Management Accounting Systems, Reporting & Cost Analysis: Alpha Ltd

This report provides an in-depth analysis of management accounting practices at Alpha Limited, a medium-sized manufacturing company specializing in pizzas. It covers various management accounting systems, including price optimization, inventory management (AVCO, FIFO, LIFO), job order costing, and cost accounting, detailing their applications and benefits within the organization. The report also examines different methods of management accounting reporting, such as budget reports, inventory management reports, performance reports, and accounts receivable reports. Furthermore, it includes cost analysis techniques like marginal costing and absorption costing to calculate different types of costs, and it evaluates the integration of management accounting systems and reporting in Alpha Limited's processes. The study also discusses the advantages and disadvantages of planning tools used in budgetary control and compares Alpha Limited with another organization to highlight the use of management accounting in responding to finance-related problems. Desklib provides access to this and other solved assignments for students.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Different types of systems of management accounting with their essential requirements.....1
P2 Various methods used for management accounting reporting...............................................3
M1 Application and benefits of various management accounting systems within the
organisation..................................................................................................................................4
D1 Evaluation of integration of management accounting system and reporting in the
organisations processes................................................................................................................4
TASK 2............................................................................................................................................5
P3 Calculating different types of costs with the help of techniques of cost analysis..................5
M2 Accurate application of various management accounting techniques.................................11
D2 Interpretation of of range of business activities...................................................................11
TASK 3..........................................................................................................................................12
P4 Advantages and disadvantages of various planning tools used in budgetary control...........12
M3 Analysis of the way in which planning tools are used for the purpose of preparation and
forecasting of budgets................................................................................................................13
TASK 4..........................................................................................................................................13
P5 Comparison of two organisations on the basis of the way in which these are using
management accounting system to respond finance related problems......................................13
M4 Analysis of usage of management accounting to deal with financial issues faced by the
company.....................................................................................................................................16
D3 Evaluation of use of planning tools for responding financial challenges............................16
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is a technique which is concerned with analysis of performance
of organisation and formulation of strategies for betterment of it according to current situations.
In order to grow in future it is very important for all the companies to make sure that
management records are taken in to consideration by them in the decision making process so that
effective elements could be used for betterment of business (Astuty, 2015). This report is based
upon Alpha Limited which is a medium sized manufacturing company involved in the
production of pizzas. It was established as a small organisation in year 2001 and now it has
grown massively and planning for franchising the business. This assignment covers range of
topics that includes reports and systems of management accounting with methods used for
calculating costs with the help of cost analysis. Additionally, various planning tools for
budgetary control with their advantage and disadvantages along with usage of management
accounting systems for the purpose of responding financial challenges.
TASK 1
P1 Different types of systems of management accounting with their essential requirements
Management accounting is a process which is followed by managers in organisations to
carry internal analysis of the organisation so that effective decisions for future could be
formulated. It is very important for companies such as Alpha Limited to pay attention towards
proper conduction of management accounting on regular basis so that stakeholders can analyse
actual performance of company (Ghasemi, and et.al., 2016).
The internal system of an organisation which is followed to carry out operations in a
predetermined manner is called management accounting system. With the help of it managers
can assess current position of business and then try to gather detailed information for business so
that strategies for betterment could be formulated for future. In Alpha Limited different types of
systems are used by management to carry out operations properly. These are discussed below in
detail with their essential requirements:
Price optimisation system: Main goal of all the organisation is customer satisfaction and
for the purpose of achievement of it companies are required to set appropriate price for all the
products and services. For the same purpose price optimisation system is used by organisation to
analyse response of patronages on pricing policy adopted for the purpose of setting price for all
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the products. It is used by managers in Alpha Limited to set the right rate for all its pizzas so that
expectation level of consumers could be met. In order to generate higher profits this system is
essentially required for business entities.
Inventory management system: For all business entities it is very important to manage
their goods properly to execute operations effectively. Inventory management system is used by
companies for same purpose which guides manage the stock properly (Boiral, 2016). In Alpha
Limited it is also used by managers involved in the management activities of goods used for
production activities. Different types of it are as follows:
 AVCO: The inventory is used for business activities by taking average cost as the base
for them.
 FIFO: It is used by companies to use firstly bought goods to perform operational
activities properly.
 LIFO: The system in which recently purchased stocks are utilised for the purpose of
carrying out operations is known as LIFO.
From all the above described systems managers in Alpha Limited using FIFO inventory
management system because it helps them to utilise all the goods for pizza making properly.
Essential requirement of it for the business is that it guides managers to use inventory
appropriately so that funds could be saved for future purposes (Abromiley and et.al 2015).
Job order costing system: The organisations which are performing multiple activities
use it as it helps them to record data of all the operations separately. Main purpose of it is to
facilitate managers to assign and allocate appropriate costs to all the activities which are perform
by the company. In Alpha Limited managers are using it to make sure that they are allocating
right amount to business operations according to their requirements or not. One of the major
essential requirements of this system is that it helps to perform different jobs appropriately by
making sure that there are sufficient funds to execute them (Burns, Euske and Malina, 2014).
Cost accounting system: Companies are required to keep track record of all the costs
which are taking place due to operational activities. Cost accounting system is mainly used for
the purpose of analysing all the operations which are resulting in higher expenditures for
business. In Alpha Limited management is using it to figure out the activities which are creating
very high cost for business so that they can formulate strategy to reduce it and save funds for
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contingencies in future. It is required for the enterprise because it facilitate the managers to
forecast the most and least profitable activity of business.
P2 Various methods used for management accounting reporting
Top level executives of companies require that they get detailed information of
operations in s single document so that their time which could be invested by them in the
analysis could be saved. For this purpose management accounting reporting is used by large as
well as small enterprises as with the help of it they can analyse actual position of business. In
Alpha Limited managers are also using it to deliver accurate and efficient information of
operations to the stakeholders so that their interest within the organisation could be enhanced. In
order to keep track record of all the business activities different reports are generated by the
management of company (D'Onza, Greco and Allegrini, 2016). All of them are as follows:
Budget report: In order to allocate funds to all the business activities this report is
created in business entities. Management in Alpha Limited is also generating it as it facilitate
managers to compare current and previous year's performance and then forecast future events.
Main benefit of it for businesses is that is help to project such activities which are having
possibility of taking place in future.
Inventory management report: The document which is generated to keep record of
stock used for operational activities is known as inventory management report. With the help of
it managers can make sure that they order goods for operations on time. In Alpha Limited it is
used to determine that company have sufficient material to produce pizza according to
requirements of customers. It is very beneficial for enterprise because by using it managers will
be able to keep detailed data of inventory utilised for operations.
Performance report: For companies it is very important to keep information about its
own and employee's performance so that effective judgements could be formed for betterment of
business. In Alpha Limited it is generated by managers to analyse that all the strategies which
were formed by them for business are able to improve performance or not. They also use it to
make sure that all the staff members are contributing in achievement of organisational goal or
not. One of the main advantages of it is that it facilitate in decision making for future
developments (Grunewald, Syrbe and Bastian 2014).
Account receivable report: When companies deal in credit and clients ask to pay the
amount after a certain period of time then to keep track of such transactions this report is
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generated. Alpha Limited also formulates it to make sure that all the customers who are allowed
to take credit are paying the outstanding amount on time or not. It is advantageous for business
as it allows top executives to analyse that owed amount is received on time or not. It also guide
them to tighten the policies of providing credit if clients get failed to pay the due amount on
time.
M1 Application and benefits of various management accounting systems within the organisation
There are various types of management accounting systems which are used by managers
in Alpha Limited. All of them with their benefits and applications are as follows:
Management
Accounting systems
Application and benefits
Cost accounting system Management in Alpha Limited are applying cost accounting system
within the company because it helps to record expenses
appropriately which are related to manufacturing operations.
Job order costing system In Alpha Limited managers apply this system to record information
of each and every job separately so that benefit of detailed data of
them could be acquired.
Inventory management
system
It is applied within Alpha Limited by managers to make sure that
they are keeping detailed information of goods used for business
operations so that it can help to perform operational activities
effectively.
Price optimisation system For the purpose of attracting large number of customers this system
is applied by managers of Alpha Limited.
D1 Evaluation of integration of management accounting system and reporting in the
organisations processes
For all the companies it is vital to keep detailed information of all the operational as well
as executional activities so that appropriate strategies for future could be formulated. Some of the
systems which are used in Alpha Limited for same purpose are cost accounting, job order, price
optimisation and inventory management. The reports that are formulated are performance,
account receivable, performance and budget. Price optimisation system guide managers to set
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appropriate rates for all its food items so that large number of customers could be attracted and
operational activities could be performed. On the other hand, performance reports are used to
keep information of organisation's performance and other activities so that appropriate decisions
could be formulated for future.
TASK 2
P3 Calculating different types of costs with the help of techniques of cost analysis
Marginal costing: It is a system which is used to identify the cost of additional unit
which is produced by companies according to requirements of clients. In Alpha Limited it is used
by managers to analyse the expenses which are taking place due to production of extra pizza so
that accurate profits could be calculated (Heinzelmann, 2016 ). The calculation on the basis of
this technique are as follows:
Problem 1 (1)
Cost card
Cost card (Marginal costing)
£/unit
Unit Variable Price 3
Marginal Cost 3
Selling price 8
Less- Marginal cost 3
Contribution 5
5

Profit and loss account:
Working note 1
Absorption costing: It can be defined as a system of costing which is mainly used for the
purpose of making sure that cost of all the units gets absorbed from the sales of same products.
In Alpha Limited it is used by management to calculate profits by taking fixed and variable costs
in to consideration (Luft and Shields, 2014). Calculation of net income with the help of this
method is as follows:
Cost card:
6

Working notes:
7

2.
Problem 2/ 1 (a)
8

Problem 2/ 1 (b)
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Problem 2/ 2 (a)
From the above calculations it has been assessed that if company will not install the
machine then a loss of 180000 pounds could be faced by it.
Problem 2/ 2 (b)
10