Management Accounting Systems, Costing, and Planning Analysis

This report provides a comprehensive overview of management accounting, focusing on its systems, reporting methods, and application in financial decision-making. It begins by outlining different types of management accounting systems, such as inventory management, cost accounting, and price optimization, and their relevance to organizations like Alpha Ltd. The report then discusses various methods for preparing management accounting reports, including inventory management, accounts receivable, performance, and budget reports. It also examines the benefits and applicability of these systems. Furthermore, the report delves into different costing techniques, including marginal and absorption costing, with practical calculations and examples. Planning tools and their advantages and disadvantages are also analyzed, along with their application in forecasting and budgeting. Finally, the report explores how companies adopt management accounting systems to respond to financial problems and how management accounting leads to sustainable success, emphasizing its role in integrating financial and non-financial information for strategic business decisions.

Management
accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
P1 Types of system of management accounting and its application ..........................................1
P2 Different methods to prepare management accounting reports..............................................3
M1 Benefits of system with its applicability ..............................................................................5
Task 2...............................................................................................................................................5
P3 Calculation of cost with different costing techniques ............................................................5
......................................................................................................................................................9
M2 Diverse techniques of management accounting..................................................................10
Task 3.............................................................................................................................................11
P4 Advantage and disadvantages of different planning tools ...................................................11
M3 Use of planning tools and its application for preparing and forecasting ............................12
Task 4 ............................................................................................................................................13
P5 Companies are adopting different management accounting system to respond the financial
problem .....................................................................................................................................13
M4 Management accounting is leading sustainable success.....................................................16
CONCLUSION..............................................................................................................................16
REFERENCE.................................................................................................................................17

INTRODUCTION
To run a business and making strategic business decision collection of accounts, financial
and non financial information is important which is possible only management accounting. A
profession of integrating the financial and non financial statement in order to get useful
information is consider as management accounting. Different types of principles and rules are
involved in to prepare the income statement and financial statement. Therefore, accountant is
playing major role in organisation who collects the information and allocate them properly which
helps to make right business decision (Bol, Kramer and Maas, 2016). Scope of management
accounting is wider which contain all accounting information related to particular organisation.
To understand about management accounting Alpha Ltd has been selected that is manufacturing
company. This is medium size organisation where number of employees are 50. This
organisation was started of small Pizza company in growing continuously. This project report is
signify in to several topics such as what is management accounting and its essentialism,
calculation of cost by using appropriate technique, planning tools to control budget with their
advantages and disadvantages, budget reports and application of management accounting system
in order to respond finance related problems etc.
Task 1
P1 Types of system of management accounting and its application
Management accounting contains financial and non financial information that is used to
make right business decision. This provide relevant data and information to business operation
which increases organisational productivity. For any business, management accounting is
important which helps to perform all function such as planning, organising, controlling and
decision making in order attain the organisational objectives. The main aim of business is use
proper resources and select an appropriate option to make the decisions. For instance, Alpha Ltd
is using management accounting by collecting, analysing and monitoring the financial
information. This is consider as systematic analysis of financial and business data which helps to
solve the problems and maintain the profits (Senftlechner and Hiebl, 2015).
Difference between management accounting and financial accounting
Basis Management accounting Financial accounting

Aggregation This states the reports at more
detailed level like profit by
product, customer and
geographic region.
This is the aggregation of financial
reports which is based of entire
business.
Proven information This deals often with estimation
instead of proven and variable
facts.
This requires records which can be
kept with considerable precision and
it need to prove that such statement
are correct.
Standards This is not required to comply
with any standards when data and
information are compiled for
internal consumption.
Financial accounting is required to
comply with accounting standards.
Objectives This is used to assist in planning
and decision making process by
detailed information.
This provide financial information to
outsiders and insiders which helps to
make right business decision.
In context to Alpha Ltd manufacturing company, managers are using different types of
management accounting system in order to analyse the organisational performance and state the
actual position of company. Different types of system of management accounting are defined
underneath:
Inventory management system – The work of this system is recording the inventory or
stock which is stored in warehouse of organisation. Manufacturing organisation produce variety
of products which needs stores to keep properly and maintain the records. So, it is essential
required for business organisation to use inventory management system in order to keep record
their stocked goods (Caskey and Laux, 2016). This is also required in Alpha Ltd to keep the
records its all goods and get information which material or products are required to produce
more. If organisation do not use this system then it will be difficult to maintain records of all
products and give order for production. Moreover, this is important to get the information about
under stock and over stock position of products. This consider three method that are as defined:

LIFO: Last in first out states that recently products added to organisation's inventory
should be sold first.
FIFO: First in first out states that first goods or products purchased are first one should
be remover from inventory or sold first.
Average: This method is used to sale the products on the basis of total cost of goods
purchased or produced.
Cost accounting system – When ever organisation is going to produce something and
running its business by providing products it need to manage the cost which helps to make the
profits. It is used to estimate the accurate cost of products which states which is profitable or not.
This is required to examine the cost of related products and operations in order to make
profitability. This is helps to eliminate the unnecessary cost which is identify by managers. This
is also required for in Alpha Ltd as manager used this to know the actual expenditure of Pizza
and other products. Moreover, it manage all expenditure by eliminating the unnecessary cost of
products. So, organisation should use cost accounting system in order to get appropriate cost of
operations (Dillard, Yuthas and Baudot, 2016).
Price optimisation system – This is also known as numerical assessment which is using
by business company in different sectors for the purpose of determining how a customer reacts
for setting the prices of products. As prices of products and services are set by managers by
considering all cost and expenditure to manufacture and carry out. In other words, price is the
sensitive factor that encourages people to purchase products and services. This is essential
required for Alpha Ltd to set the prices of its products which is suitable for customers and
organisation. By using this system organisation can attain the profits and goals effectively.
P2 Different methods to prepare management accounting reports
Reports are the written format which is prepared by managers by using its skills and
accounting knowledge in order to make profits and strategic decision. This is important for
business organisation to understand the information and make accounting reports. Reports are
used to maintain the records of all cash and non cash transaction and then converted in to useful
information to make the profits. Presentation of reports are represented in to statistics, facts, and
other information in business industry (Maas, Schaltegger and Crutzen, 2016). The management
of Alpha Ltd are preparing accounting reports in order to analyse the performance and make

improvement accordingly. Description of different types of management accounting reports are
as defined:
Inventory management reports – This is consider as a report which is used to to keep
record of information about inventory and finished goods is contain in to inventory management
report. This is important for business organisation to manage the stock and get information how
much stock they are having in hand or in warehouse. It helps to keep the proper information
about raw material and finished goods and give order to produce products accordingly. For
instance, Alpha Ltd is manufacturing organisation that uses inventory management system to
keep records of all material and optimise it properly which helps to make the profits.
Account receivable report – All businesses are depend on credit, which is given by
them to its regular customers in order to increase the sale and profitability. To run a business
successfully credit is also important which helps to retain the existing customers and adds new
one. Some time organisation forget to get payment and received less amount than given which
reduced the productivity and profitability. Therefore, this report is required for all organisation to
keep records of unpaid customers and make profits. In context to Alpha Ltd, managers prepare
account receivable report to get credit payment from unpaid customers. Credit is allows to
customers for 30 days, 60 days and 90 days under credit policy which helps to receive the
payment at maturity period (Brief, 2018).
Performance report – This kind of report is prepared to review the whole performance
of company and each employees who are working. Employees are engage in all business
activities which helps to increase the production and profitability. This report is required to
awarding the employees by analysing their performance. If employees are performing well then
organisation should motivate them by giving awards and performance appraisals in front of all
that make employees happy. In context to Alpha Ltd, managers are preparing this report for the
purpose of giving rewards to employees for well performance and commitment to complete the
target. Therefore, this report is using by organisation to motivate employees and work
effectively for long period of time.
Budget report – This reports is used to keep records of business activity's results and
cost. Budget is prepared by management by analysing all information and data efficaciously.
This report is used to set the budget and increase organisational productivity and profitability.
This states the financial success of any business which is running by organisation. This is

consider as internal report which is used by organisation by comparing the project with other
project. In context to Alpha Ltd, manager prepare estimated budget for constructing and
comparing with actual results which helps to make profits (Efferin and Hartono, 2015).
M1 Benefits of system with its applicability
The benefits of management accounting system for organisation that is defined as:
System Benefits and application
Cost accounting system This system is beneficial for organisation to get the accurate cost of
products and services. By application of cost accounting Alpha Ltd
can get accurate cost of its products which are manufacturing by
them. Moreover, it helps to improve the cost which make profits.
Inventory management
system
This is beneficial to track the inventory and get information about
under stock and over stock material. Alpha Ltd uses this system to
get the benefit of maintaining inventory which save time and cost
also (Esmeray, 2016).
Price optimisation system This system give benefits of setting the price of products and
services which are manufactured by organisation and make profits.
Alpha Ltd is using this system to set the prices of their products
which make profits by selling them effectively.
Task 2
P3 Calculation of cost with different costing techniques
Cost – This is consider as consideration which is taken by seller from its buyers by
selling the products and services. This is determined by managers which helps to cover all
expenses which incurred within organisation. In other words, cost is required to pay the amount
for particular product and services which are provided by business (Chiarini and Vagnoni, 2015).
Marginal costing system: This is a system which determine the cost of additional units,
manufactured in accounting period. In this system variable cost of units are charged to cost units
and fixed cost by written off in against the contribution. By using this Alpha Ltd can get the
additional cost of making pizza.

Problem 1 (1):
Cost card:
Income Statement:
Working Notes:
Absorption costing: This method is used to accumulate the cost which is related to
production process and apportioning them in to individual products. It absorb all cost of
organisation which helps to make the profits accordingly. Alpha Ltd is using this system to
calculate the accurate cost of its products which is manufacture by organisation.
Problem 1 (2):
Cost card:
(Provided in Excel)
Working Notes:
(Provided in Excel)
Problem 2/ 1 (a)
(Provided in Excel)
Problem 2/ 1 (b)
(Provided in Excel)
Problem 2/ 2 (a)
(Provided in Excel)
Problem 2/ 2 (b)
(Provided in Excel)
M2 Diverse techniques of management accounting
To get the actual and appropriate profits there are different technique which is sued by
business organisation to make profits. Marginal costing is a technique which is used in
calculation of profits with the help of financial report. Absorption costing technique is to used by
business organisation to get the appropriate profits by making reports and financial statement.

Alpha Ltd is using both techniques to know the profits and loss in their organisation by using
appropriate and relevant technique. This helps to evaluate the income and expenditure of
business organisation and make profits accordingly (Friis, Hansen and Vámosi, 2015).
Financial reports that apply accurately and interpretation of data
Financial report are those report which is prepared by managers in order to know the
financial position of company. This states that how much organisation is earning profits and
which method is best to get higher productivity. It is important for businesses to know their
financial status by formulating the income statement and cash flow statement. Alpha Ltd that is
manufacturing organisation prepare financial report by evaluating all income and expenses of
business and take decision according. This is used to control the over expenses with the help of
proper management. This helps to make the profits for long period of time with the help of
marginal and absorption costing system. In above calculation it has been interpreted that Alpha
Ltd is getting profits higher with the help of absorption costing technique.
Task 3
P4 Advantage and disadvantages of different planning tools
Operational Budgetary Control: It is a process of planning and controlling about
functions of organisation through comparing actual results with the standard results. This also
covers the revenue and operating expenses which are required to run day to day activities.
Further it helps in achieving control over earning before interest taxes depreciation and
amortization. Similarity Alpha limited maintain the records of comparison between the actual
output versus standard output to see how daily working are preformed in the organisation. To
perform daily activities smoothly, management prepare this operational budget to control the
efficiency of the employees and motivate them to achieve the pre-determine results. It is a
process of planning and controlling about functions of organisation through comparing actual
results with the standard results.
Forecasting analysis: It is a technique which uses historic data to inter predicts the
future trends. The management uses such forecasting to determine how to allocate their expenses
over particular time.
Variance analysis: Under this, actual variance are compared to standard variance so that
cost can be control efficiently. This also provide management with the reason for difference in

outcome. Likewise, Alpha limited prepare such analysis to see how outcomes are treated and
how they arises in the management
Standard costing: IT is accounting system to see the difference between actual cost of
production and actual cost incurred to produce such product and serves. Similarly Alpha limited
use stranded costing to revalued the differs in the production.
Flexible budgets: These budget keeps changed due to changes in volume or in activity.
Likewise Alpha limited uses flexible budget to maintain frequent changes in the activities from
time to time (Askarany, 2015).
Advantages:
 Control and coordination: It helps management to control each functions and
coordination between different departments for a organisation to performance properly.
 Management responsibility : It provide manager to clearly define the responsibility of
each employees to that work can be completed on time.
Disadvantages:
 Based on estimates: The budget are prepared on forecast and on estimates bases, so
absolute is not possible in budgets.
 Rigidity: The budget are not flexible because of the dynamic and constant change in
business condition.
Capital budgeting: It is a process of forming capital structure of the firms, to evaluate
which projects will provide good investment for the firms in the long term. To maintain the
lower levels of cash outflows in the firms , capital budget is prepared. Similarly Alpha limited
make use of this budget to examine which investment should be chosen to gain profits in long
run.
Net present value( NPV): It is value which is the difference between net present
outflow and net present value of cash inflows. If the difference is positive then that project is
selected by the manager.
Annual rate of return( ARR): It is rate where investment are evaluated on annual rate
on its cash inflows and average investment period.
Internal rate of return(IRR): It is rate which equal the zero when it is evolved for the
rate NPV is equal to its IRR .
Advantages:

 It helps in understanding risks and its effects, this helps management to prevent from
unwanted risks in the investment.
 It helps in making sound business decision in the investment opportunities.
Disadvantages:
 sometimes uncertainly lead to unprofitable investment chosen by the management.
 Management uses various technique which are assumed on certain assumption.
M3 Use of planning tools and its application for preparing and forecasting
Planning tools are uses by business industry to control its budget appropriately. By using
this future plans are set by management which helps to make profits. This mainly used in
budgeting and forecasting which states how much organisation is earning profits. Financial plans
are prepared by using standard costing, variance analysis and flexible budget which helps to
make the future plans. Moreover, different type of capital budgeting technique are used by
business organisation such as NPV, ARR and IRR which states return on expenses. For instance,
Alpha Ltd is using planning tools to set the future goals and attaining them in short period of
time. Main motive behind using planning tools is increase the production and profitability by
attaining the future goals and objectives. So, planning tools are important for business
organisation which helps to control over cost and making profits (Dekker, 2016).
Task 4
P5 Companies are adopting different management accounting system to respond the financial
problem
Financial problems are those problem which can arise any time at any place whether
running a business and in personal life which affected the operation negatively. To run a business
successfully it is important for business organisation to understand the problem and get a proper
solution of such problems. There are different financial problems which is facing by Alpha Ltd
while running a business due to lack of finance and loosing money. To get the profits and
solution of financial problem is important which is only possible through managing the funds
and cash within organisation (Leitner and Wall, 2015). Description of different types of financial
problems are as discussed:
Expenses are more than incomes – This is defined as organisation are having many
expenses which occurred at the time of running a business. This refers as organisation expenses

more amount on business activities and performance which are unnecessary and increases
organisation cost and revenues are less that creates financial problems. Managers of business
organisation needed to focus on their expenses and make efforts to control them. For instance,
Alpha Ltd is spending money on purchasing raw material and decorating the infrastructure which
increases organisational cost, due to financial problem if facing by business organisation
(Richardson, 2015).
Unmatch cash flow statement – Cash flow is prepared by all organisation to know the
profits and all activities of business industry. When all activities of cash flow statement with
each one then financial problem arises within organisation (Ghasemi and et. al., 2016).
Moreover, financial problem due to unmatch cash flow states that there is a gap between
activities which are creating the financial issues within organisation. For instance, Alpha Ltd is
preparing cash flow statement by involving all activities but such organisation is facing the
financial problem due to not matching all activities which is financial problem for organisation.
Unforeseen expenses – This means in business organisation there are different types of
expenses which origin suddenly which are requited to fill them by using monetary resources
properly. This increases the financial problem at the time of running business. For instance,
Alpha Ltd is require to repair its machine and other equipment, stationary and other expenses
which is important to fill that creates problems in organisation (Gimbar, Hansen and Ozlanski,
2016).
Different techniques to used the financial problems
Benchmarking – This technique is used to get solution of financial problem which are
facing by business organisation in operations. The main use of benchmarking is comparison with
other business organisation and make decision accordingly. For instance, Alpha Ltd is
manufacturing organisation that has realised that the profit margin of business organisation is
reducing on continual basis. It is facing more expenses and low income financial problem which
is identified by managers. This technique helps Alpha Ltd to find the problem by comparing with
other organisation and measure the actual position of company (Luft, Shields and Thomas,
2016).
KPI – This refers as Key performance indicator that covers two type of performance
indicator such as financial indicator and non financial indicator. It states internal and external
performance of business industry by analysing the information which are based on financial and