Management Accounting Report: Alpha Ltd. UK Pizza Production Analysis

This report provides a comprehensive analysis of Management Accounting (MA) practices within Alpha Limited, a UK-based pizza production company. It delves into various aspects of MA, including cost accounting systems, inventory management, and price optimization systems, highlighting their importance in internal decision-making. The report examines different types of MA reports, such as inventory, performance, and budget reports, and their role in monitoring financial and operational performance. Furthermore, it presents the preparation of income statements using both absorption and marginal costing methods, accompanied by financial statements and interpretation. The report also discusses the advantages and disadvantages of planning tools like budgetary control and their application in forecasting and budget preparation. Finally, it explores the role of Management Accounting Systems (MAS) in addressing financial issues within different enterprises, emphasizing their significance in financial problem-solving and overcoming monetary challenges.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1 ...........................................................................................................................................3
P1. MA and its types...................................................................................................................3
P2. Different methods of MA reports.........................................................................................4
M1. Benefits of MAS..................................................................................................................5
D1. Integration of MAS and MA reports with business process................................................6
TASK 2 ...........................................................................................................................................6
P3. Preparation of income statement by help of absorption and marginal costing.....................6
M2 Accounting techniques to produce financial statements.....................................................12
D2. Interpretation of produced financial statements.................................................................12
TASK 3..........................................................................................................................................12
P4. Advantages and disadvantages of different planning tools of budgetary control...............12
M3. Role of planning tools in order to make accurate forecasting and preparing the budgets.14
TASK 4..........................................................................................................................................14
P5. Difference between enterprises in order to sort financial issues by help of different MAS.
...................................................................................................................................................14
M4. Importance of MAS in the context of solving financial problems....................................16
D3. Role of planning tools in overcoming from monetary issues.............................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Accounting is a major aspect of corporations in order to help monitor financial
transactions. The MA is one of the major components of accounting. It is connected to the
process of acquiring financial and non-financial information in order to prepare internal
statements when administrators need it (Siverbo, 2014). Only the internal investors are provided
with these reports. The goal of the project report is to examine the position of this company
accounting. Alpha limited company, which is headquartered in the United Kingdom and
specializes in the production of pizzas, has been selected in the report. The report contains
comprehensive information on various MAS, MA reports and instruments for planning, etc.
Furthermore, the report also mentions the role of different MAS in the monetary problem
filtering aspect.
MAIN BODY
TASK 1
P1. MA and its types.
MA- It is characterized as a form of accounting that functions in the process of gathering
qualitative and quantitative data so that inner reports can be prepared by the accountant. These
documents provide the supervisors with a comprehensive structure for making important internal
decisions. Several forms of MA are shown below, such as:
 Cost accounting system - It is an accounting system that is applied with finance
department with the goal of making revolutionary budget estimates. Through having
estimates of additional costs, it then becomes easier for administrators to take appropriate
action to allocate funds as an arrangement of need in order to minimize costs (Granlund
and Lukka, 2017). This accounting system is important for companies to monitor the use
of funds and the total cost of running various functions performed. They use this
accounting system in the sense of the above-mentioned Alpha limited company to keep
costs lower than projections.
Essential requirement- This accounting system is essential for companies to track the
volume of cost of various kinds of operations and activities. On the basis of it, companies
take accurate decisions regards to allocation of funds into various tasks.

 Inventory management system- This is a form of accounting system correlated with the
process of monitoring regular stock value usage for the production of new goods. It is
entirely based on techniques of valuation such as last and first step, first method in first
method out and much more. It is important for companies to cut the storage costs as well
as to obtain information about the use of stock in undertaking manufacturing operations.
It is used in the dimension of the above-mentioned Alpha limited company, which allows
them to determine material use, finished products and many more.
Essential requirement- It is essential for manufacturing companies to compute cost and
quantity of stored stock. It determines about how much stock is remained in the
warehouses at the end of month or quarter that leads to better decision for managers.
 Price optimisation system- It can be described as a form of management system that is
effectively related to the process of pricing goods and services. It becomes feasible
because key information about consumer understanding, reviews as well as potential
market is used by sales team. Based on this, they set prices of different products for
different parts of the market and clients. It is important for corporations to adjust prices of
products in line with market research. Their sales team, like in the Alpha limited
company, set Pizzas rates according to market dominance and customer needs.
Essential requirement- It is essential for keeping prices of products and services at a level
from which companies cannot get any lose. This becomes possible because under it
prices are set in accordance of market research.
 Job order costing system- This is a form of cost system that uses the allocated number of
jobs to calculate the cost of each event (Kastberg and Siverbo, 2016). It is implemented
in those business entities in which portfolio of products is too larger because by help of
this they can assess cost of each performed functions individually. For instance in the
Alpha limited company, their managers implement this accounting system with an aim of
keeping control over the cost of job aligned to different number of activities and
operations.
Essential requirement- This is essential for determining cost of each output or product
produced by a company. Under it, cost is calculated in accordance of job cost aligned
with completing different activities.

Characteristics of financial information:
 Reliability- This is essential for companies that their financial information should be
reliable as per the nature and activities of business.
 Accuracy- As well as financial information needs to be accurate so that accountant can
produce correct financial statements at the end of financial year.
 Timeliness- In addition, financial information needs to be presented to external and
internal stakeholders at the end of financial year. Any kinds of delay may lead to lose of
company.
P2. Different methods of MA reports.
MA reports – The term MA reports can be described as records that encompass important
information pertaining to all financial and anti-financial aspects. They prepare different kinds of
reports in the sense of the above-mentioned Alpha limited company, such as:
 Inventory report- It can be described as a type of report that includes key information
related to the opened and closed of the balance of various forms of inventory, including
raw resources, completed goods etc. This report includes all types of data in order to
assess stock quantities under LIFO, FIFO and the weighted average method. Managers
use this report in the above-mentioned Alpha limited company with the aim of staying in
touch to how much material they have at the end of a specific day.
 Performance report - This is a form of document that contains in depth key performance-
related information about each and every element. It's used by organization executives to
make logical decisions on employee growth. The overall performance of workers can be
hidden in the lack of this report. In addition to employee performance data, it offers key
details such as performance of various functions and tasks conducted, etc. The
accountants are conducting this document in the sense of the above-mentioned Alpha
limited company in order to ensure sustainable economic growth in different aspects.
 Budget report- It is a document that provides specific information about the performance
of the plan and the actual output (Hirsch, Seubert and Sohn, 2015). Using this document,
the division of finance becomes able to evaluate the difference between actual and
projected performance. The accountants generate this report in the scope of the above-
mentioned Alpha limited company to monitor variances and to maintain an extra finger
on actual performance.

 Accounts receivable ageing report - This can be described as a document which provides
comprehensive information on the maximum value of debt that will need to be
accumulated in the forthcoming period. Finance managers make further preparations as to
the need for funds to complete operations and events in conjunction with this report. One
of it's key features is that info is systematically reported under it so that executives can
easily check the debt level. In the Alpha limited company, they prepare this report and
their finance department collects funds according to information provided by report.
M1. Benefits of MAS.
MAS Benefits
Cost accounting system This accounting system is concerned, in accordance with the above
explanation, with the process of monitoring and reducing the costs of
various operations. They gain from this accounting in the above-
mentioned Alpha limited company by handling aggregate
expenditures and charges.
Inventory management
system
This helps companies' sales and manufacturing departments to
monitor goods usage and to calculate the opening & closing balance.
They benefit from this accounting, such as in the above-mentioned
Alpha limited company, by maintaining cost of storage low.
Price optimisation
system
It is attached to the organization sales department and to effectively
set prices of products. They update their pricing strategies in keeping
with the market environment in the Alpha limited company.
Job order costing system This is based on individually calculating the cost of various activities.
They are benefiting from this accounting system in the Alpha limited
company by tracking job costs effectively.
D1. Integration of MAS and MA reports with business process.
If companies struggle to align their divisions with accounting systems, it can become
impossible to operate lookup tables and activities efficiently (Chandar, Collier and Miranti,
2012). Their sales department is combined with price optimization system and inventory

management system, as in the Alpha limited company. Furthermore, their manufacturing
department uses important stock management report information and the accounting department
also evaluates important information from the account receivable ageing report.
Difference between financial and management accounting:
Financial accounting Management accounting
In this accounting only monetary information
is included.
While in this accounting monetary and anti
monetary information is included.
This is applied for assessing financial
condition of companies.
On the other hand, this accounting is
implemented for internal management.
Under it, financial statements are prepared as
per the accounting standards.
There is no any accounting standards to
prepare internal reports.
TASK 2
P3. Preparation of income statement by help of absorption and marginal costing.
It is necessary for companies to produce financial statements at the end of an accounting
period. For this purpose accountants become responsible to follow all standards and techniques
to prepare statements in an effective manner. Herein, below some techniques are mentioned that
are used to prepare income statements such as:
 Absorption costing system- It is also known as full absorption costing method for
assessing all types of cost that is aligned to manufacturing process. Different types of cost
like direct material, labour etc. are absorbed in this method. This technique needed by
generally accepted accounting principle for purpose of external reporting.

 Marginal costing system- This is a type of technique in that variable costs are allocated to
cost of unit and fixed costs are as period cost. It is opposite from above costing technique
because under this total incurred cost is not absorbed (Horton and de Araujo Wanderley,
2018).
Problem 1.
Income statement under absorption and marginal costing:
Absorption costing:
Absorption Costing Statement calculator
Unit Selling Price 8
Unit Cost (FC+VC) 5
Fixed Manufacturing Expenses 150
Non Manufacturing Exp 50
Budgeted Activity 75
Period 04/19 05/19 06/19 07/19 08/19
01/09/
19
[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 75 60 90 75 70 80
Production 75 75 75 75 85 70
Opening inventory
Closing inventory 0 0 15 0 0 15
0 15 0 0 15 5
Period 04/19 05/19 06/19 07/19 08/19 09/19

[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 600 480 720 600 560 640
Opening inventory 0 0 75 0 0 75
Add: Variable Cost[Production] 375 375 375 375 425 350
Less: Closing Inventory 0 75 0 0 75 25
Marginal Cost of Sales 375 300 450 375 350 400
Gross Profit 225 180 270 225 210 240
Adjustment for Overheads 0 0 0 0 -20 10
Less:Non Manufacturing Cost 50 50 50 50 50 50
Net Profits 175 130 220 175 180 180
Marginal costing:
Marginal Costing Statement calculator
Unit Selling Price 8
Unit Variable Cost 3
Fixed Manufacturing Expenses 150
Non Manufacturing Exp 50
Budgeted Activity 75
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 75 60 90 75 70 80
Production 75 75 75 75 85 70

Opening inventory
Closing inventory 0 0 15 0 0 15
0 15 0 0 15 5
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 600 480 720 600 560 640
Opening inventory 0 0 45 0 0 45
Add: Variable Cost[Production] 225 225 225 225 255 210
Less: Closing Inventory 0 45 0 0 45 15
Marginal Cost of Sales 225 180 270 225 210 240
Contribution Margin 375 300 450 375 350 400
Less: Fixed Manufacturing Cost 150 150 150 150 150 150
Less:Non Manufacturing Cost 50 50 50 50 50 50
Net Profits 175 100 250 175 150 200
Reconciliation statements:
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000 ]
[£'000
]
[£'00
0 ]
[£'00
0 ]
[£'000
] [£'000 ]
Sales 75 60 90 75 70 80
Production 75 75 75 75 75 75
Opening inventory 0 0 15 0 0 15
Closing inventory 0 15 0 0 15 5

Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000 ]
[£'000
]
[£'00
0 ]
[£'00
0 ]
[£'000
] [£'000 ]
Net Profits under Absorption Costing 175 130 220 175 180 180
ADD : Fixed Overheads in opening 0 0 30 0 0 30
LESS: Fixed Overheads in closing 0 30 0 0 30 10
Net Profits under Marginal Costing 175 100 250 175 150 200
Problem 2a
1. Calculation of followings:
(A) BEP in units and revenues-
BEP (in units)= Fixed cost / contribution per unit
= 180000/ 12
= 15000 units
BEP (in revenues)= Fixed cost/ PV ratio
= 180000/ 30*100
= £600000
Working Note:
Contribution per unit- Selling price per unit- variable cost per unit
= 40-28
= 12

PV ratio= Contribution/ sales per unit*100
= 12/40*100
= 30%
(B) Contribution margin ratio
= 12/40*100
= 30%
2b If machine is installed:
2 c
Scenario 1. Machine is not installed: