Management Accounting Report: Cost Analysis and Systems

This management accounting report delves into the significance of management accounting in contemporary business environments, emphasizing its role in decision-making and wealth creation. It examines the management accounting systems employed by Alpha Ltd, a medium-sized manufacturing company, including cost accounting, price optimization, inventory management, and job costing systems. The report analyzes various management accounting reports, such as cost reports, stock reports, and accounts receivable reports, and their benefits. It also explores the integration of these systems and reports with organizational processes. Furthermore, the report presents a numerical sum to assess costs through techniques like CVP analysis, absorption costing, and marginal costing, along with income statements. It discusses budgetary control methods and their planning tools, followed by a comparison of how organizations adapt management accounting systems to address financial challenges, offering valuable insights for business development and financial problem-solving.

Management
Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................4
LO 1.................................................................................................................................................4
P1. Management accounting and different types of systems.......................................................4
M1. Benefit of MAS....................................................................................................................6
D1. Integration of MAS and MA reports with organisational process........................................7
LO 2.................................................................................................................................................7
P3. Numerical sum to assess costs through techniques/methods of cost analysis for preparing
income statement:........................................................................................................................7
M2. Application of MA techniques and preparation of financial reporting reports:.................15
D2. Interpretation:......................................................................................................................15
LO 3...............................................................................................................................................16
P4.Advantages and downsides of many forms of budgetary control's planning tools:.............16
M3 Use of planning tools to estimate financial plans................................................................18
D3 Planning to solve monetary issues.......................................................................................18
LO 4...............................................................................................................................................18
P5. Compare how organisations are adapting management accounting systems to responds to
financial problems.....................................................................................................................18
M4 MAS to solve the issues......................................................................................................20
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................22

INTRODUCTION
In present time the business environment in the context of the management accounting
plays vital role due to companies take important decision that based on the profit maximization
as well as wealth creation (Gray III, 2015).Each company wants to track the performance
information that mainly depends on the cost based information and generate the historical
general ledger system that based on the financial accounting information. The management
accounting is the procedure of the determining of the business costs and operations to produce
the internal report, records and account that supports to business in decision making procedure
and effectively accomplish the goals and objectives. To better understand of the report selected
organisation Alpha Ltd which is medium sized manufacturing company. The company have only
50 employees and turn over about 50000 per annum. The company manufacturing of the local
made Pizzas and franchising the business. In this report consist of various kind of the
management accounting system as well as report that produce by the company to analysis overall
information. Along with analysis the different types of cost techniques that apply by the
organisation to sort out the numerical. Apart from the report, discuss several budget that produce
by the companies to determine the accurate situation and how to take well step and identify
different financial problem that sort out through management tool. For this implement
management accounting system and compare with other organisation to adopt strategy.
LO 1
P1. Management accounting and different types of systems.
Management accounting- Management accounting is the method for assessing the business and
economic costs of producing an internal report, documents and account that endorses business in
the judgment-making process and efficiently achieves the goals and targets.
Types of MAS:
 Cost accounting system- It is an accounting system that is connected to the mechanism of
projecting forward-looking expenses of businesses in an effective way (Smith, 2015).The
function of this accounting is not restricted to prediction; this also helps to identify
variations in expenditure. For businesses, this accounting is necessary for proper
management of economic operations, so that the sum of spending can be reduced. Under
the corporation listed above, Alpha limited company this accounting system is

implemented with the intention of keeping the price of producing beer lighter from the
estimate.
 Price optimisation system- In conjunction with the title, this accounting system is related
to the process of establishing prices for products and services on the basis of the
requirement and value of each commodity. This is feasible since, according to this,
information is collected on customer requirements and the value is established. As in the
above-mentioned company dimension, on the basis of this value, their sales department
uses key information on the demand for their product in different market sectors.
 Inventory management system- This is a type of accounting system that is affiliated with
the system of keeping a close eye on those products that are bought and sold by firms
over a certain length of time. Under this accounting system, stock value is carried out in
compliance with different methods, such as the last in the first out method, the first in the
first out method and the weighted average cost method. All of these strategies play an
important role for businesses in monitoring the exact quantity of product at a time when it
is required. Such as in the aspect of above chosen business entity, their research
department uses information on processed raw materials for production purposes.
 Job costing system- It can be defined as a form of accounting system which relates to the
method of calculating costs of each unit generated in an accurate way. The goal of this
accounting system is to reduce total labour costs in a better manner. The goal of this
accounting system is to reduce total labour costs in a better manner. Due to the small
product range, this management system is not ideal for small companies. It is ideal for
businesses with a larger product line. In the context of above company, this accounting
system is used to determine the value of each unit generated.
Various methods of MA reports:
The term MA reports can be described as those detailed notes that comprise of
information on monetary and non-monetary segments in a systematic way. Such reported data
are commonly used by the management department of businesses in order to take effective and
prompt response.
 Cost report- This report is being planned through the implementation of the cost
accounting system. The report comprises of details on the costs incurred in carrying out a

critical range of business transactions and operations. In addition to this study, it
categorizes activities as per their rate of expenditure. The aim of generating this
document is to concentrate on those components and facets that consume increased costs.
In the context of above company, , their accounting department uses essential information
through such report, which helps them reduce the overall cost.
 Stock report- It can be described as a type of report that comprises of information on the
measured quantities of the product stored in the store (Harrison and Lock, 2017). As with
the above-mentioned accounting report, this document is also primed by means of an
inventory control system. The primary objective of this document is to help the
manufacturing ministry to take appropriate action on how many units are required to be
generated. In the context of the above mentioned corporation, their production
department produces products in an expense-effective manner by consuming crucial
information via this document.
 Accounts receivable report- This is a type of document that gives information on the
amount of borrowers who are responsible to entities along with the period of the payment
in an appropriate way. In the context of the above-mentioned corporation, their
accounting department uses key information by means of this document, which helps to
figure out ways to raise the debt from specific borrowers.
M1. Benefit of MAS
Name of MAS Benefit
Cost accounting system It is associated with the dimension of monitoring the overall costs
of various operations by measuring the reliability of the
fluctuations. In the sense of the above-mentioned business, they
use this accounting system for tracking the true costs of
production and control certain operations, the value of which is
beyond estimated.
Price optimisation system This is advantageous for businesses in order to set the price of
goods and services in line with the recent economic phenomenon.
In the context of the above mentioned company, their sales team

sets the price of product on the basis of the customer's demand.
As well as the policies of their rivals.
Inventory management
system
The value of the allocated stock is assessed in an effective way in
accordance with this accounting. The aim of this accounting
system is to maintain cost of storage low. In the context of the
above mentioned business, their production department
incorporates this accounting system in their activities so that their
production costs can be reduced.
Job costing system It is helpful for corporate entities to calculate the cost of each
production number generated. In the sense of the above-
mentioned business, they use this accounting to measure the value
of each manufactured product by assigning and evaluating the
cost of employment.
D1. Integration of MAS and MA reports with organisational process.
There is a wide range of accounting systems and reporting in the MA that are aligned with
business processes and activities (Kure and Raffnsøe-Møller, 2017). As far as in above company,
their different divisions are connected to the critical sectors of the government. For example, the
price management process is incorporated into the sales department in order to improve sales
turnover. As well as the cost accounting system ties to the financial department for regulate cost
of various kinds of activities. In addition, MA reports are also consistent with business processes.
LO 2
P3. Numerical sum to assess costs through techniques/methods of cost analysis for preparing
income statement:
Cost refers to sum expensed for conducting business operations. In business there are
different costs or expenses which are classified as per their importance, role, nature and extent of
relevance in business. Controlling various costs in business is complicated task which is essential
for achievement of targeted profit and gain competitive advantages. For gaining control over
costs management generally conducts CVP analysis which most widely applied technique.

CVP analysis: A CVP or Cost-Volume-Profit analysis recognised as MA technique/method that
mainly includes evaluation of effects of sales-volume and produced items costs on organisation's
operating profit (Cooper, 2017). Such analysis exhibits how and what extent operating profits of
corporation is affected due to modification/fluctuation in various costs like variable, fixed costs
and SP of single unit.
Absorption Costing: It is cost accounting method which primarily emphasises on accumulation
of costs/expenses which are concerned with business's production procedures and segregation of
these costs to single manufactured unit. This method is also relevant as per accounting standards
for valuation of inventories. In this method variable and fixed both costs which are related to
production and manufacturing of goods are classified as cost of goods sold.
Marginal Costing: This method simply focus on assigning variable cost to each unit produced.
This is simple method in which costs are classified as fixed/variable and separately shown in
balance sheet (Arnaboldi, Lapsley and Steccolini, 2015).
Absorption Costing Statement calculator
Unit Selling Price 8
Unit Cost (FC+VC) 5
Fixed Manufac Expenses 150
Non Manufacturing Exp 50
Budgeted Activity 75
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 75 60 90 75 70 80
Production 75 75 75 75 85 70
Opening inventory
Closing inventory 0 0 15 0 0 15

0 15 0 0 15 5
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 600 480 720 600 560 640
Opening inventory 0 0 75 0 0 75
Add: Variable Cost[Prod.] 375 375 375 375 425 350
Less: Closing Inventory 0 75 0 0 75 25
Marginal Cost of Sales 375 300 450 375 350 400
Gross Profit 225 180 270 225 210 240
Adjustment for Overheads 0 0 0 0 -20 10
Less:Non Manufac Cost 50 50 50 50 50 50
Net Profits 175 130 220 175 180 180
Marginal Costing Statement calculator
Unit Selling Price 8
Unit Variable Cost 3
Fixed Manufac Expenses 150
Non Manufacturing Exp 50
Budgeted Activity 75
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000] [£'000] [£'000 [£'000 [£'000 [£'000

] ] ] ]
Sales 75 60 90 75 70 80
Production 75 75 75 75 85 70
Opening inventory
Closing inventory 0 0 15 0 0 15
0 15 0 0 15 5
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 600 480 720 600 560 640
Opening inventory 0 0 45 0 0 45
Add: Variable Cost[Prodn.] 225 225 225 225 255 210
Less: Closing Inventory 0 45 0 0 45 15
Marginal Cost of Sales 225 180 270 225 210 240
Contribution Margin 375 300 450 375 350 400
Less: Fixed Manufac Cost 150 150 150 150 150 150
Less:Non Manufac Cost 50 50 50 50 50 50
Net Profits 175 100 250 175 150 200
Reconciliation statements:
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000 ]
[£'000
]
[£'00
0 ]
[£'00
0 ]
[£'000
] [£'000 ]

Sales 75 60 90 75 70 80
Production 75 75 75 75 75 75
Opening inventory 0 0 15 0 0 15
Closing inventory 0 15 0 0 15 5
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000 ]
[£'000
]
[£'00
0 ]
[£'00
0 ]
[£'000
] [£'000 ]
Net Profits under Absorption Costing 175 130 220 175 180 180
ADD : Fixed Overheads in opening 0 0 30 0 0 30
LESS: Fixed Overheads in closing 0 30 0 0 30 10
Net Profits under Marginal Costing 175 100 250 175 150 200
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
= 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:
After installation of the new machine
Contribution Margin Per Unit = 40-14 = 26 Per unit
Break even point in units =
(180000+236000)/
26
Ans. 16000
Break even point in Pounds = 40x16000

Ans. 640000
P/V Ratio = (Contribution Margin per unit/ Sales Price per
unit)*100 65
BEP from P/V Ratio 640000
2 c
Scenario 1. Machine is not installed:
Without installation
Sales £5,40,000.00
(-) variable cost -£3,78,000.00
Contribution £1,62,000.00
(-) Fixed cost -£1,80,000.00
BEP -£18,000.00
Current
Sales £6,00,000.00
(-) variable cost -£4,20,000.00
Contribution £1,80,000.00
(-) Fixed cost -£1,80,000.00
BEP £0.00
Scenario 2. If machine is installed:
After installation
Sales £8,00,000.00