Management Accounting Report: Costing, Budgeting, and Financial Tools

This report focuses on management accounting principles and their application within the context of Alpha Ltd, a UK-based manufacturing firm. It explores various management accounting systems, including cost accounting and inventory management, and their role in planning, decision-making, and organizing. The report details different management reporting methods, such as performance, budget, and inventory management reports, and contrasts financial and management accounting. It delves into costing techniques, specifically marginal and absorption costing, providing calculations and comparisons to determine profitability. Furthermore, the report examines budgeting tools and their importance in financial forecasting, including static and flexible budgets. Finally, the report analyzes financial statements, evaluates the impact of installing new machinery, and offers recommendations based on financial performance and break-even analysis. The report underscores the significance of integrated management accounting systems and reporting for effective financial management and decision-making.

MANAGEMENT
ACCOUNTING

Table of Content

INTRODUCTION
Management accounting is an important aspect for business organisations as it helps the
manager of an organisation to formulate distinct income and financial reports in a proper manner
(Alyousef and Mickan, 2016). This involves multiple accounting techniques that helps a
company to gain accurate information about finances and accounts. This report is prepared in
context to Alpha Ltd which is a Britain based manufacturing firm employing around 50 workers
and earns an annual turnover of £500,000 every year. This company is planning to opening up
their franchises. This report is going to mention about distinct kind of management accounting
systems and reports along with various costing techniques to prepare financial reports. In this
context, use of both absorption and marginal costing will be shown. Also, usage of various
planning tools for forecasting and estimating budget is carried out. In last part of this project,
different kind of financial tools are used so that organisational issues related with finance can be
sorted out in a proper manner.
TASK 1
P1
Management accounting incorporates accounting techniques and tools which helps a
company to reduce their overall spending and increase their profits (Management Accounting,
2020). Main role of MA in a company is to plan and control all the operates related with finance
and accounts. Purpose of MA are listed down:
 Planning: Management accounting helps the manager to plan how they can formulate
their budget or solve their financial issues so that high organisational productivity can be
gained.
 Decision making: As systems and reports of MA helps in getting wider information
about finances of firm, it became easier for manager to take strategically advantageous
decision. This helps in taking only right business decisions (Anessi-Pessina and et. al.,
2016).
 Organising: Management accounting assists the workers to execute their work in
systematic manner due to which organisational activities are organised properly. This
helps the manager in Alpha Ltd to gain high productivity while performing organisational
work.
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Management accounting system are known as an internal system which is implemented
in the business environment to assess the ongoing process by utilising various tools of
accounting system (Bierma, Waterstraat and Ostrosky, 2017). In the context of innocent drink
there are various tools to improve the performance and to adopt those techniques which is used
to implement MAS in accurate manner. Some kinds of administration accountancy systems are
as below:
Cost accounting system- This management accounting system is utilized by
manufacturers to analyse production and production activities in a systematic way (.Cost
Accounting system, 2020). This method is used by organisation to monitor or oversee the actual
cost of their work. Regarding Alpha Ltd, this system is good for administration because it leads
them to decide the actual cost for their work. This also helps the management to control the
quality of their work.
Inventory management system: It is an accounting systematic that permits an
organisation to communicate the actual status of their inventories, stocks and other materials in
proper manner. Organisations like Alpha Ltd can use this system to identify if all the material
required for production of Pizza are available to the firm or not. Generally, there are two
methods to manage inventory in an organisation. These methods are stated below:
 LIFO: In this method, last purchased material is used first for manufacturing purpose so
that high tax advantage can be gained. This method will allow Alpha Ltd in getting lower
balance of remaining inventory so that tax liability can be reduced (Chenhall and Moers,
2015).
 FIFO: In FIFO method, inventory which is purchased first is used earlier for
manufacturing. This method will help Alpha Ltd in reducing the wastage of inventory so
that overall expenses of firm can be reduced and high advantage can be gained.
Price optimisation system: It is a managerial accountancy system that helps a firm in
acknowledging the opinion of clients about their pricing strategy. With the usage of this
method, administrator in concerned firm can find out the willingness of customers to
purchase their offerings. Also, this system will help the company to formulate pricing tactics
so that they can achieved maximised sales and revenues.
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P2
Management reporting can be characterized as a procedure that represents the fiscal data
of organisation in the form of reports. There are various activities that are performed by
management to run daily operations and functions of organisation in the market (Ghasemi and et.
al., 2016). One of them is preparation of managerial reporting. Main reason of using managerial
report is that it focus on segments of business rather than giving an overview of overall business
finances. Different kind of administration accountancy system reports are defined under: Performance report: This is one of the basic report of management accounting which is
formulated on regular basis to identify the overall productivity of the company. This
report can be utilized by Alpha Ltd to examine and compare the execution of workers
and business so that overall performance can be evaluated. By this, taking right business
decisions will be easier for management. Budget report: In this managerial reporting, budget for an organisation is prepared and
allocated to different departments as per their requirement. Without this report, it is not
possible for a company to allocate right amount of budget to organisations. Alpha Ltd can
usage this written report, to give required funds to different department so that
organisational activities can be carried out efficiently (Granlund and Lukka, 2017).
 Inventory management report: This report helps in analysing the amount of stock,
resources and materials present in a company for manufacturing purpose. Primary
intention of using this report is to maintain the records of organisational merchandise in
different intervals of time. Alpha Ltd can use this report to check if needed resources for
production are available in right quantity or not.
Differences between managerial and financial accounting
Financial accounting Management accounting
 In this technique, financial reports are
prepared to discuss business activities
with external uses like bankers,
government officials, stakeholders etc
(Hiebl and et. al., 2015).
 This includes creation of income
reports and statements for employees
and employers of an organisation so
that they can take right business
decisions.
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 This accounting helps in identifying
accurate financial position of a firm for
a specific time slot.
 MA techniques aims to fulfil future
goals of company so that maximised
benefits can be attained.
 It addresses appropriate valuation of
liabilities and assets due to which it is
concerned with revaluations and
impairments.
 This is not related with the value of
revaluations and impairments. This is
concerned with overall productivity
only.
 This has high compliance with
accounting standards
 Managerial accounting do not comply
with any standards when a data or
information is used for intrinsic
consumption.
M1
Management accounting system Benefits
Cost accounting system  This method will assist Alpha Ltd in analysing their
organisational procedures so that needed
modification in manufacturing, delivering or
distributing process can be carried out. By this, extra
cost of company will be cut and high revenues can
be gained in appropriate manner.
Inventory management system  By implementing inventory management system, it
is easy for Alpha Ltd to manage their inventory cost
in effective manner. Along with it, this method will
apermit Alpha Ltd to define the way by which
inventory and its value is identified and estimated on
the basis of raw-materials as well as finished goods.
Price optimisation system  By using this system, manager in Alpha Ltd is
capable to acknowledge the choice, opinion and
preference of customers about the prices of their
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products (Johnstone, 2018). Due to this, company
can easily change and optimise their price as the
expectation of customers. By this, high revenues can
be earned.
D1
Management accounting system leads an organisation to manage work and to make
effective decisions that enhances the performance and profits for the firm. On the other side,
management reporting helps organisation to operate and managing their work in internal and
external departments in efficiently manner (Kalkhouran and et. al., 2015). For instance, to
prepare inventory report, inventory management system is used so that actual status of inventory
can be identified. If inventory system will not be used, manually counting of inventory is not
possible. Due to this, inaccurate report will be prepared. Hence, it is important for management
accounting system and reporting to work in an integrated way.
TASK 2
P3
Cost is characterized as the amount which is given to by the people in exchange of a trade
good or service. While producing a commodity, some cost is incurred. This cost is called as
manufacturing cost. In general, there exist two kind of costs which is discussed below:
Marginal costing: This method benefits in calculation of net profitability according to
variable cost only (Marginal costing, 2020). In this costing, fixed cost is ignored. Small firms
like Alpha Ltd use this method to prepare their financial report.
Absorption costing: This is other way to prepare financial report. In this method, both
variable and fixed cost is covered in identifying the profits of company. Large scale firm use this
method to prepare income statements (Leotta, Rizza and Ruggeri, 2017).
Problem 1 (1) Calculation of net profit under absorption costing method
Unit Selling Price 8
Unit Variable Cost 3
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Fixed Man. Expenses 150
Non Manufacturing Exp 50
Budget activity 150
Calculation of net profit under marginal costing method:
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Problem 2 (a)
a) Before installation of the new machine
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Problem 2 (b)
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2 c. Financial statement
Scenario 1
Solution 2d
Recommendations
If only the monthly profit are considered, the respective company should buy and install
the new techniques because thus can generate more net profitability. At 20,000 units per moth
variable expenditures will minimise up to 280,000 pounds and monthly fixed expenditures would
maximise by only 236,000. the saving in the variable expenditures is therefore larger than the
maximise in the fixed expenditures.
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