Financial Analysis and Management Accounting Report for AstraZeneca

This report provides a comprehensive analysis of management accounting principles and their application within AstraZeneca, a pharmaceutical and biotechnology company. It begins with an overview of management accounting, its importance, and the different accounting systems used, including cost accounting, inventory management, price optimization, and job order costing. The report then delves into various management accounting reporting methods, such as inventory management reports, accounts receivable aging reports, and budget reports. The advantages of these systems are explained, along with their practical applications. The report also presents income statements developed using both marginal and absorption costing methods, illustrating the differences between the two approaches. Furthermore, the report explores the benefits and limitations of planning tools, such as budgetary control, and their application in developing and forecasting budgets. Finally, it examines how management accounting techniques can be used to solve financial issues, comparing different companies and their approaches to financial challenges. The report concludes with a summary of the key findings and insights gained throughout the analysis.

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Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and requirement of different accounting systems...................1
P2. Various method of accounting of management reporting...............................................3
M1. Advantages of management accounting systems and their application for context of
companies...............................................................................................................................5
D1 Management accounting system and reporting integrated with organisational process.. 6
TASK 2............................................................................................................................................6
P3. Development of income statements as per the marginal and absorption costing...........6
M2. Management accounting techniques to produce financial reports................................13
D2. Interpretation of produced financial statements............................................................13
TASK 3..........................................................................................................................................14
P4. Benefits and limitations of tools of planning ................................................................14
M3. Various types of planning tools and their application for developing and forecasting of
budget...................................................................................................................................15
TASK 4..........................................................................................................................................15
P5. Comparison of companies to solve the financial issues with the help of systems of
accounting.............................................................................................................................15
M4. Management accounting to solve the financial issues..................................................17
D3. Planning tools to solve the financial issues...................................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management Accounting can be explained as the procedure for maintaining all the
internal data of an organization through which better strategies can be formulated for achieving
organizational goals. It is necessary because it helps manager, directors, shareholder to analyse
about overall performance of the organization. Also, it gives idea to outsiders, whether they
should invest within the company or not. For this project, the chosen financial consultancy is
AstraZeneca. This company belongs to pharmaceutical and biotechnology industry. It offers
various types of pharmaceuticals products. It was founded in year 1999. Headquarter of company
is located in England, UK. Different planning tools in budgetary control will also be explained
with their pros and cons. Also, there will be explanation about how financial problem can be
resolved with the help of management accounting.
TASK 1
P1. Management accounting and requirement of different accounting systems.
As per the institute of Cost and Management Accountants, management accounting refers
to the use of professional skill and knowledge in prepartion of accounting information that helps
management in developing policies.
It involves methods and concepts that are essential for effectively plan for selecting among
alternative actions for interpretation of performance (Chenhall and Moers, 2015).
The role of management accounting includes recording, gathering and reporting financial
information from different units of firm and analysing the budget and suggesting allocation.
Its major role is to conduct budgeting. It guides company regarding all the expenditures (Jefrey,
ed., 2018).
It is the process of the system of accounting which helps directors of an organisation to
take any of the decision as per the situation arises in front of them. There are number of reports
which is being prepared by organization and all of those reports are directly related with
management accounting (Chenhall and Moers, 2015). In context of AstraZeneca, it has been
helpful for them because they are able to take any of the effective decision with the help of
management accounting. There are numbers of the system of management accounting and they
are:
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Cost accounting system: In any of the organization, top-level management uses cost
accounting system for finding the actual price of any manufacturing products. It even helps them
to analyse any of the direct or indirect cost mainly occurs within business organization. In short,
it helps business organization to help collect all of relevant information related to expenses of a
company. It is being maintained by AstraZeneca, for the purpose of maintaining any of the
records which occurs during manufacturing process.
DIRECT COST- It refers to the expenditure that can be directly allocated to the production of
particular goods or services.
INDIRECT COST- These are those expenses that are incurred for proper working of the
business. They cannot be directly attributed to a cost object. It includes fixed cost that remain
fixed inspite of change in volume of sales. Variable cost that changes with a change in volume of
sales.
Inventory Management System: It is helpful for this company which are engaged
within manufacturing process. AstraZeneca applies IMS so that they can easily maintain all of
the records which are taken while conducting manufacturing process. (Englund and Gerdin,
2014). There are three types of Inventory management systems such as FIFO, LIFO & AVCO.
When it comes to FIFO, the products which where bough in beginning are needed to be used
whereas in case of LIFO, the products which are bough recently is needed to be used for
manufacturing process. In case of AVCO, production is needed to be done on the basis of
average cost. In case of AstraZeneca, they use FIFO for manufacturing process because that
helps them to maintain the data related to inventories and whole of the procedure can be
conducted in systematic manner.
EOQ- It is the proper quantity that should be purchased by firm to reduce cost of inventory like
shortage cost, holding cost, order cost etc.
ROP- Reorder point is the quantity that triggers the buying of a specific amount of
replenishment stock.
JIT- It is the strategy of management that integrate orders of raw material from suppliers directly
with schedule of production.
Price Optimisation System: The most important accounting system for management is
the system of price optimization because it helps to set the standard price of product which has
been manufactured. Also, it tries to find whether expectation of customers is meet or not with
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price range which has been decided by organization. In context of AstraZeneca, they help to
select the price of the clothes so that it can be sold within the marketplace at reasonable price.
Job Order Costing System: It is the method of costing which is used by organisation in
the situation where products are manufactured on the basis of specific order by any of the
customers. It helps to determine accurate cost of product through which it can be easily found
whether company is having loss or profit in any of the job. In context of AstraZeneca, they uses
job order costing system because they manufacture different variety of product where price are
different and it can easily calculated with the help of this accounting system.
P2. Various method of accounting of management reporting.
Management accounting reporting can be explained as the procedure which delivers
different types of information regarding daily basis operation which is being managed within the
company (Maas, Schaltegger and Crutzen, 2016). Some of the management accounting reports
are explained below:
 Inventory management report- This report contains any of the information which is
related with the stock available within the company and that helps organisation to
calculate that when they are required reorder raw material. Here, Production department
of AstraZeneca uses this report just to find actual amount of product which they have
manufactured and additional amount of raw material which they will require in future.
 Account receivable ageing report- This management accounting is being prepared for
the purpose of finding the debtors who are unable to clear their account even after the
end of deadlines. This report is helpful in deciding whether organisation should allow for
future credit dealings or not (Melnyk and et. al., 2014). In short helps to determine the
relationship between organization and their customers who deals in credit facilities.
While talking about AstraZeneca, their finance department is responsible for this report
where they check which debtors is needed to pay debt amount to organization.
 Cost accounting report- In this report it is being checked that what is the total expenses
that company has incurred while conducting any of the particular activity. It is helpful
for company because they can easily find the expenses incurred in conducting any of the
activity. AstraZeneca requires to prepare this particular report in order to manage the
overall cost while manufacturing clothing products.
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 Budget report- These reports are very important in measuring the performance of firm
and are generated for various departments. Every firm develop overall budget yto
understand the overall scheme of business.
 Performance report- These reports are developed to review the performance of firm as
a whole and for individual employee's.
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M1. Advantages of management accounting systems and their application for context of
companies.
Cost accounting system-
 This method allows managers to fluctuate the cost structure of products to manage the
customer base.
 It enables AstraZeneca to evaluate its cost-effectiveness of its operations (Smith, 2017).
System of Price optimisation -
 It often allows the entity to select the effective price for its products in order to maximize
its productivity.
 The system will help AstraZeneca to assess the belief of users on distinct clothing
products.
 It is used by business to analyse how the customer’s will respond when there is a change
in the price of goods or services.
Inventory management system-
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 By depleting the stock, an organization can minimize its costs, maximize revenues, or
maximize benefit.
 It is very useful system for organization because it will assist to preserve the records of
stock with accuracy.
 It is used for by manufacturing firms to develop a work order, production related
documents and bill of materials.
D1 Management accounting system and reporting integrated with organisational process.
Most of the accounting monitoring system is connected with the managerial reporting. A
further example that works with both the regime of the cost measurement system to facilitate the
industry along with determining the exact cost of all its products (Tucker and Lowe, 2014). This
declaration could be comprehended using the instance as when the program introduced
throughout the enterprise of its stock management so all the operations linked to the inventory
could be acquired through coverage of inventory control.
TASK 2.
P3. Development of income statements as per the marginal and absorption costing.
 Absorption costing- In these types of costing techniques, both variable & fixed cost are
assumed as cost of unit or even product too. This types of costing methods are mainly
used in this organisation who need to perform business activity at a greater platform
(Nitzl, 2016)(Quattrone, 2016).
 Marginal costing- Here, it is necessary to take fixed cost as periodic cost whereas
variable cost is known as unit cost. Fixed cost does not change for certain period within
marginal costing.
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Income statement for Year : 1
Using Absorption Costing Approach YEAR 1
ITEM Number of units £ P.U. AMOUNT £ AMOUNT £
SALES 37,100 £70.00 £2,597,000.00
MARGINAL COST
OF SALES ,…….. ………. ………..
OPENING STOCK 0 £0.00 £0.00 £0.00
ADD: VARIABLE
PRODUCTION
COST: ………… ……… ………..
Direct Material 40300 £12.00 £483,600.00
Direct Labour 40300 £16.00 £644,800.00
Variable Expenses 40300 £20.00 £806,000.00
Fixed indirect
production cost £65,000.00
Total Production
Cost A £1,999,400.00 £1,999,400.00
Less: Closing stock
at end of year 1. B.
[Opening stock
units+units
produced - units
sold] use formula to
calculate amount
0+40300-37100 3200 £158,761.29
Cost of SALES : A-
B: £1,840,638.71
Gross Profit: Sales £756,361.29
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- Cost of Sales :
Selling and
Distribution
Overheads £11,000.00
Admin Overheads £15,100.00
Profit from
operations Before
Interest & Tax
(PBIT) £730,261.29
Interest Expenses £1,100.00
Probit Before Tax
[PBIT-interest] £729,161.29
Corporation Tax
@ 19% £138,540.65
Net Profit £590,620.65
Year 1: Closing
stock calculation FORMULA?
formula:
figures: 3200/40300*1999400
Income statement for Year : 2
Using Absorption Costing Approach
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ITEM Number of units £ P.U. AMOUNT £ AMOUNT £
SALES 41,100 70 £2,877,000.00
MARGINAL COST
OF SALES ,…….. ………. ………..
OPENING STOCK 3200 £158,761.00
ADD: VARIABLE
PRODUCTION
COST: ………… ……… ………..
Direct Material 48200 12 £578,400.00
Direct Labour 48200 16 £771,200.00
Variable Expenses 48200 20 £964,000.00
Fixed indirect
production cost £65,000.00
Total Production
Cost A £2,537,361.00 £2,378,600.00
Less: Closing stock
at end of year 2. B.
[Opening stock
units+units produced
- units sold] use
formula to calculate
amount3200+48200-
41100=10300 10300 £508,290.04
Cost of SALES : A-
B: £2,029,070.96
Gross Profit: Sales -
Cost of Sales : £847,929.04
Selling and
Distribution
£11,500.00
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Overheads
Admin Overheads £15,100.00
Profit from
operations Before
Interest & Tax
(PBIT) £821,329.04
Interest Expenses £1,350.00
Probit Before Tax
[PBIT-interest] £819,979.04
Corporation Tax @
19% 819979*.19 £155,796.02
Net Profit £664,183.02
Income statement for Year 1
Using Marginal Costing Approach
ITEM
Number
of units £ P.U. AMOUNT £ AMOUNT £
SALES 37,100 £70.00 £2,597,000.00
MARGINAL COST OF
SALES .. .. .. ..
OPENING STOCK 0 0
ADD: VARIABLE
PRODUCTION COST: .. .. .. ..
Direct Material 40300 £12.00 £483,600.00
Direct Labour 40300 £16.00 £644,800.00
Variable Expenses 40300 £20.00 £806,000.00
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