Management Accounting Techniques: Evaluating Alpha Ltd's Strategies

This report provides a comprehensive analysis of management accounting techniques, focusing on a case study of Alpha Ltd. It begins with an introduction to the importance of effective decision-making in a competitive environment and the role of management accounting techniques. The literature review explores traditional costing methods and Activity-Based Costing (ABC) systems, comparing their strengths and weaknesses. The discussion section examines Alpha Ltd's transition from traditional to ABC costing, considering the challenges and benefits of each approach. The report highlights the importance of choosing the right accounting techniques for service-based businesses and discusses various cost allocation methods, such as direct labor, machine time, and square footage. Ultimately, the report concludes with recommendations for Alpha Ltd to optimize its financial strategies and improve its business operations. The analysis underscores the need for companies to adapt their accounting practices to enhance productivity and overall performance.

Management Accounting
Techniques

Table of Contents
INTRODUCTION...........................................................................................................................3
LITERATURE REVIEW................................................................................................................4
DISCUSSION..................................................................................................................................6
CONCLUSION AND RECOMMENDATION...............................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
In present competitive and ever-changing environment, it is necessary for an organisation
to decided crucial and effective course of decision-making. In order to attain their future aims
and objectives, managers needs to make use of range of management accounting techniques. The
financial transaction leads to supports effective decision within “Alpha Ltd”. Management
accounting is a general practise that draws financial data in more accurate manner in their
respective formats. The purpose of using management accounting techniques is to control and
manage every transaction in systematic manner so that chances of mistakes can be reduced.
Moreover, the way in which management accounting techniques assists in supporting strategic
decision making (Albu and Albu, 2012).
The primary motive of this particular research is to determine key problems those are
associated with Alpha company and make appropriate solution to them. Identification of
complexity in the business is increase their daily operations. The major issues found in the case
is about lack of accounting skill that is not present in both the directors. Understanding of using
activity based costing system discuss under this report. Use of two cost allocation system and
their respective sources are evaluated clearly and on that basis valuable recommendation is being
made for the company.
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LITERATURE REVIEW
According to DRURY, (2013) this is a simple summary of various sources, but it usually
has a Alpha Ltd pattern and combine both summary and critical information. It is a positive
evaluation of available that indicate various issues those are related with accounting techniques.
According to the information provide under the mentioned case regarding a consultancy firm
which is based on Human Resource services. The company has provided positive trend in their
financial performance over last previous years. Because of this, they are shifting from small size
to a medium company. The complexity in their business operation is simultaneously increasing.
By seeing those they have decided to mover from traditional allocation of system for indirect
costs to activity based costing system. There are various source associated with performance of
the company. Some of them are discuss underneath:
Traditional costing method: This is one of the effective accounting techniques use for
the purpose of allocating factory overhead those are based on total volume of production
resources. In this method, overheads are mainly applied to those condition either the amount of
direct labour hours taken by machine for producing their products and services. In the words of
Ward, (2012) these are related with applied indirect costs to products those are based on a
planned overhead rates. In case, direct costs are minimum as compare to direct costs the chances
of traditional costing goes on optimal level. The primary trouble related with traditional costing
is based on factory overhead which is much higher than overall allocations. It use to provide
small modification in total capacity of resources consumed triggers as huge change in overall
amount of overhead. This is one of the oldest techniques which is being used by “Alpha Ltd” in
their daily business operations. Because they are increase their business capacity and ability
toward medium size company they have been decided to make use of other method which is
helpful in generating more effective outcomes for the company.
ABC costing: It is an essential or modern accounting techniques that is used to identify
various activity that Alpha Ltd in taken into consideration. They assign indirect costs to a
products in order to get more effective outcomes during the period of time. It used to recognise
certain relationships among costs, activity and products. In the opinion of Anandarajan,
Anandarajan and Srinivasan, (2012)it would assists to indirect costs to each products which is
less expensive as compare to traditional methods. There are various types of costs which is hard
to assign by using this particular costing accounting techniques. Such as management and office
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employee salaries are some tough indirect costs which are difficult to assign to a specific product
manufacture. These are mainly helpful in production sectors as it would assists in enhancing the
overall reliability of cost data in order to produce more effective and quality products to an
organisation.
Traditional vs ABC costing
Traditional ABC costing
This cost is very much old techniques which is
used by Alpha Ltd in their business operations.
This happens to be latest costing method use by
an organization.
It is use to assigns for a particular design costs
to both products those are relate with machine
hours.
Such kind of costing is assign with a product
which is design costs to an individual products
in case product require any work design.
In this type of costing which is associated with
customers order costs, a batch level costs
through using unit level of allocation.
Whereas, ABC costing use to assign these
batch level costs which is related with batch
level activity measurement.
These costs are generally related with
manufacturing costs which are applicable to a
product produce.
ABC costing cannot assign organisation
sustaining production costs to a specific
products.
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DISCUSSION
As, it has been found in the mentioned case of Alpha Ltd that both partners have decided
to increase their growth and sustainability by moving from traditional accounting techniques to
ABC costing. For this purpose, they don't have that much knowledge about accounting systems
and techniques. As discuss about those two effective methods those are crucial enough for Alpha
Ltd to manage and operate their business into a next level. This will assists in increasing
productivity as well as overall increase in performance of the company. According to the
information provided in the mentioned case that Alpha company is dealing service industry.
To maintain their best and superior quality in their services they need to make use of
latest techniques which will be helpful in delivering more suitable and reliable outcomes in near
future. It has been seen that service providing in much more difficult task as compare to other
business activities that are being done by various company. To become more accurate and
reliable for longer period of time in the same business, it is crucial to have suitable accounting
techniques that can assists in providing more effective results to the company (Vakalfotis,
Ballantine and Wall, 2013).
Businesses are using costing techniques in order to assign costs to respective products
and services. This include all costs of producing a products in accordance with using total costs
to it. It consists of direct costs such as labour cost, depreciation on machinery and other overhead
costs.
There are various advantages of using traditional costing system such as:
 It is assists in proper allocation of factory expenses overhead to a products which is being
based on the total volume of production resources utilised.
 This types of costs include much higher costs of producing a products in order to total
cost of production.
 It is more effective in case overhead of Alpha Ltd is much lower as compare to direct
costs of manufacturing (Zainun Tuanmat and Smith, 2011).
 It would assists in calculating reasonable accurate cost of figure when the production
capacity is much larger and other overheads are kept on changing cannot create any
difference.
Disadvantage:
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 Accounting measurement issues: This types of accounting practice can provide
misleading performance for every businesses that are no longer associated with the
production of an individual products.
 Continuous accounting practices: As business operations of Alpha Ltd in moving at
faster rate toward mid size company, its accounting practices would changes to be more
efficiently (McNeil, Frey and Embrechts, 2015).
 With the change in business environment: In case of modern businesses, likewise it
have become more less dependent on lobar usage and does not keep their machines busy
at every time to deliver best outcomes for an organisation.
Advantages of ABC costing:
This techniques is more crucial for assigning costs to a specific products, service projects
and other acquisition those are associated with activities that are going into their daily course of
action. Some crucial benefits of using this costing to Alpha business operations are discuss
underneath:
 It would assists in determining overall individual products that remain unprofitable.
 Because, this company is increasing with higher speed so they need to use this techniques
in order to increase their production efficiency (Sunarni, 2013).
 Price of products are appropriately by the help of accurate products cost data which is
being used during production process.
 This costs use to reveal unnecessary cots those are affecting the performance of an
organisation.
Disadvantage:
 It is much more costly to implement and maintain accurate data about overall costs of the
Alpha Ltd.
 ABC costing use to produce that reports which are relatively different from profit and
loss reports those are being produce by traditional costing.
 Adaptability of using ABC costing is not suitable for the company because small
company do not have resources to manage their overall business transaction in too
limited costs.
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CONCLUSION AND RECOMMENDATION
From the above used various types of sources those are helpful for Alpha Ltd concluded
that allocation and apportionment are one of the best accounting techniques for attributing costs
to determine total costs of production. Under this report, costs would be assign to those rules and
formulas instead of measuring resources those are being used directly. Assigning cost amount to
a particular cost objects is more crucial task in budgeting, planning and overall financial
reporting purposes. Implementing an activity based costing needs effective planning by taking
vital information from upper management. If necessary, it is one of the best techniques to
examine overall production capacity of succeeding and presenting that an ABC costing is worth
the efforts. The first thing a business must need to do during the use of ABC which is being set
up by a team member with determining overall activities those are essential for every products
and services. It is used by large organisation were the only businesses get associated within
activity based costing techniques. Time related with ABC needed for each group of resources by
estimating two parameters. The entire overhead expenses of an individual department must
divided through using number of time employees taking to produce a products.
Cost allocation methods: There are various types of costs allocation methods those are
being used to allocate factory overhead to a units manufacture during the time. Allocation are
preformed in accordance to formulate financial statements those are being in compliance with
the use of accounting framework (Cost allocation methods, 2018). The most common allocation
techniques is mentioned underneath:
 Direct lobar: It has been seen that overhead expenses is applicable only on total amount
of direct labour consumed during the production of each units. This is more crucial an
easy ways to make calculation more effectively. However, the costs of direct labour
working can be varies from little than the amount of factory overhead.
 Machine time: Another useful cost allocation method which is based on overall amount
of machine time is applicable to a product size. This will be helpful to analyse total time
taken for the purpose of producing specific amount of products.
 Square footage: It can be helpful to make difference out of those overhead costs
associated to stock storage. This is more accurate ways which is associated with certain
overhead costs with a products. It is more difficult to track the exact costs of a products.
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From the above literature reviews and discussion, it has been concluded that both
management accounting techniques are effective at their respective places. As traditional costing
is more older which is based on outdated techniques which is being used during production
processes. Whereas, ABC costing is latest edition of accounting techniques which would be able
to delivery more quick and reliable outcomes for “Alpha Ltd”. If the company wants to grow in
more effective manner then they need to make use of effective techniques. These are more
crucial for the company to make use of latest techniques so that chances of mistakes can reduce
in more quick and easy manner. The overall growth can be attain in more effective ways by the
help of these costing techniques.
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REFERENCES
Books and Journals:
Albu, N. and Albu, C. N., 2012. Factors associated with the adoption and use of management
accounting techniques in developing countries: The case of Romania. Journal of
International Financial Management & Accounting. 23(3). pp.245-276.
DRURY, C. M., 2013. Management and cost accounting. Springer.
Ward, K., 2012. Strategic management accounting. Routledge.
Anandarajan, M., Anandarajan, A. and Srinivasan, C.A. Eds., 2012. Business intelligence
techniques: a perspective from accounting and finance. Springer Science & Business
Media.
Vakalfotis, N., Ballantine, J. and Wall, A.P., 2013. A literature review on the impact of
enterprise systems on management accounting.
Sunarni, C. W., 2013. Management accounting practices and the role of management accountant:
Evidence from manufacturing companies throughout Yogyakarta, Indonesia. Review of
Integrative Business and Economics Research. 2(2). p.616.
McNeil, A.J., Frey, R. and Embrechts, P., 2015. Quantitative risk management: Concepts,
techniques and tools. Princeton university press.
Zainun Tuanmat, T. and Smith, M., 2011. Changes in management accounting practices in
Malaysia. Asian Review of Accounting. 19(3). pp.221-242.
Online
Cost allocation methods. 2018.[Online].Available through:
<https://www.accountingtools.com/articles/cost-allocation-methods.html>.
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