Management Accounting Report: Analyzing Alpha Ltd's Financial Systems

This report provides a comprehensive analysis of management accounting principles and their application within a business context, using Alpha Ltd, a pizza company, as a case study. It covers various management accounting systems like cost accounting, price optimization, job costing, and inventory management, comparing financial and management accounting. The report delves into management accounting reports, including budget reports, performance reports, and inventory management reports, emphasizing their advantages and applications. It also explores cost analysis techniques, such as absorption and marginal costing, used for formulating income statements. Furthermore, the report examines the benefits and limitations of planning techniques in budgetary control, evaluating planning tools for budget creation and forecasting. Finally, it addresses how organizations adapt accounting management systems to tackle financial issues, and how planning techniques can resolve financial problems to achieve sustainable success. The report concludes with an overview of the integration of management accounting systems and reporting within business processes.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Evaluate the term management accounting and discuss about various kind of management
accounting systems......................................................................................................................3
P2 Analyse about varied methods used in context to management accounting reports..............4
M1 Mention the advantages linked with management accounting systems along with their
applications in business context...................................................................................................5
D1 critically evaluate the manner in which systems and reporting of management accounting
are integrated in business processes............................................................................................6
TASK 2............................................................................................................................................7
P3 Measure costs by using cost analysis techniques for formulating an income statement by
usage of absorption and marginal costs.......................................................................................7
M2 Precisely apply various techniques of management accounting and formulate documents
of financial reporting.................................................................................................................13
D2 Prepare a financial report which appropriately use and interpret financial data for different
kind of business operations and activities.................................................................................13
TASK 3..........................................................................................................................................14
P4 Mention various benefits and limitations of using planning techniques or tools in context
with budgetary control...............................................................................................................14
M3 Evaluate the role of various planning tools along with their application in creating and
forecasting of budget.................................................................................................................15
TASK 4..........................................................................................................................................15
P5 Compare and contrast the manner in which different organisations adapt account
management systems to deal with their financial worries.........................................................15
M4 Analyse the manner by which management accounting responds toward financial
problems and attains organisational success..............................................................................16

D3 Analyse how planning techniques for accounting helps in resolving og financial issues to
achieve sustainable success for the organisation.......................................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management Accounting is one of the accounting process which is used by the business
organisation for the purpose of analysing and doing appropriate planning through which goals
can be accomplished easily. By taking the help of management accounting, any of the
organisation can determine whether they are performing well or not within the market and if not
what are the things which is needed to be done. For the purpose of understanding about the
concepts of Management accounting one of the UK company has been selected which is Alpha
which was established in the year 2001. The company is involved in the business of preparing
better quality of pizza within the market. It is necessary to understand about every single concept
in detail for that different framework will be explained, planning tool will play the crucial role.
Different types forecasting of budget will tell that how important the management accounting is
and at the end one of the financial issues will be resolved.
TASK 1
P1 Evaluate the term management accounting and discuss about various kind of management
accounting systems
Management Accounting explains about every single process which are needed to be used
within the business organisation.It directly provides the guidelines that how unnecessary
expenses can be removed from the business organisation so that overall profit can be improved
in short period of time. While talking about current situation, each and every business
organisation requires the management accounting for attaining the goals else it becomes one of
the difficult task for company to collect any of the relevant information(Fullerton, Kennedy and
Widener, 2014). In context of Alpha Ltd, manger will be helpful because they will have the idea
that what types of business decision they are needed to take and how goals can be accomplished.
Here, manager have the option to use number of accounting system by looking at the
requirement of organisation. Out of several accounting systems some of them have been
discussed below in detail.
Cost accounting system: It can be easily understood as one of the most crucial managerial
accounting system which directly helps to identify that how business organisation reduces the
unnecessary expenses so that overall productivity can be enhanced. In case of Alpha, they will be

benefited because they will get the idea that how they are required manage the resources and
reduce the expenses which are occurring on regular basis.
Price optimisation system: It is one of the accounting process where company tries to
find about maximising the profit with the help of reducing the price of product up to which
customers are willing to pay.With the help of this respective method Alpha Ltd, will be able to
decide that what their customers are expecting and according to that company will be able to
earn the profit. In short, it will give the idea to company in enhancing the overall sale.
Job costing system: This is another form of management accounting system under which
the expenses of manufacturing and development are assigned to a particular product (Melnyk
and et. al., 2014). The company profits from collecting data on the costs of direct operation or
function so that the entire budget can also be managed. By using this costing method, the director
of Alpha Ltd can define gains in capturing costs and monitoring operating efficiencies.
Inventory management system: It is necessary to understand that accounting system
plays the crucial role and because of that it is necessary to understand that inventory
management system plays the crucial role. In this, different barcode scanner, programming
software are used which helps to maintain the record of every single stock available in the
organisation. While talking about the Alpha Ltd, they will be benefited as unnecessary expenses
will not occur as stock will be not be needed to increased and even their will not be requirement
to keep below the requirement.Here, to manage the stock company can use different procedure
such as LIFO, FIFO and AVCO on their own choice.In FIFO, the stock which has been brought
first within the organisation will be used in first whereas in case of LIFO the stock which has
been brought recently will be used first. But in case of AVCO, the stock is used on the basis of
requirement of a company. While talking about Alpha Ltd, their manager must go for FIFO
method as it will help them to reduce the percentage waste material in their company.
Differentiation between Financial and Management accounting
Basis Financial Accounting Management Accounting
1. Aggregation Financial Accounting aggregates
results of an entire business entity.
Management Accounting generates in-
depth and specific reports such as profits
by product line, departments, region etc.
2. Reporting It is oriented towards making of Orientation is towards operational

financial statements for both internal as
well as external stakeholders.
reports, which are for evaluating
efficiency of products or departments.
3. Time period It is concerned with reporting and
presenting past data in summarized
reports.
It also deals with making budgets and
forecasts based on information of the
past.
4. Standards It has to comply with various
accounting standards and principles
while reporting and presenting
information.
It does not have to comply with any
standards, as the reports generated are
for internal use only.
5. Valuation Financial Accounting provides for
valuation of its various assets and
liabilities, in order to assess the
profitability of the business.
Management accounting does not have
any specific provisions for valuation of
assets, but it is concerned with
allocation of costs to different activities.
P2 Analyse about varied methods used in context to management accounting reports
Management accountings are number of types which plays the crucial role within the
business organisation because it gives the idea to find the overall performance of a company. It
simply helps to enhance the performance of a company (Sadikoglu and Olcay, 2014). In context
of Alpha Ltd, some of the accounting reports are explained below:
Budget reports:Whenever there is the discussion about business organisation it can be
determined the budget report plays the most crucial role as it helps to identify and control all of
the expenses which are needed within the business.It is helpful for the purpose of estimating
outcome and for that budget reports are needed to be prepared. Budget report all gives the
suggestion that in which segment company is required to spend their capital as it will directly
support to reduce unnecessary expenses. In context of Alpha Ltd, they are needed to prepared for
the purpose of advertisement and distribution, planning and plotting and many more. In short, it
will directly help company to improve the performance of a company.
Performance reports:The main objective behind preparing this respective report is to
monitor every single report which are being conducted within the company. The main motive
behind Alpha Ltd to use performance report is to give rewards to their employees who are

performing well and even provide training to them who are unable to give their best at the time
of accomplish the goal(Chenhall and Moers, 2015). Even it gives the idea about inside and
outside data which directly help to enhance the performance.
Inventory management report: Whenever any of the organisation is incorporated then
either it is for the purpose of producing any product or even for providing different services to
the customers. It simply helps to collect all of the relevant information related to the expenses
incurred at the time manufacturing any of the product.This form of document can also be easily
changed as the level of inventories varies according to the production rate of the services. In
context of Alpha Ltd, by successfully recognizing the volume of material as well as resources on
stocking sites, the inventory manager is able to make inventories decisions in a constructive
manner.
M1 Mention the advantages linked with management accounting systems along with their
applications in business context
Systems Benefits
Job costing system It is one of the system which will directly help business
organisation to find detail valuation of various expenses thata
occur within the company. In case of Alpha Ltd, they requires
job costing system because it directly helps to identify the
work which is being conducted, operations, production cost as
well which will give the fair idea that on what cost product is
needed to be sold(Gersonius and et. al, 2015). Here, it will
give idea to organisation that how they can eliminate
unnecessary activities which are being conducted within the
company.
Cost accounting system Cost accounting system is one of the most crucial accounting
system which requires by every business organisation because
it directly helps to maintain the systematic information of
stock which is very important for business organisation. It will
also allow the company to maintain the cost as per their
requirement. Even company gets the chance to keep their

customers satisfied.
Inventory management system The main benefit of inventor management system is that it
allows company to keep the record of every single stock
available in the company which directly helps organisation to
utilise their resources. In context of Alpha Ltd, they will be
helpful in maintaining the records and oversee and track every
single inventory due to which company will get the
opportunity to eliminate the shortage of stock in any of the
situation.
Price optimising system By taking the help of this respective accounting system,
company will be able to find that at what price customers are
willing to purchase any of the product of Alpha Ltd. This will
give idea to company that how they can accomplish their
target by meeting out the demands of a
customers(Senftlechner and Hiebl, 2015). Even price
optimisation system will help company to find about different
result if in case price changes.
D1 critically evaluate the manner in which systems and reporting of management accounting are
integrated in business processes
Without the introduction of management documents and processes, the company's business
director will not be capable of performing his job properly. For ex: At the time of
preparing inventory statement, an inventory management program is used to identify the correct
facts and figures.If company doesn't use inventory management process, the correct stock data
could not be recognized. As a consequence, it is not possible to file a stock report. Management
accounting systems and reports are thus necessary to work in an organized manner so
organizational goals can be adequately achieved.

TASK 2
P3 Measure costs by using cost analysis techniques for formulating an income statement by
usage of absorption and marginal costs
Cost is directly connected with the money which is incurred during the time of utilising the
resources for the process of manufacturing any of the specific product. Whenever any of the
organisation produces any of the product the product different cost usually occurs and later on it
is further distributed into direct and variable cost(Bartlett and et.al, 2016). While talking about
Alpha Plc, they usually spend higher amount of money on purchasing raw material, equipment
for the purpose of manufacturing.
Marginal costing:This is the process of costing where variable cost is only considered and
fixed cost is always ignored. It is one of those process of costing which is mainly used by the
organisation which perform business activity at a smaller ground. Whenever SMEs uses this type
of costing they get the opportunity to improve their net profit as well as revenue.
Absorption costing:It is one of the costing method which is used for the purpose of
valuing inventory. It includes both fixed and variable cost. In context of Alpha Plc, they will be
able to prepare each and every report of income tax as per the standard format.
Problem 1 (1) Calculation of net profit under absorption costing method:

Calculation of net profit under marginal costing method:

Problem 2 (a)

Problem 2/ 1 (b)

Problem 2/ 2 (a)
The above calculations are showing that if machine will not be installed then the
organisation may have to face a loss of 18000 pounds.
Problem 2/ 2 (b)

From the above calculations it has been analysed that when machine will be installed then
company can generate profits of 104000 pounds. Therefore it has been suggested to the
management to install the machine.
M2 Precisely apply various techniques of management accounting and formulate documents of
financial reporting
In any of the company, several types of accounting process are used by the person who
manages the work related to accounts and even financial managers take the part in it so that
business goals can be accomplished.This methodis used so that management of the company will
be able to evaluate the performance according to that policies can be formed so that unnecessary
expenses can be reduced. While talking about the manager of Alpha Ltd, they can easily use
absorption as well as marginal costing for the preparing the budget as well as other necessary
financial statement through which they ca easily take various kind of advantage in future period
of time.
D2 Prepare a financial report which appropriately use and interpret financial data for different
kind of business operations and activities
Whenever any of the firm prepares the financial report they have the option to collect all of
the relevant information which are related with income, cash flows. This type of document is
widely used by investors to conduct performance analysis in order to identify potential prediction
options in advance of time (Renz, 2016). As per the financial statement referred to above, it
appears to be summarized that, throughout the months of May and June, Alpha Ltd has received
massive profits and revenues. While talking about the absorption costing, the net benefit which
organisation have earned in the month of May is 1050 £ whereas in case of June the they were
able to generate the profit of 9792.4 £. On the other hand of side, company had to suffer in the
month of May which was 550 £, still company somehow manage to earn profit in the month of
June which is 5750 £ and this figure was calculated with the help of marginal method.

TASK 3
P4 Mention various benefits and limitations of using planning techniques or tools in context with
budgetary control
Budget can be explained as the formal document which is used by the business
organization for the purpose of preparing and predicting the result of a company. It mainly helps
to allocate the fund within the organization in a systematic manner through which it becomes
easy for company to reduce unnecessary expenses. While talking about Alpha Ltd, their manager
takes the help of different planning tool such as capital as well as flexible budget. Below, there is
the detail information about this respective planning tools.
Capital budget: This is the method of budgeting which is mainly used within the business
for the purpose of long term investment. It mainly allows to invest huge amount of capital within
the organisation by selecting the appropriates areas(Schulze and et.al, 2016). In context of Alpha
Ltd, manager of a company can easily prepare this types of budget where they can try to
introduce any of the new product in the market which will be as per the interest of a market.
Usually, in this types of budget, manager predict the capital cost which is required at the time of
delivering the services through which profit can be earned.
 Advantage:The will allow organisation like Alpha Ltd to determine about the risk
involved at the time of investment.In short, capital budget are helpful at the time of
expanding the investment through which rewards can be earned in future period of time.
 Disadvantage:It is one of the most expensive planning tool which is not possible for all
of the organisation to adopt in short period of time.
Flexible budget:It is one of the budget which automatically changes as per the required
of situation. It can easily help to determine about the loss, benefits as well as other profits
which company earn during the certain time period.It shall carry out a detailed review of the
actual costs of the expected cash transfers and allowances(Davila and Ditillo, 2017). While
talking about Alpha Ltd, they will be benefitted because they will be able to monitor price
fixing as well as consumption.
 Advantage:Flexible expenditure will profit the financial branch of Alpha Ltd from a
simple comparison between standard and sometimes cost returns as well as actual costs.

 Disadvantage:It is one of the budgeting tool which is quite complex as well as confusing
too in some of the situation due to which manager of the company may have to suffer
sometime.
M3 Evaluate the role of various planning tools along with their application in creating and
forecasting of budget
Planning tools help convert business objectives into achievements. These methods work
with reasonable logistics while at the same time defining the existing conditions in order to
predict the anticipated scenarios ahead of time. The main tools which are used by the Alpha ltd
are for just for the purpose of capital and adapted budget plan. These are chosen in an
appropriate manner to quantify activities in order to develop strategies with the intention of
clearing issues and achieving goals in a productive manner (Honggowati and et.al., 2017). For
example, a flexible budget is used to consider areas where changes are required and to test cost
increases when forecasting deals.
PEST analysis:
Political Economic
Fluctuations in political system makes huge
impact on the operations of Alpha Ltd. as it
directly affects the laws and legal policies such
as taxation system on manufactured products
which decreases their profit margin.
Changes in economic situation which includes
inflation as well as deflation rates can affect
the revenue of Alpha Ltd. as it directly makes
huge impact on the spending of customers. For
example, inflation in UK increases the prices
of products sold by Alpha Ltd. which increases
the possibilities of customers to shift to other
rivals to whom they can afford their products.
Social Technological
In the context of Alpha Ltd., changes in buying
behaviour due to charging prices by company
may changes the buying behaviour of
customers towards their rival’s products and
services. This may result in decreasing
customer strength of company.
Using efficient equipment’s in manufacturing
process and digital tools to promote their
products can bring beneficial result to the
profitability of Alpha Ltd. Thus, making
investment in adoption of advanced
technologies brings maximum profitable return

to them in future.
TASK 4
P5 Compare and contrast the manner in which different organisations adapt account management
systems to deal with their financial worries
In simple words, financial problem can be determined as the situation where company have
to face various kind of issues such as lack of fund as well as other monitory resources. While
talking about Alpha ltd, some of the financial issues which are being faced by them are explained
below:
 Managing cash flow:Here, company is facing the problem of managing the cash flow as
they as they are unable to do proper planning of finance and funds.Even cash flow of a
firm is not so strong due to which various problem are being faced by the organisation.
 Sudden expenses: It is one of the problem which is being faced by the organisation since
longer period of time as they are unable to prepare the suitable budget and even their
planning is also not so effective. Due to which there are number of situation where
company doesn’t have the necessary amount of fund.
There are number of techniques which can be used by the manager of Alpha Ltd to resolve the
problem which are being faced by the company. the techniques which can be used by the
company is KPI as well as Benchmarking (Lindholm, Laine and Suomala, 2017). In addition,
benchmarking will allow company to compare themselves with other business organisation
which are leading the market. This will allow company reduce the percentage of unnecessary
expenses. On the other side, KPI will permit the organisation to find about the beneficial
performance indicators. This will allow company to use the fund in appropriate manner.
Basis Alpha Ltd Rowlinson Knitwear
Problem In present scenario, company is
facing the problem related to
managing the cash flow due to
which they are unable to manage the
cash transactions.
The company has the problem
related to credit policies due to
which they are unable to recover
the fund.

System Described financial issues can be
addressed through the introduction
of the managerial accounting
system, that will result in actual
cash flow, with a focus on all sales
and trades through computer
programs(Gomez-Conde and Lopez-
Valeiras, 2018).
Price optimisation System will be
beneficial for the company as they
will allow to recover the fund
within the specific time period.
Approach Marketing team will take the help of
KPI approach which will divide the
cost in different segment through
which overall performance can be
improved.
Here, it will be important for
marketing team to use
benchmarking through which they
can easily formulate different
plans and policies.
M4 Analyse the manner by which management accounting responds toward financial problems
and attains organisational success
In any of the organisation, management accounting help to collect all of the relevant
information including financial issues which organisation faces at the time of performing any of
the business activity. It adds on various types of strategies such as KPI and benchmarking which
helps to solve any of the problem in best possible manner. In case of Alpha Ltd they uses KPI
approach to determine the accurate the performance where they mainly targets that how any of
financial issues can be solved for attaining the goals. In addition, it helps at the time of taking
any of the business decision.
D3 Analyse how planning techniques for accounting helps in resolving og financial issues to
achieve sustainable success for the organisation
Company uses the planning tool for the purpose of formulating any of the strategies by
including budgetary assessments. Such tools provide accurate and authentic picture of financial
transactions so that every business group can react confidently to financial matters(Jansen,
2018).By using planning tools, Alpha Ltd will be able to track the situations across a responsive
investment and selling budget in order to consider real results with budgetary goals.

CONCLUSION
Whole of the above discussion clear out that management accounting is a backbone of
business organisation as it helps to manage all of the financial transactions of a company. By
talking the help of inventory management, job costing company can easily determine that what
cost they will incur and what will be the value of profit for the company. For the purpose of
finding the accurate performance, company has the option to take the help of inventory
management, performance and budgetary reports. Absorption cost is more suitable option for the
purpose of find the accurate profit of a company as it includes both fixed as well as variable cost.
Even management accounting helps to resolve any of the financial issues which are being faced
by the company.

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