Management Accounting Report: Strategies for Innocent Drinks' Success

This report provides a comprehensive analysis of management accounting principles and their application to Innocent Drinks, a medium-sized company in the beverage industry. It covers essential aspects such as the definition of management accounting, different accounting systems, and reporting methods including account aging, inventory, and job cost reports. The report delves into cost analysis techniques, specifically marginal and absorption costing, and their application in financial reporting and decision-making. It further discusses the benefits and drawbacks of various planning tools, comparing how organizations adapt management accounting systems to address financial problems and issues. The report provides a detailed examination of various accounting systems, including financial, cost, tax, and management accounting systems, with a focus on how they can be used to manage financial resources effectively. It also includes an analysis of how Innocent Drinks can maximize the use of financial resources to survive in challenging economic situations, along with calculations based on absorption and marginal costing techniques.

Management
accounting

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems...........................................................................................4
P2 Explain different methods used for management accounting reporting. .........................5
M1: Benefit of system of management accounts and its application.....................................7
D1: Integration of system of management accounting and reporting of organisation process7
TASK 2............................................................................................................................................8
P3: Cost analysis techniques & use of absorption and marginal costing...............................8
M2:Application of techniques of management accounting....................................................8
D2: Application & interpretation of financial reports:...........................................................9
TASK 3............................................................................................................................................9
P4: Benefits and disadvantage of various tools of planning...................................................9
M3: Analysing the various planning tools............................................................................10
TASK 4..........................................................................................................................................10
P5: Compare how organisations are willing to deal with the system of management
accounting to deal with different financial problems and issues..........................................10
M4 : Analysing the financial problems and management accounting.................................13
CONCLUSION..............................................................................................................................13
REFERNCES.................................................................................................................................14

INTRODUCTION
Management accounts is a function that consist of activities like gathering of data.
Analysing the collected data and then further reporting of overall financial information about
operations of a business. It is very helpful for the management in their decision making process
and can be used by management for their internal & external functioning. Management
accounting is very helpful in management and controlling of all function that are part of financial
department of a organisation (Youssef, Moustafa and Mahama, 2020). Present report is based on
Innocent drinks that is a medium sized organisation dealing in products like juices, smoothies
that are sold in different coffee shops, supermarkets and other different outlets. They are selling
approx 2 million smoothies every week. Present report is based on discussion of different
management accounting systems and methods that are used for reporting. The situation of
spending of COVID-19 Virus has resulted into business failing and not able to survive in the
external environment situations. So in case of Innocent drinks there is discussion of how the
organisation cam maximise the use of financial resources so that they are able to survive in this
situation. Further there is calculation of cost based on use of require techniques by application of
absorption and marginal costs. There is discussion of advantages & disadvantage for budgetary
control. Lastly there is comparison on how organisations are adapting to different systems of
management accounting.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems
According to Institute of management accounts: Management accounting consist of
function like planning, analyzing and making financial reports that is used by management to
have assistance in the process of effective implementation of various organizational strategies
(Maas, Schaltegge and Crutzen, , 2016).
Key functions:
Providing data: It consist of collection of information that is related with all different
functions of business such as helping all other functional managers in planning, controlling and
finally decision making.

Analysis & interpretation of data: The data has to be collected and then analysis is made
so that there can be proper & relevant statements that can be made with regards to decision
making.
Means of communication: Management accounting is a very important tool that can be
used for gathering information and then further analyzing it so that there can be proper
communication channels that can be established to achieve some comma goals.
Facilitation of control: business accounts have to be managed so that unnecessary
expense can be controlled and avoided.
Some of common accounting systems that can be used in Innocent Drinks for the purpose of
managing their accounting function are mentioned below: Financial accounting system: It is a main objective that can be used for maintaining of
financial accounts to collect fanciable data of all transaction that is debit and credit
account balance so that there can be formation of financial statements, income statements
are also used for controlling of all losses and detecting of errors (Otley, 2016). System of cost accounting: It is a framework that can be used for making correct
estimations of product cost so that there can be further analysis of profits and then
maintaining of inventory. It will help Innocent drinks in their different stages of
production so that efficiency is achieved by maintaining of wastes. Tax accounting: It is a system that is having focus on management of taxes so that all
rules & regulations are govern by the Internal revenue code in preparation of tax returns.
It is a system that is very helpful in making calculations of amount of taxes so that further
government intervention can be dealt.
 System of management accounting: It is a system that is helpful in measurement and
evaluation of process so that there can be timely information that can be communicated to
managers (Quattrone, 2016). Reports are also prepared according to the different
financial activities so that management of expenses can take place in a appropriate
manner in Innocent drinks.

P2 Explain different methods used for management accounting reporting.
Management accounting reporting is regarded as a process that is sued for preparation of reports
that can be used by managers in Innocent drinks in their decision making process. Some of its
types are mentioned below:
Account ageing reports: This is a report that consists of details about the different credit
transactions of a organisation that can be used by managers in making a analysis of amounts that
is pending from their debtors (Qian, Hörischand Schaltegger, 2018). It is helpful in the overall
collection policies and reduction of bad debts. It is also going to help Innocent drinks in
managing their liquidity.
Inventory reports: This is a report that is used for providing information about inventory
in a business so that there can be maintaining of a balance between customer service and
inventory investment (Holopainen, , Niskanen and Rissanen, 2019). This report is in Innocent
drink will consist of per unit overhead cost, labour cost and all wastages that are part of
inventory that can be managed effectively to reduce high inventory that is a burden for any
organisation.
Job cost report: This is a report that can be used for identification of expenses, cost and
enhance the financial efficiency of each job so that there can be more profitable projects. There
can be proper evaluation of wastage areas so that overall cost can be controlled and proper
effectiveness is maintained.
Objective of financial statements:
P&L accounts: It is used for understanding of the criteria of net profits & all types of
losses that are taking place in business in the end of every financial year.
Cash flow statement: It is used for making assessment of the cash position of a business
that is all details about the inflow& outflow of cash.
Cost of products sold: It is used for providing the information related to cost that is part
of selling of products.
Balance sheet: It is used for making a evaluation of liabilities and assets of a
organisation at end of every financial year.
Types of system of management accounting:

Price optimization: It is a system that is used for determination of prices according to products of
company by making a evaluation of demand fluctuation so that changes in prices level can be
recorded. In Innocent drinks this can be used for tailoring of prices of various products based on
customer demand. There is use of techniques like discount pricing promotional pricing and initial
pricing.
System of inventory management: It is a technology process that is used for the purpose of
determining and maintaining of product cost so that different cost can be properly maintained in
different stages of product, manufacturing in Innocent drinks used so that there can be reduction
in cost & maintaining of efficient use of resources (Rikhardsson and Yigitbasioglu, 2018).
Job costing system: It is a system that is used for determination of price of each individual
products. It will help Innocent drinks in keeping a detail record of all expenses according to units
cost.
M1: Benefit of system of management accounts and its application
Management accounting Benefits Application in Innocent drinks
Inventory system It is a system that can help in
reduction of storage cost
(Abernethy, and Wallis,
2019).
Company can maintain their
level of stock according to
their per day demand. Such as
if demand is high during
weekends then there has to be
more stocking of raw materials
so that there is no wastage.
Cost accounting It is used for formation of
policies to manage overall cost
of labour, material cost and
overhead cost.
Organisation can make use of
this system to understand their
fixed cost per bottles of drink.

Price optimization It can help in determination of
prices according to customer
demand that can help in
maximization of profits.
Organisation can apply this
system to maintain their
operational cost & overall
prices.
Job costing It is used for determination of
profitability according to
individual projects
There can be termination of
cost according to the producer
requirements.
D1: Integration of system of management accounting and reporting of organisation process
Type of reporting Integration with Innocent drinks
Budgetary report In this Innocent drink is focussing of
achievement of higher profitability in business
so that objectives can be achieved (Ameen,
Ahmed, and Abd Hafez, 2018).
Accounts receivable It leads towards collection of all reachable
accounts and then making of policies related to
collection of finances.
Job cost reports It is used for determining the product prices
according to its variants. Such as drink that are
consuming high prices fruits will be relatively
expensive as compared to other different
varieties.
Inventory management It can be adopted for management of inventory
and the manufacturing cost of different
products.

TASK 2
P3: Cost analysis techniques & use of absorption and marginal costing
Cost is the total of amount in monetary value that is used in the process of manufacture of
product and then use of resources labour, raw material, opportunity cost, time risk and labour
time. It is used for preparation of income statements by adoption of absorption and marginal
costing. That is according to variable figures of Innocent drinks there is preparation of these
statemented as mentioned below:
Marginal costing: It is a technique that is used for understanding of the variable and marginal
cost per unit of a products. Variable cost leads to to Changes in total cost when high quantity is
produced. It increases with every increase in unit of production cost.
Absorption costing: This method is used for product of one unit of a product that it consist of
both fixed and variable cost. In this methods there is association of product cost directly with
accumulated cost.
Based on the provided figures there is a calculation of marginal costing & absorption
costing. There is use of break even point analysis further to understand the situation of no profit
& no loss for this organisation.

M2:Application of techniques of management accounting
There are some accounting technique that can be used for operation of financial reports
so that actual position of a organisation can be properly analysed and then further decisions are
made so that position can be improved (Hutaibat, and Alhatabat, 2019). There are various
methods of costing like absorption costing and marginal costing that can be used for calculation
if production cost. Marginal costing is a better technique than absorption costing as here is use of
both variable & fixed cost both that are charged for calculation of profits. In the process of
decision making this technique is very useful in estimation of total cost of production.