Management Accounting Report: Financial Analysis of Alpha Consultancy

This report offers a comprehensive analysis of management accounting practices within Alpha Financial Market Consultancy, a medium-sized financial services firm. It delves into various aspects, including different management accounting systems like cost accounting, profit optimization, inventory systems, and job costing. The report further examines management accounting reporting methods such as cost managerial, account receivable, budgetary, and performance reports, highlighting their significance in decision-making. It also explores cost analysis using marginal and absorption costing methods and evaluates the merits and demerits of different planning tools in budgetary control. The report assesses the integration of management accounting systems within the organization and concludes with the application of these tools to address financial problems, ultimately leading to sustainable success. The content covers key concepts and provides practical insights into the application of management accounting principles in a real-world business setting.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1 Management accounting and its requirements of various management accounting system. .1
P2 Various method that is used for management accounting report...........................................3
M1 Merits of managerial accounting system and application.....................................................5
D1 Evaluation of management accounting system and its integration within organisation........6
LO2..................................................................................................................................................6
P3 Calculation of cost by using marginal and absorption costing method .................................6
M2 Application of management accounting techniques..............................................................8
D2 Financial reports which interprets the business activities......................................................9
LO3..................................................................................................................................................9
P4 Merits and demerits of different type of planning tools in budgetary control........................9
M3 Use of planning tools and their application for preparation and forecasting the budget.....14
LO4................................................................................................................................................14
P5 Adoption of management accounting system to give response of financial problems.........14
M4 Management accounting can lead enterprise to sustainable success ..................................16
D3 Planning tools for accounting respond and solve financial problems..................................17
CONCLUSION..............................................................................................................................17
REFRENCES.................................................................................................................................18

INTRODUCTION
Management accounting is a procedure that involves in collection, analysation,
measuring, monitoring and controlling data to improve the performance of company. It is a tool
used by the organisation for the purpose of managing overall functioning of business (AF Ragab
and Arisha, 2013). This method is adopted by the managers in order to achieve higher
profitability and growth. The company which has been selected in the following report is Alpha
financial market consultancy which is a medium-sized organisation situated in London. It was
established in the year 2003 by CEO Jonathan Austin and provides financial services regarding
asset and wealth management to the clients. The main objective of this organisation is to become
best place to to work for in the market and attracting large number of customers to achieve
success.
In the report detailed analysis of management accounting has bee done. It covers topics
like types of management accounting systems, methods of management accounting reporting,
cost analysis on the basis of marginal and absorption costing, planning tools their advantages and
disadvantages and comparison between the organisation in the ways they use management
accounting system to deal with financial problems (Bedford, 2015).
LO1
P1 Management accounting and its requirements of various management accounting system
Management accounting is a process which is used to analyse, measure, monitor and
control data related to business in order to maintain the performance of organisation. Managers
of Alpha financial market company requires different types of management accounting system to
manage day to day transactions happening in the organisation. Incorporating these systems can
helps the organisation in identifying issues which are causing efficiency in the business
(Budding, Grossi and Tagesson, eds., 2014). Appropriate actions are then taken to reduce them
to increase the profitability of business. The four main type of systems are as follows:
Cost accounting- This system is required to analyse cost of products, measuring the
profitability and control of expenditure. It takes into account different types of cost such as
direct, indirect and overhead that adds to the value of products. Alpha financial market
consultancy managers uses this system to analyse expenses incurred on financial products and
services and take decisions regarding how to control such costs and effectively manage business.
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Importance of this system can be seen as to how the organisation is performing currently, if the
company is dealing with losses then this method provides help in figuring out mistakes and
changes can be made as per requirements. It essentially required to adopt this system by the
management so that extra cost of organisation can be found as reducing such expenditure will
help in maximising profits.
Profit optimisation- This system used mathematical analysis to assess customer
response with the changing prices. The organisation used this system to set prices of company's
products and services. As it is essentially required for managers to set prices which are neither
too high nor low so that cost which has been occurred on producing the product and services can
be covered. Alpha financial marketing consultancy used this system to set rates for their financial
products and services like advising clients on various matters therefore this system helps in
meeting customer expectations. Requirement of these system is essential as they ensured costs
which has put in the production of goods and services can be covered.
Inventory system- This system is used to manage record of company's products and
services. It consist of entire data such as quantity, location, stock level and orders etc of products
and services. By using this method operations of business can be effectively manage. For
instance information related to mortgage loan clarification can be identified using this system. It
is essentially required for managers of Alpha financial marketing use this system in order to
track and maintain the status of products and services (Chang, 2013). This helps in providing
smooth functioning of organisation. Issues regarding stock availability can also be avoided by
adopting this process.
Job costing system- This method is used to measure the expenses related to different sort
of jobs that are being performed in the organisation. It is associated with cost attached to
production of an individual unit of products. Organisation involved in multitasking mainly apply
this method in their operations. There is an essential requirement to determine costs in terms of
money, time and efforts has been put in different activities so that wastage can be minimised.
Alpha financial marketing uses this system to manage expenditure incurring on activities such
making portfolios for the clients, this leads to smoothness in the operations of business and
effectively achieve objectives.
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P2 Various method that is used for management accounting report
Management accounting plays important role in the working of business. These are
prepared by the each organisation to analyse each and every vital information which helps
managers in effective decision making. Such reports collects data from sources like income
statement, balance sheet, and cash flows that consist of transactions Different types of reports
such as cost managerial, budgetary, performance and accounts receivable are created that serves
the purpose of improving the performance of company (Chiwamit, Modell and Scapens, 2017). It
is important to meet all the requirements of enterprise therefore creation of such reports is
needed to carry out all the tasks in an effective manner. On the basis of such statements,
management able to plan for the future uncertainties and take appropriate decisions. Alpha
financial marketing uses these reports to gain information on important matters and regulates the
business. Reports are discussed below:-
Cost managerial report- This report comprises of information related cost incurred on
products and services. It estimates the profits earned by the company after calculating the
expenses and revenue of each unit. All types of costs such as labour hour, inventory waste and
direct and indirect are part of these statements. This helps in showing the position of business by
checking if the costs are more than the amount earned than company is facing losses and incase
the revenues are more than expenses, hence this is a situation of profits. Managers of Alpha
financial marketing prepare this report to understand the profitability of business and making
plans about controlling the extra cost to avoid losses. It helps in attaining optimum utilization of
resources.
Account receivable report- These reports are associated with acquiring complete
information about creditors of business. If the company indulges in dealing with too many credit
transactions and then preparing such reports is vital as it helps in showcasing defaulters.
Managers of Alpha financial consultancy uses this reports to identify the non payments from the
clients and make decisions regarding tightening the credit policies. These are mainly prepared to
save company from unexpected losses by keeping track of collections from customers (Clinton
and White, 2012).
Budgetary report- These reports are concerned with acquiring information about
weather tasks being performed as per set budgets or not. It helps in comparing actual
performance with the budgeted and if the deviations are occurring managers take decisions to
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control and improve the working. Managers of Alpha consultancy prepares this report to
estimates expenditure and income of business so that organisational goals can be achieved within
the pre specified boundaries in an effective manner. Strategies are created such as negotiation
with clients and cutting costs are part of decision making.
Performance reports- These reports are prepared to analyse the performance of
employees and organisation. Evaluating the performance is important as managers of
organisation uses this information to identify weather the different individual and divisions are
performing appropriately or inappropriately therefore measures can be taken for their betterment.
Alpha consultancy prepares this report to provide rewards, incentives based on the performance
of individual and unit in order to increase productivity.
Difference between Management & Financial accounting:
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Management accounting Financial accounting
Management accounting is used for internal
management.
While it is used for internal and external
purposes.
This accounting system is not compulsory to
maintain.
Financial accounting is needed to be done. It is
compulsory.
It is not mandatory to complete in accounting
period.
It should be done according to the accounting
period.
This does not follow any accounting rules and
regulation.
Financial accounting is done according to the
accounting rules and regulation.
M1 Merits of managerial accounting system and application
Different types of management accounting system are used by the Alpha financial consultancy
that are helping the organisation in functioning effectively they are being discussed below:-
System Uses Benefits
Cost accounting system This system is used by the
Alpha consultancy to manage
the expenses of various
financial products.
This system provides benefits
of identifying the extra costs
so that decisions can be taken
to minimise them.
Profit optimisation It is used by the Alpha
consultancy to set rates for
portfolios which they are
providing along with charges
of services like providing
financial advices to clients.
This provides benefits of
meeting customers
expectations in terms of prices
and achieving higher
profitability.
Inventory systems This system is used to
maintain stock level of
organisation. Assets and
wealth of Alpha consultancy is
The main benefits of this
system are that it
systematically arrange
information of company's
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managed with the help of this
system.
products and services at single
place.
Job costing system Alpha consultancy uses this
system to determine the
expenses of various jobs
performed by the employees of
organisation.
It is advantageous to use this
method as the productivity of
organisation can be increased
by eliminating unnecessary
expenses.
D1 Evaluation of management accounting system and its integration within organisation
Management accounting system and management accounting reporting, both are
important for each other. This is why because for the preparation of different accounting reports,
organisations needs the information from various accounting system. In the absence of proper
coordination among these two, companies can't make the reports. Apart from this, both have link
with the organisational process. Herein, the selected company Alpha financial market
consultancy, they prepares various kind of accounting reports like cost managerial reports,
budgetary reports, performance reports etc. All of these reports consists the financial data which
directly comes from the accounting techniques which are price optimisation system, inventory
system etc. In addition, this integration between accounting system and reporting brings
smoothness in the organisational process. It is important to know that in the absence of this
linkage, other functions of organisation will also impact including processes.
LO2
P3 Calculation of cost by using marginal and absorption costing method
Marginal costing : This is a important tool of management accounting that helps in
management in making certain decision. It provides management with information about
behaviour of cost incidence of such cost on profitability of an undertaking. This involves
increase and decrease the cost of production and get the payment information about company
(De Harlez and Malagueno, 2016).
Absorption costing: It considers all cost that incurred and may be arise in any industry.
Basically it includes overall cost of manufacturing enterprise that are absorbed by total unit
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produced. This is also known full costing method that helps to define all incurred costs such as
direct material, direct labour, fixed and variable cost that helps to calculate profits.
Income statement by absorption costing method
Sales £25 £250,000
cost of sales £14 £140,000
gross profit £110,000
less: selling, admin, general cost
fixed selling & admin
variable selling /admin cost £30,000
£30,000
Net profit £50,000
Income statement using by marginal costing method
Sales £25 £250,000
cost of sales £10 £100,000
prod. Contri. margin
£150,000
Variable selling \ admin cost
contribution margin £30,000
less; total fixed cost £120,000
fixed manufacturing overhead
fixed selling & admin £40,000
£30,000
Net profit £50,000
Financial reporting document with material and labour variance
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Labour price variances
(Budgeted price- Actual price)*Actual HOURS
( 5- 5.20)* 3400
-680 unfavourable
Labour usage variance
(Budgeted hours – Actual hours) * Budgeted price
(3000-3400)*5
-2000 Unfavourable
For packaging boxes
Material price variances
(Budgeted price- Actual price)*Actual usage
(10-9.5)*2200
1100 Favourable
Material usage variance
( budgeted use – actual use)* budgeted price
(2000-2200)*10
-2000 Unfavourable
Budget and variance
Flexible Budget £ £
5000 units 10000 units
Sales 125000 250000
cost of sales 50000 100000
prod. Contri. Margin 75000 150000
Variable selling \ admin cost 15000 30000
net contribution margin 60000 120000
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less: total fixed costs
fixed manufacturing OH 40000 40000
fixed selling & admin 30000 30000
Net profit -10000 50000
Working notes:
Calculation of sales (10000* 25) - 250000
Calculation of cost of good sold -140000
(Direct material+ direct labour+ fixed manufacturing overhead+ variable manufacturing over
head- 50000+ 30000+ 40000+20000)
Selling and administrative expenses (30000+30000) - 60000
(fixed selling and administrative overhead + variable selling and administrative
overheads )
M2 Application of management accounting techniques
Management accounting techniques plays a crucial role in the preparation of financial
documents. It is so because management accounting techniques consists all the required
information for the purpose of preparing financial reporting documents. The combination of
these two makes a platform for the financial statements. Basically, accounting techniques like
price optimisation method, inventory management helps in offering required data for the
financial reports. The Alpha financial marketing consultancy company use their accounting
techniques in the making of financial statements like income statement, P&l etc. Due to
coordination of both, company enables to make required financial reports (Serena Chiucchi,
2013).
D2 Financial reports which interprets the business activities.
Financial reports are kind of reports which are necessary to show all the business
activities in a way which concludes the financial performance. As well as these reports helps in
checking about which activities are beneficial and which ones are not. In the business there are
lot of business related activities which are financial and non financial. Herein, it is important to
know that in the absence of preparing financial reports a business can not reflects its financial
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