Management Accounting

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
Section A................................................................................................................................1
Section B................................................................................................................................3
TASK 2............................................................................................................................................5
TASK 3............................................................................................................................................7
Part A......................................................................................................................................7
TASK 4..........................................................................................................................................10
Part B....................................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is regarded as the application of professional skills as well as
knowledge into formulation of accounting information in such a manner so that this assists firm's
manager to develop policies as well as plan and control their operations (Management
Accounting – Meaning, Advantages & Functions, 2020). As per the given scenario, this report is
based on Excite Entertainment LTD. It operates into leisure as well as entertainment industry and
its vital practices is promotion of festivals and concerts in all over United Kingdom. The topics
which are going to described in this report are distinguish among financial and management
accounting, inventory management system, job costing system, advantage of many kinds
managerial accounting report, integration of managerial accounting system and report into firm's
operational procedures. Moreover, preparation of financial report using costing techniques and
comparison among three planning tools are explained. Apart from this, comparison among ways
the two entities applied management accounting system for preventing from financial issues are
also discussed in this report.
MAIN BODY
TASK 1.
Section A
a) Differences between Management Accounting and Financial Accounting.
Management accounting is differing from financial accounting as this rendered data to
person into entities. On other side financial accounting is basically for outside peoples like
shareholders (Biemans, 2018). So, differences among two are described underneath:
Basis Management accounting Financial accounting
Purpose The management accounting is
utilised for internal purpose.
Financial accounting is utilised
for external report mainly.
Regulation This is not regulated or governed
through any legislation.
This has been represented
according to the standards.
Contents This consists both financial as well as
non financial information.
This consists only financial
information.
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b) Cost accounting systems
This regarded as a system that is mostly applied into entities for an intent of ascertaining
exact cost that is incurred during implementing the operative practices. Therefore, manager of
Excite Entertainment LTD are applying this for an intent of identifying reasons of whole
expenditures that are taking place because of their operations. This is vital for their business as
this may direct its managers to ascertain the aspects that are outcomes into more cost. In is of
two kinds such as direct as well as standard costing. Both of them are explained below: Direct costing: Whole expenditures that are directly associated to practices of enterprises
are considered as the part of direct costing (Brunswicker and Vanhaverbeke, 2015). So,
this type of cost is incurring into Excite Entertainment LTD during the promotion of
festival as well as concerts. The example of this costing are direct labour cost,
commission etc.
 Standard costing: This is considered as the kind of cost accounting system that is utilised
into various firms like Excite Entertainment LTD for collecting information related to
factors that outcomes into deviation among actual as well as standard cost. The example
of this costing as companies estimate cost of different operations under it.
c) Inventory Management Systems
This is regarded as a managerial accounting system which is usages through business
concern for managing whole products that are utilised aspects to perform practices in efficacious
way. Therefore, the manager of Excite Entertainment LTD utilised for maintaining the whole
records so that they can able to know that where is usages through staff for rendering leisure to
customers. In this accounting system different techniques are used in order to do better
management of stock such as LIFO, FIFO and many more. Under Last in first out method, stock
that comes in last is used first for production. While in the first in first out method, stock that
comes first is used for production.
d) Job Costing Systems
It is regarded as managerial accounting system that is mostly applied into large entities
for segregating overall expenditure that outcomes from several jobs (Carayannis, Sindakis and
Walter, 2015). Therefore, manager of Excite Entertainment LTD apply job costing system to
track the record of each and every jobs that are done based upon particular consumers. This is
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vital for firm as this may aids in segregating several expenditure as per their audiences. As well
as in above company, their finance department compute cost of operations that occurs in
organising an event such as cost of lighting, cost of sound system etc.
e) Evaluate the benefits of the above management accounting systems to your client
The above explained system of managerial accounting has many advantages or benefirs
that are explained underneath: Cost accounting system: This managerial accounting system that is based on calculating
and handling overall expenditure. For instance, manager of Excite Entertainment LTD
applies this accounting system to cover cost of organising an event by calculating cost of
operations and comparing with budgeted costs. Inventory management system: This is based on the utilisation of many inventory
valuation methods to track usages of raw materials. For example, manager of Excite
Entertainment LTD applies this accounting system in order to manage available musical
instruments as well track usage of different items in organising events.
 Job costing system: This is basically related with calculating the cost of each job units.
So, this aids manager of Excite Entertainment LTD in order to compute cost of each job
aligned to different activities of organising any event.
Section B
a) Describe different types of managerial accounting reports
Managerial accounting reports is Define as the method of forming reports that is followed
by overall entities to examine actual performance of enterprises (Lager, 2016). Therefore, in
Excite Entertainment LTD some reports are prepared which are explained below: Account receivable ageing report: It is defining as managerial accounting report which
consists information associated to whole customers or debtors who have not done
payment. Therefore, the finance manager of Excite Entertainment LTD formulates
account receivable report so that they can obtain knowledge regarding that users whose
payment is due. Performance report: Into this type managerial accounting report, information regarding
performance of each aspects is included. The main intent of performance report is to aids
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Excite Entertainment LTD managers to undertake effective steps in respect of worker’s
development as well as promotion as per their actual performance.
 Budget report: Into this managerial accounting report, information associated with actual
and estimated financial outcomes is included. Therefore, Excite Entertainment LTD
prepare budget report so that they become competent for maintaining effective monetary
performance.
 Stock report- It is a type of report that is prepared on the basis of evaluated value of
stock. By help of this report managers can become able to know quantity of stored
material as well as consumption of stock in production. Such as in the above company,
their event managers use this report to manage available instruments in organising any
event.
b) Explain why information presented should be accurate, relevant to the user, reliable up to date
and timely.
This is very much essential for whole entities such Excite Entertainment LTD to keep its
financial information up to date, accurate as well as relevant. It is so as if data accurate then this
is easier for their accountant to develop financial statements (Möller and Halinen, 2017). Also,
there has to be connection of financial data with the transaction of entities for taking internal
decisions. Likewise, it is vital to shows the financial information at certain time period in order
to make stake holders understand and provide knowledge related to Excite Entertainment LTD
business performance.
c) Critically evaluate how management accounting systems and management accounting
reporting should be integrated within Excite Entertainment Ltd Operational processes
In the management accounting systems, there are vital range of accounting systems and
each one has integration with business process. Such as in the above company, there
various departments are aligned with accounting systems. For example, cost accounting
system is linked with finance department. As well as MA reports are linked with business
process. Like stock report contributes to event organiser of above mentioned company.
This shows that MAS and MA reports are integrated to business process.
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TASK 2
Produce a financial report, comparing profit or loss using Marginal Costing and Absorption
Costing techniques
Absorption costing: This is also known as the full absorption costing which is a method
of management accounting that is utilised through entities to capture whole cost related with
producing specific goods. Moreover, this is mostly needed for external financial accounting as
well as income tax reporting (Mousavi, Bossink and van Vliet, 2018). Therefore, manager of
Excite Entertainment LTD used this for identifying suitable method for developing income
statement.
 Benefits: This directs managers through out its ways where it may develop plan of action
for maximising operating incomes for business for certain time duration.
 Limitation: The crucial limitation of this is the problems hat is faced through examiners
at the time of comparing expenditure and outcomes are considered during utilising this
for computing profitability.
Marginal costing: This is regarded as the methods of cost accounting as well as decision
making which is utilised for internal reporting where only marginal costs are charged to units of
cost and fixed one are considered as lump sum. This is also called variable, contribution and
direct costing. With the assistance of marginal costing the manager of Excite Entertainment LTD
can write off whole fixed cost to get effective results. Benefits: This represents the clear the affects upon profitability of variations into sales
volumes. Also, this is helpful in making managerial decision as it renders more accurate
measures for it (Talukder, 2016).
 Limitation: The main limitation of marginal costing is that the overall cost can not be
segregated within variable as well as fixed cost. Also, this is tough to pre- determine the
variability degree of semi variable costs.
Calculation:
Income statement under absorption costing method for month of September, 2019:
Particular Amount (values in
pounds)
Revenues (8000 units @15 pounds per unit) 120000
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Less : Cost of goods 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 method for month of September, 2019:
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
60
10000
20000
30000
40000
50000 40000
32000 Net profit (Absorption
costing)
Net profit (Marginal
costing)

Interpretation: As per the above graph, this has been interpreted that there is variation
within net profitability as this is calculated from the marginal costing technique as well as
absorption costing technique. The net profitability computed with the assistance of absorption
costing so value is 40, 000 pounds. On the another side, the value comes while calculation is
done through marginal costing is 32, 000 pounds.
TASK 3
Part A
Compare and contrast three planning tools used in management accounting
Budget are regarded as statement which includes approximation in respect of expenses
that are formulated after examining the whole organisational goals. The methods which are
undertaken through firm to control monetary performance by creating addition towards
executing distinct budgets is considered as budgetary control. Therefore, Excite Entertainment
LTD financial manager develops many budgets as well as ascertain outcomes with the assistance
of budgetary control techniques where they may able to perform comparison among actual
performance with approximated one. Through this, it can able to identify discrepancies together
by taking effective actions at certain period.
Various kinds of planning tools
Some kinds of planning tools which are utilised through Excite Entertainment LTD are
described below: Cash Budget: This is regarded as planning tools in which anticipated receipts of cash
along with cost disbursements are recorded for accounting period (Tidd and Bessant,
2018). With the assistance of this budget, the Excite Entertainment LTD manager obtain
effective as well as complete data regarding position of cash so that they can able to
formulate strategic decisions in respect to develop revenue and utilised it into prudent
way. Moreover, this is also utilised during crucial payment as well as examining variance
into cash inflow or outflow.
◦ Advantages: This assist respective organisation to obviate any debt situation which
may outcomes in obtaining effective outcomes regarding present cash at work area.
Moreover, it aids their manager to devise realistic assumptions as well as examine
monetary statement so monitoring spendings which are done during period.
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◦ Disadvantages: In this not any credit transaction are recorded so this will not able to
render accurate business position. This also bound the expenditure limits which
outcomes into preventing opportunities for doing futuristics investment through
entities. Master budget: This is considered as the central planning tool which comprises
interlinked monetary programmes along with budgets for attaining the strategic objective
of entities. This is fundamental documents in which level of production, capital
investments, anticipated future sales and others which are to be repaid along with
obtained one. Therefore, manager of Excite Entertainment LTD can develop master
budget so that they can able to make some rough guidelines regarding nearest
expectations.
◦ Advantages: With the assistance of this respective organisation owner find the issues
through reviewing another department budgets for planning ahead. This facilitates the
summary of another budgets because of which they can able to examine overall
earning as well as incurred expenditure nature as whole.
◦ Disadvantages: This budget is too time taking during its up gradations as well as not
simple for altering because of lengthy description involvement along with charts. It
fail to undertake new opportunities of development for entities. Zero Based budget: This is regarded as the planning tool in which whole transaction is
are justified initiation of new accounting period (Winterhalter, Zeschky and Gassmann,
2016). So, Excite Entertainment LTD manager utilised this by scratching whole
expenditures from zero each time for justifying the money spent according to the
objectives of business.
◦ Advantages: This budget develop an opportunities for Excite Entertainment LTD
manager as this aids them to capitalise resources upon ineffectiveness along with
identifying innovations so that they can able to minimise the cost.
◦ Disadvantages: The formation of this budget consumes more time of Excite
Entertainment LTD as the method of preparing this includes new prospects into every
steps which take more time to evaluate practices for performing approximation.
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Among the above three budgets, Excite Entertainment LTD prepare the cash and master
budget as this assists them in approximating position of cash as well as measuring performance
departmental wise.
Comparison between master, zero and cash budget
The comparison among budgets such as zero, cash and master are described below:
Basis Cash budget Zero budget Master budget
Definition This is considered as a
plan which includes
anticipated amount of
cash related to
expenditures as well
as receipts.
This is considered as
plan where whole
expenditures are
justified as well as starts
from scratch.
This is considered as
plan which includes
another budget that
are formulated at
various divisions into
entities.
Aim The aim of preparing
respective budget
through manager of
Excite Entertainment
LTD so that they may
able to obtain fair idea
regarding actual
position of cash as
well as available cash
for meeting their
obligations.
The aim of zero based
budgeting is to reduced
useless expenditure.
This budget is
formulated with an
intent for setting
rough guidelines so
that futuristics desires
can get attained.
All the above mentioned budget such as zero based, cash and others has some similarity
that all those are utilised for effectual planning tools as well as assists into Excite Entertainment
LTD futuristic monetary planning. Moreover, with the assistance of all these budget, it manager
can able to set both long term and short term objectives, examine variations into anticipated and
exact results as well as devise plan of action from developments.
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TASK 4
Part B
Compare ways in which management accounting is applied in dealing with financial problems
and preventing financial problems in an organisation
Financial problem is regarded as that issues which occurs due to shortage of monetary
resources for accomplishing the several operations as well as practices. Moreover, this is vital
problems for entities as due to lack of appropriate monetary resources business concern can not
able to exists into competitive atmosphere. There are essential range of financial problem that
Excite Entertainment LTD are facing as well as few of them are described below:
 Low profitability: This type of monetary problems which incurs into entities because of
frequent reduction into practices which are revenue producing. Within this, business
concern faced the issue of shortage of liquidity as in profitability will be low them they
will not obtain sufficient cash amount. The main cause to occurs this monetary problem
is enhanced expenditure amount. So, Excite Entertainment LTD is going through this
problems as it becomes main reason of its low performance.
Methods for minimising monetary problems
Some methods which are used by Excite Entertainment LTD for reducing the financial
problems are described underneath: Key performance indicator (KPI): In this method of reducing financial problems,
practices are find based on its cost as well as profitability level. Because of this practices
that outcomes into high cost in comparison to standard cost which are represented as a
cause of monetary problems (Wymbs, 2016). As per this, entities can able to formulate
future plans of action.
 Ratio analysis: This is regarded as a type of method that is related with computation of
various kinds of ratios for describing actual monetary problems. For example: Excite
Entertainment LTD is utilising this method for identifying the reason of actual financial
problems. It calculate ratios such as profitability ratio as well as through assistance of this
real issues is identified.
Comparison
Basis of Excite limited company PC clothing limited company
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comparison
Financial
problem
The financial problem which is faced
through respective organisation is
reducing profitability level. Because of
which its capital are reducing for
paying debts as well as doing practices.
It is facing the financial problem of
reduction into sales. As because of
this, its competitive existent gets
weaker and capital are minimising.
Technique It utilises techniques of ratio analysis
in order to identify the actual monetary
problems. With the assistance of this, it
can able to compute net profitability
margin ratio which direct them to
understand the actual issues.
It utilises the Key performance
technique as it identify as well as
develop plans for resolving the
problems. So, through utilising it they
can concentrate upon that practices
which outcomes into high costs.
Management
accounting
system
It is utilising the cost accounting
technique for sorting out the monetary
problems. As through using this they
can able to know about the exact
expenses as well as may try to reduce
that which will outcomes into
enhancing profitability.
It is utilising the price optimisation
system for resolving the monetary
issues. As with the assistance of this it
may revised its pricing startegies as
well as set reasonable price that may
be acceptable through clients.
Therefore, its sales reduced and issues
of sales reduction get resolved.
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
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- Variable cost = 70000
Contribution = 210000
- Fixed cost = 120000
Profit = 90000
CONCLUSION
From the above report, it has been concluded that Management accounting is differ from
financial accounting as this rendered data to person into entities. On other side financial
accounting is basically for outside peoples like shareholders. Moreover, some systems are used
for recording the cost and others. In addition to this, entities develops many budgets as well as
ascertain outcomes with the assistance of budgetary control techniques where they may able to
perform comparison among actual performance with approximated one.
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REFERENCES
Books and journal
Biemans, W., 2018. Managing innovation within networks. Routledge.
Brunswicker, S. and Vanhaverbeke, W., 2015. Open innovation in small and medium‐sized
enterprises (SMEs): External knowledge sourcing strategies and internal organizational
facilitators. Journal of Small Business Management. 53(4). pp.1241-1263.
Carayannis, E. G., Sindakis, S. and Walter, C., 2015. Business model innovation as lever of
organizational sustainability. The Journal of Technology Transfer. 40(1). pp.85-104.
Lager, T., 2016. Managing innovation & technology in the process industries: current practices
and future perspectives. Procedia Engineering. 138(1). pp.459-471.
Möller, K. and Halinen, A., 2017. Managing business and innovation networks—From strategic
nets to business fields and ecosystems. Industrial Marketing Management. 67. pp.5-22.
Mousavi, S., Bossink, B. and van Vliet, M., 2018. Dynamic capabilities and organizational
routines for managing innovation towards sustainability. Journal of Cleaner Production.
203. pp.224-239.
Talukder, M., 2016. Managing innovation adoption: from innovation to implementation.
Routledge.
Tidd, J. and Bessant, J. R., 2018. Managing innovation: integrating technological, market and
organizational change. John Wiley & Sons.
Winterhalter, S., Zeschky, M. B. and Gassmann, O., 2016. Managing dual business models in
emerging markets: an ambidexterity perspective. R&D Management. 46(3). pp.464-479.
Wymbs, C., 2016. Managing the innovation process: Infusing data analytics into the
undergraduate business curriculum (lessons learned and next steps). Journal of
Information Systems Education. 27(1). p.61.
Online
Management Accounting – Meaning, Advantages & Functions. 2020. [Online]. Available
Through:<https://cleartax.in/s/management-accounting>
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