Impact of Accounting Systems on Business Decision Making

The assignment focuses on the importance of management accounting systems in facilitating business decision-making processes. It highlights how these systems can help managers evaluate activities, reduce financial problems, and achieve business goals. The document references several books and journals that provide further information on this topic.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management Accounting and it's essential requirement ......................................................1
P2. Explain different methods of management accounting reporting:........................................1
TASK 2............................................................................................................................................1
P3. Costing techniques.................................................................................................................1
TASK 3............................................................................................................................................2
P4.Advantage of Disadvantage of different types of planning tools which is used for the
budgetary control.........................................................................................................................2
TASK 4............................................................................................................................................2
P5. Evaluate how organization adapting management accounting system to response their
financial problems........................................................................................................................2
CONCLUSION................................................................................................................................2
REFERENCES................................................................................................................................3

INTRODUCTION
Management accounting is the process where manager of the company done various
activities in order to achieve their goals & objectives (Collis and Hussey, 2017). It is a business
practices which include the various activities which help the organization to increase their
efficiency or effectiveness. It is also called managerial accounting where manager perform their
task in order to increase their productivity or profitability and it further helps in achieving
business goals & objectives. Excite Entertainment Ltd chose for the better understanding of this
concepts which operates in leisure and entertainment industry in the UK. This report include the
various topics such as management accounting and it's essential requirement. Along with this, it
include the management accounting reporting, different costing methods and planning tools
which helps in solving financial problems in order to increase the productivity or profitability.
TASK 1
P1. Management Accounting and it's essential requirement
Management accounting: It is also called managerial accounting which analyse the
business cost and other operational activities (Schaltegger, Burritt and Petersen, 2017). With the
help of management accounting, company prepare their financial report which help the manager
to build effective strategy and take decision in order to achieve their organizational goals &
objectives. With the help of management accounting, manager of the Excite Entertainment Ltd
build strategies, plans and policies.
Management accounting system and it's essential requirement:
Management accounting system help the organization to maintain their operational
activities in order to increase their productivity or profitability. Their are some systems which
help the manager of the company to apply in their organization and increase the efficiency or
effectiveness. Which further helps in increasing productivity or profitability and it well be
discussed below:
Inventory Management System: It is a system or software which help the business to
maintain their stock or regular track their inventory (Humphrey and Miller, 2012). With the help
of this system, management will track the level of inventory. In the Excite Entertainment Ltd,
manager can adopt this system which help the business to maintain their stock which secure the
organization from shortage or wastage of stock. Company can reduce their carrying cost as well
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as reduce the wastage which occur due to large quantity. This system required to keep track their
inventory level on regular basis which reduce the cost and it will further increase the productivity
as well as profit margin.
Cost Accounting System: It is a costing system, which help the manager of the company
to reduce their each product & services cost which automagically the production and then
profitability. Low cost of product will increase the demand of the product which increase the sale
and profit margin. This system required by the Excite Entertainment Ltd which can reduce the
cost of their products & services which increase the sale and then profit margin. With the help of
this system, manager take effective decision and prepare various strategy to reduce the or control
for the longer period.
Price Optimisation System: It is a mathematical function which help the organization to
identify different price rang which also measure the customer's reaction according to different
price range (Holsapple, 2013). By adopting this system, manager of Excite Entertainment Ltd
can determined that which option is suitable for the company. With the help of this, manager
build strategy to accomplished their goals & objectives in order to increase productivity or
profitability. It is required to fix the price of product which meet the objectives of the consumers.
Above mention management accounting systems used by the Excite Entertainment Ltd
which help them to increase their efficiency as well as effectiveness which help the organization
to increase their productivity which automatically increase the profitability.
P2. Explain different methods of management accounting reporting
Management accounting reporting include the various business or accounting reports
which help the manager to identify the performance of individual as well as for whole
organization. With the help of reporting system, manager can build various strategy which helps
at the time of decision making process. Accounting report prepare according to financial year
which helps in analysis for the operational functions. Their are various management accounting
report and it will be discussed below:
Budget Report: This is standard budget which is prepared as per the previous
information or experiences. This budget include all the revenues and expenditure which help the
manager to perform all the activities according to it (Takeda and Boyns, 2014). With the help of
budgeted reported, manager of the company will complete their each project or task as per the
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prescribed amount for that particular items. In the Excite Entertainment Ltd, this report helps in
taking decision for the further non-functioning.
Account Receivable Report: This report prepared for those organization which done
their sale of credit basis (Zoni, Dossi and Morelli, 2012). So it is very difficult to remember all
the credits because of that reason organization develop this report which help the manager to
analyse the defaulters who does not pay their money. Along with this, it helps in further decision
making process because Excite Entertainment Ltd will changes or make more effective strategy
regarding their defaulter. In addition they build their strategy which reduce the defaulters and
make them capable to recover all the amounts. Manager of the company develop strict rules and
regulation regarding credit payment.
Performance Report: This report prepare for the performance evaluation of individual
as well as organization which help the manager to identify that which area required improvement
or not (Grabner and Moers, 2013). Manager will evaluate the performance as per department
and each employees too. With the help performance report, manager decided that who is capable
for the rewards and who require training for the further functioning. Reward and incentives are
the best way to increase individual performer in the organization. With the help of various
incentives or reward to the employees will increase the motivation level of individual which
increase their performance. Manager of the Excite Entertainment Ltd adopt this strategy to
evaluate their employees as well as organizational performance and then build strategy according
to it.
Above mention report will help the manager of the company to take further decision on
the basis of this report. It will help the company to analyse their employees performance and
determine that weather they required or not.
TASK 2
P3. Costing techniques
Absorption Costing Method: It is a kind of costing technique in which fixed costs and variable
costs are considered as the product cost ( Morden, 2016).
Marginal Costing Method: This costing method is different from the absorption costing method.
In this method, the fixed cost is considered as the unit cost (Siverbo, 2014). On the other hand,
the variable cost is taken as the period cost.
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(I) Calculation of production cost per unit:
Direct material= 12
Direct labour= 20
Variable production overhead= 8
Fixed production overhead cost= 120000 per month
Selling price= 60 per unit
Standard volume= 20000 units to absorb the fixed production overhead.
So overall production cost per unit= (12+20+8+120000)/ 20000= 46. 00 per unit.
(II) Total production cost:
Budget: Absorption Costing
technique June.
Production Cost
Per Unit Total
£ £
Direct material 12 18000x12 216000
Direct labour 20 18000x20 360000
Variable production overhead 8 18000x8 144000
Fixed production overhead 6 18000x6 108000
18000x 46 828000
(III) Total cost of sales for June:
BUDGETED COST OF SALES
FOR JUNE Amount
£
Cost of production 828000
Opening Inventory 0
Closing inventory -92000
COST OF SALES 736000
(IV) Preparation of profit and loss statement by using techniques
ABSORPTION COSTING: BUDGETED PROFIT
OR LOSS STATEMENT JUNE
PER
UNIT TOTAL
£ £ £ £
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SALES 60 960000
COST OF PRODUCTION
Direct material 12 216000
Direct labour 20 360000
Variable production overhead 8 144000
Fixed production overhead 6 108000
46 828000
OPENING INVENTORY 0
CLOSING INVENTORY -92000
COST OF SALES -736000
STANDARD PROFIT 344000
ADJ. FOR UNDERABSORPTION (108000-96000) -12000
BUDGETED PROFIT 332000
MARGINAL COSTING: BUDGETED PROFIT
OR LOSS STATEMENT June
PER
UNIT TOTAL
£ £ £ £
SALES 60 960000
COST OF PRODUCTION
Direct material 12 228000
Direct labour 20 380000
Variable production overhead 8 152000
FOH 40 760000
OPENING INVENTORY -
CLOSING INVENTORY
COST OF SALES 40 708000
CONTRIBUTION 252000
FIXED OVERHEAD PRODUCTION -120000
BUDGETED PROFIT 132000
(V) Actual cost by using absorption costing methods:
ABSORPTION COSTING: ACTUAL PROFIT
OR LOSS STATEMENT JUNE
PER
UNIT TOTAL
£ £ £ £
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SALES 60 960000
COST OF PRODUCTION
DIRECT MATERIAL 12 228000
DIRECT LABOUR 20 380000
VARIABLE PRODUCTION OVERHEAD 8 152000
FIXED PRODUCTION OVERHEAD 6 114000
46 874000
OPENING INVENTORY 0
CLOSING INVENTORY -18000
COST OF SALES 856000
STANDARD PROFIT 104000
ADJ. FOR UNDERABSORPTION -6000
BUDGETED PROFIT 98000
(VI) The company is using the different costing methods such as absorption and marginal to
calculate the profit and loss for June month. Both the methods have some advantage and
disadvantage. Apart from these techniques, there are some other techniques such as Activity
based costing.
Activity based costing- It is a kind of technique which identifies the different activities of the
organisation and after that allocate each activity's cost to the products and services (Booth,
2018). As well as this model assigns the cost to the direct cost.
So the company may use this method apart from the marginal and absorption costing method.
This method can be beneficial for the company in compare to the rest of these two techniques
because in this each activity is allocated separately to the cost of products and services.
TASK 3.
P4.Advantage of Disadvantage of different types of planning tools which is used for the
budgetary control
Budgetary control is considered as the procedure in which manager of the firm fix its
objectives in respect of finance or performance of the company (Lachmann, Knauer and Trapp,
2013). This will aids business to compare its actual performance with the standard one. It
includes several activities like planning, arranging, coordinating and formulating effectual
decision for accomplishing its objectives. This is utilise through higher authority of the
organisation where they prepare budget for controlling its cost of products and observing the
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another activities. There are several planning tools that is applied by Excite Entertainment Ltd.
Are mentioned below:
Flexible Budget: This is considered as the most sophisticated budget as compare to
another one as budget will be change as per the changing activities or volume (Kober,
Subraamanniam and Watson, 2012). This assists manager of Excite Entertainment Ltd. To
examine its actual and standard results. Moreover, this aids firm to accomplish its expected
profitability as based on the needs they can modify its budgeted amount that assists manager to
obtain opportunities. Some advantages and disadvantages of this are as follows:
Advantages:
 It permit manager to change its budget as per their production needs. It facilitates the exact outcomes because in this all transaction are included and
accomplish the objectives of the business.
Disadvantages:
 This is not straight forward budget as it needs time to understand and little bit difficult.
 This is confusing budget as normally each budget has individual amount but in this case
it will modify as per the needs.
Incremental Budget:
This is utilising to formulate current budget with the assistance of last budget. Herein,
firm enhance its budgeted amount with few fixed rate based on last year budget. Excite
Entertainment Ltd. can applied this budget with few changes in its previous one.
Advantages:
 It minimises useless expenditure into present year and save time. It is prepared easily and not required particular qualification.
Disadvantages:
 It does not consider any modification into variables which enhances amount.
 This is not accurate budget as it is formulate according to previous estimation that is not
relevant into current one.
Contingency planning tool: It is prepares for the organisation which help the manager to
response very quickly for the future events. Basically this tool used for the unexpected situation
at the time of performing their task in order to achieve their business goals & objectives. It helps
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the Excite Entertainment Ltd to formulate or execute their strategies in order to reduce
unfavourable condition and risk which involved in working environment.
Advantage:
 With the help of this planning tool, organization can reduce their wastage and damage at
the time of performing their as wastage of time, employees efforts etc. With the help of
this tool manager can take quick action of any problem which save the time of recovery.
 It is suitable for the unfavourable conditions where they response very well and resolve
the problems in effective way which increase the efficiency or effectiveness in order to
increase their operational functions. It will further helps the organization to achieve their
business goals & objectives.
 It beneficial to takes corrective action in order to reduce the risk and increase the
profitability.
Disadvantage:
 This planning tool is time taken process which also required huge investment to
implement it and take correct action in order to resolve problem. It is used for the current
situation not working for the future events.
 It is not always beneficial for the problems sometimes it become inadequate due to lack
of understanding the situation.
TASK 4
P5. Evaluate how organization adapting management accounting system to response their
financial problems
Management accounting plays an important role in the context of solving the financial
issues. This is possible because of various kind of management accounting tools and techniques.
Financial issue- It is a kind of issue in which organisations face lack of fund to operate
different kind of activities and functions (Anessi-Pessina, Barbera, Sicilia and Steccolini, 2016).
These financial issues are needed to be solve as soon as possible otherwise it may result in huge
loss for the company. Herein, some kind of financial issues are mentioned below:
Spending more then income- It is a kind of financial issue in which companies spends
or invest more but earn less. Due to this many other issues also arises.
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Unequal cash in flow: In this kind of financial problem organisations face the issue of
unequal cash inflow. It means cash out flow exceeds over the cash inflow.
So these are the financial issues which are being faced by the companies in their different
kind of operations. Herein, some accounting techniques are mentioned to overcome from the
financial issues:
 Benchmarking- It is a kind of accounting technique in which company's plans, policies
and strategies are compared with the other companies strategies. This overall helps to the
companies in improving their plans, policies and strategies.
 KPI (Key performance indicator)- This is a type of technique in which those activities
are focused which are more beneficial for the organisation. Eventually, this technique
enables to the organisations that how effectively they are achieving their goals and
objectives. As well as due to this they can facilitate those tasks or activities which are
generating higher revenue.
The comparison of two organisations is mentioned below by which they are solving their
financial issue:
Basis Excite entertainment limited Alex-son entertainment
Financial issue This company is facing the
financial issue of lack of fund, due
to spending more and earning less.
The company makes various kind
of expenditure in different
activities but earn less.
This company is also in same
industry. Their financial issue is
regarding to the unequal cash flow. It
shows that company has lack of cash
or liquidity for their different kind of
operations.
Accounting
technique
As per the financial issue, they
require a kind of technique which
can overcome their financial issue.
The suitable technique is
“Benchmarking”. It is a kind of
technique which can solve their
financial issue. This is why
On the basis of financial issue of this
company, their problem can be
resolve by effective technique and
that is KPI (key performance
indicator). It is a kind of technique
which focuses on those activities that
are profitable for them. As well as
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because it enables comparing the
organisational strategies, policies
with the other company's plans and
policies. If above company adopts
this technique then it will be easy
for them to overcome from their
issue. Due to this they will be able
to enhance their strategies, plans
and policies effectively and they
can gain the good profitability.
due to this technique, it becomes
easy for the companies to make
invest on those activities which are
profitable for them. If above
mentioned company adopts this
technique then it will be easy for
them to earn higher revenue which
will help in overcoming from the
financial issue. Additionally, their
cash flow will be equal.
CONCLUSION
From the above discussion, it has been concluded that management accounting plays
essential role in the organization. it will help the manager to control their internal operations
which help the business to increase their productivity as well as profitability in order to
achieving their business goals & objectives. Along with this, management accounting system
helps the business to increase their efficiency as well as effectiveness. Such as, cost accounting
system help the organization to identify their product & services cost which help the manager to
determine their profit in order to increase their profit margin. With the help of costing system
organization calculate their income through marginal or absorption costing method. In addition,
management accounting reporting help manage to evaluate the performance of employee as well
as whole organization which further helps in building strategy and decision making process.
Planning tool help the manager to evaluate the various activities which reduce their financial
problems and helps in running business in smoothly way. There are various problem which can
resolve with the help of accounting system or accounting report and it further help the manager
to achieve their business goals & objectives.
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REFERENCES
Books and journals:
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
Schaltegger, S., Burritt, R. and Petersen, H., 2017. An introduction to corporate environmental
management: Striving for sustainability. Routledge.
Humphrey, C. and Miller, P., 2012. Rethinking impact and redefining responsibility: The
parameters and coordinates of accounting and public management reforms. Accounting,
Auditing & Accountability Journal. 25(2). pp.295-327.
Holsapple, C. ed., 2013. Handbook on knowledge management 1: Knowledge matters (Vol. 1).
Springer Science & Business Media.
Takeda, H. and Boyns, T., 2014. Management, accounting and philosophy: The development of
management accounting at Kyocera, 1959-2013. Accounting, Auditing & Accountability
Journal. 27(2). pp.317-356.
Zoni, L., Dossi, A. and Morelli, M., 2012. Management accounting system (MAS) change: field
evidence. Asia-Pacific Journal of Accounting & Economics. 19(1). pp.119-138.
Grabner, I. and Moers, F., 2013. Management control as a system or a package? Conceptual and
empirical issues. Accounting, Organizations and Society. 38(6-7). pp.407-419.
Morden, T., 2016. Principles of strategic management. Routledge.
Siverbo, S., 2014. The implementation and use of benchmarking in local government: a case
study of the translation of a management accounting innovation. Financial
Accountability & Management. 30(2). pp.121-149.
Booth, P., 2018. Management control in a voluntary organization: accounting and accountants
in organizational context. Routledge.
Lachmann, M., Knauer, T. and Trapp, R., 2013. Strategic management accounting practices in
hospitals: Empirical evidence on their dissemination under competitive market
environments. Journal of Accounting & Organizational Change. 9(3). pp.336-369.
Kober, R., Subraamanniam, T. and Watson, J., 2012. The impact of total quality management
adoption on small and medium enterprises’ financial performance. Accounting &
Finance. 52(2). pp.421-438.
Anessi-Pessina, E., Barbera, C., Sicilia, M. and Steccolini, I., 2016. Public sector budgeting: a
European review of accounting and public management journals. Accounting, Auditing
& Accountability Journal. 29(3). pp.491-519.
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