Management Accounting and its Types

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is a form of accounting which is linked to systematic procedure
of acquiring monetary and anti-monetary information from different sources. This gathered
information is being used by accountants in order to produce internal managerial reports. These
reports are applied by management department for taking crucial decisions of different aspects.
This accounting has different characteristics and role for businesses such as it is not necessary to
implement by companies (Otley, 2016). As well as it does not follow any accounting rules and
regulation in process of preparing internal reports. The objective of report is to demonstrate
understanding regards to management accounting, and its importance for companies. In report
Alpha limited company is chosen that is associated in manufacturing of pizzas. The report covers
detailed information regards to various MA reports, planning tools and its importance for
business entities.
MAIN BODY
TASK 1
P1. Management accounting and its types.
MA- It is linked to process of preparing internal report for managers so that they can take
suitable decisions as accordance of need of business.
 Cost accounting system- It is linked with a systematic procedure of predicting possible
expenses. It helps to finance department of businesses so that they can become able to
keep an effective control over expenses and costs. This accounting system contributes in
tracking those activities which are leading to higher cost for companies. In addition, it is
essential for business entities in order to minimise overall expenses in an effective
manner. Alpha limited company, implemented it by their finance department so that the
cost of their operations can keep below standard costing (Hopper and Bui, 2016).
 Price optimisation system- This starts with process of gathering information from
customers regards to products demand, perception and many more. This collective
information is being used by sales department of companies in price setting which may
lead to higher sales. It is beneficial to companies which are unable to generate higher
amount of revenues due to lack of sales. Hence, it is useful in order to revise or set the

pricing of products and services at an effective level. In Alpha limited company, this is
being used by their sales department in order to set the prices of their pizzas.
 Inventory management system- This accounting systems' meaning can be understood by
its name as it is linked with process of tracking the quantity of all forms of material in
businesses. Generally, in a manufacturing entity a vital range of stock is acquired for
production selling and for many other purposes. In this aspect, this is compulsory for
analysing quantity of materials regularly (Burritt, 2017). It is so because if they will do so
then it can be beneficial for them to utilise available raw materials in an effective manner.
Thus, it is essential for companies to tracking of all forms of materials on a daily basis
and guiding purchase team to buy more goods. In addition, under this various kinds of
techniques are used for assessing quantity of goods such as LIFO, FIFO and many more.
In Alpha limited company, their managers implement it for assessing the quantity of raw
material stored in their warehouses timely.
 Job order costing system- This is linked to process of assessing cost of each individual
activity by assigning cost of job separately. Under this accounting system the manager of
companies evaluate cost of each job assigned to a particular activity or function for a
particular time period (Hall, 2016). Hence, this is compulsory for businesses to track cost
of each job that is being allocated to any specific activity. In the above company, they use
this accounting system in order to set the cost of job individually so that their finance
manager can track the cost of each job.
P2. Various methods used for management accounting reporting.
MA reports- MA reporting plays a vital role in protecting companies and evaluating their
efficiency (Singhvi and BODHANWALA, 2018). These documents are compiled in the
accounting time according to the specifications. Such documents provide valuable information
on various transactions or operations as well as income.
Types of reports:
 Inventory reports- Organizations generate physical products, and inventory management
documents play a key role in centralizing data related to stock costs or other overhead
costs involved in both raw material procurement and production processes. Such a report
is a design document that includes source, location and product information. This report

covers all the information, like how much raw material is produced in the company and
when and how much it takes for the production process. In the above company, this
report is used for managing total raw materials.
 Account receivable ageing report- The document used in the accounting period to
monitor credit purchases as well as assess due transactions. It is usually chosen by
organizations performing credit-related operations and routinely recording all credit
transactions along with date, lender name and sum (Makrygiannakis and Jack, 2016). It is
used by the top corporate management to assess the collection performance and credit
functionality. Such as in the above company, it is being used by companies in order to
manage their credit records.
 Performance report- It is designed for the purpose of keeping records of operational
results in separate time frames. Use performance reports, each entity's managers offer
rewards along with incentives to work according to their efforts to achieve business
goals. The Alpha limited company benefits from evaluating employee performance and
assessing increasing worker performs well in contrast to which does not perform. Higher
performers are rewarded more where more training courses are offered as under
performers.
 Budget report- One of the main documents is the budget study, which helps to understand
and monitor cost in order to assess the quality of companies. Using the budget report, to
assess the costs, actual figures are matched with the pre-established estimate.
Management use the expenditure statement to assess the successful use of monetary
resources. Alpha Ltd Company's activities including production, sales and marketing are
reported in this document.
M1. Benefits of MAS.
MAS Benefits
Cost accounting system This is aligned to procedure of reducing cost of various operation
and functions below standard costs (Samuel, 2018). In above
company, they apply this for tracking cost each activity as well as to
keep an effective control over costs.

Price optimisation system It is related to procedure of setting the price of product and service
as accordance of need of various shareholders. In above company,
their sales department implement to set price of their manufactured
Pizzas.
Inventory management
system
It helps to track quantity of stored materials in warehouses in an
effective manner. Under Alpha limited company, they use it for
making better utilisation of their stored raw material.
Job costing system It helps in tracking cost of each job separately. Alpha limited
company use it for calculating cost of job that is allocated to
different activities and operations.
D1. Integration of MAS and reports to organisational process.
In the business entities, there are wide range of functions which are performed by
different departments. In this aspect MAS links with various activities and functions of
companies (Rikhardsson and Yigitbasioglu, 2018). Like in Alpha limited company, their
different departments are linked to MAS. Like finance department is integrated to cost
accounting system, sales department with price optimisation system etc. Similar as MA reports
are also linked to business operations and process. It can be understanding by example of above
company, as the account receivable ageing report is linked finance department. This overall
indicates that MAS and MA reports are aligned to process of companies.
TASK 2
P3. Preparation of income statement by help of absorption and marginal costing.
Problem 1.