Management Accounting Systems and Techniques: Oshodi Plc Case Study

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Management of Accounting Systems &
Techniques
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Table of Contents
LIST OF FIGURES.......................................................................................................................3
INTRODUCTION........................................................................................................................4
SCENARIO 1.............................................................................................................................. 5
ESSENTIAL REQUIREMENTS AND TYPES OF DIFFERENT MANAGEMENT ACCOUNTING
SYSTEMS...............................................................................................................................5
BENEFITS OF MANAGEMENT ACCOUNTING SYSTEMS AND APPLICATION...........................7
DIFFERENT METHODS FOR MANAGEMENT ACCOUNTING REPORTING...............................8
ADVANTAGES AND DISADVANTAGES OF DIFFERENT PLANNING TOOLS..............................9
APPLICATION OF PLANNING TOOLS FOR PREPARING AND FORECASTING BUDGETS.........11
SCENARIO 2............................................................................................................................ 15
INCOME STATEMENT THROUGH DIFFERENT TECHNIQUES OF COST ANALYSIS.................15
MANAGEMENT ACCOUNTING SYSTEMS RESPOND TO FINANCIAL PROBLEMS..................18
MANAGEMENT ACCOUNTING CAN LEAD TO SUSTAINABLE SUCCESS................................20
CONCLUSION.......................................................................................................................... 21
REFERENCES........................................................................................................................... 22
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LIST OF FIGURES
Figure 1: PESTLE ANALYSIS.....................................................................................................13
Figure 2: PORTER'S FIVE FORCES MODEL...............................................................................13
Figure 3: VRIO ANALYSIS........................................................................................................ 14
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INTRODUCTION
Management accounting is considered to be involving the internal systems which help an
organisation in measuring and evaluating its processes for the effective management of the
organisation and business operations (Kaplan and Atkinson, 2015). This report will
emphasize addressing the needs of the manufacturing company Oshodi Plc which is
specialised in producing JOJO fruit juice for all age groups. In the report the management
accounting systems will be discussed involving their requirements and the different
methods of the management accounting reporting will also be analysed which helps in
effective decision making through integration.
In the second part of the report, some of the pros and cons of the different planning tools
will be explained together with their use and application in a business context. Further, this
report aims to apply the management accounting techniques to interpret data and report
financially a range of business activities and apply the management counting systems to
effectively solve the financial problems encountered by the organisations.
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SCENARIO 1
As a Trainee Management Accountant at Oshodi Plc, the understanding on the management
accounting function and the systems will be analysed and an understanding of the different
planning tools will be devised that guides effective resolving of the financial problems.
MANAGEMENT ACCOUNTING
According to Surum (2018), Management accounting is a branch of accounting which is
focussed on developing a report for the internal use of the managers by utilising the
financial information of the company. This report fosters the effective decision making and
helps the companies and organisation in successfully running of the business (Kaplan and
Atkinson, 2015).
BENEFITS OF MANAGEMENT ACCOUNTING
One amongst the benefits of the management accounting is that it has an extraordinary
capacity to present the financial picture of the company to its stakeholders and the
potential investors which account to a brighter side for every organisation's growth
(Chenhall and Moers, 2015). The management accounting also is important as it helps to
render better insights about the business operations and help to make informed business
decisions. Thus it accounts to another benefit of providing with the current and relevant
facts and figures of the business operations and depict how profitable is the business and
also unfolds the business and financial performance of the organisation over time (Kaplan
and Atkinson, 2015).
ESSENTIAL REQUIREMENTS AND TYPES OF DIFFERENT MANAGEMENT
ACCOUNTING SYSTEMS
MANAGEMENT ACCOUNTING SYSTEMS AND ITS TYPES
Management accounting systems help to render insights to the organisations with the help
of different methods that help in tracking the costs and produce the goods at the lowest
possible cost (Woodruff, 2018). There are different methods for the same which helps in
ensuring easy traceability of the costs and information ensuring profitability (Kaplan and
Atkinson, 2015).
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Some of the types of management accounting systems are as under:
Job costing systems
This is an accounting system which helps the manufacturers such as Oshodi Plc in effectively
assigning the costs incurred to a specific job of its business it is involved in. This system of
management accounting is widely used by Oshodi Plc which allocates the costs to an
individual's job while producing the fruit juices (Chenhall and Moers, 2015).
Inventory management systems
The inventory management system is another type of management accounting system that
aims to specify the shape and the placement of the stocked goods by Oshodi Plc. This
system is highly used at different locations within the supply networks and helps to proceed
with the stock of materials as planned (Feiner, 2019).
Price optimisation
This is another vital management accounting system that aims to maximise the price against
the willingness of the customers to pay a specific amount for the goods or services (Ferreira
et al., 2015). Similarly, this system is used by Oshodi Plc to ensure the price optimisation and
sell quickly its fruit juices at the right time and the right price by making a decent profit.
Cost accounting system
The cost accounting system is the one that is used by Oshodi Plc to make a record of the
production activities with the help of a perpetual inventory system. This is the system which
is solely designed for the manufacturers that helps in effective tracking of the flow of
inventory at different stages of production (Ferreira et al., 2015).
ESSENTIAL REQUIREMENTS FOR MANAGEMENT ACCOUNTING SYSTEMS
For the management accounting system, few essential requirements need to be ensured
while adopting the system at Oshodi Plc. Some of the essential requirements involve the
management styles which help in extracting the useful information and guide effective
decision making (Henderson, 2018). Another requirement is to render technological aid to
the organisation so that the management accounting system s can be effectively
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implemented and installed in the organisation which helps in making informed decisions
making (Henderson, 2018).
BENEFITS OF MANAGEMENT ACCOUNTING SYSTEMS AND APPLICATION
Benefits of management accounting systems
The above-discussed management accounting system at Oshodi Plc also involves few
benefits attached to them which help in effective forecasting and controlling the financial
performance of the business. Some of the benefits are analysed as under:
Job costing systems
The job costing system has certain advantages which involve the scope of control for the
costs which will help in earning the profits to Oshodi Plc. The job costing system also helps
in the effective estimation of the costs of jobs and maximise each job costs. The job costing
system also helps in the implementation of the budgetary control system and helps in cost-
plus contracts maintenance (Gartenstein, 2019).
Inventory management systems
Some of the top benefits of the inventory management system for the aspects of the Oshodi
Plc involve increased sales as a result of effective management of inventory. The inventory
management system also helps in bolstering the transparency of the information which also
helps in estimating the overstocked and understocked (Feiner, 2019).
Price optimisation
Price optimisation is the system which gas certain benefits associated with it in terms of
determining the prices of the company and maximising the operating profits. It helps in
effective estimating the customer’s responses in different segments of the business by
identifying the pricing problems (Ferreira et al., 2015).
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Cost accounting system
The cost accounting system has the benefits of high adaptability in the changing business
context as well (Collis and Hussey, 2017). This system is easy to monitor and control the
labour costs involves in the business and thus ensures productivity and efficiency. One more
benefit associated with the cost accounting system is that it can view the data and
information in three-dimensional puzzle sort that involves viewing from the different angles
of accounts, reports and calculations (Ferreira et al., 2015).
DIFFERENT METHODS FOR MANAGEMENT ACCOUNTING REPORTING
MANAGEMENT ACCOUNTING REPORTING AND ITS IMPORTANCE
Management accounting reports are usually used by the managers of Oshodi Plc in
monitoring the performance of the company and preparing accordingly for the accounting
period (Miller, 2018). The management accounting reporting is thus important as it helps to
render important strategic insights related to the performance by providing comprehensive
accounting reports.
DIFFERENT METHODS OF REPORTING
Budget reports
Budget reports are one of the methods of reporting that helps in the analysis of the
performance of the company and control the costs accordingly. The budget report helps the
owners and managers of Oshodi Plc to render incentives to employees and produce the
juices according to the estimated costs and funds allocated for meeting the financial goals
(Miller, 2018).
Job costing reports
This is another method of reporting wherein the expenses for a specific product is sown and
are matched effectively with the estimated revenues of Oshodi Plc. This thus helps in
matching and evaluating the job’s profitability and helps to identify the high earning areas of
the business. This also helps in saving sufficient time and money and boosts the profit
margins (Gartenstein, 2019).
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Accounts receivable aging report
The accounts receivable aging reports are the one which acts as a critical tool and helps in
effective reporting by managing the cash flows of the companies. This method of reporting
also helps to extend the credit to their customers by breaking down the customer balances
based on the time frame it has been owned. This is significant for managers of Oshodi Plc as
it helps in controlling the credit policies as well (Wang, 2018).
Inventory and manufacturing reports
This is also a management reporting tool which helps in ensuring the efficiency of the
manufacturing processes (Woodruff, 2018). The reports of manufacturing and inventory
usually involve the inventory waste, overhead cost reports and so on. These reports help in
offering bonuses to the performing departments and help to improvise the assembly lines
(Gartenstein, 2019).
ADVANTAGES AND DISADVANTAGES OF DIFFERENT PLANNING TOOLS
PLANNING AND BUDGETARY CONTROL
The process of developing a budget and then using it for controlling the business operations
is known as budgetary planning. The main motive of budgetary planning is to alleviate the
risks of the organization’s financial outcome would be inferior to expected (Otley, 2016).
The budgetary control helps in providing a specific direction for developing a budget.
There are various tools of planning that is adopted by Oshodi PLC which may differ based on
a fixed budget, cash budget, cost-plus pricing budget, etc. The organizations use these tools
for managing the expenses and making sure that the pricing set should help in gaining
competitive advantage along with help in increasing the profit levels (Berry et al., 2019).
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ADVANTAGES AND DISADVANTAGES OF VARIOUS TOOLS
COST-PLUS PRICING
For Oshodi PLC, the biggest advantage of cost-plus pricing is that it makes it know the exact
amount of expense that is put in in the manufacturing of a product and thus the profit
margin is added in accordance with desired revenue for the company (Lambovska et al.,
2019). This is the easiest technique to develop the price of a product along with deciding the
desired profit margin from the product.
The disadvantages of this method are that it does not asses the future demand along with
the actions of the competitors while determining the price of the product which results in
product failure. Also, the company might overestimate the product’s price.
MARKET-LED PRICING
For Oshodi PLC this pricing helps it in the growth of the sales and income leading to
enhanced satisfaction of the customer (Thibierge and Beresford, 2015). This results in
attaining customer loyalty and appreciating the worth of the business by offering products
of high-quality and appealing prices.
This has disadvantages as here the business needs to be changed very quickly to meet the
frequently changing needs of the customers. Also, various planning challenges occur that
may result in diverting the demands of the customer (Nagle and Müller, 2017).
CASH BUDGET
Cash budget helps Oshodi PLC to circumvent the debts that have but lets the company set
the cash aside for urgent situations (Otley, 2016). This helps in finding out the best
resources from the business effectively along with obscuring the waste of the budget.
This has disadvantages which turn out to less flexible for Oshodi PLC as the decision that is
taken here is carried out on the basis of financial needs and uses approximation the results
in the less effective budget.
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FLEXIBLE BUDGET
This budget helps Oshodi PLC in be used as an adjusting feature in the large purchases
without adjusting the amount spent in the future months (Cassidy, 2016). Here, the
expenses can be carried out when needed and these are not repeated throughout the
following year.
This has disadvantages as for developing flexible budget extra time is required and it does
focus on measuring the actual revenue with the desired revenue instead it focuses upon
comparing the actual and expected expense.
FIXED BUDGET
A fixed budget can also be referred to as “Static Budget” that helps Oshodi PLC in planning
for the future in accordance with the objectives it wants to achieve (Lambovska et al., 2019).
It also helps in keeping a track of the budget as this does not differ and is fixed therefore,
the amount spent above that can be calculated easily. It also helps prioritizing by providing a
specific difference among things required and want.
It has disadvantages like inflexibility as it does not takes into consideration the uncertainties
that might occur like an increase in the variable expenses which might hinder the budget.
APPLICATION OF PLANNING TOOLS FOR PREPARING AND FORECASTING
BUDGETS
FORECASTING AND BUDGETING
The process of estimating the latest trends that the businesses adopt based on the historical
data is known as forecasting along with the process of budgeting of the financial
performance of the business plan (Otley, 2016). Forecasting allows a business to project the
events that might occur in the business based on the market conditions.
UTILIZATION OF PLANNING TOOLS FOR PREPARING AND FORECASTING BUDGET
The various planning tools that have been discussed above like the cost plus-pricing, fixed
budget, market-led pricing, etc. have certain pros and cons related to it, which is considered
to be a vital aspect for Oshodi PLC in context with the decisions it takes.
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These planning tools have great importance in the preparation of the budget along with
forecasting and finally act guidance in the decision-making (Piercy, 2016).To meet the
demands that are being forecasted Oshodi PLC uses these planning tools which results to
present adequate solutions for the issues in the future. With the help of planning tools, the
problem related to finances that surround the business can be overcome by the preparation
of effective budgets well in advance to deal with future occurrences. Planning tools also
make sure that the business is successful in the long run by building integration among
different departments while deciding upon the prices for the products in a way that the
efficiency is assured (Thibierge and Beresford, 2015).
STRATEGIC PLANNING
Oshodi PLC has taken strategic planning into consideration for effective preparation of the
budgets which can be carried out with an effective forecast of the business plan to
experience a successful future ahead (Burns and Dewhurst, 2016). Oshodi PLC has adopted
various strategic planning tools that assist it in effectively preparing the budget for the
business:
PESTLE ANALYSIS
PESTLE analysis a strategic planning tool that helps in inspecting the external factors of the
environment that have an implication on the business. With the help of the key components
of this analysis Oshodi PLC, the potential opportunities and threats for the business can be
easily identified that assists in preparing the budgets effectively along with remembering
the factors that have an implication on the business (Perera, 2017). Therefore, this tool is
considered an effective tool for Oshodi PLC for the forecast and preparation of the budget
efficiently.
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