Comprehensive Management Accounting Report for Alpha Limited, UK

This report provides a comprehensive analysis of management accounting principles and their practical application within Alpha Ltd, a UK-based pizza manufacturing company. It explores various management accounting systems, including price optimization, inventory management, job costing,...Read More

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Different types of systems of management accounting and their application..................1
P2. Methods for preparing accounting reports.......................................................................2
M1. Benefits of systems with their applicability....................................................................4
D1 Management accounting systems and reporting are integrated with process of
organisations...........................................................................................................................4
TASK 2............................................................................................................................................5
P3. Calculation of cost with distinct costing techniques........................................................5
M2. Diverse management accounting techniques................................................................12
D2. Financial reports that accurately apply and interpret data.............................................12
TASK 3..........................................................................................................................................12
P4 Advantages and disadvantages of different types of planning tools...............................12
M3 Use of planning tools and its application for preparing and forecasting budgets..........14
TASK 4..........................................................................................................................................14
P5 Organizations are adopting management accounting system to respond financial problems
..............................................................................................................................................14
M4 Management accounting can lead to sustainable success..............................................18
D3 Planning tools for accounting respond by solving financial problems...........................18
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting is the procedure of evaluating the cost of enterprises and their
operations to produce internal financial report, records and account to aid manager's decision
making process in accomplishing business goals. It plays significant role to concentrate on all
business information and arrange effectively to make decision (Abdel-Maksoud, Cheffi and
Ghoudi, 2016). Without management accounting organisation can not produce accurately reports
and keep records to present in front of internal management. This report based upon Alpha
limited, which is a manufacturing organisation. It is established in UK and specialise for Pizzas.
This report will be covered different topics such as various kind of management accounting
system to analysis actual position of the organisation, different method of report to know detailed
information about company. Along with compute BEP analysis, net profit through costing
technique such as marginal and absorption. Apart from the report to forecast and preparing
budget apply different planning tools as per the company position and related risk to prepare
effective strategy, identify all the financial problem through management tool and apply
effective solution through system.
TASK 1
P1. Different types of systems of management accounting and their application
Management accounting is defined as technique that applied by the organisation to
collect all the financial information and record in the reports. The higher authorities can
determine the efforts for the modification of organization that provides result in positive as well
as negative way. The manager of Alpha Ltd can apply it to present all the accurate information to
the management.
Management accounting system is internal part of the company that apply by the
management to evaluate actual position of the company. Top level executives of Alpha Ltd
direct to manager to apply the system to collect all financial data (Arunruangsirilert and
Chonglerttham, 2017). There are analysed underneath:
Price optimization system: This system is play essential role to set price of different
products after conduct market research and know different views of the customer. So after
research company set effective prices all the products to attract customers regarding to business.
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Such as manager of Alpha Ltd usage this system to set price of the products. This system guides
to manager how to set effective price.
Inventory management system: this system is mainly applied in the production
companies where follow the particular procedure to monitor and record all the information which
is related to stock to bring out all the operations in known as inventory management system.
Such as Alpha ltd apply this system to analysis the position of raw material at each level of
manufacturing. So it helps to collect all detailed information about stock and how to utilised in
different stages. The manager will require to analysis these activities or not (Banham and He,
2014). A company can select one appropriate method from these such as: AVCO (Average cost method): As per the method all the stock is calculated by the
business at average cost basis and conduct activities according to it. FIFO (First in first out): In this method manager can set price and sell out those
products that come first in the organisation specially in food manufacturing companies.
 LIFO (Last in last out): This method defines that those products sell out which was
coming in last in the company.
Job costing system: Different types of companies perform several operations for
bringing out all the activities and keep all the detailed information which is collecting through
particular system. The management of Alpha Ltd can use it to predict and assign manufacturing
costs from various units that are produced it. It is important for the business for the segregate
expenditure that present as per the requirement.
Cost accounting system: The particular framework is focused on the business and help
to evaluate the cost with the help of different items that produced. The manager of Alpha Ltd are
applying it to predict the right cost that have taken place due to produce pizzas so that most
profitable activities could be determined. It is essential for the business to predicting future
expenses that could be performed (Guffey and Harp, 2016).
P2. Methods for preparing accounting reports.
Management accounting reports: Management accounting reports are used in the
planning, regulating, decision making and measuring performance. It provide more inside
information through the financial accounting. Alpha limited, generates these reports through the
accounting and bookkeeping information. Manager analyse these reports and convert them into
useful information for the company. These reports are made so that manager can make informed
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business decisions to reach its goal on time and in efficient ways. It provide standard
information to make good decision in the long run.
Inventory management report: Inventory management report provide the trends in the
market, identifies the strength and weakness of the company. It provide useful information so
that manager can fill the gap and inefficiency in the production process. This helps Alpha limited
company to see the real time movement of the stock in the process. It provide the track record of
cost of good sold. It helps in avoiding the under and over evaluation of the stock in the process.
It makes up a large part of the total assets of the company. In the companies, these inventory
may be defined as the goods held for the sale in the ordinary course of action. it also include
goods that are used in manufacturing of the product and services. The main objective of
inventory management is to maintain the balance between stock and customer service (Harrison
and Lock, 2017).
Performance report: Performance report provide the outcome of the activity. It is
detailed statement which measure actual performance of the individual or the result of the
activities over the specific period of time. Alpha limited company prepare this report to evaluate
the performance of its employees well as of the outcomes of the activities. The accurate action
are taken to correct the unfavourable variance so that performance can be increased and goals are
achieved on the time. It provide manager annual performance report which shows the actual
activities versus original planned activities.
Budget reports: Budget report is a report used by the management to compare the
estimated, budgeted outcomes with the actual outcomes to measure the performances of the
company. In other words, budget report are prepared to evaluate the budgeted performance with
the actual performance during an accounting period. Alpha limited company prepare such reports
to correct the problems occurring in the organisation by taking correct action. This also provide
how accurate there are in their predictions and take realistic action to achieve its goals on time.
There are both variance such as favourable and unfavourable in the organisation, favourable
variances occur when the actual outcomes are better than the budgeted and unfavourable
variable occur when actual outcomes are not in accordance with the budgeted outcomes.
Accounts receivable reports: Account receivable reports is a report that list the unpaid
customer invoice and maintain the credit invoice by the date wise in the system. It reports
provide the collection of overdue of the payments from the customer to prevent in bad debts.
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Alpha limited company maintain the complete information about the customer so that there is
proper collection of money on time. This report is also used by management to determine the
effectiveness of the credit and collection function in the organisation (Hiebl and Mayrleitner,
2017).
M1. Benefits of systems with their applicability
Management
accounting systems
Benefit and application
Price optimisation
system
The management of Alpha Limited apply this system which is
beneficial for them to set accurate price of different food products that
provide by the company. Through accurate price consumer attract for
this and increase profit and market share.
Inventory
management system
This system apply in the Alpha Ltd to manage goods in appropriate
manner and analysis that in which stage use more goods. So main
purpose of this system to observe each activities at every level and
roper utilise all the resources to decrease wastages.
Job order costing It is applied in the Alpha Ltd in order to predict and collected cost as
per the job performance within organisation. It is advantageous for
business to collect all the segregated expenditure as per the nature.
Cost accounting
system
Most of the company use this system because it provide cost of
manufacturing and collect all the information about the raw materials,
labour and overhead. It is beneficial because it provides estimate cost
or most profitable products.
D1 Management accounting systems and reporting are integrated with process of organisations
Different types of organisation apply the different accounting system as well as reports to
smoothly run organisation procedure and increase profit. Both are important to analysis all the
activities and business procedure in systematic way. To achieve their long term goals required to
follow inventory management system to track the record of material then record in the inventory
management report that helps to know actual position of stock and flow at different level (Kieso,
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Weygandt and Warfield, 2019). Coast accounting system helps to analysis the manufacturing
cost and according to take further steps and also focus on performance report where mention all
the information about the company.
TASK 2
P3. Calculation of cost with distinct costing techniques.
Marginal Costing: The particular technique is applied by the organisation where
calculate cost of extra units that produced by company y on client request. Alpha Ltd can apply
this method to analysis variable cost on the result of all the pizzas that are produced by them.
Absorption Costing: It is a costing method that use to compute cost of every unit or
entire production that focus on the direct and indirect cost. In the context of the Alpha Ltd assure
about the expenditure that take place as absorbed from the sales of same units (Knyvienė, 2014).
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6

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Problem 2a
1. Calculation of followings:
(A) BEP in units and revenues-
BEP (in units)= Fixed cost / contribution per unit
= 180000/ 12
= 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
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= 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:
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The calculation are showing that if machine will not be installed then it may result in losses of
18000 pounds.
Scenario 2. If machine is installed:
M2. Diverse management accounting techniques
All the business entities like alpha Ltd, it is essential to utilise particular technique of
management accounting. There are selecting particular techniques which is mentioned below: Standard Costing: In this procedure provide differences between actual and standard
figures. Normal Costing: It is applied for deriving actual data regarding all the products and
circulate all the overheads in particular way.
 Historical costing: In this technique consist of all the assets and liabilities that are utilised
by the business like Alpha Ltd use to record actual cost (Kraus, Håkansson and Lind,
2015).
D2. Financial reports that accurately apply and interpret data
As per the above calculation calculate the profit through marginal costing and get amount
will be 200000 and on the other hand through absorption costing get amount of 600000. In the
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prior year losses are recorded through these methods so company select the marginal costing
method.
TASK 3
P4 Advantages and disadvantages of different types of planning tools
Budget is a statements that use by the business to make plans and strategies for future and
in this statement consist of different income and expenses. It is used by the management to guide
for right direction and enhance the performance.
Budgetary control is a controlling procedure which is followed by management of
various organisation. Through this process analysis the actual performance of business could be
intensify due to provide support to manager.
Standard costing: Standard costing is a process where pre- determine measure are
compared with the actual performance to find out the any variance. It is used to control the
variance in the process. Alpha limited company ideals in the advertising agencies sector. Its
important for the company to evaluate the variance in the standard and actual cost so that correct
measure can be taken to reduces the variance.
Advantages: With the use of standard costing, Alpha limited are able to highlights areas
of strength and weakness. It provide better utilisation of resources and methods that are used in
the company to increase the efficiency.
Disadvantages: It include lot of time and money of Alpha limited in comparing the
standard and actual cost. It increase the work of the employees in comparing the standards with
the actual cost (Lapsley and Rekers, 2017).
Variance analysis: This deals in analysis of deviations in the budgeted and actual
financial performance of the company. Alpha limited uses this method to improve the areas after
comparing the actual outcomes with the budgeted outcomes. In other words, it is a process of
identifying the causes of variation in the actual performance and the standard performance.
Advantages: It acts as a control mechanism for the Alpha limited as it helps mangers in
making efficient and forward-looking budgetary decisions. Companies are able to assign the
responsibility to its employees and to various different departments.
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Disadvantages: The actual financial results are released much later in the process. Alpha
limited company take too much time to prepare the budgeted number which increase the
deviate from the actual numbers.
Flexible budget: This budget is prepared after making classification of all the expenses
between fixed, semi-variables and variables cost. Alpha limited uses this budget when there is
different requirement at the departments. It adapt to the changing needs of the company. The
accountant of this company compares the budget to the actual cost.
Advantages: Flexible budget of the company helps in predicting the performance at
different levels,which further increase the overall performances of the organisation. It helps in
classification the cost into fixed, variable and semi-variables.
Disadvantages: It assume that cost process is continuous process whereas it is opposite
manner. Alpha limited finds difficult to maintain the different cost associated with the process.
Capital budgeting : It is known as the investment appraisal. It is used by the
organisation in designing the capital structure where they can increase the profits and reduces the
cost of capital. Alpha limited uses this method to make best use of available resources and to
make profits in the long run (Larsson, 2015).
Net present value(NPV): It is a one of the capital budgeting method. It is equal to the
initial cash outflow less the sum of cash inflows. The higher the NPV is good for the company.
IRR: It is a discount rate at which NPV of the project becomes zero. Higher IRR should
be preferred.
ARR: It is the profitability of the projects. It is calculated as total net income divided by
the initial investment.
Payback period: It measures the time in which the initial cash flow is earned by the
project. It shows the period in which initial investment return back its cost and start earning the
profits.
Advantages: This method provide good quality of capital structure where Alpha limited
can increase the profits and reduce the cost of capital. It provides the comparison of cash inflows
and outflows of a project.
Disadvantages: Their are various method in this system which include lot of time and
money of the company. Alpha limited has to invest money on developing the capital structure
which may not provide good profits in long run.
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M3 Use of planning tools and its application for preparing and forecasting budgets
Planning tools are playing essential role in any organisation that supports to analysis
future activities and related risk that 9impact on efficiency of the business. The company to
prepare financial plans using several types of method such as capital budgeting, variance analysis
and standard costing. These methods helps to analysis particular project that provide success in
future of not. Such as Alpha Ltd can use this method to achieve future goals and objectives in set
period of time (Nakajima, Kimura and Wagner, 2015).
TASK 4
P5 Organizations are adopting management accounting system to respond financial problems
Financial issues is a situation that happen in every organisation due to careless and
inappropriate decision. It impact in negative manner and become reason of stress for the
company but it is mainly related with the money. The selected company may face different types
of financial problem as per the performance of business. It is essential for organisation to make
efforts to reduce them and increase their profitability. In present time Alpha Ltd can face these
problems which are discussed below: Expenses are more than incomes: This most typical problem that face by the every
organisation due to conduct different business activities. In the business operation when
organisation receive amount less than expenses so it become reason of financial problem.
The manager of Alpha Ltd can concentrate on those expenses which is not required in
the business and make effort to over come from them. Unmatch cash flow statement: When accountant do not records all the transaction in
proper format so that time create financial problem of unmatch cash flow statement.
Such as mainly gap create between operating as well as financial activity to deduct all
the financial problem from the Alpha Ltd. Unforeseen expenses: There are different types of expenses that are rising suddenly and
a manager have to utilised monetary resources to decrease them. For this necessary to set
up new machine and other things. As per the face these costs the organisation can face
the situation of lack of monetary resources for further activities.
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 Lower profits: All the staff members and do not engage effectively with the company
and dis not focus on the productivity so it become reason of the financial challenge and
face lower profits (Rudman and Kruger, 2014). Improper management of activities: Alpha Ltd is manufacturing organisation which
have different departments so for this require to proper arrangement all funds and
resources as per the requirement. Moreover, conduct all the activities in systematic way.
Different techniques used to address financial problems that are as given below:
Key performance Indicator: It is applied by the organization to know financial and non
financial performance that is essential for the business. This management tool consist of all the
internal and external activities to analysis the efficiency of business. As a result it supports to
evaluating different operations and associate financial problem. Thus, KPI know as effective
management tool that is utilised to recognise financial issues that face by the company. Through
this Alpha Ltd identify the problem of Unforeseen expenses that direct to manager to evaluate
success & failure to perform the business execution.
Bench marking: It is a part of management tool which is applied by the organisation to
identify all the financial problem through measuring the performance. It supports to compare
with other organization then manager make all the appropriate decisions. Such as, Alpha Ltd is
applying this technique to recognise the financial problem and compare with other organization
which supports to recognise financial problems that arise in the enterprise. This technique can
help to measure actual position of the company at the market place after compare with other
organisation with same industry. The main reason of this technique to search internal
possibilities that helps in long term growth.
Financial governance: It is a way of collecting, arranging, observing and controlling all
the financial activities as per the reason of sort out all the financial problems. In Alpha Ltd,
executive focus on the accounting principles and appropriate accounting standard to produce all
the income statement and financial report of the company for particular period of time. Through
these report sort out all the financial problem that occur in the organisation.
Balance score card: It is strategic performance management tool that is applied by the
company to analysis overall performance where measure efficiency of staff members regarding
to work. In the context of Alpha Ltd respond to financial problem of lower profits due to analysis
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the performance and take effective decisions. So it will help to increase profits and productivity
to highly engage with staff members (Seow and Wong, 2016).
Activity based costing: It is a technique of costing that is mainly concentrated on the
purpose of allocation costs of several operations like production, advertisement etc. Through this
method recognise all the activities of the business and assign the cost of every activity regarding
to all products as well as services as per the actual consumption by each. The particular model
related with the indirect cost convert into direct cost. Alpha Ltd can use this method to recognise
the problem of improper management.
Comparison between Tesco and Sainsbury
Management
accounting techniques
Tesco Sainsbury
Activity based costing The manager of the organisation
can apply the activity based
costing to sort out the issue of
circulate appropriate cost of all the
activities of the business.
To sort out the financial problem
apply activity based costing to
analysis different business
operations to identify the problem
lack of fund and resolved.
Key performance
indicators
Through financial KPI company
recognise the problem related to
financial activities and resolved
unforeseen expenses due to
manage activities. So KPI helps to
identify sudden expenses (Storey,
2014).
The particular technique utilised
by the manager to determining
such expenses that could be
predicted and impact on the
business function.
Financial governance The main purpose of this tool to
provide respond to all the financial
challenges that occur in the
organisation and through particular
tool apply all the relevant financial
records as per the accounting
principles and convections.
The manager of the enterprise
apply financial governance in
order to deal with the different
financial challenges like improper
management that impact on the
financial records. On the basis of
management take decision that
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goes wrong so for this required to
apply proper rules and regulations
to reduce chances of possibility.
Benchmarking The particular technique applied
by the organisation to measure
performance of company with
other company to identify the
problem of unmatched cash flow
after comparing policies and
approaches with other
organisation.
Sainsbury can apply the
benchmarking to tackle the
problem of lower profitability
that direct to manager for
recognise the error then according
that apply effective business
strategies to compete with the
competitors.
Balance score card The management can use balance
score card to record the track of
staff members and their
performance in different tasks.
According to their performance
provide reward to increase
involvement in organisational
activities that shows positive
impact and increase productivity.
Manager of the business apply
this tool to offer proper
compensation to all the staff
members. So it presents less
chances of the engagement of the
staff members.
M4 Management accounting can lead to sustainable success
In present time every organisation utilise management accounting because it plays vital
role and according to that all the appropriate steps to sort out the different types of financial
problems that occur in the organisation. It is mainly utilised by the business to produce all the
financial records through accounting principles and collect information through reporting
method. On the basis of these records Alpha Ltd can take effective decision to get growth and
success for longer period of time. Furthermore, it supports to find out all the financial problems
and get answers regarding to different problems which leads to sustainable organisation success.
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D3 Planning tools for accounting respond by solving financial problems
Standard costing, variance analysis, flexible budget and capital budget are different
planning tools that applied by organization to predict the situation in future. In the capital
budgeting consist of different methods like net present vale, IRR, ARR and pay back period.
These are helping to analysis future outcome regarding to any project. Such as Alpha Ltd on the
basis of these tools identify the problem that occur in the company and apply all the relevant
solutions. The manager of particular company decided to apply these planning tools in order to
collect all the relevant financial information to sort out errors.
CONCLUSION
From the above report it is summarised that to manage different business activities and all
the financial accounts and related information the impact on the business in positive manner and
increase profitability. Management account is applied in every type of organisation whether
small, medium and large to arrange all the records and business activities to achieve
organisational goals and objectives. Several types of planning tools help to identify future
uncertainties and provide appropriate solution. To effectively identify the all financial problem
apply KPI, balance scorecard, benchmarking and activity based costing. Along with apply
marginal and absorption costing method to compute profit where focus on variable as well as
fixed profit.
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REFERENCES
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Larsson, E., 2015. Management accounting fashion setting-Studies on supply-side actors in
Sweden.
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(MFCA) to the supply chain: a questionnaire study on the challenges of constructing a
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