Management Accounting Report: Evaluation of Alpha Limited's Finances

This report provides a comprehensive overview of management accounting principles, using Alpha Limited as a case study. It explores various management accounting systems, including cost accounting, price optimization, inventory management, and job order costing, highlighting their importance in business operations. The report details different methods used for management accounting reporting, such as inventory management reports, performance reports, budget reports, and accounts receivable reports, along with their benefits. Furthermore, it differentiates between management accounting and financial accounting, illustrating the integration of management accounting systems with organizational processes. The report includes the preparation of income statements using both absorption and marginal costing methods, providing a detailed analysis of financial performance under each costing technique. The analysis covers key financial periods, offering insights into sales, production costs, and profitability, making it a valuable resource for understanding management accounting in practice.

MANAGEMENT
ACCOUNTING

Table of Contents

INTRODUCTION
Management accounting is known by managerial accounting, which is the method of
reviewing business costs and activities for internal reporting (Sundin and Brown, 2017). These
reports help executives make better decisions and help an organization's management team
improve the quality of their decision making. Management accounting's main goal is to help
organizational team with valuable information so that they can more effectively carry out
business operations and activities. The project report's goal is to distribute accounting
management information and business significance. The task report chooses the Alpha limited
company that is involved in the creation of making pizzas. The project report contains key
information regards to different MAS, MA reports and planning tools. As well as their
importance in the aspect of solving financial issues.
TASK 1
P1. Management accounting and its types.
Management accounting- It can be outlined as an accounting system involved with the early
stages of planning inner reports for administrators so that as per the business requirements they
can take appropriate judgements.
Cost accounting system - This is a form of accounting system that has to do with a
structured method of cost estimation. It is linked to the financial department of the organization
to allow them to maintain effective control over operating costs (Jacková, 2016). Essentially, the
primary objective of this accounting system is to track all activities that lead to higher costs of
doing business. For companies, therefore, it is necessary to significantly reduce overall costs.
This accounting system is implemented in the case of Alpha Limited Company by their finance
department to keep the costs of their operations below usual costs.
Price optimisation system – It is a system that decide is aligned with process of
collecting market information such as demand of any industry specific product, customers'
perception etc. Industries use market management to determine the best price to maximize
revenue over costs for the goods. It also uses data to determine prospective buyers ' actions at
various product or service costs. The optimizing goal is to find the set of inputs leading to the
maximum capacity. In other terms, find the rates that are likely to lead to the best profit of each

money aspect. This is used by Alpha Limited to earn profits and attract the consumer by
delivering the item at a reasonable price.
Inventory management system- The purpose of this accounting system can be
represented by its name as it relates to the reporting process of the amount of all forms of
business materials (Ionescu, 2016). It is important to track products across the supply chain of
companies. This optimizes the entire process from ordering to customer delivery. This offers
barcode scanning to monitor items, keeps the right amount of product inventory, receives the
right amount of product alert on stock, keeps several warehouses, records of purchasing and
returns. Therefore, it is essential for businesses to track all kinds of products on a regular basis
and to steer the buying team to purchase more goods. Nevertheless, various types of methods are
used to measure the quantity of goods such as LIFO, FIFO, and others. It also gives the right
amount of stock for sale in hands, while Alpha Limited also maintains this system to include the
right amount of stock to the right customer, keeping full product records in the company.
Job order costing system – This can be defined as type of accounting system which is
linked with process of allocating job costs separately, is compatible with the cost evaluation
process of each operation (Burritt and Christ, 2017). It's being used to accrue the aided costs of a
particular product batch, it's used for a tiny product in which the product is generated under
multiple batches. Management needs to ensure that its client's costs are sensible. Products are
manufactured by different strain and depending on each batch costs are assistant. Such as in the
Alpha limited company, it is being used in order to assess cost of job and products as accordance
of batches.
P2. Various methods used for management accounting reporting.
MA reports- This can be described as a type of formal document consisting of data on the
success and outcomes of different activities. Here are some types of documentation which are as
follows:
 Inventory management report - The report provides how much stock the organization
should have for profitable business at any particular time. This shows how much
inventory should be equipped to handle current stock and stock in stores to hold for
potential needs, these documents show stock levels should be available in supermarkets
and shops to reach the required standards. In the Alpha limited company, this helps in

indicating how much of the inventory is available in the warehouses and how much is
ready to ship.
 Performance report - It is a document that is the result of an individual's work, showing
a companioning between real work rather than one of budget results (Al-Qady and El-
Helbawy, 2016). It lets supervisors see how employees to work in line with the expected
schedule, so that document recipients can take the necessary steps to improve the
organization's efficiency. Similar to other goods and services, Alpha limited company
conducts this study to see which brand is doing well on the market. This also provides
staff with a level of performance similar to normal grades.
 Budget report - Such documents provide a contrast between the expected results verses
the real work done by workers, it indicates how similar the actual work is to the work on
the plan, it is an internal report used by management to equate the forecast with the actual
number of results accomplished over a period. Such reports are created to find out the
difference between real and expected employee results. Alpha Limited produces budget
documents to assess the quality of its workers at the standard level, it allows managers to
better control their staff, this document also shows the results of the products and services
provided by organization in the contraction of expected works.
 Account receivable report - It is a document that consists detailed information regards
to number of unpaid customers and creditors whose amount is due. This gathered
information is used to obtain delinquent receipts for payment purposes. Management also
uses this report to assess the effectiveness of the components of loans and collection. It
has 30-day invoices, the leftmost column contains 30-day or less receipts, the next
column includes 31-60-day invoices, the next 61-90-day column invoices, and the list-
box includes all older invoices. Alpha limited company keeps these documents in order to
manage the payment process on time, as well as showing how much money is going to go
into the business and how much capital is going to get paid for the specific period.
M1. Benefits of MAS.
The above-mentioned accounting systems play a significant role for companies. Every
accounting system's purpose is shown as follows:
MAS Benefits

Cost accounting system It is consistent with the cost reduction cycle below normal costs for
various operations and programs. In the case of the above-mentioned
Alpha Organization, administrators use this accounting system to
track costs for each project and to maintain overall cost control.
Price optimisation
system
This refers to the practice of deciding the prices and services of the
commodity as the suitability of different external stakeholders. In the
Alpha limited company, their sales team uses this management
system to fix the price of their pizzas manufactured.
Inventory management
system
This is linked to effective control of the quantity of goods in
warehouses (Adisetiawan and Surono, 2016). Under Alpha Limited
Company, the administrators use this management system to make
efficient use of their processed raw material.
Job costing system The accounting system helps to control the spending of each project
specifically. In the above-mentioned business, they use this
accounting system to calculate the cost of work assigned to different
activities and processes.
D1. Integration of MAS and reports to organisational process.
In the companies there are a large number of activities that are conducted by multiple
departments (O’Grady, Morlidge and Rouse, 2016). MAS interacts with various business
activities and functions in this way. Like the previously mentioned Alpha limited company,
MAS is connected to their different departments. As financial unit is integrated into cost
accounting system, sales division with price optimization system, etc. Business activities and
processes are also connected in the same way as MA documents.
Difference between MA and financial accounting:
Basis Financial accounting Management accounting
Types of Only financial information are On the other hand, under it both types of

information included in this accounting. informations are included.
Compulsory This is essential for companies to
apply this accounting.
It depends on companies whether they
want to implement this accounting or
not.
Outcome It produce financial statements at the
end of year.
This is used to prepare internal reports.
Presentation
of report
Under this accounting, produced
financial statements are shown to
external & internal stakeholders.
On the other hand, in this accounting
internal reports are presented to internal
stakeholders.
TASK 2
P3. Preparation of income statement by help of absorption and marginal costing.
Marginal costing – This costing technique is linked to process of allocating total amount
of cost in a different manner. Such as under it, fixed cost is assigned as cost of unit while
variable cost is considered as cost of product. It is suitable in order to differentiate cost in a
systematic manner.
Absorption costing – It can be defined as a type of cost in which all types of cost is
considered in a similar way. Such as fixed and variable both costs are taken as cost of
unit(Arnaboldi, Busco and Cuganesan, 2017).
Problem 1.
(I) Income statement under absorption and marginal costing:
Absorption costing:
Absorption Costing Statement calculator
Unit Selling Price 8
Unit Cost (FC+VC) 5
Fixed Manufacturing Expenses 150
Non Manufacturing Exp 50

Budgeted Activity 75
Period 04/19 05/19 06/19 07/19 08/19
01/09/
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[Production] 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 Manufacturing Cost 50 50 50 50 50 50
Net Profits 175 130 220 175 180 180

Marginal costing:
Marginal Costing Statement calculator
Unit Selling Price 8
Unit Variable Cost 3
Fixed Manufacturing 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[Production] 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 Manufacturing Cost 150 150 150 150 150 150
Less:Non Manufacturing 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: