Management Accounting Systems, Reporting, Costing & Financial Analysis

This report provides a comprehensive overview of management accounting systems and their application within a business context, focusing on Alpha Ltd, a medium-sized manufacturing company. It covers various aspects of management accounting, including inventory management, cost accounting, job costing, and price optimization systems. Different types of management accounting reports, such as inventory management, accounts receivable, performance, and budget reports, are discussed, highlighting their benefits in enhancing operational efficiency and decision-making. The report also delves into cost calculation techniques like marginal costing and absorption costing, demonstrating their use in financial analysis. Furthermore, it evaluates the advantages and disadvantages of planning tools for budgetary control and examines how businesses adapt management accounting systems to address financial challenges, ultimately leading to sustainable success.

Management
accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Discussion of management accounting and requirements of its systems..............................1
P2. Different types of management accounting reporting...........................................................3
M1. Evaluate the benefits of management accounting systems along with its applications.......4
D1. Critically evaluate accounting system or accounting report which linked with
organizational process..................................................................................................................5
TASK 2............................................................................................................................................5
P3 Calculate cost by using appropriate techniques......................................................................5
......................................................................................................................................................9
....................................................................................................................................................12
M2. Range of management accounting techniques which used to produce financial accounting
documents..................................................................................................................................12
D2. Produce financial report that apply & interpreted within organizational process...............12
TASK 3..........................................................................................................................................12
P4. Advantage & disadvantage of various planning tools which used for budgetary control...12
M3. Evaluate different planning tools which required for forecasting budget..........................14
TASK 4..........................................................................................................................................14
P5. Compare how business adapting management accounting system to respond their financial
problems.....................................................................................................................................14
M4. Evaluate that how organization lead sustainable success by using management accounting
and resolve financial problems..................................................................................................17
D3. Evaluate that how planning tools help the accounting to resolve their financial problems17
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting is a technique used by managers to monitor and control actual
performance of the organisation by consolidating management reports received from different
departments of organisation. To facilitate internal stakeholders regarding the current situation of
business is the main purpose of managerial accounting (Alyousef and Alnasser, 2015). This
helps in formulating roadmap of strategic decisions for sustainable structure of business. Long
term goals and objectives could be achieved by focusing on current position of enterprise. For
the better understating of management accounting concepts, this report select the Alpha Ltd
which is medium size manufacturing company which produce variety of pizzas. This report
covers various topics such as application of management accounting systems, reports, benefits,
calculation of cost using different costing techniques. Along with this, different planning tools
which are used by the company. Comparison of the ways in which management accounting helps
to respond financial problems are also discussed under this report.
TASK 1
P1. Discussion of management accounting and requirements of its systems
Management accounting: It can be defined as the process of analysing, evaluating and
controlling performance by determining actual situation of the company. In Alpha Ltd, it is used
by managers to formulate future strategies in order to grow the business. Main advantage of
managerial accounting is helping internal stakeholders to determine either all operational and
executional activities are performed in a systematic manner or not.
Management accounting system: It can be defined as a system which is used by
managers to determine actual status of the company so that they can reach to a judgement and
form new policies for betterment of business (Brustbauer, 2016). There are various types of
management accounting systems which are used by Alpha Ltd to deliver best services to its
clients. Description of all of them is as follows:
Inventory management system: In most of the production companies it is used by
managers to keep detailed information of stock that is used to perform business activities.
managers in Alpha Ltd be able to evaluate the raw material requirements which are used to
produce products and sold to customers in order to fulfil their demand. There are various types of
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inventory valuation methods are used by companies according to their requirements that
described below:
 FIFO: It stands for First in First Out in which companies use earlier purchased raw
material for manufacturing goods and sale them firstly.
 LIFO: It means Last in First Out and the organisations that acquire raw material at the
latest price and utilise them firstly in the business operations for sale.
 AVCO: It is Average Cost Method of inventory management in which goods are
measured on the basis of their average cost for business activities.
In context of Alpha Ltd, managers follow First In First Out (FIFO) inventory
management system where earlier purchase used to manufacture goods and sold firstly. It is
essentially required because it help the business to manage their inventory level which further
beneficial to reduce cost and it automatically increase the profit margin.
Cost accounting system: It is a framework which used by the organization in order to
estimate their product cost that further helps in analysing valuation of inventory, profitability and
cost analysis. Manager of Alpha Ltd use this system to estimate product cost and try to minimise
& control over the production period (Cost Accounting System, 2019). This system helps in
reducing production cost which automatically generate more profit margin. So manager analyse
all the production activity and develop strategy to reduce the closing value of material, work in
progress and finished goods. It further helps in developing financial statement for the decision
making process.
Job costing system: This system used for the estimation of similar kind of goods
produce in the organization. It is a process which include accumulated information regarding
specific product that used in the manufacturing unit. With the help of job costing system
manager of Alpha Ltd can use this framework to improve their business operations. This
accounting system essentially required to determine the manufacturing cost of individual unit.
This system is applied when products are divided in various categories and different from each
other with significant cost.
Price optimisation system: It is a mathematical program where firm calculate the
demand and how it will vary according to the change in the price range of product. It is
essentially required for the managers to analyse their customer buying behaviour which impact
the demand of product. In context of Alpha Ltd, before developing any strategy manager should
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analyse these factors and than further formulate strategies (Bellanca, Cultrera and Vermeylen,
2015). This model helps in collecting all the required information regarding cost, inventory level
and price recommendation which improve profit margin.
Above mention accounting systems followed by the Alpha Ltd in order to improve their
business operations. Where costing method reduce product cost, inventory management helps in
managing stock level that also helps in minimising cost which enhance profitability.
P2. Different types of management accounting reporting
Management accounting reporting is a sum of various accounting reports that analyse
what is going on in the business environment. These reports prepare for the various purpose such
as tax purpose or managerial purpose (Management Accounting Reporting, 2017). It helps in
collecting data which is provide useful information about operations. There are different types of
management accounting reports and some of it discussed below:
 Inventory management report: For the manufacturing business it is one of the best or
suitable report. It followed by the organization to manage their inventory level for the
production purpose. In the context of Alpha Ltd, manager use this reporting system
where they can analyse the requirement of stock in the production level. With the help of
this report, manager measure the requirement of inventory for the production. For
example: if business order raw material more than production requirement then there is
high chances of wasting stock which increase the production cost and reduce profit
margin. On the other hand, if ordered quantity is low as compare to the production then
company may face the shortage problem which directly impact upon the production as
well as profitability.
 Account receivable report: It is also called accounts receivable reconciliation, this
report include the amount which owned by the customer. Basically outstanding amount
of business which recovered from their debtors. Organization able to identify defaulters
and develop further strategies in order to minimise their risk (De Loo, Cooper and
Manochin, 2015). With the help of it, manager of Alpha Ltd produce account receivable
report which further helps in developing credit strategy which include various strict terms
& conditions. These actions will minimise the number of defaulters and help the manager
to determine outstanding amount.
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 Performance report: It is a detailed report regarding every action or employees as well
as organizational functions. For example: Annual performance report develop for the
each employee and it help the organization to analyse individual performance. It further
beneficial for the manager to provide rewards and other incentives to motivate employees
due to their valuable contribution. Manager of Alpha Ltd use this report to evaluate or
formulate strategy according to the situation. Business also get the idea regarding that any
further improvement required or not. If yes, then manager conduct various program to
improve individual skills & competencies.
 Budget report: This report include the future prediction where most of the time
projection will be different from the actual performance. In the accounting period
manager already compare their actual performance with budgeted performance (Falkner
and Hiebl, 2015). In the context of Alpha Ltd, manager produces budget which include
information regarding each item that required for the production of goods. It helps in
comparing task performance and the estimated amount they spend. Manager use this
report to compare different data set. For example: sales volume, revenue of every
quarter , selling expenses etc.
Above mention accounting reports help the manager to evaluate all the information which
is beneficial for the business. It further help the manager in their decision making process where
various strategies develop on the basis of collected information. These report helps in comparing
information or formulating strategy that further increase operational efficiency or effectiveness.
It improves product quality which generally generate more demand and increase productivity or
profitability as well.
M1. Evaluate the benefits of management accounting systems along with its applications
Accounting systems Benefits
Inventory management
system
In Alpha Ltd, inventory management system helps in increasing
efficiency as well as productivity of business operations
(Herremans and Nazari, 2016). It is also beneficial to minimise
product cost through managing inventory level for the
production.
Price optimisation system This system provide immediate financial benefits to the
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organization through focusing on key areas such as sales
margin. Along with this, it helps the manager to take quick &
better decision regarding different price range for the product
which meet the customer's objectives.
Cost accounting system It help the manager of Alpha Ltd to measure or improve product
efficiency through minimising cost. It further helps in increasing
productivity as well as profitability and it will be beneficial for
the business to adopt this system. By using cost accounting
system, manager control the cost of product over the whole
production period.
Job costing system This system allow the manager to calculate each job costing
profit and it further helps in analysing specific job that desire to
continue in the future (Jones, 2014). It also allow to measure
individual performance and develop strategy accordingly.
D1. Critically evaluate accounting system or accounting report which linked with organizational
process
It is critically evaluated that every business required to follow accounting system or
accounting reports in order to counting their organizational process and achieve desired results.
In context of Alpha Ltd, manager use inventory management system to manage their stock level
and all the relevant information will be reported by using inventory management report
(Masztalerz, 2014). Similarly, by using costing system manager try to reduce product cost and it
will be recorded in the cost accounting report. These information useful for the manager to
develop strategy and decision making process. Along with this, accounts receivable report used
to identify defaulter and then manager develop effective credit policy which helps in reducing
late payment.
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TASK 2
P3 Calculate cost by using appropriate techniques
Marginal costing: This costing method use to evaluate cost where variable cost charged
for fixed cost of the period where it will be written off against contribution. It is a costing
technique that used for the decision making process. It further helps the manager to develop
strategies or implement in effective manner. Below mention calculation based on marginal
costing method.
Calculation of net profit by using marginal method:
Profit & Loss Statement:
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Absorption costing: It is also called full costing method where every item included at the
time of calculating product cost. Absorption costing method include fixed overheads that charge
as a part of product cost (Nuhu, Baird and Appuhami, 2016). Some of the cost associated with
production such as raw material, wages, workers etc. Along with this, all overheads cost such as
utility cost that used in production.
Calculation of net profit by using Absorption method:
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Problem 2/ 1 (a)
8

Problem 2/ 1 (b)
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In order to evaluate marginal expense, company required to measure variable costs.
Absorption costing method include fixed or variable cost which required for the estimation of of
productivity. With the help pf financial report, organization able to understand the actual position
of the company in the particular accounting period.
As per above calculation, company should install new machine in order to maximise their
earnings such as £1,04,000 and BEP is £0.00 when company sell 16000 units. Increase in the
selling units will increase the profit margin.
10

Problem 2/ 2 (b)
Reconciliation of Profits under the two systems:
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M2. Range of management accounting techniques which used to produce financial accounting
documents
Cost accounting: Under this technique data will be represented product wise, department
wise, process wise etc. These data will be used for the comparison which helps the manager to
produce financial accounting documents and it will be analyse by internal as well as external
parties. This technique used by the manager of Alpha Ltd in order to maintain their record and
future decision will be based on it.
Budgetary control: It is one of the technique which used by the manager to analyse their
future financial needs and it will be arrange accordingly (Oberfield, 2014). Basically it is used to
control their revenue or expenses which required to estimate and it will be included in the
financial accounting.
D2. Produce financial report that apply & interpreted within organizational process
While calculating cost of product by using marginal or absorption costing method, it will
provide accurate cost which help the manager to develop further strategy regarding monitoring &
controlling cost for the whole production period. These information helps accountant to prepare
financial report for internal as well as external stakeholders. Financial report include all the
related information which helps manager in their decision making process. It will improve
internal operational process which further improve efficiency or effectiveness.
TASK 3
P4. Advantage & disadvantage of various planning tools which used for budgetary control
Budget: It is a financial plan which prepare for the specific time period and it include the
sales volume, revenue or resources required for the production of goods. It includes a brief
discussion regarding various aspects such as expenses which required to manufacture goods
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(Shipman, Swanquist and Whited, 2016). Alpha Ltd produce budget for the further functioning
which help the manager to segregate their expenses according to the activities.
Budgetary control: It is a process managing finance or performance of individual and it
further helps the manager to develop budget with the help of past estimation. In the organization
most of the budget develop with the help of previous information and which is not so accurate in
results. There are various planning tools available which help the manager of Alpha Ltd to
perform well or achieve business goals & objectives. Every planning tools have some advantage
or disadvantage which discussed below:
Different types of planning tools:
Cash budget: This budget include the expected cash receipt and disbursement in the
accounting period. Budget include the inflow as well as outflow of cash and these inflows &
outflows involve the revenue collection from various activities, expenditure of each activity and
loan amount which required to pay. Cash budget should be used by the Alpha Ltd for the
budgetary control where they manage all operational activities. This budget having some
advantage or disadvantage which discussed below:
 Advantage: This budget avoid debt which help the manager to get accurate results
regarding inflow or outflow of cash from operational activities (Smith, 2017). It help the
manager to stay in reality where actual expenses information helps in developing strategy
for future.
 Disadvantage: It provide rigid decision and required enough time to develop budget
because each need to analyse because it only include the cash related activities. This
budget specify the limit which preventing future opportunity.
Zero based budget: This method also used by various organization for budgetary control
where expenses of each item will be justify for every new financial period. Basically this budget
do not based on the past projection. It is prepare from the zero base where manager have to
estimate all the data from the initial stage. It will take lots of time to prepare zero base budgeting
and it should be beneficial for the budgetary control in context of Alpha Ltd. Some advantage or
disadvantage discussed below:
 Advantage: This budget used to estimate accurate cost of the operational bioactivity it
further helps the managers to formulate strategies which provide accurate results as well.
It further helps in increasing efficiency or effectiveness.
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 Disadvantage: This method is very time consuming as well as costly which include the
estimate and human efforts as well. Along with this, manager have to review this budget
on regular basis for their effectiveness.
Master budget: It is the combination of various departments where manager develop
budget for each of them and they have to perform or complete their task accordingly. For the
effective result or accurate budget, manager of Alpha Ltd can adopt this budget or try to improve
operational efficiency or effectiveness. It required financial planning & cash forecasting along
with this, it will prepare on quarterly & yearly basis. This budget also have some advantage and
disadvantage which discussed below:
 Advantage: It help the manager as well as owner to review separate department budgets
which helps in analysing performance. All functional activities budget included in the
single report which is easy to analyse by the manager for further functioning.
 Disadvantage: Master budget is time taken process where because every department
required time for the estimation. Along with this, it is very costly process because it
required huge money and time for the estimation of expenses.
From the above mention planning tool manager of Alpha Ltd use master budget because
it provide accurate estimation regarding each item cost. It help the manager to evaluate each
department performance and formulate strategy accordingly.
M3. Evaluate different planning tools which required for forecasting budget
Every organization use planning tool for budgetary control which help the manager to
estimate all expenses and expected revenue. In context of Alpha Ltd, manager follow master
budget to evaluate separate department performance and analyse the results that it is capable to
achieve desired goals & objectives within limited amount (Speckbacher, 2017). If any functional
activity exceed their amount then business identify the reason or if any division perform very
well in the projected amount then this strategy will be used in the future as well.
TASK 4
P5. Compare how business adapting management accounting system to respond their financial
problems
Financial problem: Almost every organization face this problem where business have to
face hard time due to lack of finances. Some problems are very difficult to overcome and bust
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some of them can be by using accounting system which improve business operational activities.
In context of Alpha Ltd, manager also feel pressure due to their internal activities which impact
the profitability of the company. Few problems are discussed below:
Excessive spending: Company also face hard time due to excessive spending at the time
of producing goods. It will increase cost of product which automatically increase the price of
product that reduce demand. These things affect the production and profitability so manager
should adopt some effective steps in order to reduce this problems.
Lack of cash flow: Manager of Alpha Ltd required enough capital for their daily
spendings (Tu and Huang, 2015). Without money it is not possible to perform their task or pay
their bills as well as they required proper funding to pay their dues.
Techniques to solve financial problems:
Key Performance Indicator (KPI): It s an measurable indicator which help the
organization to determined that how effectively they achieve their goals & objectives. KPI used
in the different level in order to analyse their success of each level. High level KPI used to
measure overall business performance and low level KPI focus on every departmental process
such as sales, marketing, HR etc. Alpha Ltd should use this technique to solve their financial
problems. Manager have to develop some strategy which also helps in future to achieve desired
results through resolving excessive spendings in the manufacturing units.
Benchmarking: It is the process of measuring performance of goods, services or process
which required to analyse and it will also compare with the another business performance.
Benchmarking helps in evaluating future opportunity and try to develop strategy to improve their
process. By using this problem, manager of Alpha Ltd can resolve their cash flow problems
(Tucker and Parker, 2015). Along with this, management accounting system also helps in
improving operational efficiency as well as effectiveness.
Financial governance: It is the process where organization manage, monitor and control
their financial information. Here, CEO of the company need to develop business plan which
include budget of financial plan that related to the primary activity or generate revenue. Along
with this, discloser of final accounts will be important because further decisions of investors will
be based on it. Manager of Alpha Ltd effectively follow financial governance in order to resolve
their financial problems and achieve business goals & objectives.
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Different between organizations that how they response financial information by using
accounting systems:
Basis Alpha Ltd DSA Manufacturing
Financial
problems
Company face the problems regarding
excessive spending and lack of cash flow
which reduce production, profitability as
well as demand of product in the market.
Because over expanses will increase the
product cost that automatically increase
selling price which reduce demand and it
will directly impact business and their
operational activities.
Due to their low quality of
product, DSA Manufacturing
reduce their costumer loyalty
and will be analyse through
continuous reduction in the
demand. This problem generate
financial issue in the company
and increase pressure in the top
management.
Management
accounting
system
Manager adopt cost accounting system for
executive spending problems because it help
the manager to estimate cost of each item so
they prepare budget accordingly. So
manager need to ensure that all activities
will be done under their limit (Van der
Stede, 2016). On the other hand, lack of cash
flow also impact production so manager
follow price optimisation system which
helps in defining range of price which meet
with customer's objectives. After this, there
are chances of maintaining cash flow in the
organisation.
In order to increase customer
loyalty, manager have to follow
price optimization system
which helps in analysing
customer buying behaviour and
their reaction for the different
range of product price.
Manager choose the suitable
price range which meet with
consumers as well as
company's objectives. Price
range should be affordable that
fulfil customer expectation.
Financial
governance
Alpha Ltd follow financial governance to
develop financial reports which is important
for the stakeholders if the company. So they
need to timely report all the financial
information to develop financial statements.
DSA Manufacturing used for
the discloser of accounts which
is useful for the stakeholders
who analyse these information
for further decisions regarding
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investment.
M4. Evaluate that how organization lead sustainable success by using management accounting
and resolve financial problems
Organization face various challenges at the time of achieving their goals such as f Alpha
Ltd face financial problems regarding lack of cash flow and excessive spending. Managers are
using accounting techniques to identify and respond financial problems of the business (Ward
and Calabrese, 2018). Key performance indicator, benchmarking and financial governance will
helps in providing effective solutions along with this various tools also beneficial for it. Manager
compare own policies with their competitors and then analyse such changes or if it is suitable
then adopt it.
D3. Evaluate that how planning tools help the accounting to resolve their financial problems
With the help of planning tool manager able to develop budget and they done their work
accordingly which helps the business to resolve their financial problems. There are various types
of planning tool such as Cash budget, zero base budget, master budget etc. It helps in achieve
business goals & objectives. With the help of master budget, manager able to analyse their
expanses according to the specific item and it reduce the excessive spendings and maintain
proper flow of cash in the business environment.
CONCLUSION
Above discussed points helps in analysing management accounting and its implication
which required to increase individual as well as business performance. It helps the manager to
collect information for various purpose such as tax or managerial. Here organization can develop
strategies with the help of accounting systems or accounting reports. Above mention
management accounting systems help in managing business operations which increase
production as well as profitability. Along with this, financial problems of the company such as
excessive spending or lack of cash flow. Both issue generate financial problems which generate
pressure for managers and top management. By using accounting techniques and accounting
systems manager able to resolve problems and effectively respond through developing strategy
and implemented in effective manner.
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18

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