Management Accounting Report: Cost Analysis, Reporting, and Systems

This report delves into the realm of management accounting, focusing on cost analysis techniques, financial reporting methods, and the integration of accounting systems within a business environment. The report begins by defining management accounting and outlining the essential require...Read More

MANAGEMENT
ACCOUNTING

Contents
Contents...........................................................................................................................................3
INTRODUCTION...........................................................................................................................5
TASK 1............................................................................................................................................5
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems – this is the right assessment criteria......................................5
P2 Explain different methods used for management accounting reporting – this is the
appropriate requirement...............................................................................................................7
M1 Mention the advantages linked with management accounting systems along with their
applications in business context...................................................................................................8
D1 critically evaluate the manner in which systems and reporting of management accounting
are integrated in business processes.............................................................................................9
TASK 2............................................................................................................................................9
P3 Measure costs by using cost analysis techniques for formulating an income statement by
usage of absorption and marginal costs.......................................................................................9
M2 Precisely apply various techniques of management accounting and formulate documents
of financial reporting.................................................................................................................16
D2 Prepare a financial report which appropriately use and interpret financial data for different
kind of business operations and activities..................................................................................16
TASK 3..........................................................................................................................................17
P4 Mention various benefits and limitations of using planning techniques or tools in context
with budgetary control...............................................................................................................17
M3 Evaluate the role of various planning tools along with their application in creating and
forecasting of budget.................................................................................................................18
TASK 4..........................................................................................................................................19
P5 Compare and contrast the manner in which different organisations adapt account
management systems to deal with their financial worries.........................................................19

M4 Analyse the manner by which management accounting responds toward financial
problems and attains organisational success..............................................................................20
D3 Analyse how planning techniques for accounting helps in resolving financial issues to
achieve sustainable success for the organisation.......................................................................21
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22

INTRODUCTION
Management accounting encourages accountants to underline towards various events and
occasions that happens in budgetary year to perform business activities and operations in a
proper manner. By utilizing systems and report of management accounting, work related
expenses and accounting data is acknowledged by the supervisors so that right strategies can be
encircled to accomplish organisational objectives (Badolato, Donelson and Ege, 2014)(Bartlett
and et.al, 2016). Elements of management accounting are used for performing complex tasks so
that organisational productivity can be raised. To create understanding about management
accounting set up, Alpha which is a UK based local company which produce good quality pizza
for their customers. This company is established in 2001. This report includes knowledge
associated to management accounting systems, frameworks, reports etc. Other than this, financial
statement will be prepared by using marginal and absorption costing. After this, use of planning
tools in context with creation and forecasting of budget will be analysed. At last, role of
management accounting systems in solving financial issues at workplace will be resolved. It
further incorporates examination between two associations in the way accounting frameworks
are embraced to react towards money related issues.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems – this is the right assessment criteria
Management accounting portrays accounting procedures and strategies together with
appropriate frameworks so that value reducing elements can be eliminated. This will help the
manager of finance department to manage their funds in a proper manner so that an organisation
can proceed their working without any financial worries.
In today/s scenario, Management Accounting is viewed as a significant system which help
manager to look at the different business activities by gathering, condensing the important data.
In setting of Alpha Ltd, management accounting will benefit in settling appropriate choice as
manage prepares multiple report in regards to every business activity. These systems can be
characterized as an instrument used by business officials to hold metrics so that choices can be
taken to achieve productive results (Chang and et.al, 2014). There exist different accounting

systems that are used by manager of concerned firm, some of these systems are examined
underneath:
Cost accounting system: This is characterized as one of the most important managerial
accounting system that is applied by an accountant to surmised cost of various items to achieve
high performance, controlling costs expansion etc. It is a sort of accounting system that will help
Alpha to break down and distinguish their cost that are related with product production. The
framework is basically needed by Alpha organization to reduce extra costs, managing resources
and materials, monitoring manufacturing transaction to keeping up and maintaining their
beneficial status. It is essential for Alpha to use such system in order to analyse total cost
incurred in production process so that pricing strategies can be implemented accordingly for
manufactured products along with adding margin on it.
Price optimisation system: By utilization of scientific and mathematical evaluation, price
optimisation system is used by a company to decide opinion of customers and market towards
prices of products produced by company. Under this system, executives of Alpha Ltd. can
cautiously comprehend customer's observations to set proper prices for their offered services and
products. This will allow the concerned company to produce more income. The basic
prerequisite of this system is to decide prices that outcomes in receiving maximised profits and
sales (Chenhall and Moers, 2015). It is essential for Alpha to use such system to update their
current pricing strategies according to the needs and requirements of targeted customers. This
will further help company in retaining loyal clients for longer time.
Job costing system: It is another type of management accounting system in which
assembling and production costs are allotted to particular item. It benefits an organisation to
gather data about costs related with explicit activity or job so that overall budget can be
maintained. By utilizing this costing system, manager in Alpha Ltd can ascertain benefits by
gathering costs and controls operational efficiencies.
Inventory management system: The system includes use of barcode scanners,
mechanical gadgets, programming software alongside barcode printers so as to streamline
inventory management at a business firm. By utilizing this system, management of Alpha Ltd
tracks about the inventory status at warehouse and storage places to avoid any overload or
understock situation. It incorporates into FIFO, LIFO and other technique. organization may use
any of these technique according to organisational necessity and its business nature. In LIFO last

got stock is utilized for creation exercises first. In FIFO framework, prior purchased resources
are utilized for producing products. In AVCO, merchandise are utilized on normal basis as per
the requirement of product. In Alpha, manager can use FIFO to produce their products so that
wastage of resources can be minimised and high efficiency can be gained (Davila and Ditillo,
2017). It is important for Alpha to implement such system to reduce storage cost of inventory as
using such system communicates manager to order needed inventory only from the suppliers due
to which cost of unused inventory can be minimised.
P2 Explain different methods used for management accounting reporting – this is the appropriate
requirement.
There is various type of management accounting reports that are required by a company to
record and check their actual working so that overall performance of company can be identified
and improved as per changing situations. In context with Alpha Ltd, accounting reports are stated
below:
Budget reports: In case of a business organisation, most important report is budget report
as it assists in identifying and controlling expenses to quantify business performances. With the
creation of budget report, real outcomes are contrasted and estimated budget so as to decide the
overall expenses of company. Budget report is undertaken by business executives to decide the
appropriate use of money related assets in strategically advantageous way. In case of Alpha Ltd,
budget related with creation, advertising and distribution of products are recorded in such report.
According to this budget reports, transactions are carried out by an organisation so that extra
expenses can be avoided and high profits can be earned (Hofstede, 2012).
Performance reports: It is created with the intent to record and monitor the organisational
activities and performances on regular time period. By utilizing these reports, manager of Alpha
Ltd can give reward to their workforce for their hard work and attainment of organisational goals
in a timely manner. It will benefit the manager in Alpha Ltd to break down performances of staff
members and figure out which employee is giving best efforts and which one not. In this context,
Superior workers can grant more benefits in comparison to those people which do not put any
extra efforts. Performance accounting reports gives inside and out data about business operations
and its ability to gain high advantage in market (Chen and et. al, 2013).
Inventory management report: Every organization produce a product or render some
service for which resources are required. Inventory management reporting plays a significant

duty in concentrating on information related with inventory costs or different overheads expenses
that are engaged with ordering of resources and raw material to carry out manufacturing
activities. This type of report can be modified easily as availability of inventory varies in
accordance with the production rate of offerings (Muller, 2019). In case of Alpha Ltd, by
successfully identifying the quantity of material and resources over stocking places, inventory
manager is proficient to take inventory choices in productive way.
M1 Mention the advantages linked with management accounting systems along with their
applications in business context
Systems Benefits
Job costing system This system will helps concerned organisation in giving
precise valuation about different costs and overhead expenses.
The system is basically required by Alpha organization to
identify their work, operational, productions and overhead
costs to maintain the genuine cost of product. By this,
concerned company will be able to eliminate those activities
and operations which are costly but do not add high value to
concerned organisation (Gomez-Conde and Lopez-Valeiras,
2018).
Cost accounting system Cost accounting system is required for all the business firms
as it can keep systematic information of stock which is
important for business manager while performing work. It
enhances the value of an organisation by helping employers to
keeping up their costs as per the necessities. By this,
consumer remain satisfied due to which attainment of
organisational goals is easier.
Inventory management system This system helps in checking the status of inventory so that
availability of resources and materials for production cannot
be compromised. Such system is additionally bifurcated into
LIFO, FIFO and weight average tactics. Main importance of
the system at the Alpha Ltd is to record, oversee and track

inventory materials together with eliminating shortage so that
no production activity will be compromised and all the
organisational work can be proceed in timely manner.
Price optimising system With the help of this system Alpha Ltd can give proper
emphasis to their sales and pricing of products as per the
opinion of customers so that profits of organisation can be
maintained without any compromise with expectation of
customers. Also, this system will tell about different results if
price of products is changed often (Honggowati and et.al.,
2017).
D1 critically evaluate the manner in which systems and reporting of management accounting are
integrated in business processes
Without the integration of managing reports and systems, business manager of a
company is not able to perform their work in a proper manner. For example, in order to prepare
inventory report, inventory management system is used so that right facts and figure can be
acknowledged. Without inventory management system, right information about inventory can
not be acknowledged. Due to this, preparation of inventory report is not possible. Hence, systems
and reports of management accounting are needed to work in integrated manner so that
organisational goals can attained properly (Tucker and Lowe, 2014).
TASK 2
P3 Measure costs by using cost analysis techniques for formulating an income statement by
usage of absorption and marginal costs
Cost is concerned with the money related valuation of efforts, resources, utilities, time,
endeavours and other assets so as to produce products along with their delivery. Each of the
expense caused by an organization is referred as costs and is additionally bifurcates into direct
cost, variable costs etc. In case of Alpha Plc, high costs are spent by manufacturing and
production department of company on procuring raw materials, services, equipment’s etc.
Marginal costing: This type of costing technique involves only variable cost and
disregard fixed cost because of which this is otherwise called as variable costing strategy.

Utilizing such strategy expands the figures of net profits and revenues under the budget report as
it considers just variable cost. It is for the most part embraced by SMEs as it denotes high profits
in comparison with other costing techniques (Jansen, 2018).
Absorption costing: Another method to esteem stock is absorption costing which gives
precise perspectives about overall expenses and genuine costs related with manufacturing of end
products and items. It is considered as regular technique which is used by most of the business
organisations to learn actual costs as it includes variable together with fixed costs. This costing
will help Alpha Ltd to formulate income tax reports in precise manner.
Net profit calculation using marginal costing method:
Calculation of Net profit using absorption costing method

Reconciliation of Net Income under Absorption and Marginal Costing
a) Before installation of the new machine

b) After installation of the new machine
P/V Ratio = (Contribution Margin p.u./
Sales Price p.u.)*100 65
BEP from P/V Ratio 640000

M2 Precisely apply various techniques of management accounting and formulate documents of
financial reporting
In a business firm, different accounting methods are embraced by accounts or financial
manager so as to figure business profits. By utilizing such methods, manager evaluates,
characterize, record and control transactions so that organisational efficiency can be maintained.
For example, manager in Alpha Ltd can use absorption alongside marginal costing to create
budget and other statements so that advantageous business decisions can be taken. Financial
reports translate budgetary situation alongside gives recommendations related to reinforcing
strengths and achieving results in a proper manner (Lindholm, Laine and Suomala, 2017).
D2 Prepare a financial report which appropriately use and interpret financial data for different
kind of business operations and activities
Financial reports assist in giving data and information associated with tasks, incomes, cash
flows along with the overall status of an business association. This kind of reports are commonly
utilized by stakeholders to carry out execution of performance analysis so to outline future
speculation choices ahead of time. As per referenced financial report, it tends to be summarised
that during the months of May and June, Alpha Ltd has earned high profits and incomes. In case
of absorption costing procedure, net benefits which ere earned in May are 1050 £ just as June
were 9792.4 £. On other hand, the company has confronted loss in May of 550 £ but in case of
June, the association achieved benefit of 5750 £ by the use of marginal method. All the income

reports and statements were set up by utilizing costing procedures like marginal and absorption
as this specific interpretation is carried out on such articulations.
TASK 3
P4 Mention various benefits and limitations of using planning techniques or tools in context with
budgetary control
Budget is referred to a formal document which is formulated by the finance manager so
that all the activities and business operations of an organization can be performed within
expected revenues. In case of Alpha Ltd, manager of company can use planning tools like
flexible and capital budget etc. Information about them is given below:
Capital budget: The arrangement was intended for long term business investment and
advantages through organization. It permits to produce large amount of income inside the
organization through right administration of business activities. In Alpha Ltd, manager can figure
this financial budget produce new item according to the interest of market. In this budget
manager foresee the general capital costs required for delivering new offerings and estimating
profits (Melnyk and et.al., 2014).
 Advantage: This budget will help Alpha Ltd in acknowledging about risky investments.
Therefore, capital budgets are efficient in expanding the overall investment inside items
which are increasingly beneficial for company.
 Disadvantage: This planning tools is very expensive and in order to use it an
organisation requires heavy investment.
Flexible budget: This kind of budget is balanced by the adjustments in business
activities expanding to amounts. It predicts loss, benefits and other gains according to real
yields in current period. It carries out coherent examination of genuine costs with planned
remittances and allowances. It will help the manager of Alpha ltd in value fixing and
consumption controlling.
 Advantage: Flexible spending will benefit the financial branch in Alpha Ltd to simply
contrast standard yields or costs and actual ones. It further aides in estimating operational
expansion in context with managerial performance (Otley, 2016).

 Disadvantage: Flexible budget is additionally complex and confuses things as it
incorporates a few guidelines that are effectively changed by managers due to which
inefficiency in budget preparation can take place.
Inventory control: It is a system that considers all aspects related with managing company’s
inventories which includes purchasing, receiving, tracking, reordering etc. This will give an
estimation to manager to order inventory only whenever required.
 Merit: It minimises storage inventory cost through restricting manager to order
unnecessary stock and assist them to order in such quality which can be properly utilised
in production process.
 Demerit: Using such tool reduces risk but cannot eliminate business risk. Along with
this, control of inventories is complex due to having many functions to perform.
Variance analysis: It is an act of comparing standards with actual so as to identify the
deviations which delays the progress of company’s project. It facilitates management to make
corrective decisions so as to receive expected outcomes.
 Merit: It is considered as best tool to assess the performance level of managers and also
make easy for them to understand their allotted roles and responsibilities so that they can
be accountable for future results either negative or positive.
 Demerit: Setting wrong standard prices which is too difficult for manager to match with
in future. This will bring demotivation among employees and increase cost to company
by purchasing inferiors goods than planned.
M3 Evaluate the role of various planning tools along with their application in creating and
forecasting of budget
Planning tools assists in transforming goals and objectives into accomplishments. Such tools
work with compelling logistics while identifying current conditions so as to anticipate expected
circumstances ahead of time. The tools which is mainly used by Alpha Ltd. organization for
estimating purposes incorporates capital and adaptable budget plan. These are adequately
selected to estimate activities so to formulate strategies with the goal that issues are cleared and
targets are accomplished in viable way. For instance, flexible budget is utilized to recognize the
aspects where upgrades are required and to check increments in costs while anticipating deals
(Renz, 2016).

TASK 4
P5 Compare and contrast the manner in which different organisations adapt account management
systems to deal with their financial worries
Financial problems are referred as the condition in which a company faces problem due
to shortage of capital and other monetary resources. In context with Alpha Ltd., potential
financial issues which are faced by organisation are stated below:
 Managing cash flow: Due to improper planning about finances and funds, cash flow of
company is not robust and organisation face difficulty in allotting required budget for a
specific business operation and activity (Sadikoglu and Olcay, 2014).
 Sudden expenses: This issue emerges due to the lack of appropriate budget formulation
and planning. This issue can lead to shortage of fund due to which overall business
activities will get impacted negatively.
There are different techniques which can be used by manager of concerned company to
solve these financial issues. These techniques are KPI and benchmarking. With the help of
Benchmarking, company can compare themselves with market leaders so that they can adopt
right strategy to prepare budget and avoid sudden expenses. KPI will allow the company to
acknowledge beneficial performance indicators so that cash will be used in a proper manner and
its flow can be managed throughout business operations (Schulze and et.al, 2016).
Role of management accounting in resolving financial issues of organisations
The management accounting system helps in solving various financial issues that are
faced by the company for example cost accounting system which will help in managing the
expenses of the company helps it in dealing with the financial issues that occur due to extra
expenses. Inventory management system which help in managing the amount of stock in the
company help in dealing with the financial issues by reducing the storage cost of the inventory.
Job costing system help in determining the cost of individual work which will help in dealing
with the financial issues that occur due to difference in costs of each products. Price optimisation
system help in dealing with the financial issues as the products can be priced in accordance with
the value it creates for customers.
Basis Alpha Ltd Rowlinson Knitwear

Problem Poor cash flow is the main reason
which imbalances the financial
stability of company. It occurs due
to providing too much credit to
customers.
Sudden expenses are the main
reason behind facing financial
issue by such company. Such
situation occur due to requirement
of immediate replacement of old
machinery with latest in order to
complete project within allotted
time period.
Management
accounting system
Depicted financial issue can be
settled through the implementation
of cost accounting system which
will bring about actual cash flow
along with concentrating on all
transaction and exchanges through
spreadsheets (Senftlechner and
Hiebl, 2015).
With the adoption of inventory
management system, the manager
can resolve above issue as this
system communicates the
situation of current stock
available with company at present
that make easy to make suitable
decision to meet customers’
requirements on time.
Approach Financial governance is most
suitable approach to adopt by
company as it contains roles and
regulations that must be followed by
managers while providing credit to
their customers. It restricts them to
avail credit according to the credit
policy made earlier by company.
KPI and benchmarking is most
suitable tool to adopt to resolve
above issue as these tools
facilitate management to make
better future decision. For
example, KPI assist manager to
first analyse the cost incurred in
previous year project along with
the situation and on the basis of
which, allocate cost taking
previous year situation into
consideration.

M4 Analyse the manner by which management accounting responds toward financial problems
and attains organisational success
Management accounting assists in checking and managing financial issues which are
looked by organizations while performing organisational work. It includes strategies or
approaches, for example, KPI and benchmarking that manages obstacles in appreciable way.
Alpha Ltd. utilizes KPI approach so as to calculate their actual performance and actualizes
programs with the goal that financial issues are settle. By this, concerned business can lead
towards manageable accomplishment by overseeing records at the time of decision making
(Seung, 2014).
D3 Analyse how planning techniques for accounting helps in resolving financial issues to
achieve sustainable success for the organisation
Planning tools are used for formulating choices along with budgetary assessments. Such
tools give precise and genuine portrayal of financial transactions so that a business association
can reacts towards financial issues in confident way. By the usage of planning tools, Alpha Ltd
can screen circumstances through adaptable, capital and sale budget so to recognize real
outcomes with budgetary targets. This will give benefit so as to take care of issues and lead the
firm towards manageable achievement (Tamandeh, 2016).
CONCLUSION
As per this discussed report, it has been summarised that management accounting is an
important part for a business organisation in managing their finances. With the use of systems
like inventory management, job costing etc., all the production work related with costs, expenses,
stocks can be performed profitably. Also, reports like inventory management, performance
management and budget report helps in checking and monitoring the true performance of a
company. Absorption costing is better than marginal costing as it includes both fixed and
variable cost. With the help of tools like Zero budget, master budget, budget of a company can
be forecasted properly. By using MA systems, issues like irregular cash flow, increased expenses
can be resolved in a proper manner.

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Online
Budget. 2019. [Online]. Available through:
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