Oshodi Plc Case Study: Management Accounting Techniques

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MANAGEMENT ACCOUNTING
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Table of Contents
Introduction......................................................................................................................................3
LO 1.................................................................................................................................................4
LO 2.................................................................................................................................................9
LO 3...............................................................................................................................................14
LO 4...............................................................................................................................................17
Conclusion.....................................................................................................................................20
Reference List................................................................................................................................21
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Introduction
The evolution of management accounting started with the process of accounting in the year of
1812. This was prepared to capture the operating cost. As time passed by, the management
accounting came into being in the year of 1951. This was applied into trade to set various goals
for the workforce and perform day-to-day activities. Implementation of management accounting
helps the entities to build their operations in proper way so that there are proper effects in their
performance. The assignment will provide a detailed data related to the use of management
accounting that will help in reporting of that information in the books of accounts. The report
will be formed based on the information of Oshodi Plc, who is producer of JOJO fruit juice.
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Scenario 1
LO 1
Management Accounting
The term management accounting is used in defining that aspect of the business that ensures the
companies to operate well in their everyday life (Appelbaum et al., 2017). This ensures the
administration of Oshodi Plc to perform according to the constitution that is formed. This has
also helped the board to analyse the managerial performance of the business.
Requirements of different types of management accounting systems
Different types of management accounting systems allow Oshodi Plc to record all the
information in different types of systems so that they can carry on with proper reports as well.
These systems of management accounting will be elucidated below:
Inventory Management System
This system of management of inventory gives the entities the right to record all the items that
are present in their inventories every day (Thabet and Alaeddin, 2017). This gives them to
identify those stocks that are present in progress and those are completed and present in the hand
for selling. Since, JOJO is a juice company; it becomes a mandatory for them to use the first in
first out so that the juice that is produced first is used first. This will reduce the wastage of stale
juice.
Cost Management System
This system of cost management ensures that Oshodi Plc have all the costs so that those can be
managed properly in order to cut costs and reduce the expenses to such extent that gives them the
incentive to earn maximum profits (Nguyen, 2018). These are significant for them as if they buy
lot of fruits, there can be a possibility of the fruits to get rotten, which cannot be used later.
Job Costing System
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There are only few jobs present in the whole process of producing juices from the fruits and then
selling those in the market (Bobryshev et al., 2015). It is vital for them to count all the jobs so
that they get the accurate amount of jobs that are performed in the whole system.
Methods used in reporting of management accounting
Oshodi Plc cannot perform the reporting of management accounting without various significant
methods. These reporting methods will be explained below:
Sales Report
Oshodi Plc needs to have proper sales report where they need to record their daily sales so that
they can track all the performance of their workforce that is working under them (Schaltegger
and Burritt, 2017). This also ensures them to get the cost of sales that were incurred for the total
units of juices in the market.
Cost Report
Oshodi Plc needs to prepare cost report so that they can record all the costs that are incurred by
them to keep a track (Stacchezzini et al., 2016). This also ensures them to check whether they
have over-spent or under-spent from the budgets that were produced. This helps in controlling
the cost as well.
Purchase Report
The purchase report is another form of report that is produced by Oshodi Plc so that they can
keep a track of their purchases. This helps in reducing purchase of extra products, which
decreases the wastage of the fruits and other products that are used in preparing the juices.
Budget Report
This is another vital report produced by Oshodi Plc that ensures them to prepare their budgets
that will ensure them the quantity of products needed to sell the desired quantity (Bufoni et al.,
2018). This is done to know the amount of sales required to get the profit that is desired.
Performance appraisal Reports
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This report allows Oshodi Plc to keep a track of the performance of the workforce working under
them. This ensures the management to check their performance and take the important steps to
protect their business from all types of problems that will ensure them to accomplish sustainable
achievement.
Techniques of Management Accounting
The management accounting techniques that are performed by Oshodi Plc will be elucidated
below:
Break-even Analysis
This very important computation is necessary for Oshodi Plc to calculate the point at which they
will get no profit and no loss (Jamil et al., 2015). This will ensure that these cover all the
expenses that are booked by them in completing the whole process.
Budgetary Control
This technique helps Oshodi Plc to control their performance by preparing budgets and
implementing them in their business (Otley, 2016). Budgetary control can be performed by
preparing different budgets that suit their business. This will be discussed in the later part of the
report.
Cash Budget
This technique helps Oshodi Plc to perform their activities according to their cash that is present
in the business so that they do not over-spend and increase the wastage (Armitage et al., 2016).
Benefits of management accounting systems and their application
The benefits of the systems of management accounting will be presented below:
Planning
Oshodi Plc needs to have good planning according to their budgets as to how they can implement
them in their business to get proper results from their performance. This step needs to be taken in
a proper way to get desired results.
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Controlling
Management accounting allows Oshodi Plc to control all the expenses according to the budgets
so that this allows them to increase their profits. This has resulted in having good profits for
them.
Organising
Systems of management accounting allow Oshodi Plc to organise their operations according to
their budgets that are prepared so that the work gets easier for the workforce. This helps them to
enjoy the work that they perform.
Decision Making
System of management accounting allows Oshodi Plc to make important decisions within their
business that ensures them to have good results in their daily work that improves the business
performance as well.
Management accounting systems when applied to Oshodi Plc has allowed them to record all
types of transactions in the business that helps in proper utilisation of resources and checking
presentation of workforce. This includes proper communication within the internal stakeholders
so that there is no confusion and the process is completed without any kind of issues.
Critical evaluation of management accounting systems and reporting
As opined by Kaplan and Atkinson (2015), systems of management accounting allow the
administrations to have proper communication within the internal stakeholders of Oshodi Plc.
This helps them to get the work done in proper manner so that there are no issues in the
operations of the trade. On the contrary, Thomas (2016) stated that using these systems of
management accounting incurs lot of time and money, which gets affected in the profits of the
trade.
According to Maas et al. (2016), the reporting of management is essential for the entities like
Oshodi Plc to enter all the items in the books properly so that there are proper records kept
within the business. This gives good view of the reports to the management so that they can
understand every aspect properly. On the contrary, Boiral (2016) stated that the workforce and
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the board that will result in improper outcomes could manipulate reporting of management if not
recorded properly and protected.
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LO 2
Calculation of Cost
For November
Table 1: Tabular representation of data for November
(Source: Created by the Learner)
For December
Table 2: Tabular Representation of data of December
(Source: Created by the Learner)
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Preparation of income statement
For November
Table 3: Tabular representation of Absorption costing for November
(Source: Created by the Learner)
Table 4: Tabular Representation of Marginal costing for November
(Source: Created by the Learner)
For December
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Table 5: Tabular Representation of Absorption costing for December
(Source: Created by the Learner)
Table 6: Tabular Representation of Marginal Costing for December
(Source: Created by the Learner)
The calculations depict the results of the two different costing methods that are widely followed
by the companies in their trade. It has been analysed that Oshodi Plc is applying costing methods
in their business so they need to check which method suits them the most. In order to check the
costing, they have performed the marginal and absorption costing for two consecutive months to
check the results. It is viewed that using absorption costing is helping Oshodi Plc to get most of
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the profits by producing and selling JOJO Fruit Juice. This ensures that they get proper results as
per the absorption costing. The profits booked by Oshodi Plc in November are £ 176,000 in
absorption costing and £ 86,000 in marginal costing. The profits booked by them in December
are £ 249,000 in absorption costing and £ 236,000 in marginal costing. These differences are
seen due to the ways through which the calculations are performed. Marginal costing takes only
the variable cost for their computation and absorption costing takes all types of costs in their
computation.
Produce Financial Reports
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