Detailed Management Accounting Report: Oshodi Plc, Unit 5 Analysis

This report provides a comprehensive analysis of management accounting principles and their application within Oshodi Plc, a manufacturing company specializing in JOJO fruit juice. The report covers key aspects of management accounting, including the essential requirements of various accounting systems such as cost accounting, inventory management, price optimization, and job costing. It delves into the benefits of these systems, emphasizing their role in decision-making, cost reduction, and profit maximization. Furthermore, the report explores different management accounting reports, such as inventory management and accounts receivable reports, highlighting their significance in organizational processes. The report also examines cost analysis techniques using marginal and absorption costing, budgetary control planning tools, and the adaptation of management accounting systems to address financial challenges. The analysis includes the integration of reports within organizational processes and the contribution of management accounting to the sustainable success of Oshodi Plc, providing valuable insights for internal stakeholders and aiding in effective business management and decision-making.

Unit 5. Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of management accounting systems...1
M1 benefits of management Accounting systems......................................................................3
D1 Integration of management accounting system and report within organisational process....4
P2 Different methods of management accounting reports .........................................................4
TASK 2............................................................................................................................................6
P3 Usage of the techniques of cost analysis to prepare income statement by using marginal
and absorption costing.................................................................................................................6
M2 Applying range of management accounting techniques.......................................................8
D2 Interpretation of above data...................................................................................................8
TASK 3............................................................................................................................................9
P4 Advantages of different planning tools used for budgetary control......................................9
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets ..................................................................................................................10
TASK 4..........................................................................................................................................10
P5 Adoption of management accounting systems to respond financial problems ...................10
M4 Contribution of management accounting in sustainable success of the organisation while
responding financial problems..................................................................................................12
D3 Application of planning tools to respond financial issue along with attainment of
sustainable success ...................................................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is the concept which includes analysis of business activities of
the internal management that facilitate in better decision making. This will includes the usage of
provisions of accounting to ascertain the financial and statistical information which further aid
effective controlling of business functions which results in accomplishment of organisational
objectives within stipulated period of time (Seal and Mattimoe, 2014). These will also know as
cost accounting which aid to analyse business costs that further aid in preparation of financial
reports that depicts the functioning of internal departments of the organisations. This will allows
the internal stakeholders of the organisations to perfectly align their interests with the procedures
of the organisation to bring efficiency in their own working. Oshodi Plc is a manufacturing
company which have specialisation in production of JOJO fruit juice across all age brackets. The
main objective behind the preparation of this report is to provide information to the internal
stakeholders of the organisation about the relation and functioning of the internal departments for
better decision making.
This report covers the concept of management accounting and the essential requirement
of different management accounting systems, different methods of management accounting
reports and usage of the appropriate techniques of cost analysis in preparation of income
statement using marginal and absorption costing. Also, analyse the advantages and disadvantages
of planning tools for budgetary control and adaptation of the management accounting systems to
respond financial problems is covered in the report.
TASK 1
P1 Management accounting and essential requirements of management accounting systems
Introduction: Management accounting system includes the preparation of different kind
of accounts which help to ascertain the information about the performance of internal
departments. The different systems which are prepared named as Cost accounting, job costing
etc. Oshodi is manufacturing organisation and operate their operations in respect of the
preparation of JOJO fruit juice. Through effective adoption of the management accounting and
its systems, organisation wants to improve their decision-making to get predetermined results.
This part covers concept of management accounting and requirement of different type of systems
(Al-Mawali, Zainuddin and Nasir Kader Ali, 2012).
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Management Accounting: This is the process of formulating accounts that provide
accurate statistical and financial information which is required by the mangers of the
organisation to made day to decisions (Management Accounting, 2018).
It is totally different from financial accounting where annual reports are prepared for the
use of external stakeholders. This will only include about the preparation of monthly and weekly
accounts for internal stakeholders of the organisation. The different kind of systems provides the
information in respect of the various terms like sales revenue generated, cash, B/R, B/P etc.
Management accounting systems: These are the systems which are prepared by the
management accountant to grab the information about the actual working ability of the different
departments of the organisations. The different type of systems which are generally formulated
by the accountant of the organisation includes cost accounting, job costing, price optimisation,
inventory management systems etc. The basic function which is further performing by the
management of the organisation through analysis of the information gathered from the different
accounts includes planning, organising, controlling and decision-making. All these accounts
have their own different aspect and advantage towards the organisation. The different kind of
benefits which are gathered by the management of Oshodi from consideration of these systems is
about effective decision-making, cost cutting, building higher profit margin etc. The essential
requirement of the different management accounting systems to Oshodi is understood from the
below description:-
Cost accounting system: It is an accounting method which is used by Oshodi to
ascertain the amount of total cost of production with the help of the analysis of input costs of
each step which indulge in production process. The same is used by Oshodi to analyse the cost
behind the preparation of JOJO fruit juice. In this regard, accountant first analyses and record
these costs individually and then after compare the input results with actual to ascertain the
financial performance (Chiu, Teoh and Tian, 2012). This will help an organisation get the
information about the contribution of the fruit juice in profit generation of company.
Inventory management system: This is the important account which is used by the
Oshodi to analyse and track the level of inventory, orders, sales and deliveries. The information
gathered from the usage of this accounting system is further used by the organisation in
formulation of work order, bill of materials and other production documents which indulge in the
process of the preparation of JOJO fruit juice. This is used by the management of Oshodi is
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about tracking of the entire supply chain that covers everything from production to retail. This
will further aid in better decision making about the availability of the raw material and
continuous production of JOJO fruit juice. The different kind of methods which can be used in
the process of effective inventory calculation is about LIFO, FIFO and AVCO. At present, EOQ
is used by the organisation to analyse the time period about when they have to make re-order of
the raw material to continue their production activities without any infringements (DRURY,
2013).
Price optimisation system: This system is used by the accountant of the Oshodi to
analyse the behaviour of consumers to different price of their offerings. At present, this system is
used to ascertain the impact over the sales of JOJO fruit juice when management increase or
decrease the price of the same. This will help the management of the organisation to determine
the proper retail value of their fruit juice which they have to ask from their consumers in market
which results in ascertainment of maximum output in terms of sales revenue.
Job costing system: This system is used by the manufacturing organisation which has
different production activities and jobs. This will used normally use by the accountants to
analyse and track the cost and revenue generated by particular job. This will further aid in
ascertainment of the amount of profit that can be gathered from the effective performance of the
job. The same is used by the Oshodi in case of their JOJO fruit juice to ascertain the cost and
revenue from its production. Here, different job numbers are assigned to individual items of
expenses and revenues. This will provides an opportunity to the management to keep track over
the expenses and take necessary steps to improve their profit margin through reduction in cost.
Summary: It is concluded from this part that management accounting is important
concept which help in building effective relation in between the different departments of the
organisation. Also, different accounting systems provides the information about the different
aspects like expenses, sales and revenue which further improves the decision-making of the
management to improve profitability (Eierle and Schultze, 2013).
M1 benefits of management Accounting systems
Type of management accounting system Benefits
Cost accounting system It is linked with the controlling cost under
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standards. This system helps Oshodi to
measure the efficiency of different processes as
well as assist to bring further improvements.
Inventory management system This system is associated with tracking the
record of availability of materials in
warehouses. In above Oshodi company, it is
helping in improving accuracy of its inventory
order. As well as it is beneficial in effective
production of JOJO fruit juice
Price optimisation system It is related with the setting prices on an
effective level so that customers can afford. In
the above company, it is helping to ascertain
the behaviour of consumers based on different
prices of JOJO fruit juice. Along with, it is
helping to Oshodi to maximise its operating
profit with adoption of best prices
Job costing system
This is related to assigning cost to each job
separately. In the Oshodi company, it is
helping in estimation of all type of costs in
process of preparation of JOJO fruit juice. As
well as it is also helping in reduction of
duplication of efforts in Oshodi (Granlund and
Lukka, 2017).
D1 Integration of management accounting system and report within organisational process
Type of reporting & Systems Integration with organisational process
Inventory management report: This report
is prepared on the basis of the integration of
the information gathered from system.
Integration of report in organisational process is
understood from the point that it help Oshodi to
manage raw materials of JOJO fruit juice and
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estimation of required level of purchase orders
Performance report: This report is
prepared on the basis of the information
ascertained from contribution of different
systems. This will includes about the actual
performance of different departments of
Oshodi
The integration of this report in process is
ascertain from the fact that this will help in
getting specialisation in production of JOJO fruit
juice as all the deviations and misalliances are
removed with the contribution of this report.
P2 Different methods of management accounting reports
Introduction: Management accounting report is a document which includes the
information about departmental functioning analysed from systems. This part covers about
different of accounting reports and their importance to an organisation.
Management Accounting Report: Accounting reports are important in nature and
provide clear insight that how business is performing (Ittner, 2014.Lääts and Haldma, 2012). In
the present report, different reports are formulated by the management of the Oshodi to bring
interrelation in between functioning of the departments of the organisation to grab desired
results. These reports are prepared every quarter which provide holistic view of business
finances. The different kind of reports which are prepared includes Inventory management
report, Accounts receivable report etc. All these reports have their own different importance
towards an organisation. The basic kind of benefits that can be seen over Oshodi is about high
amount of productivity, profitability etc.
Inventory management report: This is the report which includes the information about
inventories. The main objective of this report is about bringing balance between inventory
investment and customer service. This report provides the information to Oshodi is about the
level of raw materials they have in proper preparation of JOJO fruit juice. The main benefit of
this report to the organisation is about the maintaining the level of stock and raw material and
have control over the unnecessary costs and expenses which ultimate results in improvement of
profit margin (Morden, 2016).
Accounts receivable report: It is the report which provides the information about unpaid
customer services invoices and unused credit memos by date range. This report is used by the
Oshodi to analyse the overdue payment of their different consumers or debtors. Further, this
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report also help to look the credit period given to them and compare how much time is passed
from which the payment is due from such consumers or debtors. The importance of this report is
ascertained from the fact that this will help to tighten the credit policies and recover their due
amount within the time period which results to make the organisation financially sound.
Performance report: This report includes the information in respect of the performance
of something. This report is used by the management of Oshodi to analyse the performance of
their employees and working of the different departments that from their current performance
organisation is able to accomplish their desired targets or not. The main benefit which is
associated with this report is about ascertainment of the deviation in the performance in
comparison to the standards and takes appropriate corrective action. Such action allows
improving the performance and attainment of objective (Mussnig, 2013).
Conclusion: It has been concluded from the above part that reports have their own
contribution in success of the organisation as these will allows getting the information and taking
appropriate corrective action.
TASK 2
P3 Usage of the techniques of cost analysis to prepare income statement by using marginal and
absorption costing
Introduction: Cost accounting techniques are the tools which helps an organisation like
Oshodi Plc. To ascertain the costs which are incurred by them and calculate their profitability. In
these tasks, profits of the selected organisation are calculated for two moths using marginal and
absorption costing along with their interpretation.
Marginal Costing: This costing system is a tool which charges only variable costs against
the sales revenue while fixed costs is charged and written off completely against contribution but
only for that particular period (Myers, 2013).
Calculation of marginal costs and profitability of Oshodi Plc. is depicted below:
Marginal cost
Direct material cost 18
Direct Wages 4
Variable production overhead 3
Total variable production cost 25
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Income statement using Marginal costing
November December
Units Amount Amount Units Amount Amount
Sales @ 50 10000 500000 12000 600000
Less: Cost of sales
Opening stock @ 25 2000 50000
Variable cost of production @ 25 12000 300000 10000 250000
Less: Closing stock @ 25 2000 50000
250000 300000
Variable selling overhead 50000 60000
Total variable cost of sales 300000 360000
Contribution 200000 240000
Fixed overheads:
Production 99000 99000
Selling 14000 14000
Administration 26000 139000 26000 139000
Net profit 61000 101000
Absorption Costing: This is a costing method which considers all the expenses whether
variable or fixed and charges against sales revenue. In this all the direct charges of production
and charged from sales and all the indirect expenses which are selling and distribution charges
are charged against gross profit in order to ascertain net profitability (Namakonzi and Inanga,
2014).
Calculation of net profit using absorption costing along with ascertainment of over
(under) absorption cost:
Income statement using Absorption costing
November December
Units Amount Amount Units Amount
Amou
nt
Sales @ 50 10000 500000 12000
60000
0
Less: Cost of sales
Opening stock @ 34 2000 68000
Variable cost of production @ 34 12000 408000 10000 340000
Less: Closing stock @ 34 2000 68000
340000
40800
0
Gross profit 160000
19200
0
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Adjustment for over / under
absorption of overheads 9000 9000
169000
18300
0
Fixed overheads:
Variable selling overhead 50000 60000
Fixed selling overhead 14000 14000
Fixed Administration overhead 26000 90000 26000
10000
0
Net profit 79000 83000
Working Notes:
Fixed production overhead absorption rate 99000/11000 9
Full production cost for one unit to be used in stock valuation
is: 29
Variable cost 25
Fixed production overhead 4
Calculation of over/ under absorption of fixed production overheads
Production
Overhead
absorbed
per unit
Total
overhead
absorbed
Overhead
incurred
Over (Under)
absorption
Units Amount Amount Amount Amount
Novemb
er 12000 9 108000 99000 9000
Decemb
er 10000 9 90000 99000 -9000
Conclusion: From the above content, it has been concluded that both the costing methods
results in different net profits due to variation in opening and closing stock. For the selected
company, absorption costing is more recommended as it can help in bifurcating different costs.
M2 Applying range of management accounting techniques
Management accounting techniques are the methods which help in calculating the costs
and profits by developing financial reporting documents. These documents are developed above
by using two costing techniques which are marginal and absorption. These techniques are
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applied in order to determine profitability of a business organisation (Qian,Burritt and Chen,
2015).
D2 Interpretation of above data
By developing income statements, it has been interpreted that profits for the month of
November and December using marginal costing method is 61000 and 101000. Whereas, profits
using absorption costing is 79000 and 83000 for the month of November and December.
Profitability in December is more as sales revenue in this month is higher. The difference in the
profits in both the method is due to consideration of cost in different manner. Such as in the
absorption costing, fixed and variable costs are taken as unit cost. While in the marginal costing ,
fixed cost is taken as period cost and variable cost as unit cost. It is recommended to Oshodi that
they should adopt absorption costing over marginal as it includes proper allocation of all direct
and indirect costs.
TASK 3
P4 Advantages of different planning tools used for budgetary control
Introduction: Budget and budgetary control are the tools by which an organisation can
forecast their future expenses and revenues in order to grow sustainably. In below tasks, various
planning tools are analysed along with their merits and demerits.
Budget and Budgetary control: Budget is the tool which is developed an organisation in
order to predict future costs from past experiences. This technique helps in ascertaining future
circumstances and makes appropriate strategies (Schuster, 2015).
Budgetary control is a technique which ensures that the budget must be prepared in a way
that most accurate budgets can be prepared. It is a technique by which budgets are compared
with actual performances in order to find variations.
Various planning tools used for budgetary control:
1. PRODUCTION BUDGET: A production budget introduces as an effective financial plan that
includes lists of units to be manufactured during a time period. It is important budget which will
help an organisation by providing accurate data about the raw material. Such as in the above
Oshodi plc they use this budget for management of materials in an effective manner.
Advantages Disadvantages
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