Management Accounting Report: Costing and Budgeting at Alpha Limited

This report delves into the core principles of management accounting, exploring its crucial role in organizational decision-making and financial performance evaluation. The report utilizes a case study approach, focusing on Alpha Limited, a medium-sized manufacturing company, to illustrate the practical application of various management accounting systems and techniques. The report covers key areas such as inventory management, price optimization, job order costing, and cost accounting systems. It further examines different types of management accounting reports, including performance reports, accounts receivable reports, budget reports, and inventory management reports, highlighting their advantages and applications within an organization. The assignment also applies different costing techniques, such as marginal costing and absorption costing, to calculate costs and analyze financial data. Additionally, it discusses budgetary control and planning tools, evaluating their advantages and disadvantages. Finally, the report compares how two organizations respond to financial challenges through management accounting systems and determines how financial problems are sorted out by management accountants to lead towards sustainable success. The report provides a detailed analysis of Alpha Limited's financial performance and offers insights into how management accounting can be used to address financial challenges and achieve organizational goals.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Definition of management accounting and several systems with essential requirements.1
P2 Discuss various types of management accounting methods.............................................3
M1 Advantages of management accounting system with application...................................4
D1 Analysis the way in which report and system of management accounting are integrated
within organisation procedure................................................................................................4
TASK 2............................................................................................................................................5
P3 Apply different costing technique to calculate cost..........................................................5
M2 Application of range of management accounting techniques within the organisation. .10
D2 Interpretation of data for range of business activities.....................................................11
TASK 3..........................................................................................................................................11
P4 Discussion of budgetary control and planning tools that are used in it with their advantages
and disadvantages.................................................................................................................11
M3 Utilization of planning tools for producing and estimating budgets..............................15
TASK 4..........................................................................................................................................15
P5 Comparison between two organisation to respond financial challenges through
management accounting system...........................................................................................15
M4 Determine the way in which financial problem sort out by management accountant to lead
towards sustainable success..................................................................................................17
D3 Apply planning tools to respond financial issue that faced by the organisation............17
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................19

INTRODUCTION
In today's business environment, the area of management accounting plays an essential
role in every organizations in order to take important decision. It helps to increase profit and
create wealth for the company (Alsharari and Youssef, 2017). Every business wants to know
about their performance so they track all the procedure to collect information that goes beyond
just the cost based information. Management accounting is a way of determining the
performance of the company and produce reports by the directors. Through these reports present
actual performance of the business in front of internal stakeholders like managers, staff
members, board of directors etc. Without management report company does not estimate the
performance and become complex for company to present business growth in the market due to
lack of internal details. To better understand of the report selected organisation Alpha limited
which is a medium sized manufacturing company. The company has been situated in UK and
dealing into Pizzas. In this assignment discuss on various topics such as different management
accounting systems and reports. Along with calculate the profit through costing method and
apply all the planning tools to estimate the future performance. Additionally, to sort out the
financial problem apply the system of management accounting as well as tool.
TASK 1
P1 Definition of management accounting and several systems with essential requirements
Management Accounting is part of internal system that present financial information to
management through financial reports and accounts. It is also known as cost accounting and
managerial accounting to assistance of the process of choice making, develop of policy and day
to day activities of a company. In the context of the Alpha Ltd manager can apply all the systems
of management accounting to formulate the different business activities.
Difference between management accounting and financial accounting
Basis Management accounting Financial accounting
Purpose It is prepared by accountant for
decision making procedure.
It is produced to present position and
financial information to external
people.
Regulation No internal use and has not For external use and regulated by law.
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external regulations.
Time period Historical and forward looking. Mainly an historical record
There are discussing various types of systems such as:
Inventory management system: This method mainly applied in the manufacturing
company to track the record of the material at each level. Through this system know that in
which level how much material required and keep all the records effectively (Calabrese and
Ward, 2018). In the context of the Alpha Limited mainly concentrate on the utilisation of
material availability regarding to pizzas. The one of the major requirement that facilitate the
management to main the lower and higher level of stock for effectively formulate the business
operations. There are discussed several kind of this system such as: First in first out (FIFO): According to this methods firstly sell out the particular product
that purchase first by the company. Last in last out (LIFO): In this method those items sell out that purchase in the last and
enter in the company.
 Average cost (AVCO): To sell out the products in the market calculate average amount
and cost for productive activities.
As per the above discussion it is analysed that Alpha limited apply the FIFO method
because food ingredients are wastages if are not using on right time (Cleary and Quinn, 2016).
Price optimization system: This system mainly applied by the organisation to set
effective price structure regarding to products that selling out by the organisation. As a result it
helps to know perception of customer regarding to products then according to it apply all the
modification. This system utilise by the Alpha limited to decide the price of the pizza. The
essential requirement that through this system achieve all the goals and objectives in certain
period of time.
Job order costing system: In present time mostly organisation perform different
activities as per the job role. There are consisting of selling, promotions, advertising and
marketing. These activities can plays essential role to present business activities at the market.
The manager of the Alpha Limited apply this system to assure that they have sufficient funds to
conduct all the operational activities.
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Cost accounting system: To formulate the different business activities suitably so for
this necessary to have detailed information regarding to costs. It helps in decision making
procedure in respect to future development. The manager of the Alpha limited apply this system
to calculate cost of producing pizzas.
P2 Discuss various types of management accounting methods
Management Report: This report provide different aspects of the business performance
so that manager can make better informed decisions. They collect various key performance
indicators of different departments to know the worth of business over a specific time by
disclosing its financial and operational information (Englund and Gerdin, 2016). This reporting
helps manager to make sound business decision to improve its operating efficiency and to see
how company is working to remain competitive in the market. Similarly, Alpha limited use this
reporting system to evaluated its operating activities and focus on different segments of the
business to enhance its performance as compared to the respected market.
Performance report: This form of report prepared to review the performance of the
different departments as well as of its employees to see how work is performed in the
organisation and which areas need to improve its productivity. Likewise, Alpha limited prepared
such reports to evolutes the performance of its different departments and of its employees to see
any improvement is required in their performance to match with the pre-determine standards.
Performance reports generates the actual performance of various employees to see their
commitment for the assisted work to them (Englund and Gerdin, 2018).
Accounts Receivable report: This report is used for managing cash flow of the business,
through this report information in relation to how much credit is given to its customer by
maintaining invoices that are for 30 days late, 60 days late, or more. It also provide the
companies collections process to overlook the old debts and if the customer fails to pay then
companies need to tighten its credit policies. Similarly Alpha limited prepared this report to
calculate the collection process period from its customer so that there is lesser change of bad
debts. This also provide how company maintain its cash flow for the various departments to
operates efficiently.
Budget report: This reports provide the performance of companies as a whole or as a
departments wise to see the productivity for the particular period. Through this a list of sources
of earning and expenditure for the companies is prepared. Similarly, Alpha limited prepare such
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reports to achieve it goals and mission while staying within the budgeted amount. This report
gives performance of its product and services which are provide to the targetted market. This
report generates list of all sources of earning and expenditure for the companies. Requirements
of goods and services required to a particular level of production is mentioned in the project
report.
Inventory management report: This reports provide that how much cost is included into
manufacturing of goods such as labour and overhead expense. It provide raw material to ready
to use stage in the companies. Likewise Alpha limited maintain such inventory management
reports to see how much cost is required to be incurred so that a particular product can be
produced. It also provide the requirement of product in the market by its inventory turnover
period in the companies. This report gives overall cost incurred in its production such as
material, labour and overhead costs so that management team can decided its price accordantly.
M1 Advantages of management accounting system with application
In any organisation apply different types of management accounting system that is
applied by the Alpha Ltd to formulate all the operational activities in proper manner. There are
defined different benefits of this system with their application such as: Inventory management system: It is used by the Alpha Limited to know level of stock at
every place where keep the raw material and in which stage required more material to
product the finished goods. It is applying to know right status of the stock and their
related problems (Feng and Ho, 2016). Price optimization system: The management of the Alpha limited wants to set accurate
price for pizzas that helps top attract customer regarding to products and fulfil all the
demands on time. So it is advantageous to increase profit and wealth of the business. Job order costing system: In respect to calculate the allotment of accurate funds in case
of specific job and applied by the supervisor of Alpha limited within organisation.
 Cost accounting system: In order to achieve all the detailed information about the
product require to know reason of all the expenditure and taking place due to perform
different business activities.
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D1 Analysis the way in which report and system of management accounting are integrated
within organisation procedure
In any organisation use several types of management accounting system as well as
reports to analysis all the information in detail. Through inventory management system and
reports assure about the business have enough amount to conduct different activities. The
performance report produce by the company to analysis the actual situation of the organisation.
The job order costing system to analysis the specific cost regarding to particular product.
TASK 2
P3 Apply different costing technique to calculate cost
Marginal Costing: It is a kind of costing method that utilised regrading to particular
organisation as per the evaluate extra cost of those units has been produced after special demand
of the client. In Alpha limited to determine the extra cost of pizzas required to apply particular
method (Herremans and Nazari 2016).
Absorption Costing: It is a part of cost accounting method which is used by the
organisation to capturing all costs that related with producing a specific item. To calculate net
profit by this method required to consist of fixed and variable costs. It means there are including
all the direct and indirect cost to compute the inventory price. In the context of Alpha Limited to
apply this method to analysis the price of Pizza manufacturing (Hertati and Sumantri, 2016).
(I) Income statement under absorption and marginal costing:
Absorption Costing Statement calculator
Unit Selling Price 8
Unit Cost (FC+VC) 5
Fixed Manufac Expenses 150
Non Manufacturing Exp 50
Budgeted Activity 75
Period 04/19 05/19 06/19 07/19 08/19 09/19
5

[£'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[Prod.] 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 Manufac Cost 50 50 50 50 50 50
Net Profits 175 130 220 175 180 180
Marginal Costing Statement calculator
Unit Selling Price 8
Unit Variable Cost 3
6

Fixed Manufac 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[Prodn.] 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 Manufac Cost 150 150 150 150 150 150
Less:Non Manufac Cost 50 50 50 50 50 50
Net Profits 175 100 250 175 150 200
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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
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= 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:
After installation of the new machine
Contribution Margin Per Unit = 40-14 = 26 Per unit
Break even point in units =
(180000+236000)/
26
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Ans. 16000
Break even point in Pounds = 40x16000
Ans. 640000
P/V Ratio = (Contribution Margin per unit/ Sales Price per
unit)*100 65
BEP from P/V Ratio 640000
2 c
Scenario 1. Machine is not installed:
Without installation
Sales £5,40,000.00
(-) variable cost -£3,78,000.00
Contribution £1,62,000.00
(-) Fixed cost -£1,80,000.00
BEP -£18,000.00
Current
Sales £6,00,000.00
(-) variable cost -£4,20,000.00
Contribution £1,80,000.00
(-) Fixed cost -£1,80,000.00
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