they should follow this accounting for their activities with the goal of enhancing efficiency from
all viewpoints like financial and non-financial aspects.
Distinction between MA and financial accounting:
Base for
comparison
MA Financial accounting
Users This accounting is planned
specifically for the internal clients.
This is useful for internal as well as
external users of an organization.
Regulations There are no rules and principles for
the preparing of internal reporting in
it.
This accounting includes serval laws
that must be taken into account by the
bookkeepers.
Form of
business
This can be used in any
organization. It does not include any
of the entities that need to be listedin
stock exchange.
Although this accounting is a necessary
prerequisite for all firms listed on a
respected stock exchange.
Types of Management Accounting systems:
This accounting has relations with every industry section. Out of which there are a number of
accounting systems that are discussed in this way below:

Cost accounting system- This accounting method is formed by a mechanism of monitoring and
managing all of those costs that exist over an accounting period in a company. Under it the cost
of each service is reported and contrasted to uniform output (Tan, 2019). Because of this,
supervisors enable to measure the productivity and success of various projects in terms of costs.
This accounting system collects knowledge on costs related to raw products, labor etc. in
production firms. In relation to Innocent Drinks limited, financial manager can receive critical
details from this accounting method about the cost of various activities along with variation. This
may lead to a reasonable step in terms of fund requirement or reduction of certain tasks that are
cost-consuming higher in above company.
Essential requirement- The necessity for this accounting system to manage unnecessary costs, in
order to raise sales. This becomes feasible when cost utilization is continuously monitored during
each activity. This accounting system is key in Innocent Drinks limited to allow for the reduction
of costs of wasteful operations. As well as contributing to the development of appropriate plans
for relevant practices that result in more spending.
Inventory management system- It is defined as an accounting method that refers to the
administration of all types of company resources and stock (Alabdullah, 2019). This is achieved
by capturing regularly updated stock report which includes details on raw material usage, stored
stock, etc. In relation to this accounting system, businesses can sequentially use inventories for
manufacturing by using various methods called FIFO, LIFO, etc. The main objective of such
accounting system is to keep storage costs lower by keeping supply according to the amount of
stock scheduled and demand accessible. In the above business, their managers should use this
accounting to make better the use of amount of raw materials accessible so that manufacturing
costs can be managed.
Essential requirement- This accounting method is important for businesses to make efficient use
of stored quantity of material and products. In innocent drinks limited, it is important to handle
raw materials such as fruit, sugar for processing, as well as to generate new items according to
the amount of packaged juices and beverages stored.
Price optimization system- This accounting system is oriented to set a pricing limit according to
the consumer demand for each commodity (Hutaibat and Alhatabat, 2020). It is achieved in
conjunction with the feedback of the consumers for the product of a business as well as by

analyzing the pricing actions of the rivals. The key advantage of this accounting is that the prices
under it are determined by realistic methods such as demand analysis, industry development,
competition policy. Because of which a company can set a price at a level that is appropriate for
any section of the consumer. Sales representatives may extend this accounting scheme to new
product or an existing market to fix prices within innocent drinks limited. This can be achieved
by evaluating the reaction of consumers to product content, price etc.
Essential requirement- The purpose of this accounting is to maximize consumer numbers and
sales by increasing and decreasing prices according to various main factors. It is obligatory for
innocent drinks limited to apply it for certain beverages whose sale is smaller or for new product.
This can be achieved by measuring the response of consumers to the current price level and their
anticipated price for a given commodity.
Job costing system- It is an accounting system that focuses on monitoring work or job costs
associated with the execution of an activity process. The object of this accounting is to calculate
the expense of each unit, so that more effective decisions can be taken. Within the sense of
Innocent Drinks limited above, this accounting method can be implemented with an aim of
identifying work or mission costs for each operation along with per unit expense. The purpose of
this accounting system is clarified in such a way that is as follows:
Essential requirement- This accounting is necessary to determine the number of employees
assigned to perform an operation, as well as to calculate the expense of each task. This
accounting method can be integrated by the administrators of innocent drinks limited because
they have a broad product range for different beverages. Hence, it is essential that they can figure
out the expense of each drink made.
MA reporting.
MA reporting is characterized as a process of planning various types of structured written
document that includes information for different division of a firm. There are a variety of reports
which company uses according to their needs. These reports are primarily used by organization
administrative to take effective decision-making actions. Description of some reports is given
below-

Inventory management report- It is a category of report that regularly includes details relating to
each class of material (Doktoralina and Apollo, 2019). Under it, the documented knowledge
about the quantities of material used, stayed material, necessary content, etc. used by supervisors
for manufacturing decision making. With respect to the above Innocent Drinks limited, they
should plan this report with the intention of obtaining details regarding stored material for the
manufacture of juice or beverages, prepared products etc.
Accounts receivable ageing report- It's a type of report typically used by a company's financial
division. As this report contains details relating to debtor identity, date of payment, amount
payable with interest etc. Using this report, administrators may avoid credit transfers for such
debtors that do not pay the balance of the debt on time. For example, their financial manager in
the above-mentioned business may start making plans to obtain debt sum from list of debtors
using this report.
Performance report- This can be described as a type of written report containing details relating
to an organization's business and individual results. This report primarily assists in the
assessment of a firm's earnings results. Under it comprehensive information about productivity,
gain, loss, supply of cash, etc. is included. This report can be used by the manager of innocent
drinks limited to take further steps as per the required.
Accounting techniques to prepare financial reports.
It has been determined that various methods of financial reporting are used by corporate
enterprise accountants in terms of developing all financial records in an efficient manner. These
are the methods that serve as a framework for their consumers to adopt a well-defined and
structured method in order to produce the desired results. The financial managers would use two
separate approaches to construct an income statement, which are marginal and absorption
expense strategies, in the preceding section. Both of these methods are commonly used by
corporate companies in order to achieve various outcomes that are helpful to the organization.
The method of analyzing costs related to various facets of a business is referred to as "expense
analysis." Doing cost analysis performs two functions for above company helps in internal
management and risk management. The method applies to a company's general strategy team

uses expense accounting to understand and measure the costs of its sales. The use of cost
analysis by potential industry clients to determine a company's success is mentioned above.
Marginal costing- It is a strategy connected with planning income statement by recognizing
variable spending as key expense and fixed spending as periodic expense.
Absorption costing- It is a strategy associated with the planning of income statement by treating
variable expenditures and fixed expenses as the cost of the product (Zandi, Khalid and Islam,
2019).
Data to produce income statement-

MA techniques to prepare financial reports.
There are various types of accounting methods that accounting professionals use in
producing financial statements. These methods provide users with a mechanism to pursue a
structured method to get optimal outcomes (Bhimani, 2020). As in the above section, two
distinctive techniques are utilized in planning income statement by marginal and costing system
of absorption. Because of cost analysis, both strategies yield different amount of result.
Interpretation of data.
In this section of report, interpretation of above prepared financial statements has been done in
detailed manner:Under marginal costing, value of net profit is of 13000 and 22000 pounds
respectively for month of April and May. On the other side, in absorption method value of net
profit is of 19000 and 25000 pounds for similar time period. It shows that in both methods,
value of outcome is distinct though similar data has been used. The rationale behind this
difference is due to consideration of cost in various manner.
Integration of MAS and MA reports.
The diverse types of MAS and MA reports are consistent with the structure of the organization’s
contributing to operational success (Aureli, Del Baldo and Lombardi, 2019). A number of
accounting systems have been addressed in the context of the above section of the study, such as
cost accounting method, which is associated with the funding of innocent drinks department
limited. As well as MA reports are also related as the inventory report is related to the company's
manufacturing department. This incorporation helps motivate managers for effective decision-
making that contributes to continue enhanced market performance.

Benefits of MAS:
MAS Importance
Cost
accounting
system
This accounting system is useful for enterprises in handling those fields
where the costs of firms are larger. For example, they will be in gain from
this accounting method in the above-mentioned organization by collecting
cost statistics for each commodity and matching it with expected
expenditures.
Inventory
management
system
It's important for businesses to make full use of the amount of stocks
available. Supervisors of Innocent Drinks Limited can get benefit from this
accounting by collecting details relating to everyday consumption of
resources, the amount of beverages sold and the products available (Roque,
Alves and Raposo, 2019).
Price
optimization
system
For businesses, this accounting system is helpful in deciding the pricing of
goods relative to certain environmental conditions. This accounting method
can be helpful in determining prices of different types of beverages and
juices in compliance with the study of customer reviews, in the sense of the
above business.
Job costing
system
This accounting system leads to the cost estimation of a work or operation
successful execution of an activity. The administrators may receive valuable
information from certain accounting method in reference to the above
business about cost of each particular drink and cost of job involved in.
Conclusion
According to the above definition of various forms of management accounting roles, types, and
records, it can be inferred that such accounting is an important part of every company. This is
attributed to the fact that each accounting method has its own meaning in terms of operational
performance. Furthermore, MA reports are critical for businesses because they provide advice to
management about how to operate a company effectively.

Part 2
Different planning tools.
Budgetary control- This can be outlined as a sort of approach pertaining to designing multiple
budgets for incoming timeframe with the intent of measuring performance through contrasting
actual results with predicted figures. This approach has a linkage to all kinds of corporate
enterprises to control corporate financial performance through recognizing various types of
variances (Alabdullah, 2019). Within the context of company Innocent Drinks, here are certain
planning tools which can be used by corporation for budgetary control, as follows:
1. Capital budgeting- It can be perceived as a sort of budgeting technique that is employed
to assess the feasibility of the financial plans developed. This project effectiveness
assessment is conducted in conjunction with different metrics called net-present value,
ARR, payback time, etc. The focus of such budgeting is to direct administrators in taking
the right initiatives for making large investments in different project. This will lead to
financial managers to identify multiple kinds of profitable investment options in
company Innocent drinks.
Advantages- This technique is effective to corporations as it directs management to select
the right option among various choices to safeguard them from possible future fiscal
risks. Along with having proper control over costs associated with a project or venture,
it is advantageous for enterprise.
Disadvantages: Multiple methods like NPV, IRR etc. used in capital budgeting to
evaluate project viability are focused on certain assumptions like cost of capital that can
contribute to a inaccuracy in decision. Moreover, in case of small firms and for small-
scale ventures, use of such complex techniques have not so much relevancy (Amir, M.,
Rehman, S.A. and Khan, M.I., 2020).
2. Cash budget- It is a specific form of budgeting that includes information regarding
certain operations that are associated with incoming and outgoing cash within a given
specific accounting period. With the aid of this budget, administrators can find it simpler
to determine cash needs in the forthcoming time frame. For example, in the

respective organization this budget may be used for analyzing cash influx and outings
transactions for better management of cash-funds.
Advantages- This is efficacious for businesses in allocating cash in conjunction with the
tasks budgeted. In addition, it performs a crucial part in resolving the requirement for
money and facilitate day-to-day operational activities expenditure.
Disadvantages- The key pitfalls within this budget is that because of a pre - specified
strategy, businesses are restricted just to using their cash-funds no other
accessible resources. Also, this does not include reliable estimation of cash proceeds and
transactions owing to influence on the performance of businesses response to
external factors.
3. Static budget- This is also titled as fixed budget which does not adjust or shift with
volume spikes or declines. Here "Volume" may be revenue, manufactured units or any
other operation. This budget could not be subsequently altered according to the
requirements of the organization. This budget has no changes due to volatility of
units’ production or sales figures. The budget's goal is to sustain a specific target
like production level, costing etc. Innocent drinks management can use such budget for
certain operational areas that are supposed to stay unchanged or less affected by changes
(Bhimani, 2020).
Advantages- This helps a company to calculate both shorter-term budgets and longer-
term budgets. A fixed-budget assigns a specified sum of funds to important items like
overhead expenses. This is simple to make and implement a static budget as this doesn't
require further modification.
Disadvantages- Because of rigidness of static budget, that is not advantageous in the
circumstances that businesses wish to make improvements but cannot do so. As in all
pandemic selling, large profits can be decreased and accountants under fixed budget are
not allowed to make modifications in sales.
Planning tools to forecasting of budgets.

Planning tools under budgetary controlling may be helpful to administrators in making
budgets, because techniques such as cash budgeting, the capital budgeting provide information
on projected financial figures. Executives can utilize such data to create estimates of other forms
of budgets. For example, in case of respective corporation, they could use
such three discussed budgets and each of these can contribute towards forecasting of
financial figures for supporting decisions of financial managers (Johanson and Madsen, 2019).
MAS to solve financial issues.
Financial problem- There is a countless financial issue that businesses experience owing to
failure of management. Managing officials find hard to figure out certain specific reason of
financial problem or responsible individual. Here are some issues which 2 distinct organizations
are facing:
Inconsistency in sales revenue- This is a sort of fiscal issue that is connected to sales
or revenues fluctuation owing to operational failure or increased competitiveness. Such financial
problem leads to a downgrade of a corporation' growth trend line. For example, in case of
Innocent Drinks, company confronted this fiscal issue owing to inefficient pricing pattern
(Labrador and Olmo, 2019).
Unproductive increased expenses- This financial problem mainly occur when managers of
company fail to retain effective oversight and controlling over expenditures. Because of several
probable causes such as inadequate budgeting, unskilled workers this can arise in businesses.
Company Innocent Drinks also facing this issue due to which
company's productivity and profitability has been affected significantly.
Here are several key techniques to measure and identify the main the reason of different financial
issues, as follows:
Benchmarking- It is defined as a technique associated with comparing the actual financial
performance of business with the average standard performance of firms in the relevant sector.
This is advantageous to resolve those areas where the efficiency of an organization is bad or
outstanding.

Key performance indicator- This is characterized as a technique in which both fiscal and non-
financial elements are analyzed. Information regarding profits, expenditures, return etc.
are included in financial elements. On other side, information relating to customer satisfaction,
political stability, social trends etc. are non-financial aspects. This is crucial in determining the
causes of fiscal issues.
Financial governance- It is regarded as a tool for systematically storing a firm's financial
information and as a framework to manage all the financial activities. This allow managers to
assess the actual performance of company and identify triggers of financial issues (Łada,
Kozarkiewicz and Haslam, 2020).
Comparison:
Base for
comparison
Innocent drinks limited George’s drinks limited
Financial
issue
Over the previous financial period this
corporation confronted the issue of
declining sales revenues. Due to this
company's overall profit level and
market share has been declined over
the period.
Company is struggling with the
problem of increased operating costs in
different operational units. Due to this
company’s total revenues began to
decline along with overall net profits.
Technique
to
recognize
issue
Their management used the bench-
marking approach to recognize the
factors which are leading to this issue.
Company managers have applied KPIs
to find out key trigger elements of this
financial issue.
MAS Innocent Drinks has used a price
optimization system to solve their
financial problem. This system assisted
managers in setting best optimal prices
for their different products and to
attract customers with aim to increase
overall sales. In long run this will also
George has adopted cost accounting
system to deal with financial issue of
increased operational costs. With
adoption of this system, managers can
easily track and control all the expenses
and costs incurred over a specific
product or process. This assisted

help management to achieve
competitive price advantages (Zandi,
Khalid and Islam, 2019).
company to minimize their normal
wastage and production costs.
MA to solve financial problems.
Different forms of MA systems interact with the processes and activities of the
organization. This alignment allows businesses to tackle financial issues in efficient way. For
example, two different financial problems were resolved in the above part using the framework
for price optimization as well as cost accounting. This demonstrates that in context of coping
with various financial difficulties MAS role is considerable.
Planning tools to solve financial issues.
The purpose of planning-tools under budgetary controlling is to give management accurate
information about planned revenue and expenses. Administratively, this forecast information
could be applied to address financial issues. Company can apply different planning tools like
cash budgeting approach and capital budgeting for better forecasting and support decision
making. These all systems and planning tools together can help company to respond
to financial issues and achieve business targets smoothly.
Similarities
Ratio analyses:
A benefit analysis can be identified as the method of determining the cash benefits used to make
a continuous cash presentation of an organization using not many types of benefits such as cash,
productivity, function, duty, market, dissolvability, efficiency and inclusion allowance and very
few cases of these allowances result in value, normal allowance, quick allowance, profit payment
allowance, duty value allowance, etc.
Comparative analyses

Each company must prepare basic financial statements summaries that summarize the operating
results and financial position for a specified period of time. These certifications mainly include
bank statements, accounting reports, and revenue collection.
In this way, the purpose of establishing these articles is to study the profitability and adequacy of
corporate finance. In any case, the point-to-point data presented in this call alone is not sufficient
to reach important administrative decisions. Consequently, point-by-point monetary analysis and
translation of this evidence using a variety of tools and methods is required.
Differences
Cost management
The cost of executives is worrying for the path to adjusting and controlling the financial plan of a
commitment or activity. It includes exercises such as organization, evaluation, planning,
financing, grants, monitoring and cost control until commitment is reached, completion within
the agreed spending plan. The cost of the board covers the overall life cycle of a commitment
from the basic adjustment level to the performance estimate of actual costs and business
performance.
Balance scorecard
The Fair Scorecard, known as the BSC, provides a framework for implementation and
monitoring. Link dreaming to goals, steps, objectives and vital motivations. Compensate for cash
steps with implementation measures and goals marked by any other parts of society. The
onboard device is a business accomplishment.
CONCLUSION
In conjunction with the project's second section, it can be inferred that budgetary management
preparation techniques are essential for dealing with financial problems and also predicting
various aspects. Furthermore, a later portion of the study notes that management accounting
structures are important for dealing with various forms of financial problems.

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