Management Accounting and Costing Techniques

This document provides an overview of management accounting and costing techniques. It covers topics such as the comparison between management accounting and financial accounting, cost accounting system, inventory management system, job costing system, and the benefits of these accounting systems. It also discusses different types of managerial accounting reports, the importance of accurate and up-to-date information, and how management accounting reports are integrated with operational processes. Additionally, it includes a calculation using absorption costing or marginal costing method, and explores budgeting and break-even analysis.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
SECTION A.....................................................................................................................................1
(a) Comparison between MA and financial accounting.........................................................1
(b) Cost accounting system....................................................................................................2
(c) Inventory management system..........................................................................................2
(d) Job costing system............................................................................................................2
(e) Benefits of above mentioned accounting systems............................................................2
SECTION B.....................................................................................................................................3
(a) Different types of managerial accounting reports.............................................................3
(b) Why information should be accurate, relevant and up to date..........................................3
(c) How MAS and MA reports integrated with operational process......................................4
TASK 2............................................................................................................................................4
Calculation using Absorption Costing or Marginal Costing Method.....................................4
TASK 3............................................................................................................................................6
PART A...........................................................................................................................................6
Budgeting...............................................................................................................................6
Break even analysis................................................................................................................7
Standard costing.....................................................................................................................7
Variable analysis....................................................................................................................8
TASK 4............................................................................................................................................8
PART B............................................................................................................................................8
Contribution margin...............................................................................................................8
Break even point.....................................................................................................................9
Units to achieve......................................................................................................................9
Sensitivity analysis.................................................................................................................9
Assumption of break-even point analysis.............................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is regarded as the method of formulating managerial reports as
well as accounts which facilitates relevant and on time statistical data to managers for making
the long term and short term decisions. This finds evaluate, examine, interprets as well as
communicates information for enabling an entities to meet their objectives (What is Management
Accounting and its Importance, 2020). As per the given scenario, the undertaken organisation for
this report is Excite Entertainment Ltd. Which operates into entertainment as well as leisure
sector within United Kingdom. The topic which is going to covered in this report are differences
among financial and management accounting, cost accounting system and its benefits, many
kinds of managerial accounting reports and preparation of financial reports using costing
techniques. Apart from this, comparison among three planning tools and ways in which
management accounting system is applied are also discussed in this report.
TASK 1
SECTION A
(a) Comparison between MA and financial accounting.
As management accounting is differ from the financial accounting (Akhmetshin and
Osadchy, 2015). As financial accounting facilitates information to internal and external
stakeholder of organisation so, comparison among both accounting are discussed below:
Basis Management accounting Financial accounting
Aim The aim of management accounting
is to formulate internal report so that
firm's managers may develop
effective decisions.
The aim of Financial accounting is
to formulate financial statement for
expanding information related to
monetary position to stakeholders.
Information It depends upon two kinds of
information which is related to
statistical and non statistical aspects.
It only depends upon the financial
information.
1

(b) Cost accounting system
This is regarded as the type of management accounting system that is in respect for
developing future projection spendings as well as managing whole costs. It is crucial for entities
to use this into its practices so that variance and exact cost may be calculated. In absence of
respective accounting system, this become tough for them to overcome from unfavourable
variances. Moreover, it is not only restricted to this within it the standard and direct costs are also
managed effectively. So, this is being used into Excite Entertainment Ltd with an intent to
manage cost of various practices regarding conducting any events.
(c) Inventory management system
This is regarded as accounting system which is associated with methods of managing as
well as controlling several types of inventory quantity such as raw material, development of
goods and others (Borker, 2016). This depends upon some stock valuation techniques that are
FIFO, LIFO and many more. This is crucial for firm as it aids them to keep inventory level
updated on regular basis in order to identify how much inventory is utilised for producing goods
as well as how much raw materials quantity is there in warehouse. So, Excite Entertainment Ltd
event manager may use this system for tracking various musical instruments availability.
(d) Job costing system
This is define as a kind of accounting system which is related with computing job cots
individually. It is essential for entities to understand how much cost have been incurred in
accomplishing any specific activities. In job accounting system, many kinds of costs are
computed like direct material cots, labour cost and others. Such as within Excite Entertainment
Ltd., this respective system is used with an intent of facilitating detailed data to its finance
department regarding job costs.
(e) Benefits of above mentioned accounting systems
The above mentioned management accounting system have various benefits which is
described below: Cost accounting system: It is an accounting system which depends upon computing as
well as managing whole expenses (Osadchy and Akhmetshin, 2015). For this within
Excite Entertainment Ltd, its finance manager perform relevant assumptions regarding
future cost as well as keeping control over unnecessary expenses.
2

 Inventory management system: This depends upon the usages of several methods of
inventory valuation for updating as well as tacking raw materials utilisation. Excite
Entertainment Ltd use this system for facilitating vital data to its manager related to
whole material quantity which is stored into its warehouses.
 Job costing system: It is associated with computing job costs individually. Within Excite
Entertainment Ltd, its manager utilise this accounting system for managing as well as
tracking job costs in more efficacious way.
SECTION B
(a) Different types of managerial accounting reports.
Managerial accounting reporting is regarded as the procedures to develop report which is
comply through whole firms for analysing exact business performance. So, into Excite
Entertainment Ltd, its manager are some reports that are discussed below: Performance report: In this the data related to performance of every prospect in involved.
The aim of formulating this report is to assists managers for taking appropriate steps
regarding staff progress and promotion based on its exact performance (Gunarathne and
et. al, 2016). Budget report: Within this managerial report, data related to approximated as well as
exact monetary results is involved. So, Excite Entertainment Ltd. Formulate respective
report in order to manage financial performance.
 Account receivable ageing report: This is considered as the managerial report that
involves data related to overall debtors or clients whose payment is due. Within Excite
Entertainment Ltd, its accounts manager prepare respective report in order to track those
consumer whose payment is not yet cleared.
(b) Why information should be accurate, relevant and up to date.
It is vital for all companies to keep their monetary data relevant, updated and accurate.
This is because in case information is accurate then it becomes simple for its accountants t
formulate financial statements (Butler and Ghosh, 2015). Moreover, there have to be relevancy
of monetary information with firms transactions in order make effective internal decisions.
Similarly, this is essential to to represent the monetary data at specified duration so that
stakeholder may have knowledge regarding entities performance.
3

(c) How MAS and MA reports integrated with operational process.
The operative procedures of Excite Entertainment Ltd have been incorporated with
management accounting system like inventory, cost and others. It is so as its finance section may
able to control as well as trace the whole cost and its production section are also related to
inventory management system so that materials quantity can be managed effectively. Similarly,
the reports of management accounting are also integrated to its enterprise procedures.
TASK 2
Calculation using Absorption Costing or Marginal Costing Method
Basically, there are two costing techniques such as marginal and absorption. Both of
them are discussed below:
Marginal costing:
It is regarded as costing techniques which undertake the cost into various ways as in this
fixed cost is allotted as period cost. Where as the variable cost is delegated as unit cost (Tan,
2016). With the help of this Excite Entertainment Ltd can able to distinguished several kinds of
cost which is incurred as well as utilised that for formulation of financial statement. Advantage: It can be understandable and used in simple. Moreover, this contributes into
effectual cost control as it distinguish overall cost within variable and fixed cost. Thus,
through concentrating upon whole potential upon variable cost as it control the cost
effectively.
 Disadvantage: Also, it have some disadvantage as this is computed on unrealistic
assumption in which whole cost is categorised in variable and fixed cost. Moreover, it is
unrealistic into the situation of production level variation.
Absorption costing:
This is regarded as the type of costing technique where whole kinds of cost are absorbed
in accomplished way at the time of formulating financial statements (Edmonds and et. al., 2015).
Within this, the variable as well as fixed cost are taken as product cost. Advantage: This is helpful to understand the role of fixed manufacturing cost into product
analysis as well as using effectual policy related to pricing.
 Disadvantage: It is not effective for producing flexible budgets as due to lack of
differences among fixed and non fixed cost.
4

Calculation:
Income statement as per absorption costing:
Particular Amount (values in
pounds)
Revenues (8000 units @15 pounds per unit) 120000
Less : Cost of good sold-
Opening stock (500 units @ 10 pounds per unit)
Production cost (10000 units @10 pounds per
unit)
5000
100000
Less- Closing stock (2500 units @10 pounds per
unit)
25000
Absorption cost 80000
Net Profit 40000
Income statement as per marginal costing:
Particular Amount (values in
pounds)
Revenues (8000 units @15 pounds per unit) 120000
Less: Variable cost
Opening stock (500 units @ 6 pounds per unit)
Marginal cost of production (10000 units @ 6
pounds per unit)
3000
60000
Less: Closing stock (2500 units @ 6 pounds per
unit)
15000
Marginal cost of sale 48000
Contribution (15-6)= 9 x 8000 72000
Fixed cost 40000
5

Net Profit 32000
Analysis: from the above graph, it have been analysed that there is change into net profit
as it is computed from two different costing techniques that are marginal and absorption. The
value that come through using marginal costing is 32 000 pounds as well as by absorption
costing is 40 000 pounds.
TASK 3
PART A
Budgeting
Budgeting is considered as systematised methods of formulating comprehensive
approximation of upcoming amounts (Markaryan and Snetkova, 2015). There are mainly two
kinds of budgeting that are discussed below:
Operational budgeting: In this kinds of budgeting, various aspects prediction are being
performed for the upcoming accounting year. In this, several budgets are involved so few of
them are described below which are prepared through Excite Entertainment Ltd: Sales budget: This is considered as a kind of budget that anticipate the sales unit quantity
as well as revenues for future period. It is effective for entities for managing whole
practices related to sales. So, Excite Entertainment Ltd formulate this budget to manage
revenues from conducted events. Overhead budget: This is regarded as a kind of budget that is associated with creating
approximation of overall overheads that occurs fro accomplishing various kind of
practices. So, this aids Excite Entertainment Ltd. To know about the total overheads and
complete the activities in appropriate way.
6
0
20000
40000 40000 32000 Net profit (Absorption
costing)
Net profit (Marginal
costing)

 Production budget: It is a kind of budget that is associated with developing anticipation
of overall manufacturing units as well as expenses which may incurs into procedures of
production. So, Excite Entertainment Ltd. Accountant formulate this budget in order to
manage the cost effectively related to entertainment aspects.
Capital Budgeting: It is regarded as a kind of budgeting which is associated with
approximating various kind of project efficiency. This is helpful for that projects which is large
in size (Vasarhelyi, Kogan and Tuttle, 2015). In this, project approximation is being performed
through assistance of many methods like internal rate of return, payback period and others. So,
this assists Excite Entertainment Ltd to examine its project effectiveness with the assistance of
budgeting.
Break even analysis
This is considered as a kind of financial techniques that aids to evaluate a specific level
at which entities can produce profitability. In general terms, this is a forms of financial
calculation which ascertain quantitative products aspects that firm should sell for recovering their
cost (da Silva Laureano and et. al., 2016). Mainly, break even is situation where entities such as
Excite Entertainment Ltd can not produce money or lose them but may able to cover whole cost.
Break even analysis components: There are basically two kinds of components that are
discussed below: Fixed cost: It is also called overall cost that is directly associated with production level
but not associated with manufacturing quality. This includes rent, tax and others.
 Variable cost: This is considered as the kind of cost which may enhance or reduce the
proportionate production volume. It involves cost such as packaging, raw material and
others.
So, for computing the break even point particular formula is used as this measured in
context of value and units. Therefore, the formula that can be used by Excite Entertainment Ltd
for computing break even point is described below:
Break even point (in units) = Fixed cost / contribution per unit.
Break even point (in values) = Fixed cost / profit-volume ratio
7

Standard costing
It is regarded as a kind of technique where cost of several aspects is approximated. As per
this, it becomes simple for firms to compare the actual cost. It is so as based on approximated
cost, Excite Entertainment Ltd finance manager can perform comparison of exact cost. This
have few benefits such as:
 It aids respective organisation to do managerial planning as well as make effectual
decisions.
 It is more reasonable and appropriate for inventory evaluation.
Variable analysis
This is considered as procedures of computing variances or differences among planned as
well as exact situation. This kind of analysis is also helpful to make effectual control over
enterprise. For example: budget for sales is 15 000 as well as exact sales is 12 000 so the results
of variances will be 3000. In this, it is essential to understand that variances is being computed in
both optimistic and pessimistic way that is explained below: Favourable variable: It is incurs when exact cost is less then approximated one. This is
also known as position circumstances. Such as:
Particulars Actual cost Estimated cost Variance
Manufacturing cost 700 500 200 (F)
Purchasing cost 900 800 100 (F)
 Adverse variable: It incurs when exact cost is more than approximated cost. This is
regarded as pessimistic circumstances. Such as:
Particulars Actual cost Estimated cost Variance
Manufacturing cost 500 700 200 (A)
Purchasing cost 800 900 100 (A)
8

TASK 4
PART B
Contribution margin
This is considered as variation among variable as well as sales cost (Quinn and et. al.,
2018). In respect of provided information, computation of contribution margin is performed in
such a way:
Particulars Amount (Values in pounds)
Selling price per unit 40
Less- Variable cost per unit 10
Contribution per unit 30
Break even point
This is considered as a point where entities can not able to produce more profitability as
well as do not undergoes through losses. In simple term, it is regarded as a point in which whole
cost as well as sales are equal. According to the provided information, computation of BEP is
explained below:
Particulars Amount (Values in pounds)
Fixed cost (A) 120000
Contribution per unit (B) 30
Break even points (A/B) 4000
Units to achieve
Within this project report, units are approximated upon which entities may produce
expected profitability level. So, formula to compute this is:
Units to achieve expected profitability= Fixed cost + Desired profit / Contribution
per unit.
Particulars Amount(Values in pounds)
Fixed cost 120000
9

Desired profit 90000
Contribution per unit 30
Units to attain desired profit 7000 units
Units TFC TVC TPC TR Profit
1000 120000 10000 130000 40000 -90000
2000 120000 20000 140000 80000 -60000
3000 120000 30000 150000 120000 -30000
4000 120000 40000 160000 160000 0
5000 120000 50000 170000 200000 30000
6000 120000 60000 180000 240000 60000
7000 120000 70000 190000 280000 90000
8000 120000 80000 200000 320000 120000
9000 120000 90000 210000 360000 150000
TFC= Total fixed cost
TVC= Total variable cost
TPC= Total price cost
TR= Total revenue
10

1 2 3 4 5 6 7 8 9
-200000
-100000
0
100000
200000
300000
400000
Break even chart
TFC
TVC
TPC
TR
Profit
Formula
TFC+TP / SP-VC
£ 500000+ £ 700000 / £ 30- £ 10
£ 1200000 / £ 20 = 600000 Units
Sensitivity analysis
This is considered as a kind of techniques that is being utilised for evaluating various
decisions of business, employing several assumption associated with variable. For this, a finance
expertise may examine the anticipated profitability level that may be attained as a results of
investment into machine through anticipated demand level, material cost and others. The main
sensitivity analysis aspects is to identify that variable which is may has larger affects upon
analysis results (Nair, 2017). Moreover, the judgement maker may then evaluate the variables
possibilities of essential modification. The output is efficacious risk understanding that is related
with specific investment. Also, process to develop sensitivity analysis is add on variables within
3 cases such as best, worst and most likely.
11

Assumption of break-even point analysis
Into break even point analysis, several kinds of assumption are being performed. In this,
few key assumption that are developed at the time of computing break even point are described
below in such a way:
 The fixed cost is will be constant at whole production volume. In general terms, it is
anticipated that fixed cost will be same as there is enhancement or reduction into
production (Sokolov and Giniatullin, 2015).
 Variable cost will vary as per proportionate production volume. This assumption is
totally adverse of above one that describes that variable cost value will modify in case the
production will increase or minimise.
 The analysis of break even point assumes that an enhancing fixed rate into variable cost.
 The sum of revenue will increase with enhancing number of production units. On another
terms, this break-even point assumption explains that whole sales amount enhances
revenues if firm will manufacture larger number of units.
 Into break even point analysis, it is assumed that the value of manufacturing units as well
as sales are equal.
Therefore, there are few break even point analysis assumption which are mentioned
above. These assumptions are not used into practical manner. It is so as few are wholly
impossible to occurs into firms. Such as one assumptions described that firms can generates only
one products which is not possible into entities. Moreover, there are few another hypothesis that
seem wrong. For this cases, enhancing assumption of variable cost at fixed price is not possible
as it may be maximise or reduce as per the variation into sales and production.
CONCLUSION
As per the above report, it has been concluded that management accounting is vital for
entities as this facilitates internal monetary data to higher authorities for formulating effective
decisions. Job costing system, inventory management and others are some managerial
accounting system that aids them in managing whole expenses, tracking raw materials and so on.
Marginal and absorption are two costing techniques which is helpful to compute net profit.
Moreover, there are mainly two types of budgeting such as operating and capital. Also, standard
costing aids them to do managerial planning as well as make effectual decisions as well as
variable analysis is helpful to make effectual control over enterprise. In addition to this,
12

sensitivity analysis performed so that firms may able to identify that variable which is may has
larger affects upon analysis results. Apart from this, it is also summarised that into the
assumption of break even point analysis it is assumed that few are assumption which are wholly
impossible to occurs into firms.
13

REFERENCES
Books and journal
Akhmetshin, E. M. and Osadchy, E. A., 2015. New requirements to the control of the
maintenance of accounting records of the company in the conditions of the economic
insecurity. International Business Management. 9(5). pp.895-902.
Borker, D. R., 2016. Global management accounting principles and the worldwide proliferation
of IFRS. The Business & Management Review. 7(3). p.258.
Osadchy, E. A. and Akhmetshin, E. M., 2015. Accounting and control of indirect costs of
organization as a condition of optimizing its financial and economic
activities. International Business Management. 9(7). pp.1705-1709.
Gunarathne, N. and et. al., 2016. Fostering social sustainability management through safety
controls and accounting: A stakeholder approach in the mining sector. Accounting
Research Journal. 29(2). pp.179-197.
Butler, S. A. and Ghosh, D., 2015. Individual differences in managerial accounting judgments
and decision making. The British Accounting Review. 47(1). pp.33-45.
Tan, B. S., 2016. Accounting research for the management accounting profession. Journal of
Applied Management Accounting Research. 14(1). pp.69-77.
Edmonds and et. al., 2015. Survey of accounting. McGraw-Hill Education.
Markaryan, S. E. and Snetkova, T. A., 2015. Purpose and application peculiarities of
management accounting in insurance companies. Mediterranean Journal of Social
Sciences. 6(1 S3). p.375.
Vasarhelyi, M. A., Kogan, A. and Tuttle, B. M., 2015. Big Data in accounting: An
overview. Accounting Horizons. 29(2). pp.381-396.
da Silva Laureano, R. M. and et. al., 2016. Maturity in management accounting: Exploratory
study in Portuguese SME. Society and Economy in Central and Eastern Europe. 38(2).
pp.139-156.
Quinn, M. and et. al., 2018. Future research on management accounting and control in family
firms: suggestions linked to architecture, governance, entrepreneurship and
stewardship. Journal of Management Control. 28(4). pp.529-546.
Nair, S., 2017. Factors affecting management accounting practices in Malaysia.
Sokolov, A. Y. and Giniatullin, Y. M., 2015. Management accounting and costs controlling in
oil producing companies: Historical perspectives. Mediterranean Journal of Social
Sciences. 6(1 S3). p.430.
Online
What is Management Accounting and its Importance. 2020 [Online]. Available
Through:<https://www.invensis.net/blog/finance-and-accounting/what-is-management-
accounting-and-its-importance/>
14