Management Accounting and Systems: A Comprehensive Study

This report provides a comprehensive study on management accounting and its various components. It covers topics such as different systems and reports, methods for management accounting reporting, calculation of costs using marginal or absorption costing, and application of techniques for financial reporting.

Management
Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Description of management accounting and requirement of different systems of it..............1
P2 Various methods which are used for management accounting reporting...............................4
M1 Benefits of all the management accounting system and their application in the
organisational context..................................................................................................................5
D1 Evaluation of integration of all management accounting systems and reporting with
organisational process in critical manner....................................................................................6
TASK 2............................................................................................................................................6
P3 Calculation of costs with the help of marginal or absorption costing....................................6
M2 Application of range of techniques and production of financial reporting documents.........7
D2 Interpreting the data generated for range of business activities.............................................8
TASK 3............................................................................................................................................8
P4 Types of planning tools used in budgetary control................................................................8
M3 Different planning tools and their application for budget forecasting..................................9
TASK 4..........................................................................................................................................10
P5 Comparison of usage of adoption of management accounting systems for companies to
deal finance related issues.........................................................................................................10
M4 Response of management accounting to the organisations to attain sustainable success...12
D3 Evaluation of usage of planning tools to deal with financial challenges.............................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is a framework which is focused by enterprises to make sure
that the operational activities which are performed by them during the year. It provides advice to
the managers to make strategies for development of business and achieve long term objectives.
With the help of this technique it can be determined that the internal records which are kept by
employees are appropriate or not (Campanale and Cinquini, 2016). Main purpose of this report is
to enhance knowledge about management accounting and various components of it. Deloitte is
one of the leading accountancy firms and one of its main client is Excite Entertainment Ltd.
which is operating business in entertainment industry in UK. Present report is based upon this
company and the major activities of it are promotion of concerts and festivals.
This project covers various topics such as detailed analysis of management accounting,
different systems and reports of it, various techniques that are used to calculate costs under it etc.
Apart from this, budgetary control, different planning tools with their disadvantage and
advantage and comparison of two organisations on the basis of use of management accounting
techniques to deal financial issues are also covered under this assignment.
TASK 1
P1 Description of management accounting and requirement of different systems of it
Management accounting: In all the organisation a specific process is followed to
analyse that the plans which are formed for betterment of organisation are resulting favourably or
adversely is known as management accounting. In Excite Entertainment Ltd. managers follow it
to assure that organisation will grow in future with the help of current strategies which are
formulated by them.
Financial accounting: It is the technique which is focused by accounting professionals
of companies to keep track record of all the finance related transactions. In Excite Entertainment
Ltd. management guide all the employees to form all the financial records properly so that they
can monitor that company is generating profits or loss and it is having sufficient liquidity or not
(Chiwamit, Modell and Scapens, 2017).
Difference between management and financial accounting: There are various
differences in management and financial accounting which should be focused by all the
companies. All of them could be analysed with the help of following table:
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Basis Management accounting Financial accounting
Legal
requirement
There is no legal requirement of
management accounting for
companies because it is not audited
and prepared by managers to analyse
performance of business.
There are specific legal
requirements for financial
accounting because with the help of
it external stakeholders can
determine financial status of
company.
Format of
presentation
There is no specific format for
conducting management accounting
and keeping records of it.
According to IFRS it is very
important for companies to follow
specific format for financial
accounting in which they have to
form profit and loss account,
balance sheet and cash flow
statement.
Area of coverage It covers all the non financial areas
and record information of all of them
to generate reports.
Only financial areas are covered by
it in which information regarding all
the transactions which have taken
place in financial terms.
Types of data
used
Only non financial data is used in it to
formulate all the records.
Financial data is used to generate all
the final accounts.
Management accounting system: It can be defined as the internal system which is used
by most of the companies for the purpose of evaluating and monitoring all the direct and indirect
process of business to determine actual position of the company. In Excite Entertainment Ltd.
Some specific systems under management accounting are used by managers. Detailed analysis of
them is as follows:
Cost accounting systems: These are the set of frame works which are focused by large
as well as small business entities for the purpose of analyse actual cost related to the operations
of company. In Excite Entertainment Ltd. these are utilised by managers to determine that the
operational activities are able to generate profits and enhance profitability by assessing the cost
of them (Christ and Burritt, 2017). It is required for the company to use it because with the help
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of it most profitable operation could be identified as it provides information of actual cost of all
of them. There are two main types of it which are analysed below:
 Standard costing: In this type of costing, expected cost is deducted from the actual one
in order to determine the variance between and the reason behind it so that decisions for
future could be formulated.
 Direct costing: It is a specific form of analysing costs in which only variable
expenditures are considered for the purpose of formulating decisions for future. All the
costs which are fixed for the whole year are not taken in to consideration which using it.
Inventory management system: All the companies which are using goods to deliver its
services or manufacture products use it. It guides managers to assess that enterprise is able to
fulfil requirements of clients with sufficient inventory. In Excite Entertainment Ltd. management
use it to make sure that they are keeping appropriate amount of stock which could be used by
them to perform business activities such as promotion of concerts and festivals. With the help of
it organisation can monitor and maintain inventory in systematic manner therefore it is
essentially required for it. There are three examples of it which are used by companies according
to their choices. These are discussed underneath:
 AVCO: It is an average cost method which guides organisations like Excite
Entertainment Ltd. to use inventory for operations by taking all the costs on the basis of
an average.
 LIFO: This method guides companies such as Excite Entertainment Ltd. to use recently
acquired stock to carry out all the executional activities of business.
 FIFO: This system of inventory management allow business enterprises such as Excite
Entertainment Ltd. to use those goods for operations first which were earlier (Englund
and Gerdin, 2014).
Job order costing system: It can be described as a system that guides management to
allocate costs to all the business activities according to their nature. It is mainly used by
organisations when they are performing multiple operations which are sufficiently separate from
each other. As Excite Entertainment Ltd. Provide promotional services to its clients along with
leisure activities so to keep their record separately managers are using this system. It is the best
example of its application and usage. For management it is vital to utilise it because it helps
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company to determine cost of all the jobs accurately. Different elements which are considered
under it while calculations are direct material, wages, overheads etc.
 Job costing: It is a costing technique which is used by companies for the purpose of
recording the information regarding specific orders received by the companies. With the
help of it Excite Entertainment Ltd. will be able to manage all the activities which are
required to be performed according to specification of clients.
P2 Various methods which are used for management accounting reporting
For all the companies it is very important to keep detailed information of all the internal
as well as external activities in order to analyse the causes of errors and formulate strategies for
future. For this purpose, a specific process is used to generate different reports which is known as
management accounting reporting. Managers of Excite Entertainment Ltd. are formulating
various reports to record accurate data of business. These are assessed below in detail:
Account receivables reports: In most of the companies it is generated for the purpose of
recording information of all the invoices which are related to unpaid amount of customers. In
Excite Entertainment Ltd. Managers consider it as the primary tool which is used by them to
determine the overdue amount which will be received by them from owed clients. One of the key
benefit of it is that with the help of it management can gather details of all the receivables at one
place (Gichaaga, 2014).
Inventory management report: It can be defined as a document which is created by
companies to analyse the stock which is kept by them in warehouses and that is in transit or
delivered. Managers in Excite Entertainment Ltd. generate it to gain information about the goods
which are used by it to perform all its operations. It is very advantageous for the company
because it facilitates managers to make sure that they are having sufficient amount of inventory
to perform business activities.
Performance report: As its name describes it is used to monitor performance of
company and employees working within it. Management in Excite Entertainment Ltd are
creating it to measure that the operations which are executed in the accounting years are able to
enhance performance of enterprise or not. It is beneficial for the entity because it facilitate
managers to be sure about the areas where improvement is required as it helps to find the same.
Advantage of sound accounting system: A sound accounting system provides detailed
information of business position to the managers so that they can evaluate it and formulate
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decisions for future. There is a high need of it for Excite Entertainment Ltd. because it can guide
management to make sure that the company is able to meet all its long term objectives or not. Its
advantages could be understood with the help of following points:
 It provides accurate and detailed information to the users.
 It helps in proper and appropriate budgeting so that organisations can form plans
according to it (Advantage of sound accounting system, 2019).
Advantage of timely production of accounting information to internal and external
stakeholders: For all the organisations such as Excite Entertainment Ltd. it is very important to
produce timely accounting information because all the critical decisions of a company depends
upon it. It provides various benefits to internal and external stakeholders which are as follows:
 Internal stakeholders: With the help of timely accounting information managers,
employees and other internal stakeholders can determine that the efforts which are made
by them for betterment of company have resulted positively or negatively. If timely
information is not provided to them then it may result in the consequence of improper
decision making of them.
 External stakeholders: All the outsider parties such as suppliers, investors, government
etc. requires timely accounting information because it can help them to take strategic
decision regarding investing, supplying etc. according to the actual position of company.
If the organisation is not able to provide timely information to the external stakeholders
then it can affect market image of the company which will influence interest of outsider
parties in the business (Henri, Boiral and Roy, 2016).
M1 Benefits of all the management accounting system and their application in the organisational
context
Management accounting
systems
Benefits with application
Cost accounting system In Excite Entertainment Ltd. this system is applied by the
managers because it is beneficial for company as it helps in
identification of cost of business.
Inventory management Managers in Excite Entertainment Ltd. are applying this system
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system because it provides benefit of being sure about the sufficient
inventory for all the operations.
Job costing system It is applied by managers of Excite Entertainment Ltd. because it is
beneficial for the organisation. It helps management to find the
accurate costs of all the activities according to their nature.
D1 Evaluation of integration of all management accounting systems and reporting with
organisational process in critical manner
Managers in all the companies such as Excite Entertainment Ltd. Should use
management accounting systems and reports because these are integrated with organisational
processes. For example, inventory management system and report can be used by staff members
to determine that they are having sufficient resources to execute operations. Cost accounting
systems are used by managers to allocate funds to all the activities according to their
requirements to perform them appropriately. On the other hand, in order to collect all the owed
amounts from clients account receivable report is generated.
TASK 2
P3 Calculation of costs with the help of marginal or absorption costing
Marginal costing: It is a type of costing technique which is used by companies for the
purpose of determine the marginal cost of the units which are produced by it. In Excite
Entertainment Ltd. it is used for the purpose of analyse additional cost of services which are
delivered to clients according to their high demand.
Calculation of Marginal costing (Income statement):
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Absorption costing: Under this method of costing all the costs including variable and
fixed are taken in to consideration for the purpose of analyse total cost. It is used in Excite
Entertainment Ltd by managers in order to make sure that all the costs are absorbed from the
revenues generated. Calculation of it is as follows:
M2 Application of range of techniques and production of financial reporting documents
There are various types of costing techniques which could be adopted by companies such
as Excite Entertainment Ltd. for the purpose of performing costing activities. All of them are
described below:
 Normal costing: This technique of costing is used in derivation of cost in which actual
information is used for the derivation of cost. It covers all the costs from manufacturing
to delivery.
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 Actual costing: As its name states under this technique of costing direct costs on actual
qualities are used for the purpose of determining the total cost of a specific product or
service of the company.
 Standard costing: This costing technique used for the purpose of determining the
variation between actual and standard figures so that decisions for future could be
formulated.
D2 Interpreting the data generated for range of business activities
From the above calculations it has been determined that while using marginal cost the
company will generate profit of 32000 by in case of absorption cost the profits will be 40000 so
the managers should use it for future perspectives.
TASK 3
P4 Types of planning tools used in budgetary control
Budget is a formal statement based on the estimation of income and expenses incurred in
future (Budget, 2019). It is termed as a financial tool which helps in estimation of financial
requirement in business relating to a particular time period. Budgeting helps in estimation of
financial requirements for future and helps Excite Entertainment Limited to ensure that all the
financial resources available with businesses. There are different types of budget for budgetary
control some of them are as follows-
Sales budget: It is an estimation for volume of goods and services that Excite
Entertainment Limited possess to sell in a specific future time.
Advantage: It helps in identifying expected sales in the future and production is done on
that basis to meet the demand.
Disadvantage: Uncertainties are not considered while its preparation so details provided
are not accurate (Järvinen, 2016).
Production Budget: It is a financial plan that helps in estimating the number of units of
products that needs to be manufactured to meet demand for forecasted sales.
Advantage: Organisation through estimating required production can minimise its
inventory cost that blocked due to over production.
Disadvantage: When budget is not made on proper estimation then it may leads to losses
to out of stock of inventory.
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Cash-Flow: It is an estimation of all the cash receipts and payments that a business
required to be made in a particular time period (Johnstone, 2018).
Advantage: Identifying all the cash requirement helps in arranging cash in case of
deficiency and when more funds are available they will be invest to get more returns.
Disadvantage: Cash inflows from non operating business transactions can not be
calculated effectively and it hinders the cash budget of Excite Entertainment Limited.
Budget variance is the difference between the budgeted or baseline amount from the
actual amount. Variance in budget is favourable when it gives more benefits than the budgeted
planes. A variance in the budgeted amount may hinders the profitability of the business when
production is not done as required and more demand in the market is not met due to lack of
availability of finished goods. When targets are not met as planes profitability of business is
hampered and it also leads to competitive disadvantage for Excite Entertainment Limited
(Lindholm, Laine and Suomala, 2017).
M3 Different planning tools and their application for budget forecasting
Different types of planning tools are used for forecasting budgets in Excite Entertainment
Limited such as sales budget is used to forecast expected sales for a particular period. The
production budget will help in estimating the requirement of units to be produced in a particular
period to meet the demand and achieve sales target. Cash flow estimation is highly important as
it is used to make arctangent for finances and secures that adequate funds are available in
business to achieve objectives. All the planning tools are evaluated on the basis of business
objects and they are applied in business throughout the planning process so that basis can be
provided to planning for achieving productive results.
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TASK 4
P5 Comparison of usage of adoption of management accounting systems for companies to deal
finance related issues
For all the companies it is very important to utilise funds properly because if these are not
used appropriately then it may result in range of financial problems for business. Main cause of
them is lack of finance for carrying out operational activities. Currently, Excite Entertainment
Ltd. is also facing some of such types of challenges which are as follows:
Poor accounting practices: When companies are not able to comply with all the
accounting rules and regulations then it results in poor practices in accounting which creates
improper records. In Excite Entertainment Ltd. this problem is faced by managers because the
staff members are not having proper knowledge of accounting practices which results in
inappropriate records (Novas, Alves and Sousa, 2017).
Unnecessary expenses: In Excite Entertainment Ltd. Management also faces the issue of
unnecessary expenses which takes place due to improper planning and forecasting.
In order to monitor and respond the above problems following techniques are used by
managers in Excite Entertainment Ltd.:
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Financial governance: It can be defined as the way in which an organisation gather,
maintain and evaluate finance related information. It guides managers to track all the transactions
which are made in monetary terms, control them and manage performance of the company.
Managers in Excite Entertainment Ltd. are using it to resolve the problem of unnecessary
expenses because it guides management to track all of them and formulate strategies for their
control. It also works as a monitoring system because with the help of it causes of financial
problems could be identified which is beneficial for the planning of resolution of them
(Financial governance, 2019).
Full compliance system: It can be defined as the integrated system which is a
combination of different documents, processes, tools and functions which guides companies to
formulate final accounts according to legal requirements. It is used by managers in Excite
Entertainment Ltd. As a monitoring system to identify the problem of poor accounting practices
because with the help of it causes of issue could be analysed (Schaltegger and Zvezdov, 2015).
In order to respond the financial challenge it is also utilised by the company because it guide
staff members to be aware of all the legal requirements and formulate financial reports according
to them. It will help to reduce the possibility of the finance related problems (Van der Stede,
2016).
Benefits of compliance: Following are the benefits of compliance which could be
acquired by the organisation:
 It helps to reduce legal risks and future cost because it guides companies to perform all
the operations under regulatory framework guidelines.
 With the help of it Excite Entertainment Ltd. can build trust with its stakeholders because
as it assures that company is carrying out operations in proper manner (Benefits of
compliance, 2019).
Consequences of non compliance: All the consequences which may take place due to
non compliance are as follows:
 Non compliance may result in legal action against the company because for all the
organisations it is vital to prepare all the reports according to legal requirements.
 Due to non compliance interest of stakeholders such as investors, suppliers, customers
etc. may get decreased because it results in bad market image (Spraakman and Jackling,
2014).
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Comparison:
Excite Entertainment Ltd. Instinct VIP entertainment
Managers of the company are using cost
accounting system for the purpose of resolving
the problem of poor accounting practices as it
guides staff members to find actual cost of all
the activities and form the reports according to
it (Taipaleenmäki, 2014).
Managers within the organisation are using
price optimisation system to deal with the
problem of late payment by clients because
with the help of nit they set appropriate rates
for all its services that reduce the possibility of
owed amount.
In order to deal with the problem of
unnecessary expenses job order costing system
is used by managers. It helps to find the
accurate cost of all the activities that allows
managers to allocate sufficient funds to all the
operations which reduce the possibility of
financial problems.
Costing accounting system is used by managers
of the organisation to deal with the financial
problems such as improper money management
which takes place due to lack of information
about cost. It guides managers to be aware of
actual expenditures so that money could be
managed properly.
Inventory management system is also used by
the company to deal with the financial
challenge of lack of funds for stock. With the
help of it they get aware of actual status of
goods and estimate future requirement of it for
which they keep budget and respond the
problem properly.
Job costing system is used by managers of the
organisation to deal with such expenses which
may take place suddenly due to lack of
experience in estimation. This system helps
them to predict of all the activities separately so
that possibility of unforeseen expenses could be
reduced (ter Bogt and Scapens, 2014).
M4 Response of management accounting to the organisations to attain sustainable success
Management accounting plays a vital role for the sustainable success of the organisation
because different techniques of it such as financial governance and full compliance system help
to respond financial challenges properly. The major challenges which are faced by Excite
Entertainment Ltd are unnecessary expenses and poor accounting practices. In order to deal with
them management accounting techniques are implemented by the managers which helps to find
best solution for them and attain success.
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D3 Evaluation of usage of planning tools to deal with financial challenges
There are various types of planning tools such as cash flow, sales and production budget
which are used by managers of Excite Entertainment Ltd for the purpose of budgetary control
but it could also be used in the process of responding to financial issues such as unnecessary
expenses and poor accounting practices. With the help of them funds could be allocated to all the
areas of business appropriately which results in decreased possibility of finance related issues.
CONCLUSION
The above project report concludes that management accounting is the process of
controlling and evaluating internal situations of the company so that decisions for betterment of
business could be formulated. Managers in different organisations use range of accounting
systems and reports to form strategies for future and make plans to reach predetermined goals.
Marginal and absorption costing are two different methods which are used by enterprises to
calculate costs. There are various planning tools which are also used by companies in budgetary
systems and deal with financial challenges. These are sales, production and cash flow budgets.
Additionally, financial governance and full compliance system are used to respond the finance
related problems which are faced by companies.
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REFERENCES
14

Online
Advantage of sound accounting system. 2019. [Online]. Available through:
<http://www.qunrui.net/zjzx_08051602_en.html>
Financial governance. 2019. [Online]. Available through:
<https://www.tagetik.com/uk/glossary/financial-governance#.XcPq_nUzab8>
Benefits of compliance. 2019. [Online]. Available through:
<https://deloitte.wsj.com/riskandcompliance/2014/03/06/the-benefits-of-integrating-
governance-risk-and-compliance/>
Budget. 2019. [Online]. Available through:
<https://www.accountingtools.com/articles/what-is-a-budget.html>
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