Detailed Management Accounting Report: Alpha Ltd, Pizza Manufacturing

This report provides a comprehensive analysis of management accounting principles and their application within Alpha Ltd, a UK-based pizza manufacturer. It begins with an introduction to management accounting (MA), contrasting it with financial accounting, and detailing various types of MA, including cost accounting, inventory management, price optimization, and job order costing systems. The report then explores different MA reports, such as inventory, performance, budget, and accounts receivable aging reports, highlighting their benefits for business decision-making. The core of the report involves practical applications, including the preparation of income statements using both absorption and marginal costing methods. Furthermore, the report includes break-even analysis, demonstrating how to calculate break-even points in units and revenues and analyze the impact of changes in costs. The report integrates MAS and MA reports with business processes to highlight the importance of accounting systems. Overall, the report provides valuable insights into the role of MA in supporting effective business operations, financial planning, and decision-making.

MANAGEMENT
ACCOUNTING

Table of content

INTRODUCTION
Accounting is a key aspect for business entities for recording the financial transactions in
an effective manner. The MA is one of the main part of accounting (Siverbo, 2014). It is related
to process of collecting monetary and non monetary information with an aim of preparing
internal reports when needed by managers. These reports are presented only to the internal
stakeholders. The objective of project report is to analysing role of this accounting in context of
businesses. In the report Alpha limited company has been chosen that is located in United
Kingdom and operates in manufacturing of Pizzas. The report covers detailed information about
different MAS, MA reports and planning tools etc. In addition, role of different MAS in the
aspect of sorting financial issue is also mentioned in report.
MAIN BODY
TASK 1
P1. MA and its types.
MA- It is defined as a type of accounting which operates in the process of collecting quantitative
and qualitative information so that accountant can prepare internal reports. These reports provide
a detailed framework to the managers in order to take crucial internal decisions. Below some
types of MA are demonstrated such as:
 Cost accounting system- It is integrated to finance department of businesses with an aim
of making projection of futuristic expenses (Granlund and Lukka, 2017). By help of
making projection of further cost, it becomes easier for managers to take suitable action
in order to allocate funds as accordance of need so that cost can be minimised. It is
essential for businesses to track the usage of funds and total cost occurred in process of
operating different operations. In Alpha limited company, they are using this accounting
system for keeping cost lower from the estimations.
 Inventory management system – It is associated to process of tracking daily consumption
of stock value in order to produce new items. It is completely based on the stock
valuation methods such as Last and first method, First in first out method and many
more. It is essential for companies for reducing cost of storage lower as well as for
gathering information about usage of stock in completing activities regards to production.

In the aspect of above Alpha limited company, they are using this accounting system that
is helping them in order to assessing consumption of raw material, finished goods and
many more.
 Price optimisation system – This is defined as a type of accounting system which is
linked to process of setting price of products and services in an effective manner. This
becomes possible because in this sales department utilise key information regards to
customers' perception, feedback as well as market demand. On the basis of it, they set
prices of various products in relation to different market and customer segments. It is
essential for companies in order to setting prices of products in accordance of market
analysis. In Alpha limited company, their sales department set the prices of Pizzas as per
the market position and customers need.
 Job order costing system – This is a type of costing system which computes cost of each
activity in accordance of assigned number of jobs (Kastberg and Siverbo, 2016). It is
essential for companies in order to analyse and keep cost job lower as much as possible.
In Alpha limited company, they are using this costing system to provide important
information to their finance department about cost of each activity and job assigned in
completing different volume of operations.
Difference between MA and financial accounting:
Basis MA Financial accounting
Purpose This applied with an aim of internal
management of companies
This accounting is applied for
assessing monetary performance and
for publishing reports for external
stakeholders.
Information Under it, quantitative and qualitative
information is included.
While in this only monetary
information is included.
Essential This is not compulsory to apply in
organizational context.
It is essential for those companies
which are listed to prepare financial
statements.

P2. Different methods of MA reports.
MA reports- The term MA reports can be defined as those documents which contains key
information related to each and every monetary and anti monetary aspects. In the context of
above Alpha limited company, they are preparing different types of reports that are mentioned
such as:
 Inventory reports- It is a report that consists key information related to opening and
closing balance of various forms of stock including raw material, finished goods and
many more. Under it, all types of information is included as accordance of evaluating
quantity of stock under LIFO, FIFO and weighted average method. In the above Alpha
limited company, they are using this report with an aim of keep in touch about how much
quantity of material they have in the end of a particular day.
 Performance report- It is a report that includes key information related to performance of
each and every aspect in a detailed manner (Hirsch, Seubert and Sohn, 2015). It is being
used by managers of companies in order to take critical decision about progress of
employees. In the absence of this report, the actual performance of employees can be
hide. Apart from the information related to performance of employees, it includes other
information such as performance of different performed operations and activities etc. In
Alpha limited company, they are preparing this report in order to assure sustainable
growth of various aspects.
 Budget report- Under it, information about project output and actual output is included.
By help of this report, finance department becomes able to assess the variance between
actual and estimated output. In the context of above Alpha limited company, they
produce this report in order to track variances and for keeping an extra sheet of eye on
overall performance.
 Accounts receivable ageing report –It is a report which includes detailed information
about total debt amount that is required to be collect in upcoming time period. As
accordance of it, finance manager make further plans regards to need of fund to complete
different operations and activities. One of the key feature of this report is that under it,
information is recorded in a systematic manner so that managers can track easily about
debt amount. In regards to above Alpha limited company, they are using this report for
focusing on those customers whose amount is not received yet.

M1. Benefits of MAS.
Herein, below key role of MAS for businesses is mentioned that is as follows:
 Benefit of cost accounting system- In accordance of above description, this accounting
system is linked to process of controlling and minimising cost of different operations. In
Alpha limited company, they get benefit from this by managing overall expenses and
costs.
 Benefit of inventory management system- It is helpful for sales and production
department of companies in order to track consumption of goods and for calculating
opening & closing balance (Chandar, Collier and Miranti, 2012). Such as in Alpha
limited company, they get benefit from this by keeping cost of storage low.
 Benefit of price optimisation system- It is linked with sales department of companies and
for setting prices of products at an effective level. In the Alpha limited company, they
revise their pricing strategies in accordance of market situation.
 Benefit of job costing system- This is based on computing cost of various activities
separately. In the Alpha limited company, they are getting benefited from this accounting
system by tracking cost of job effectively.
D1. Integration of MAS and MA reports with business process.
It may become difficult for companies to operate different operations and activities
effectively if they fail to integrate their departments with accounting systems (Horton and de
Araujo Wanderley, 2018). Like in the Alpha limited company, their sales department is
integrated with price optimisation system and stock management system. In addition, their
production department utilise important information from stock management report and their
finance department also assess key information from account receivable ageing report.

TASK 2
P3. Preparation of income statement by help of absorption and marginal costing.
Marginal costing – This is a costing technique that is related to process of assigning cost in a
different manner (Fiondella, Maffei and Spanò, 2016). Under it, fixed cost is considered as cost
of period while variable cost is assigned as cost of product.
Absorption costing- Under it, both fixed and variable costs are taken in a similar manner. This
technique absorbs total cost whether it is fixed cost or non fixed cost.
Problem 1.
Income statement under absorption and marginal costing:
Absorption Costing Statement calculator
Unit Selling Price 8
Unit Cost (FC+VC) 5
Fixed Manufac 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 75 0 0 75
Add: Variable Cost[Prod.] 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 Manufac 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 Manufac 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[Prodn.] 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 Manufac Cost 150 150 150 150 150 150
Less:Non Manufac 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:
After installation of the new machine
Contribution Margin Per Unit = 40-14 = 26 Per unit
Break even point in units =
(180000+236000)/
26
Ans. 16000
Break even point in Pounds = 40x16000
Ans. 640000
P/V Ratio = (Contribution Margin per unit/ Sales Price per
unit)*100 65
BEP from P/V Ratio 640000

2 c
Scenario 1. Machine is not installed:
Without installation
Sales £5,40,000.00
(-) variable cost -£3,78,000.00
Contribution £1,62,000.00
(-) Fixed cost -£1,80,000.00
BEP -£18,000.00
Current
Sales £6,00,000.00
(-) variable cost -£4,20,000.00
Contribution £1,80,000.00
(-) Fixed cost -£1,80,000.00
BEP £0.00
Scenario 2. If machine is installed:
After installation
Sales £8,00,000.00
(-) variable cost -£2,80,000.00
Contribution £5,20,000.00
(-) Fixed cost -£4,16,000.00
Profit £1,04,000.00