Analysis of Management Accounting Systems in Oshodi Plc

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MANAGEMENT ACCOUNTING
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LIST OF FIGURES
Figure 1: Different types of management accounting systems................................................6
Figure 2: VRIO analysis........................................................................................................... 15
Figure 3: SWOT analysis......................................................................................................... 16
Figure 4: Porter Five Forces....................................................................................................17
Figure 5: Balanced Scorecard.................................................................................................17
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INTRODUCTION
In this report, the fundamentals of the management accounting will be applied to guide
effective decisions making at Oshodi Plc. This will aim to track the performance information
at Oshodi by utilising the financial information through different management accounting
systems. This report also aims to apply the management accounting techniques and
emphasises on the usage of the different planning tools which can be used in management
accounting. At last different tools and systems will be compared that is used by Oshodi Plc
to respond effectively to the financial problems.
Oshodi Plc is a manufacturing company that is aligned towards the production of the JOJO
fruit juice and aims to serve the customers of all age brackets. As a Trainee Management
Accountant of Oshodi PlC, this report will be conducted this will help to bolster the
indulgent of the management accounting systems and its applications for better profitability
and performance.
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LO1
P1 MANAGEMENT ACCOUNTING AND THE ESSENTIAL REQUIREMENTS OF
DIFFERENT MANAGEMENT ACCOUNTING SYSTEMS
MANAGEMENT ACCOUNTING
Management accounting is considered to be the reports that direct the managers of the
business to collects, analyzes and reports the business information related to the finances
and operations. The importance of management accounting is in terms of conducting the
relevant cost analysis which helps in seeking the suggestions for future activities of business
and foster evidence-based decision making (Weygandt et al., 2018).
MANAGEMENT ACCOUNTING SYSTEM
Management accounting systems are the systems that render the managers of the
organisations with the useful information related to the business to reach the desired goals
(Kaplan and Atkinson, 2015).
IMPORTANCE OF INTEGRATING THE MANAGEMENT ACCOUNTING SYSTEMS
On integrating the management accounting systems an effective reach can be attained
across all the business departments and functions such as sales, IT, marketing, finance,
operations and human resource management. This will also help in better estimating and
analysis of the non-financial as well as financial data and information for rational decision
making. Through effective management accounting system integration effective trend
analysis and forecasting is also possible together with effective cost analysis (Woodruff,
2018).
DIFFERENT TYPES OF MANAGEMENT ACCOUNTING SYSTEMS
COST ACCOUNTING SYSTEMS
To ensure the cost control and profitability analysis of the business the cost accounting
system is adopted. Under the cost accounting system, there are mainly two types involves
namely job order system and process costing system. This system is majorly designed and
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used by the manufacturers such as Oshodi Plc to keep a track of the inventory flow at
different stages of production (Kaplan and Atkinson, 2015).
INVENTORY MANAGEMENT SYSTEMS
It is another management accounting system which helps in monitoring and maintenance of
the stocks which may be in the form of assets, supplies, materials or finished products. This
management style is utilised by Oshodi Plc to keep a record of the stocked products and
maintain effective stock level (Cho, 2018).
JOB-COSTING SYSTEMS
A job costing system is a systematic process which accumulates the information about the
costs and enables effective tracking of the costs of materials which can be utilised during the
job course (Kaplan and Atkinson, 2015). This system also involves an effective accumulation
of different costs involves in unique jobs of Oshodi Plc.
PRICE-OPTIMISATION SYSTEMS
It is another management accounting system which mathematically analyses the responses
of the customers to different process charged for the products and services via different
channels. This system, therefore, helps Oshodi Plc in determining the prices that will help in
attaining its objectives by maximising the profitability (Cho, 2018).
Figure 1: Different types of management accounting systems
(Source: Author’s Work, 2019)
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Cost accounting system
Job costing system
Price optimisation system
Inventory management system

P2 DIFFERENT METHODS IN MANAGEMENT ACCOUNTING REPORTING
MANAGEMENT ACCOUNTING REPORTING
Management accounting reporting forms a crucial aspect of the business which helps in
rendering a complete picture of the business performance. There are different kinds of
management accounting reports that aid in valuing the business and helps in analysing the
performance effectively (Crowther, 2018).
DIFFERENT TYPES OF MANAGERIAL ACCOUNTING REPORTS
Some of the managerial accounting reports that can be used and developed by Oshodi Plc
regularly to ensure proper monitoring of the performance involves the budget reports, job
costing reports, inventory reports and accounts receivable aging reports (Hood, 2018).
Accounts receivable aging reports
This is a type of the managerial accounting report which aims to offer credit to the
consumers based on the age and the categories of items which are 30,60 and 90 days late.
This report is used in adjusting the credit policies of the business and aligns with the
repayment capabilities of the consumers (Crowther, 2018).
Budget reports
This reporting type is the one which perhaps analysis the cost controlling across enterprises
and also help the managers of Oshodi Plc in estimating the budgets for the period which is
based on the actual expenses (Kaplan and Atkinson, 2015).
Job cost reports
The job cost reports are the ones which help in depicting the expenses of the specific
project which are usually financed by the small businesses (Crowther, 2018). Job cost
reports also allow Oshodi Plc in the documentation of the higher-earning areas of the
business and save time as well as money on jobs that are usually low-profit margins
(Gartenstein, 2018).
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M1 BENEFITS OF MANAGEMENT ACCOUNTING SYSTEMS AND APPLICATION
BENEFITS AND APPLICATIONS OF DIFFERENT TYPES OF MANAGEMENT ACCOUNTING
SYSTEMS
COST ACCOUNTING SYSTEMS
Some of the benefits attached to the cost accounting system involve the trend analysis
which allows easy tracking of the expenses surges which may lead to the identification of
the long term trends (Hood, 2018). The cost accounting system also allows Oshodi Plc in
modelling at different activity levels which will help in deriving the additional costs. Through
this system, Oshodi can also comply effectively with the budgeted standard costs and can
check if the business is not spending more than what is expected (Crowther, 2018).
INVENTORY MANAGEMENT SYSTEM
The inventory management systems have certain benefits which include attaining the
productivity in operations and attaining efficiency. This also helps Oshodi Plc in managing its
stock level and ensures positive cash flows (Cho, 2018). The inventory management system
also leads to maximising the sales and attaining profits by mitigating the waste and
minimising the cost of inventory management (Kaplan and Atkinson, 2015).
JOB-COSTING SYSTEMS
The major benefit of job costing system is that it allows the managers of Oshodi Plc in
calculating the profits which are earned by the individual’s jobs and also aid in ascertaining
the desirability of the specific jobs in terms of future (Sullivan, 2019). It also helps in keeping
a track of the team’s performance and individuals’ performance which allows monitoring
the efficiency, productivity and cost control (Ingram, 2019).
PRICE-OPTIMISATION SYSTEMS
Due to the price optimisation system adopted by Oshodi Plc, it can attain opportunities in
terms of the variety of goals which includes the margin of sales. This also helps in attaining
the financial benefits for its business which can add to its expansion and growth aspects.
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This system also helps in predicting more accurately and will save from negative impacts
(Hood, 2018).
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LO2
P3 & M2 MANAGEMENT ACCOUNTING TECHNIQUES TO PRODUCE
APPROPRIATE FINANCIAL REPORTING DOCUMENTS
COST
In terms of the accounting, the cost is termed as the cash amount which is usually given up
for the assets and involves all those costs that are necessary to attain that particular product
or service in place for use (Kenton, 2019).
DIFFERENT COSTS AND COST ANALYSIS
Some of the different types of the costs involved at Oshodi Plc include the direct costs,
indirect costs, operating costs, fixed costs, variable costs and opportunity costs and so on
(Woodruff, 2018).
Direct costs
The direct costs are those which involve the labour, expenses, material and other costs that
are related to the production of the product (Murphy, 2019).
Indirect costs
Indirect costs are those which are expenses and are unrelated to the product production. It
is not easily traceable to the product or activity and therefore is charged to all products
(Kenton, 2019).
Fixed costs
The fixed costs are those costs which are unchanged over some time and are incurred
irrespective of the production units (Bragg, 2018).
Variable costs
The variable costs are those which usually fluctuate as the level of production and output
changes. It is opposite of fixed costs and it keeps on changing (Murphy, 2019).
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APPLYING ABSORPTION AND MARGINAL COSTING
Absorption and marginal costing
Marginal costing is termed as the cost which is incurred for one additional unit of output
and is usually used to determine the optimum production quantity of the business. It is a
costing technique which is used in preparation or income statement wherein the variable
cost is charged to units of cost. In this technique, the fixed costs are written off completely
against the contribution (Bragg, 2018).
Absorption costing is another technique wherein the fixed overhead costs are allocated
across all the units and the variable costing usually yield one lump-sum expense against the
fixed overhead costs (Kenton, 2019).
INCOME STATEMENT USING ABSORPTION COSTING METHOD
Nov Dec
Particulars Amount (£) Amount (£)
Sales revenue 500000 600000
The marginal cost of sales
Material cost 216000 180000
Labour cost 48000 40000
Administration cost 26,000 26,000
Selling and distribution costs 14,000 304000 14,000 260000
Gross Profit 196000 340000
Variable production overhead 36000 30000
Variable selling overhead (working note 1) 50000 86000 60000 90000
Net Profit 110000 250000
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