Management Accounting: Tools and Techniques for Financial Problem Solving

This document provides an overview of management accounting and its importance in decision-making. It covers topics such as the difference between management accounting and financial accounting, various accounting systems used in management accounting, different types of management accounting reports, and the application of management accounting in dealing with financial problems. The document also includes examples and case studies to illustrate the concepts discussed.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Section (A)..................................................................................................................................3
Section (B)..................................................................................................................................4
TASK 2............................................................................................................................................6
Financial report for the month of January 2020..........................................................................6
TASK 3............................................................................................................................................7
Compare and contrast three planning tools used in management accounting.............................7
TASK 4............................................................................................................................................9
Ways in which management
accounting is applied to deal with financial problems...............................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
The term management accounting (MA) is a form of accounting which is aligned to
procedure of gathering monetary and non-monetary data from different resources to produce
inner reports (Nimtrakoon and Tayles, 2015). These reports act as a crucial framework to take
important decisions. The aim of project report is to understand about importance of MA for inner
stakeholders of corporations. This report is based on a company that is Excite entertainment
limited company. The company operates its operations in promotion of concerts and festivals.
This company is a client company of “Grant Thornton” that is a leading accountancy firm in UK.
The project report covers detailed information about detailed understanding of management
accounting systems (MAS), MA reporting, planning tools etc.
TASK 1.
Section (A)
(a)Difference between MA and financial accounting:
Basis MA FA
Mandatory MA is not necessary as financial
accounting.
While financial accounting is
essential to be applied in companies
accounting process.
Format In this accounting any specific
format to produce inner reports is
not applied.
On the other hand, under its
financial statements are prepared as
per the accounting standards.
Information In MA, information about financial
and anti-financial aspects is
included.
In this accounting only financial
information is included for further
process.
Time frame In this accounting, there is no any
specific time to prepare internal
reports.
On the other hand, under this
financial statements are prepared at
the end of an accounting period.
(b) Cost accounting system- This accounting system is applied by production department of a
business entity in order to manage expenses of different functions. Its objective is to keep
an effective control over additional and unwanted cost. This is based on two types of

costing methods which are direct and indirect costing. The direct costing is defined as
charging cost of product which is variable (Papazov and Mihaylova, 2015). While
indirect costs are those which are not directly linked to a particular cost object. In the
context of above Excite entertainment limited company, this accounting system is applied
to manage overall expenses regards to organising any event.
(c) Stock management system- It is an accounting system which is based on evaluation of
quantity of stored stock by help of different techniques such as LIFO, FIFO etc. The
objective of this accounting system is to keep control over usage of raw material in
production process. In the Excite entertainment limited company, this accounting system
is applied to track usage of instruments in organising an event.
(d) Job costing system- In this accounting system cost of per unit is calculated by assigning
cost of job of each item. This is beneficial for those companies whose product portfolio is
larger. In the Excite entertainment limited company, their managers apply this accounting
system to track cost of organised event as well as cost of each function.
(e) Benefits of accounting systems:
 Cost accounting system- It is associated to reducing cost of different activities and
operations. In the above company, this contributes to their finance department in
order to minimising those expenses which are unwanted.
 Stock management system- This is linked with managing cost of materials that are
stored in warehouses. In the above company, their manufacturing department
implies this accounting system to better management of stored raw materials.
 Job costing system- It contributes in calculating cost of per unit separately. In
Excite entertainment limited company, they apply this accounting system to
manage cost of job as well as finding value of per unit cost.
Section (B)
(a) Different kinds of MA reports.
In business environment, different MA reports have a major role in strengthening the
business operations and determining the weak areas of business and task. These areas are needed
needed to be altered and modified to make maximum profit for company. Some of these are
detailed below:

Budget report: This report is mainly prepared to examine the overall performance of
business in a specific year (Revellino and Mouritsen, 2015). In excite Ltd, manager can prepare
budget report to ascertain the performance of various department and even regulate cost with the
budgeted figures. The estimated budget for a year is figure out from the past expenses and
appropriate steps are made according to variance analysis.
Accounts receivable ageing report: This is consider to be a crucial report to manage
cash flows in company which offer credit facilities to customer. With the help of this report
manager in respective firm can make intimate customer according to their payment deadline and
with outstanding balance. Company can also make tighter credit policies if debt because of
delay payment.
Job cost report: This report is prepared for evaluating the total cost involved on various
job within an organisation. Manager can easily coordinate with the income prediction for
ascertaining the Job profitability. In Excite Ltd, manager by using this report can find out the
jobs which are not producing favourable report and make steps to improve these jobs to increase
profit margin.
B) Features of collected information
It is really essential that information provided in various ways should be trustworthy, up-
to-date, genuine and up to date in a timely manner as it supports various useful decisions.
Manager should ensure that document does not include any type of error and that these are
compelled in accordance with accounting principles. In Excite entertainment management Ltd
track and periodically use various reports to recognize industry patterns to find out that company
is making income.
C) Critical evaluation of management accounting systems and reports.
In Excite Entertainment Ltd, different method and accurate documents are valuable
because they are equally relevant in achieving the pre-planned performance. Like cost
management system helpful in allocating overall cost related to various business operations and
procedures. Thus, it help in preparing cost report which record each and every cost incurred in
various operation and make certain plan to regulate expenses or not in a year.

TASK 2
Financial report for the month of January 2020
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
Net Profit 32000

In the table above different costing techniques are used to formulate income statements
for the month of January which aid to determine the net profit. It is interpreted that net profit
from absorption costing is 40000 and by marginal costing the profit is 32000 GBP. The main
reason of difference in profit figures is because variable cost gets absorbed in absorption costing
techniques.
Benefit and drawback of Absorption costing:
It can be defined as a type of costing method where all spending classes are completely
absorbed by preparing financial statements (Richardson, 2015). All operating costs and variable
costs were defined in this method as price of the product.
Benefit:
 In estimating profit margin, it did not include the distinction between fixed and variable
cost.
 Such costing approaches promote identifying the use of fixed production costs through
price valuation and the application of effective pricing strategies (Vasarhelyi, Kogan and
Tuttle, 2015).
Drawback:
 It is not really efficient in constructing agile budgets, because absorption expenses don't
include expense separation.
Advantages and limitation of Marginal costing:
In this method all the variable cost which are used in producing a unit output is being
subtracted from sales figure in order to get the contribution. Later on fixed cost are removed
form contribution to ascertain the net profit.
Advantages:
 It ensure valuable cost control method by segregation of the variable and fixed cost.
 This method support the manager to determine the profit margin, price and tendering of
company goods.
 Different in cost figures aid in fixing the best selling price because a particular good is
demanded in market at different price.
Limitation:
 Many time this method is confusing for the manager as it is difficult to separate the cost
into fixed and variable components.

 Sales price may gets modify with the changes in operation level.
TASK 3
Compare and contrast three planning tools used in management accounting
Budgetary management is said to be focused on strategies which are selected by an
agency to monitor financial performance by planning addition to executing different budgets.
There are various kind of budgets which can be used by excite entertainment limited as a
planning tool. So that they can easily ascertain the outcome with the support of budgetary control
system and these results are compared with estimated figures. Some of these are discussed
underneath:
Production budgets: By using this budget as a planning manager of excite Ltd can make
decision related with optimum manufacture level after interacting with different departments.
This help in attaining the maximum level of profit with favourable cost. Therefore, company
executives must include budgetary controlling in their work since it helps in the preparation of
particular period budgets and in monitoring or recording of costs associated to the operations
carried out in that span. So it is necessary for the manage to prepare these budgets with utmost
care as it have a direct influence on sales and cash budgets.
Benefits: This budget presume an inbuilt place among sales and stock budget and thus
support in make strong polices related with inventory and sales. Most importantly this budget
help in ensuring the physical controlling of stack at different level which tends to increase the
productivity level.
Drawbacks: The main disadvantage of this budget is that it do not clear the macro
economic trends due to which production level gets impacted. It consumer more time and require
skills which might hamper overall performance of company.
Cash Budget:
These expenditures plan have a crucial part in overall company budget anticipation and
estimating (Benefits of Cash budget, 2020). Changes within cash level due to business operation
are recorded in order to determine the productive activities. With this program, administrators of
Excite Entertainment Ltd receive full cash balance details so further important decisions are
formulated prudently in the sense of generating savings and utilizes.

Benefits: Cash budget advantages the organization in preventing any mortgage
conditions which further lead uneven cash outcomes. Managers create practical forecasts for
cash projections and review financial statements in order to assess investments that are produced
in the time frame.
Limitation: It also defines the limitations of the expenditure areas which participate in
the prevention of possibilities for potential company expenditures.
Master budget: In comparison to schedules, one of the centrally planned resources that
involves interrelated financial systems to meet strategic business targets. This specifically tracks
the levels of production, future costs accrued, anticipated potential sales, capital expenditure,
acquisitions and other other loads to also be returned.
Benefits: Employers benefit from the master plan in finding problems through analysing
certain departmental budgets and plan accordingly. It offers an overview of several other
budgets, as a result of which entrepreneur analyses total income as well as the existence of costs
incurred in their entirety.
Limitation: Master budget normally takes longer maintenance period and is not easy to
change leading to the presence of long explanations along with maps. With master schedule,
executives fail to acknowledge new business growth prospects.
Comparison between master, cash and production budget
Basis of comparison Cash budget Production budget Master budget
Meaning This is related with
estimating the cash
inflows and outflows
through different
business activity
(Schaltegger, Burritt
and Petersen, 2017).
It is mainly prepared to
figure out the total
production level within a
specific period and
compare with budgeted
figures.
Master budget is the
main budget which
includes all other
budgets
Main objective The key objective for
implementing cash
budget is to obtain
faithful idea related
The primary objective of
this budget is to
ascertain the production
capacity of company
Master budget have a
crucial objective i.e to
increase the overall
profit margin of

with cash structure
and availability.
within a year and make
better policies to
increase the output level.
company in nearby
future.
TASK 4
Ways in which management
accounting is applied to deal with financial problems
There can be various financial issues to a company because of different reasons which
can lead to reduce the overall profit margin. Management accounting techniques such as KPI
benchmarking can be used to determine the certain issues while financial governance can be used
to solve these problems. These techniques are discussed underneath:
KPI: This is known as a key performance indicator that identifies practices based on their
feasibility and cost standard. With the support of this current business performance may be
monitored and important decisions should be made (Seal and Mattimoe, 2014). This help
manager of respective firm to determine the monetary problem of higher spending than earning.
Benchmarking: In this method, performance of company is compared with other firm
dealing in same industry. Manager of excite Ltd can use this method to figure out the improper
flow of cash due to which many operation get hamper.
Financial governance: If company encounter any type of financial problem, then it
plays a major role in the system of addressing that concern. It was defined as a sort of tool that
systematically gathers and manages all business transactions of corporations. With the help of
this tool above detected financial issues are resolved by the manager of excite entertainment Ltd.
Comparison of organisations:
Basis of
comparison
Excite limited company PC clothing limited company
Financial issue Company faces the issue of
increasing operating cost and lower
sales.
The company is facing financial issues
related with poor management of cash
and cash equivalent.
Technique Manager uses benchmarking to see
what other companies are doing to
In this company, KPI is implemented
to make better plans which strength the

control cost. cash structure (Vasarhelyi, Kogan and
Tuttle, 2015).
Calculations:
BEP to attain desired profit = Fixed cost + desired profit / contribution per unit
= 120000+90000
= 210000/30
= 7000 units
Profit of sale of 7000 units
Sales (7000*40) = 280000
- Variable cost = 70000
Contribution = 210000
- Fixed cost = 120000
Profit = 90000
So the above calculation clearly state that company must sell 7000 units which will be
beneficial in making a profit of 90000 GBP.
CONCLUSION
It is concluded, that management accounting system and reports are integrated together in
organisation which support in preparing better and faithful reports. Different sort of MA
techniques are beneficial in calculating actual profit figures Planning tool like cash, master and
production budgets are effective to prepare entire budget and makes ways to resolve financial
issued.

REFERENCES
Books and Journals:
Nimtrakoon, S. and Tayles, M., 2015. Explaining management accounting practices and strategy
in Thailand: A selection approach using cluster analysis. Journal of Accounting in
Emerging Economies. 5(3). pp.269-298.
Papazov, E. and Mihaylova, L., 2015. Organization of Management Accounting Information in
the Context of Corporate Strategy. Procedia-Social and Behavioral Sciences. 213.
pp.309-313.
Revellino, S. and Mouritsen, J., 2015. Accounting as an engine: The performativity of
calculative practices and the dynamics of innovation. Management Accounting
Research. 28. pp.31-49.
Richardson, A. J., 2015. Quantitative research and the critical accounting project. Critical
Perspectives on Accounting. 32. pp.67-77.
Schaltegger, S., Burritt, R. and Petersen, H., 2017. An introduction to corporate environmental
management: Striving for sustainability. Routledge.
Seal, W. and Mattimoe, R., 2014. Controlling strategy through dialectical
management. Management Accounting Research. 25(3). pp.230-243.
Vasarhelyi, M. A., Kogan, A. and Tuttle, B. M., 2015. Big Data in accounting: An
overview. Accounting Horizons. 29(2). pp.381-396.
Online
Benefits of Cash budget. 2020. [Online]. Available through:
<https://www.sapling.com/7757509/benefits-cash-budget>