Management Accounting Techniques and Systems Report for Alara

This report, prepared for Alara Limited, a food manufacturing company, delves into the significance of management accounting in organizational decision-making. It explores the importance of management accounting in forecasting, make-or-buy decisions, cash flow forecasting, performance analysis, and return on investment analysis. The report then examines various management accounting systems, including cost accounting, inventory management, job costing, and price optimization systems, highlighting their benefits for businesses. It also covers the application of absorption and marginal costing techniques, including supportive calculations and reconciliation of profit and loss statements. The report further discusses planning tools used in management accounting and compares the application and effectiveness of management accounting in addressing financial problems, concluding with a comprehensive overview of the subject matter.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION..........................................................................................................................................................1
Section 1..........................................................................................................................................................................1
LO1.................................................................................................................................................................................1
1. Explain why management accounting is important in decision making process for improving the performance
of the company.....................................................................................................................................................1
2. Different types of management accounting systems used for reporting..........................................................2
LO 2 ...............................................................................................................................................................................3
3. Benefits of types of management accounting systems ...................................................................................3
4. (a)Use of absorption and marginal costing techniques....................................................................................4
4 (b) Supportive calculations and difference of profit under each technique......................................................5
4(c) Reconciled statement of profit and loss showing reconciled profits............................................................6
Section 2..........................................................................................................................................................................6
LO3.................................................................................................................................................................................6
Part A..............................................................................................................................................................................6
Three planning tools used in management accounting ......................................................................................6
PART B...........................................................................................................................................................................7
LO 4................................................................................................................................................................................7
PART B...........................................................................................................................................................................7
Compare ways in which management accounting is applied and effectiveness of MA in dealing with financial
problems...............................................................................................................................................................7
CONCLUSION...............................................................................................................................................................8
REFERENCES................................................................................................................................................................9

INTRODUCTION
Management accounting is the analysed as managerial as well as cost accounting which implies to the
process of recognizing the costs of business and operations in order to develop company's financial reports, records
and accounts in order to aid the manager in the process of decision making for the achievement of organisational
objectives (Hilton and Platt, 2013). Further, it is also considered as an act of creating sense of costing along with the
financial data and transformation of those collected in the form of useful information for management of company
and its officers. In this report, As a junior management accountant for Alara Limited, various management
accounting systems have been discussed along with its importance in the process of making effective decisions
within an organisation. Alara is a successful and dynamic company dedicated to manufacturing of food products
with appropriate quality and sustainability, located in London (Alara, 2017). Present report will also determine the
ways through which the management accounting uses the financial data in order to support the decisions, controlling
and control of finance within an organisation. Moreover, different types of management accounting systems are
determined along with their benefits for Alara.
Section 1
LO1
1. Explain why management accounting is important in decision making process for improving the performance of
the company.
“According to (IMA), Management accounting is most effective profession which involves the partnering
in the company's decision-making, planning and performance management systems along with providing an
expertise in the financial reporting and control in order to assist the management towards formulation and
application of an company' strategy”. It also involves creation of financial statements so that officers will be able to
develop short ad long terms plans for the specified period (Ward, 2012). In this context, management accountants of
Alara have also considered it has important tool used in decision making process. Below given points will determine
the importance of management accounting in decision making process.
 Helps in forecasting the future: This system of forecasting in making decisions and answering the
questions to management of Alara about investment in equipments, diversification in other markets, merger
and acquisitions of other company. It helps the officer of Alara in analysing the future trends in their
business.
 Helps in make and buy decisions: Cost as well as availability are considered as deciding factors in this
choice. In Alara, through management accounting, insights and analysis will be developed by managers
which can enable to take decisions at operational as well as strategic levels (Parker, 2012).
 Forecasting the cash flows: Management accounting provides an correct estimation of cash flows and
their impact on the business which is considered as essential for making decisions. It also helps in
analysing cost needs to be incur by Alara on manufacturing of products in the future, source of revenues,
increase or decrease in revenues in the future etc. It involves designing and creation of budgets and trends
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for accounting officers and manager to use this information to decide the allocation of financial resources
in order to generate projected revenue growth.
 Helps in analysing the performance variations: It is also helps in analysing the discrepancies in business
performance which implies to the variations among the set standards and actual outcomes (Soin and
Collier, 2013). Management accounting utilizes the same analytical techniques in order aid the
management to develop on the positive variations and control the negative variances.
 Analysing the ROR (Rate of return): Decisions related to investment of financial resources of company are
considered as crucial. Managers and directors in Alara are responsible to take those decisions by analysing
expected rate of return (Banerjee, 2012). This system of accounting will provide information about the
years in which company will receive its returns and cash flows in the future. It helps in making decisions
related to profitable investments.
Difference between management and financial accounting
Management accounting Financial accounting
It is the process of development and designing of
management reports as well as accountants which
provides an accurate and periodic financial and
statistical information to the managers for making short
and long term decisions.
While financial accounting is used to provide
information to external and internal stakeholders of the
organisation. Financial statements are prepared by
accountants to attracts the investors.
It usually finds outs corrective measures, recognizes and
communicates information to provide competencies to
organisation to improve its performance and achieve its
objectives.
Aimed at supporting the managers inside the
organisation with the decision making (Lavia López and
Hiebl, 2014). Help the Investors to analyse the
company's financial position.
2. Different types of management accounting systems used for reporting.
Management accounting system is a complete framework consists of various methods that should be used
the managers to measure and evaluate their processes for the management of enterprise. Its most recognised
components are the budgets, internal reports of performance that is used to make comparison of budgets, income
statements, sales analysis as well as return on investments (Contrafatto and Burns, 2013). In this context, there are
some important systems have been analysed that should be used by managers of Alara for reporting such as:
 Cost accounting systems: A cost accounting systems is an important framework that has been used by the
organisation for estimating the actual costs of products manufactured by them in order to analyse the
profitability, valuation of inventory along with cost control. Aids the management of Alara to analyse
which products will be more profitable for them and this will be ascertained only when they will have
estimated relevant cost of products (Herbert and Seal, 2012). There are two costs accounting systems such
as job order costing and process costing.
 Inventory management systems: These are the systems used by company to track goods through entire
supply chain or the portion of it in which the business operates in. Alara manage their inventory on the
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daily basis as they place new orders to raw materials and takes order from customers for delivery of
finished goods.
 Job costing systems: A system of job costing involves the process of accumulating information about the
costs which is associated with a specific product or service job (Bouten and Hoozée, 2013). Further,
Information collected by organisation is useful for determination of the accuracy of the Alara's estimating
systems that will be able to estimate the prices which allows for a reasonable profit. In this, managers
needs to accumulate the three types of information such as direct materials, direct labour and overheads.
 Price optimization systems: It implies to utilization of mathematical analysis by the Alara in order to
determine how its customers will respond to the different prices for its products and service through the
different channels. It is also used to determine the prices that the organisation disclosed will best meet their
objectives such as maximization the operating profits (Herzig and et.al.,, 2012). Data which are used in
these systems involves operating costs, inventories and historic place and sales.
Thus, it can be said that these managements accounting systems will help the management of Alara to
analyse their costs of present as well as future operations.
LO 2
3. Benefits of types of management accounting systems
Owners of small and medium size business enterprise use management accounting reports for tracking,
recording and reporting the important financial information for the managerial review (Kotas, 2014). Management
accounting usually does not follow the any national accounting standards. In this context, Management of Alara use
these accounting system reduce their costs of operating business. There are some benefits of these managements
accounting systems used in reporting which are as follows:
 Costs accounting systems: This method of management is considered as beneficial as it helps the
management in analysing the cost which is incurred on manufacturing of particular product or service so
that company will be able to analyse the profitability (Cadez and Guilding, 2012). Through this, manager of
Alara will be able reduces their other expenses on manufacturing of products. Actual cost which is
incurred can be compared to the budgeted, to analyse that any part of business is spending more than
expected.
 Inventory management systems: Effective inventory management system will help the company to figure
out exact requirement of raw materials which makes easier to prevent product shortage and keep just
enough inventory in hand (Cuganesan, Dunford and Palmer, 2012). Further, it helps in retaining customers
by providing correct information about inventories available at workplace. Beneficial for enterprise to
reduce its cost of inventories and wastage of raw materials as it help in accurate planning and tracking the
orders of inventory. Save time of managers by keeping track of all the products.
 Job costing systems: Through this system manager of Alara can ascertain the cost any stage of
accomplishment of production of products and services. Profits earned from sale of every product is
determined separately in this system (DRURY, 2013). In this, managers will able to compare each element
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of cost, selling price and gains will be compared with the estimated in order to control the cost and
reduction so that profits on each job will be maximized in job costing.
 Price optimization systems: This system provided benefit to the company through determination of
effective prices at which they will be able to reduce the prices of products and services (Arroyo, 2012). By
analysing the competitors prices in the market , company will make assumption about the prices at which
customers will agree to buy their products. Helps in sustaining products of Alara at growth stage and
beneficial for the reducing the costs of production. Through this, company will make efforts to reduce cost
of manufacturing its products and meeting the customer expectations.
4. (a)Use of absorption and marginal costing techniques.
Absorption costing is the most effective and accurate method used by management to identify the cost
associated with a production process and appointing them to the individual products. Further, this type of accounting
system is needed by standards of accounting for creation of evaluation of inventory which is determined in the
balance sheet of company. It mainly involves components like direct labour, materials, variable and fixed overheads
(Hiebl and et.al., 2013).
On the other hand, Marginal costing is an accounting system in which the variable costs are also charged on the
costs of units and also fixed costs of the period which are written off in full against the cost aggregation
contribution. Moreover, marginal cost of product is the total of direct material, labour cost, expense and variable
production expenses. Fixed will remain unchanged in this system regardless of the volume of production and sale.
Interpretations: From the above table, it has been analysed that the per unit cost of manufacturing the product under
the method of absorption costing is 0.85 whereas under marginal costing method, it is 0.65. This major difference in
the costs is occurred because the method of marginal costing does not consider the fixed production overheads and
only consider variable cost for the determination of cost of products.
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Table 1 Calculation of unit cost under marginal and absorption costing

Interpretation: After making comparison between both systems, it can be said that for 1 st quarter Marginal costing
method has reported the less amount of profits of 1900 as compared the absorption costing of 4700. Similarly, in the
next quarter. Net profits under Absorption costing is 5900 which is higher than MC of 4700.
4 (b) Supportive calculations and difference of profit under each technique.
As per the above profits and loss statements which are formulated under marginal and absorption costing
method, organisation will attain different profits. Major difference in the both method is that fixed production
expenses are not included in calculation of profit under marginal costing method (Klychova and et.al., 2015).
Therefore, in the marginal costing, the per unit cost of product calculated is 0.65 whereas 0.85 has been obtained by
using the method of absorption costing.
Further, different in the net profits earned by company in both methods have been occurred because fixed overheads
of production are considered in the by the marginal costing. It is so because, method of marginal costing is based on
the estimation that firm only incur variable cost for manufacturing of products and fixed will arrive at nil under
production. Through utilization of AC method, the revenue of fixed production costs is 16000, moreover, company
has also estimated their cost of single unit is 0.2 by dividing 16000 with the overall sales which is 80000. Further,
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Table 2 Profitability statement under Absorption costing
Table 3Profitability statement under marginal costing

the amount of 13200 was also deducted as absorption cost from the overall fixed cost which is determined as 16000
and it will state the unabsorbed revenue which is 2800
4(c) Reconciled statement of profit and loss showing reconciled profits.
In this, the reconciled statement of profit and loss determines the profits of Alara with the 1900. This has
been occurred after adjusting the amount that is associated with the first quarter. In the second quarter, 4700 profits
has been incurred within the organisation by utilizing the method of absorption costing. Through use of this, it has
been understood that organisation is in good position to maximize profits as compared to the first quarter.
Section 2
LO3
Part A
Three planning tools used in management accounting
In every business enterprise, planning plays an important role in the process of making effective decisions.
These techniques will provide a major impact on the profitability of enterprise. These planning tools will help the
enterprise to utilize its resources so that they will be increase their performance level in effective manner (Tappura
and et.al., 2015). In this context, Nero Ltd should use these planning tools for the analysing that products will be
manufactured in expected cost. Three significant planning tools have been discussed should be used by Nero LTD in
order to resolve problems like:
 Budgeting: It has been analysed as an activity which is used by the management for identifying the events
in the future. Budgeting is the most important process which is used for creating plans in order to make
expenses of company's financial resources (Harris and Durden, 2012). Preparation of relevant will help the
management of Nero Ltd to determine the financial position of enterprise and requirement of financial
resources in present and future for production and other business operations. It involves proper allocation
of resources for each activity which help in resolving the problems of shortage of financial resources
because each task needed to be accomplished under specified cost. Budget is considered as calculated plan
of anticipated income and expenses which provides a way to company for performance which is to be
measured against projections. As compared to ratio analysis budget are less time consuming and requires
less efficiency for preparation.
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Table 4Reconciliation statement

 Annual budgets are tool used for estimating expenses and income. Interim budget reports will provide a
picture of financial health of company's programs and help manager to anticipate financial problems so that
they can make adjustments for resolving the problems.
 Ratio analysis: One of the best planning tool should be used by managers of Nero Ltd in order to analyse
firms financial statements. It is medium to analyse the financial weaknesses and soundness of the company.
By taking objectives of analysis in mind accountants needs to select appropriate data for calculating
appropriate ratios (Kihn and Ihantola, 2015). It used to understand the firm's financial strength and
weaknesses, measurement of operational efficiency, review of past year activities, efficiency level, making
predict of future plans, optimizing capital structure and measurement of liquidity, profitability, solvency as
well as managerial efficiency. In this statement, it includes profit and loss account, balance sheet and cash
flow statement which is based on operational and financial transactions. Ratio analysis will help the
enterprise in ascertaining its efficiency in market through which the managers will be able to take
corrective decisions through analysis of trends. As compared to budgeting, it is effective because it
provides actual liquidity position of company whereas budgets are based on estimation but takes more time
calculation of ratios.
 Management information system: It is also considered as computerized data base of the financial
information which is organisation as well as programmed in different ways so that it produces reports of
operations on daily basis for every level of management in organisation (Management Information Systems
(MIS), 2017). Main purpose of MIS is to provide a feedback to managers about their efforts and
performance. Information provided by MIS helps the manager to find ways to improve company's
performance. Different types of management accounting report can be prepared by manager at regular
interval to analyse the cost, sale, profitability and liquidity of business. For example: Manager of Nero Ltd
can produce job costing and process costing report, sales report etc. As compared to ratio analysis and
Budgeting, MIS is better and effective software because it provides correct information based on accurate
data which helps in taking decisions to resolve financial problems.
PART B
LO 4
PART B
Compare ways in which management accounting is applied and effectiveness of MA in dealing with financial
problems.
 Identification financial problems: Through use of various key performance indicators is considered as
measure have been used by management to reflect the success of organisation in relation with the specified
goals (Nielsen, Mitchell and Nørreklit, 2015). The main purpose of these KPIs is considered as a measure
which is used to monitor the progress towards the accomplishment and strategic objectives which are
typically communicated in the map of strategy. In this context, there are various financial problems which
can be faced by company like Reduction in sales, rise of cost of operations, decline in profitability and
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shortage of financial resources. By setting a benchmark, managers of Nero Ltd will also able to set up the
difference between the various information
 Variance analysis: It is also considered as important method which is used by management , defines the
variations which are arrived in the company's financial performance as compared to the pre determined
budgets. Further, there are various type of financial situations in which expenses of Nero limited will
increase and provide difficulties to management . By using variance analysis, managers enable the Nero
Ltd to analyse the cost and fill gaps to resolve issues faced by organisation that provides negative influence
on resolutions of problems. After identification, manager will be able to make effective plan for resolution
of problems.
 Financial governance: Financial governance is skill set and system of rules, practices and the processes
through which company can direct and control is financial statements (Kokubu and Kitada, 2015). A large
part of financial governance is identified a organisation capabilities of reporting that involves everything
from the internal controls, audits and processes workflows, financial controls, data security and reporting
integrity etc. In this context, management of Nero LTD will keep remain updated on compliance
regulations, conduct frequent analysis of risk and internal and external audits in order to develop good
governance and resolution of financial problem.
 Hiring qualified employees: In order to resolve the financial problems, it is essential for the management
to maintain qualified and skilled management accountant with enterprise which have required skills and
helps identification of problems that can arise in the future, Effective employees will enable the company to
analyse effective ways which can be applied to resolve problems (Suomala and Lyly-Yrjänäinen, 2012).
They must have skills like management, communication, analytical and professional accounting skills to
calculate ratios and able to develop financial statements of enterprise.
 Effective strategies and systems; effective strategies like budgeting can be used by the management of
Nero Ltd for allocation of resources in effective manners which helps them in resolutions of financial
problems like shortage of funds. By using this method, manager of the cited firm can resolve the problem
of cash flow and remove the complications so that all the financial problems can be resolved.
CONCLUSION
In this report, it is concluded that management accounting system plays an important role in analysing the
firms financial position. There are various management accounting systems like cost accounting system, job costing,
price optimisation and inventory management systems which is used by the enterprise to resolve the problems.
There are various management accounting reports that needs to be prepared by the management accounts in order to
analyse cost which is incurred by enterprise to manufacture the products and services. Budget is considered as
calculated plan of anticipated income and expenses which provides a way to company for performance which is to
be measured against projections. Ratio analysis will help the enterprise in ascertaining its efficiency in market
through which the managers will be able to take corrective decisions through analysis of trends. Moreover, there are
various ways through which management accounting can be applied like budgeting, financial governance and
variance analysis in order to resolve the financial problems.
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Online
Management Information Systems (MIS), 2017. [Online]. Available
through:<https://www.inc.com/encyclopedia/management-information-systems-mis.html>
Alara, 2017. [Online]. Available through:<http://www.alara.co.uk/index.php?action=art_zobacz&art_id=1>
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