Unit 5 Management Accounting Level-4

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Management
Accounting

INTRODUCTION
Management accounting refer to the various concepts which help the business and it's
operations in order to collect financial records or produce financial statements for the further
analysis (Bagautdinova, Kundakchyan and Malakhov, 2013). Management accounting used by
the managers of the company in order to formulate strategies and make effective decision to
achieve organizational goals & objectives. It include the analysis of data which is beneficial for
external parties such as inventors to make their decisions regarding investment. This report based
on Alpha Ltd which is medium size manufacturing firm and they have 50 staff members which
produce a range of Pizzas. It is the small pizza company that established in 2001. This project
report cover various topics such as management accounting, different types of accounting
systems and accounting reporting. Use costing technique to prepare income statements, evaluate
advantage or disadvantage of different planning tools and how they used to resolve their
financial issues by using management accounting systems.
MAIN BODY
TASK 1
P1. Explain the management accounting term and essential requirement of various management
accounting system
Management accounting is the process which is used by the organization in order
produce report which is beneficial for the stakeholders who make further decisions regarding
investments. With the help of management accounting, managers can collect financial
information for long term as well as short term decisions (Management Accounting, 2019). It is
also useful in measuring, analysing, communicating information in the entire organization in
order to achieve business goals & objectives.
Inventory management system: It is an system or software which is used by the
manufacturing organizations in order to manage their stock level for the production. This process
include the monitoring as well as maintenance of stored items such as raw material, company's
assets etc. Through keeping records of inventory managers able to analyse the availability of
stock for the production. In context of Alpha Ltd, managers monitor or keep track the records of
raw material which is used for to produce pizzas. It is essentially required in the organizations
because they have to manage inventory for the functioning of business operations in well manner

(Ball, Grubnic and Birchall, 2014). There are various types if inventory management systems
which are mentioned bellow:
 LIFO (Last In First Out): Inventory used for the production that recently purchased and
carry out for the operational activities.
 FIFO (First In First Out): In this method, managers uses that material first which firstly
bought by the company.
 AVCO (Average Cost): In this system, management use the inventory on average basis
for the products or goods.
On the basis of above discussed Alpha Ltd are follow the FIFO method which help the
organizations to utilise their available resources in the sequence purchase. It is essentially
required for food business to manage their inventory because it is not possible to keep vegetables
for long period.
Cost accounting system: It is the accounting framework which is used by the
organizations in order to estimate each unit cost of their products. It is essential required to
calculate the accurate cost because it further influence the profit margin of the company. In
context of Alpha Ltd, managers used this system to manage their overall product cost and it
beneficial in making future decisions. Managers try to minimise the cost of pizza which helps
them to maximise the profit margin of each product.
Price optimising system: It is the method which is used to determine the set of price
range of the product and analyse that which price of product satisfy the consumers need or meet
their objectives. Managers of Alpha Ltd determine the price of pizzas which sold to the
customers and also analyse that which price range satisfy the consumers more (Bryer, 2013).
This system essential for the company to set suitable price for pizzas or able to meet their goals
& objectives through increasing productivity as well as profitability.
Job order costing: This accounting system used when different jobs are working in the
same period such as promotions, selling, advertising and marketing. It become very difficult to
allocate the cost of each activity as per their requirement. In context of Alpha Ltd, company
produce pizzas as well as perform other operational activities. So managers use job order costing
in order to evaluate the separate cost for each job. It is essentially required by the organizations
to ensure that every activity will be performed smoothly.

P2. Different method of management accounting reporting
Management accounting Reporting: The primary object of management report is to
obtain the required information about the operating results of the organisation regularly in order
to use them for further planing and control. Another object is to secure understanding and
approval of the judgement by the people engaged in various aspects of work of enterprise . The
second object is closely related to the first one and is important in terms of efficiency, morale
and motivation (Cleary, 2015). A good reporting system is a better guide and effective tool for
efficient managerial decision making. It helps in providing better utilisation of available
resources and to have further planing and controlling. Managerial accounting provide many facts
of accounting aimed at improving the quality of information delivered to management relating to
the cost and sales revenue of goods and services.
Job cost report: Job costing is a accounting which tracks the cost and revenue by job
and enables standardized reporting of profitably by job. For an accounting system to support job
costing, it must allow job numbers to be assigned to individual items of expense and revenues.
Job costing may assess all cost involved in a construction job or in the manufacturing of goods
done in discrete batches. These cost are recorded in ledger accounts throughout the life of the
job or batch and are then summarized in the final trial balance before the preparing of the job
cost, or the batch manufacturing statement.
Inventory management reports: To improve the inventory management by accessing
inventory reports for accurate real time insights into stock movement. Start tracking the cost of
good sold, avoid overselling and underselling, even create custom reports (Endenich, 2014).
Similarly Alpha company uses inventory management report for see which items belong to a
business , industry, organisation. It provides a comprehensive account of the stock or supply of
various items .
Budget report: A budget report is prepared to compare the actual results with the pre-
standard to see how to improve performance in the organisation. The budget report is used to
determine which expenditure levels are too high, so that actions can be taken to bring
expenditure levels back down to the budgeted amount. This report is one of the most frequently
used tools for maintaining control over financial results of a business.
Account receivable report: An accounts receivable is a report that lists unpaid
customer invoices and unused credit memos by the ranges. It is a primary tool used by collection

personnel to determine which invoices overdue for payment . Likewise Alpha limited is using
such report to generates how actual output is defer from standard input. These report is used by
management to determine the effectiveness of the credit and collection functions (Fleischman
and Parker, 2017). The budget report is used to determine which expenditure levels are too high,
so that actions can be taken to bring expenditure levels back down to the budgeted amount. This
report is one of the most frequently-used tools for maintaining control over the financial results
of a business.
M1. Evaluate the benefits of management accounting systems along with it's application in
organizational context
There various accounting systems which are used by the organizations in order to
perform their operational activities. Every management accounting systems have various benefits
which mentioned below along with it's application in context of Alpha Ltd. Discussion are
mentioned below:
 Job order costing: It help the Alpha Ltd to acquire the benefits through allocating fund
for each job which applied in the organization in order to successfully complete the
operational activities.
 Price optimising system: It is beneficial in determine the price of product which meet
the customer's objectives regarding their spending. In context of Alpha Ltd, manageable
set the price of pizzas which are sold by company to attract huge customers.
 Cost accounting system: With the help of this system, manager of Alpha Ltd hey the
benefits because it helps in estimating overall expenses and project the revenue for the
period.
 Inventory management system: It provide the benefits such as maximise the efficiency
and productivity in the operations (Grabner and Moers, 2013). Management of Alpha Ltd
use this system to minimise the inventory cost or keep track the availability for the
production of pizzas.
D1. Critically evaluate that how accounting reports and accounting systems are linked with
organizational process
Every organization follow the various accounting systems or accounting reports in order
to manage their operational activities or maintain the records for the further use. Alpha Ltd also
use various systems such as inventory management, cost management etc. Along with this,

inventory management report used to produce for the information regarding inventory level
which required for operating activities. In addition, performance report used to evaluate the
individual as well as entire organization performance. With the help of these reports, managers
of Alpha Ltd able to make strategies or perform their organizational process in well manner in
order to achieve their business goals & objectives.
TASK 2
P3. Use appropriate technique of cost analysis and prepare income statement by using marginal
or absorption costing method
Marginal Costing: It is the costing method which is used to evaluate the net profit of the
company. Under this method, change in the additional production will be consider and what cost
it occur for the production (Harrison and Lock, 2017). In context of Alpha Ltd, managers
evaluate the additional cost of pizzas which are produce by them because of its high demand.
Problem 1 (1):
Profit and loss account:

Problem 1 (2):
Absorption costing: This costing method used to evaluate the cost of each unit which
help the managers to formulate future strategies. It include the fixed as well as variable cost at
the time of calculating cost (Havranek, 2017). Managers of Alpha Ltd, use this technique to
evaluate the cost of pizza at the time of manufacturing.

Problem 2/ 1 (a)

Problem 2/ 1 (b)
Problem 2/ 2 (a)

Problem 2/ 2 (b)
As per above calculation it represent that company should install machinery because it
generate profits of 104000 pounds.
M2. Apply the range of management accounting techniques and produce financial reporting
documents
There are various accounting techniques which are used by the organizations in order to
reduce their cost of maximise the profit margin. It further beneficial in achieving their business
goals & objectives and it will be possible through implementing various management accounting
techniques. Some of them mentioned below:
Standards Costing: It is the traditional cost accounting method that used to determine
the differences between actual cost as well as the cost which occur at the time of production.
This costing technique used by the managers of Alpha Ltd in order to analyse the cause of
variation between standards or actual cost of the products.
Historical Costing: It is the original nominal value of particular item where assets and
liability of the company recorded at historical cost (Holsapple, 2013). It helps the Alpha Ltd to
understand that, they have to record actual cost of assets as well as liability in the books of
accounts rather than recording current market value of goods.

D2. Produce financial report that accurately apply or interpret the data for business activities
With the help of costing method Alpha Ltd able to calculate their product cost or generate
income statement for the period. By using marginal costing method, net profit of the company is
£ 200000 for the end of period. On the other hand, by using absorption costing method company
get the results around £ 600000. For the better results , Alpha Ltd use the marginal costing
method to evaluate the net profit of the company. This costing methods ignore the losses which
impact the profit margin of the company.
TASK 3
P4. Evaluate the advantage or disadvantage of various planning tools that used in budgetary
control
Budgetary control: It is the procedure where managers make sure that they perform all
the operational activities through managing their expenses. In this context, managers have to set
their financial as well as performance goals which required to achieve for better outcomes. There
are various planning tools which help the Alpha Ltd to manage their budget or make them able to
perform accordingly. Some of the planning tools are discussed below:
Operational budgetary control: It is the budgetary control method which is used for the
purpose of managing or controlling the operational activities or build future strategies
accordingly (Kumarasiri and Jubb, 2016). In context of Alpha Ltd, they use operational
budgeting tools in order to perform their operational activities in well manner or achieve the
business goals & objectives. Some of the important elements are required to analyse for the
better budgetary control.
 Various analysis: In context of budgeting, it is the difference of standards cost and the
actual amount which they get through selling their products. It help the organization to
formulate strategies for the future in order to generate high profits. Management of Alpha
Ltd use this tool and measure the cause and that are resulting in variation.
 Forecasting: It is the process of making projections regarding future expenses and it will
be based on past and present financial information which further affect the operational
efficiency. In context of Alpha Ltd, managers analyse the costs as well as other events
which can generate the revenue for the company.

 Standards costing: It is the tool which are used by the organizations in order to
formulate strategies regarding various and ensure that it will be done accordingly. In
context of Alpha Ltd, managers use this method to evaluate the overall expenses of the
company regarding each activities.
 Flexible budgeting: It is the budget which can be adjust due to change in the volume of
activities of the organization (Maskell, Baggaley and Grasso, 2017). It is used by the
Alpha Ltd in order to complete their project which required to change in their budgets as
per the requirement.
Advantage or Disadvantage of this planning tool:
Advantage:
 With the help of operational budget manager able to estimate future expenses which
beneficial in making future strategies.
 It is advantageous for the company because management can modify their records in
order to analyse the actual cost for the period.
Disadvantage:
 It is very complex process which generate lot of confusion at the time of making budget.
 Managers have to ensure that information should be accurate or specific otherwise it will
impact the overall spending of the company.
Capital budgeting: This budget used to make future decisions regarding investment in
fixed assets. With the help of this budgeting tool, managers able to identify that company need to
invest or not and it will be based on some elements which required to evaluate. Management of
Alpha Ltd use this budgeting tool in order to measure that which project should be selected for
the investment or it will be profitable or not to. There are various techniques which is used to
measure and then formulate strategies accordingly. Some of them mentioned below:
 Accounting rate of returns (ARR): This technique used to measure the rate of return of
particular project. So organizations need to evaluate alternatives too and then make
decisions on the basis of higher returns (Morden, 2016). In context of Alpha Ltd,
management also make their investment decisions through analysing the project returns
and then invest accordingly.
 Internal rate of return (IRR): It is the measurement of returns on investments where
calculation except the external factors such as risk free rate, inflation etc. In other words,

it is the interest rate where net present value of cash flow of any project will be equals to
zero. Managers of Alpha Ltd use this technique to evaluate the overall project and
analyse that invested money generate some value or not for the organization.
 Payback Period: This technique refer to the time period when organization recover the
cost of investment. Lower the period is beneficial for the company so managers need to
select project on the basis of payback period. Managers of Alpha Ltd use this budgeting
method to select the appropriate project more the investment.
 Net present value (NPV): This technique used to calculate the present value of any
investment and it will be calculated through identify the difference between present value
of cash inflow or present value of cash outflow (Nørreklit, 2014). With the help of this
budgeting technique, Alpha Ltd able to make their decisions regarding future decisions.
Advantage or Disadvantage of this planning tool:
Advantage:
 It helps in selecting best option from the alternatives for the investment which maximise
the revenue through providing higher returns.
 It will increase the interest of stakeholders in the organizations which provide the higher
return through selective best one.
Disadvantage:
 All the discussion based on the estimation which can be wrong or generate the
possibilities of maximum error.
 Individual required professional skills in order to formulate capital budgeting and
company have to bear additional cost by recruiting skilled people in the organizations.
M3. Analyse the different planning tools and it's applications for forecasting budgets
There are various planning tools which are used by the organization to make their future
decisions and ensure that it help in maximising productivity as well as profitability. These
budgetary tools used for the forecasting and making strategies in order to enhance the operational
efficiency as well as effectiveness. Managers of Alpha Ltd use the capital budgeting techniques
such as accounting rate of returns, payback period, NPV etc. Future investment decisions of the
company based on these budgeting methods.

TASK 4
P5. Analyse that how organizations implement management accounting systems to respond
financial problems
Every organizations face some issues human resources, finance, technical etc. but it is
important for them to resolve as soon as possible they can. In context of Alpha Ltd, management
face the financial issues which can be resolve by using various management accounting systems.
Alpha Ltd face some issues regarding finances which mentioned below:
Errors in the maintenance of accounting records: Accounting information will be
recorded in annual basis so it can be generate errors in the final results. Alpha company face the
issues of appropriate information funding. It will further affect the business because they are
unable to generate accurate records for the company.
Inadequate assets: Organization use various assets which required to perform their
operational activities in order to maximise production (Schaltegger, Burritt and Petersen, 2017).
It will further cause the issues regarding lack of finance which further impact the operational
activities as well as overall profitability of the Alpha Ltd.
In order to resolve financial issues of Alpha Ltd, managers implement the management
accounting techniques which helps in maximising the efficiency as well as effectiveness of the
operational functions. Some of the accounting techniques are mentioned below:
Key Performance Indicator (KPI): It is the performance measurement tool which used
are by the organizations in order to perform their operational activities which make them able to
meet business goals & objectives. By using this techniques, Alpha Ltd able to identify the
problem which impact the overall production as well as profitability. There are two types of KPI
such as financial or non financial. With the help of this tool, managers of Alpha Ltd able to
analyse the cause of problems and provide suitable solutions for them.
Benchmarking: It is also one of the performance measurement tool which is used to
evaluate that company is able to achieve their goals or objectives through utilizing operational
resources. Managers of Alpha Ltd use this techniques for the purpose of reducing error from the
accounting at the time of recording transactions.
In order to resolve the issues regarding financial problems managers of Alpha Ltd
implement the financial governance for the appropriate solutions.

Financial governance: It is the combination of rules and regulations which formulated
for the organizations and it is mandatory to follow by every business. It include the process of
recording, observing and collecting financial information and make sure to implement
accounting principles at the time of recording each transaction. In context of Alpha Ltd,
managers used to identify the errors in the financial information and provide protection to the
assets of the company (Siverbo, 2014). In order to resolve their financial issues Alpha Ltd
implement the principles of financial governance.
Comparison of organizations:
Basis Alpha Ltd Pizza Express
Cost accounting system In context of Alpha Ltd, managers
follow the cost accounting system
in order to resolve the errors in the
accounting records. With the
helps of this accounting system
organization able to identify the
each product cost and it will be
recorded for the same. Each
transactions are recorded on the
spot in order to reduce the error.
This company use cost
accounting system in order to
resolve the issues regarding
unforeseen expenses which
maximise the overall cost and
reduce the profit margin as well.
With the help of this accounting
system managers of Pizza
express able to evaluate their
product cost and formulate
future strategies accordingly.
Inventory management
system
Managers of Alpha Ltd use this
accounting system in order to
protect assets of the company. By
using inventory management
system, managers able to mange
their stock level and protect from
damages which affect the overall
production level or create financial
issues for the company.
Pizza express face the issues
regarding wastage of material in
the organizations. In order to
resolve this issues, managers
have to implement inventory
management system to keep
maintain the records or take
future actions accordingly.

M4. Analyse that how organization respond their financial issues for the sustainable success
It is very important for the organizations to resolve their financial issues as soon as
possible they can otherwise it affect the production as well as profitability. Alpha Ltd face the
two issues which generate financial problem in the organization. These issues can be resolved by
using various management accounting techniques such as Key Performance Indicator,
benchmarking and financial governance. Effective implementation of these techniques will leads
to provide success and make them able to achieve organizations goals & objectives.
D3. Evaluate that how planning used to resolve the financial problems which leads the
sustainable success
There are various planning tools which used by the organizations in order to resolve the
financial issues of the company which minimise the production as well as profit margin. Alpha
Ltd follow the operational budgetary control as well as capital budgeting to analyse the
operational activity and find the suitable solutions for this. It will further beneficial to forecasting
and ensure to resolve the issues finance.
CONCLUSION
From the above discussion it has been concluded that use of management accounting is
the common thing but it is important to implement its concepts in well manner. By using
accounting systems, organization able to perform well their operational activities and it will be
evaluated through various reports. Managers of the company used to evaluate the performance of
the company with the help of performance report. There are various financial issues which affect
the production as well as profitability and it will be resolved through KPI or benchmarking.
Company use the operational budgetary and capital budgeting planning tool to resolve financial
issues.

REFERENCES
Books & Journals