Management Accounting: Systems, Reporting, and Techniques

This document provides an overview of management accounting systems, reporting, and techniques. It explains the difference between management accounting and financial accounting, discusses various cost accounting methods, and explores different planning techniques to control budget. The document also includes examples and benefits and drawbacks of each technique.

Management Accounting
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INTRODUCTION
Management accounting is defined as a process of analyzing financial statements which
includes net profit and loss account, balance sheet, cash-flow statement etc. so as to frame an
efficacious arrangement and argumentation for the achievement of an organizational goals and
verifiables. It gets supported by financial accounting who is liable to prepare final accounts on
annual basis. The concept of administration accountancy maneuver an essential role in
strengthening financial position of organizations by contributing efforts in improving financial
performance and sustain in agnostic market for long time period. The instant assignment
document is based on Excite Entertainment Ltd. which is occupied in leisure and entertainment
industry in the UK. The report discusses the various systems and reporting of management
accounting along with their application within an organization. Along with this, the report also
briefly explains different cost accounting methods and its suitability for an organization,
designing tools to control monetary fund in addition with this meritoriousness and deservingness,
application of administration accountancy methods for resolution financial issues faced by an
organization etc.
TASK 1
Section (A)
(a) Difference between management accounting and financial accounting system
Management accounting system : Management accounting system is the process of identifying
the value of the dealings and the activities which assist in formation of the fiscal reports. The
documents which are formulated helps the administration in determination devising.
Financial accounting system : It is a method which assist in analyzing the financial information
of the administration which will help them in preparing financial statement and decision making.
Comparison between management accounting and financial accounting system:
Basis Management accounting system Financial accounting system
Legal
requirement
There is no legal req1uirement to
follow this system in the organisation.
It is compulsory for the organisation
to follow the financial accounting
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system as it helps them in formation
of financial statements.
Format of
presentation
This accounting system do not have an
specific format in which the reports has
to be presented.
On the other hand, accounting system
requires to follow the specific format
which is been specified in the acts that
regulates them.
Types of data
used
The kind of data that is used in this
system includes both financial and non
financial information.
In this financial accounting system
only financial data is used to prepare
the reports.
.
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Excite Entertainment Ltd. have various options to opt among different management
accounting systems in order to strengthen their fiscal orientation in marketplace. Using of
following systems of management accounting enable managers to make suitable actions and
plans for future improvements in company’s current performance:
(b) Cost accounting system: This is a method which provides an estimation of overall
expenditure incurred in performance of various business concern activities. It makes easy for
manager of Excite Entertainment Ltd. to prepare an effective budget by analyzing the total cost
incurred in project held in previous year (Badolato, Donelson and Ege, 2014). This reduces the
changes of incurring unnecessary expenses. There are different type of costs which includes
direct cost, standard cost, process cost etc. Here is the description of these kind of costs in briefly
manner: Direct cost- It is such kind of cost which can be directly traced to a specific cost center
like product, process, department etc. Standard costing- It is a type of costing which is connected with an analysis of variances
between actual and estimated costs. Using such system facilitate an organization to
evaluate the level of differences between the actual and standard cost. It assists managers
to know the exact reason behind the differences of cost of modular and existent.
Normally, the standardized value is lower than the actualized cost.
(c) Inventory management system- It is a method which communicates an administration about
the current availability of inventory in warehouses that facilitates the manager to form
determination whether to command advance merchandise to meet customers’ demands on time.
It helps Excite Entertainment Ltd. in retaining their loyal customers by providing them event
services in the quantity and time they want. Inventory management system consists of two kinds
of methods which includes FIFO (First in first out) and LIFO (Last in first out). FIFO states that
the stock that were acquired by an organization earlier but sold at the time when client latently
ordered. On the other hand, LIFO states that the stock came at last in warehouses will be sold at
first. These methods enable Excite Entertainment Ltd. to maintain adequate amount of inventory
in warehouses so that the chances of failing in suppling ordered products to their clients on time
can be eliminated (Englund and Gerdin, 2014).
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(d) Job costing system- It is a system which provides data about the monetary value endowed in
various business concern activities along with the return received by company in future. Using of
such system by Excite Entertainment Ltd. assist their manager to make decision whether to
invest more in conducting an event who ensure success so that maximum profitability can be
achieved.
Benefits of management accounting systems:
1. Benefits of cost accounting system- This will assist in allocating cost to various
business activities on the basis of outcomes received in previous year by executing the
same activities. This helps Excite Entertainment Ltd. in reducing cost and increase
reserve funds which increases their financial stability in market.
2. Advantage of inventory management system- Using of such kind of system helps
Excite Entertainment Ltd. in maintaining sufficient amount of stock related with
conducting an event in warehouses on regular basis so that the client who had given
orders to an organisation can be delivered on time. Thus, it increases the loyalty of
clients which supports an organisation to achieve high long-term sustainability in
market.
Section(B)
Management accounting reporting is necessarily required to maintain by Excite
Entertainment Ltd. in order to determine their existent fiscal orientation of an organization so
that further actions can be taken for further improvement. It consists of different types which
includes budget report, account receivable report, cost accounting report, job costing report etc.
These are further discussed as under:
Performance report- It is the documentation which contains data about the actual level of
productivity of an organization by facilitating managers to compare their actual with desired
execution level. It assists administrators of Excite Entertainment Ltd. to identify the reason
behind non-performance or differences in actual and desired level which makes easy for them to
make an effective decision. This report encourages managers to focus on motivating the
employees to perform better through providing training and development programs, training
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sessions etc. This will make affirmative effect on overall performance level of an administration
(Garrison and et. al., 2010).
Account receivable ageing report- It is a document which communicates the data
connected with the list of debtors whose payment is due so that managers can be identifying such
unpaid debtors and take steps to recover the unpaid amount along with agreed interest rate. This
will be more useful for Excite Entertainment Ltd. if preparing such kind of report as it helps
them to update their existing credit policies which ensures them to get payment on due date
without facing any losses.
Cost managerial accounting report- This kind of report provides details about the total
cost invested by an organisation till yet in execution of different business activities. Preparing
such report by Excite Entertainment Ltd. facilitate them to prepare an effective budget on the
basis of information available related with cost incurred in project executed in previous year.
This will save the cost and increases the revenue of an organisation thus more beneficial to
prepare (Hawkey, Webb and Winskel, 2013).
Management accounting system and management reporting system are integrated with
process of organisation;
Both the concepts of management accounting and reporting system are integrated with
each other due to which Excite Entertainment Ltd. requires to get different resources such as
machines, human resources etc. to implement such systems and prepare reporting on timely
basis. For an instance, cost accounting system facilitates an organisation to provide information
about the total cost incurred in different business activities which are later on recorded under the
cost managerial report on the basis of which managers took decision for the betterment of an
organisation (Kanellou and Spathis, 2013).
TASK 2
Calculation of Income statement using marginal and absorption costs
Marginal Costing Method - It is a cost accounting method in which variable cost is
supercharged to units of cost, while the fixed cost for the time period is totally written off against
the endeavor. Marginal Costing assist the managers of Excite Entertainment Ltd. in taking end
number of business decisions such as replacement of machines used in organizing of an event,
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discontinuing a product or service, etc. It can also assist the administration in determining the
proper level of action through break even investigation that indicate the effect of acceleration or
depreciating manufacture level.
Absorption Costing Method – It is a method that anticipate both fixed costs and
variable costs as merchandise costs which effectuation that all costs consider direct, material
costs, and indirect like overhead costs are enclosed in the price of inventory. It indicates that all
of the manufacturing costs have been assigned to the units produced (Absorption costing, 2018).
Absorption costing avoids the separation of costs into fixed and variable elements. The pricing of
product ensures that all the costs are covered. For Example: Excite Entertainment Ltd. with the
help of absorption costing method can be able to absorb fixed costs in progress and sell their
products on a more pragmatic “selling price” as well as profits.
Income statements of Excite entertainment company for month of may (Marginal costing
method)
Particular Amount(in £ )
Sales
Less- Variable cost
Contribution
Less- Selling and manufacturing expenditures
Net profit
120000
51000
69000
-
69000
Working note*
 Calculation of sales- 8000*15= 120000
 Calculation of variable cost- (Opening stock+ production overhead- closing stock
: 500*6+ 10000*6- 2000*6= 51000)
Income statements of Excite entertainment company for month of may(Absorption costing
method)
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Working note*
a.i. Calculation of sales- 8000*15= 120000
a.ii. Calculation of COGS- (Opening stock+ production overhead- closing stock:
500*10+10000*10-2000*10=85000)
Management accounting technique and financial reporting documents
Management accounting techniques is considered as most essential tool that aid an
organisation to create their financial statements as well as reports. Thus, it becomes important for
companies to develop and further maintain financial document such as balance sheet, P&L and
more. With the help of accounting tools Excite Entertainment Ltd. can effectively able to
maintain their financial reports. Thus, in order to appropriately develop financial statements
company is required to consider different types of techniques as well as methods with the help of
which they can get best effective financial data as to frame financial statements which is mainly
obtained from management accounting tools.
Financial report which apply to interpret business activities
In business entities such as Excite Entertainment Ltd., numerous set of transactions takes
place on day-to-day manner. Thus, in order to effectively maintain organisational operations
company can interpret their transactions and data. This will further assist them to ascertain the
actual amount which is invested by organisation as to further conduct their daily organisational
operations.
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The marginal cost includes features which controls the cost by making division of fixed
cost and variable cost. This method has disadvantage as well as it is more unrealistic in case of
changes in production.
The Excite entertainment limited company Prefer to adopt absorption costing method as
it consider both variable and fixed cost due to which the net profitability of company is clearly
shown in financial statements. This will easily attract and retain their loyal shareholders.
TASK 3
Various planning techniques to control budget along with its benefits and drawbacks
Budget – A budget is a balanced estimate of expenditures and receipts of a set period of
time. It is a type of idea that outlines an organization's financial and operational goals. Budgets
are used by Excite Entertainment Ltd. to supply route and co–arrangement so that business
impersonal can be turned into functional actuality.
Budgetary Control – Budgetary control is the procedure of readying of budgets for
several activities and examination the monetary fund figures for make it at deviations if any,
which are to be obviate in forthcoming. It also helped the companies by ensuring profit
maximization through cost control and optimal usage of origins (Lavia López and Hiebl, 2014).
Tools to Control Budget
Master Budget - A master budget is the total of all individual monetary fund which is
made by the different structural division within an organization. The master budget is the
planning tool used by the managers of Excite Entertainment Ltd. to direct and judge the
execution of the several responsibility centers that broadside within an administration to have
decorous control.
Advantages of Master Budgets
 The master budget incorporates the targets of every department of Excite Entertainment
Ltd. and therefore acts as a standard of execution judgment.
 Budget income statements, calculated cash flow argument and forecast balance sheets of
the company are embattled using the master budget.
 It acts as a measurement of execution assessment.
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Disadvantages of Master Budgets
 It is not easy for Excite Entertainment Ltd. to modify the master budget even a small
alteration requires a lengthy process.
 Lack of specificity. For Example: Excite Entertainment Ltd. would not be capable to find
out how much the purchasing division is disbursement on the monthly basis as the assets
will be added to the other divisions defrayal as one sum.
3. Flexible Budget – Flexible budget is a budget that varies according to the
changing needs of company. Excite Entertainment Ltd. can equivalence existent costs at
the existent magnitude with the budgeted costs at the actualized magnitude with the
assistance of negotiable budgets (Melnyk and et.al., 2014).
Advantages of Flexible Budget
 Flexible Budgeting can be utilized to modify for large acquisition when they happen
without necessitate any accommodation in following months.
 Flexible Budgets can incorporate all irregular payouts.
 It can be prepared for a range of activities executed in Excite Entertainment Ltd.
 Flexible budget helps Excite Entertainment Ltd. to comparison existent output, cost or
execution with modular or monetary fund output, expenditure and execution.
Disadvantages of Flexible Budget
 Flexible budget is embattled on circumstantial time. For example – quarterly or half
yearly.
 It shows unfavourable condition of the budget which can imposed bad impact on
investors or suppliers.
3. Variance Analysis - It is the decimal enquiry of the divergence among existent and
conceived behavior. This investigation is utilized to keep control over a function of
business. For instance, if Excite Entertainment Ltd. budget for sales to be $10,000 and
actual sales are $8,000, variance analysis yields a difference of $2,000.
Advantages of Variance Analysis
 Variance analysis alleviate distribution obligation and prosecute control execution on
departments where it is needed. For example, if labour skilfulness deviation is seen to be
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unfavourable or procurance of raw material cost variance is unfavourable, the
administration of Excite Entertainment Ltd. can intensify power of these departments to
alteration skillfulness.
 Variance analysis can be utilized for comparison the divisional execution of the
administration.
Disadvantages of Variance Analysis
 Time delay. The accounting staff follows variants at the end of the month but
management needs the response much quicker than once a month (Nganga, 2014).
 Examination of existent results to an absolute modular that may have been plagiarized
from sentiment agreement. The consequent variant may not yield any useful data
(Veprauskaitė and Adams, 2013).
Using of various planning tools to prepare and forecast budgets
Budgetary control is a process in which various tool and techniques are required to make
financial budget and aim for spending money in coming years. It guides company to spend their
resources in best possible way and also minimize the cost for the company. This help Excite
Entertainment Ltd. from making blueprint and planning for financial planning and through they
can get estimation of money spend throughout business process. There are various kind of
planning tools and method for making financial budget which are forecasting tools, contingency
planning and flexible budget. Therefore, flexible budget help in making different kinds of budget
for operation and their nature change constantly. Forecasting budget provide insight for future
budget and manager make budget according the forecast. At last contingency planning act as a
support for strategies, planning and scheduling various kind of operation which are required to
meet business goals.
TASK 4
Role of management accounting system to solve financial problem
 Calculation of contribution per unit-
Selling price per unit
Less- Variable cost per unit
40
10
Contribution 30
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Interpretation- On the basis of above calculation, it has been analysed that company's
selling price per unit is of £40 which is deducted by variable cost per unit to calculate the
contribution per unit of 30.
 Calculation of break even point- Fixed cost/ contribution per unit
120000/30= 4000 (in units)
Interpretation- From above solved numerical it has been analyzed that breakeven point is
calculated by dividing fixed cost (120000) by contribution per unit (30). Hence the breakeven
point is of 4000 (in units).
4. Calculation of cost volume profit analysis- Fixed cost+ desirable profit/ contribution
(120000+60000)/ 30= 6000 units.
Interpretation- On the basis of this solved financial problem, cost volume profit analysis
is calculated by dividing addition of fixed cost and desirable profit from the contribution. The
CVP is of 6000 units.
5. Profit at the sales of 4000 units-
Sales (4000*40)
Less- Variable cost (4000*10)
Contribution
Less- Fixed cost
Profit/ loss
160000
40000
120000
120000
0
Interpretation- On the basis of above statement, it can be analysed that if company
sells the 4000 units then they will not be able to gain any profit. As well as there will be zero
loss.
 Profit at the sales of 6000 units-
Sales (6000*40)
Less- Variable cost (6000*10)
240000
60000
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Contribution
Less- Fixed cost
Profit
180000
120000
60000
Interpretation- From above solved numerical, it has been analysed that company has to
sell 6000 units to gain the desirable profit of £60000.
Advice- On the basis of this numerical it is identified that the company should sell 6000
units which will help them to achieve their desired level of profits as they are not able to get the
desired profit with 4000 units.
It is an important for an organisation to use different management accounting system in
order to resolve financial issues and make financial position of company stronger. Financial
issues or problems is major concern of an organisation which minimised the profitability of
organisation due to which the manager makes corrective plans to solve these problem as earlier
as possible. Management accounting systems facilitate Excite Entertainment Ltd. to identify the
deviations in standard and actual results and accordingly allow manager to make corrective
actions. There are various financial issues which are briefly explained as under:
Spending more than income: This is an issue which arises financial crisis within an
organisation due to spending more than actual income. It makes direct impact on company’s
profitability.
Unequal cash flow: This problem leads to lack of working capital. This is the situation
which causes financial issues when the cash flow of company doesn’t match with its inflow. This
can also happen when an organisation failed to maintain records of all day to day transactions at
one place.
Methods to deduct the financial problems:
Key performance indicator: This is the technique which is used to measure the
performance level of employees by comparing their actual with company’s expectations. It
includes financial and non-financial indicators. Using such system by Excite Entertainment Ltd.
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identifies the causes of deviations in performance level of employees which makes easy for
manager to make suitable decisions for the betterment of an organisation.
Bench marking: This is the technique which is useful to achieve strong market position
by analysing rivalry market situation and set benchmark towards their workforce. Using such
kind of tool assist Excite Entertainment Ltd. to set target or aim towards their employees with
proper guidelines so as to beat their rivals in competitive market. It can also help Excite
Entertainment Ltd. in resolving issues related with increased expenses by setting up cost of
products and services.
Financial governance: It is termed as the process which defines rules and regulations of
an organisation for better execution of work by workforce. Every organisation such as Excite
Entertainment Ltd. should follow its rules and regulations in order to avoid any financial issues
which can damage their financial stability.
Comparison of two company to solve the financial problems
Basis Excite Entertainment Ltd. Abbott Mead Vickers BBDO
Problems Excite Entertainment Ltd.is facing
financial issue in terms of differences
in cash inflow and cash outflow. This
will lower the liquidity position of an
organisation.
Abbott Mead Vickers BBDO is
also facing financial problem
related with spending more than
actual income which lowers the
financial stability of an
organisation.
Management
accounting system
System helps in managing functional
activities in more effective and
efficient manner. Using of cost
accounting system help in
maintaining day to day transactions
within an organisation and enable
manager to match inflow and
outflow for solving issues.
This organisation can use price
optimisation system which help
them in maintaining the pricing
level of products and services.
This will facilitate in setting up
right prices of products and
services which in results brings
profitable results to company.
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CONCLUSION
It has been terminated from the above document that administration accountancy is an
essential part in success and growth of an organisation as it supports them to shuffle
determinations and programs on the basis of actualized fiscal position which can be identify
through analyzing various fiscal evidence such as profit and loss a/c, balance sheet, cash flow
statement etc. The accounting manager is responsible to select most appropriate cost accounting
method among marginal and absorption on the basis of profitability shown on financial
statement. There are various planning tools to control budget such as Master budget, Flexible
budget etc. which are more useful to prepare which strengthen the financial stability of an
organisation. Along with this, KPI, benchmarking etc. some tool which also be considered by an
organisation in order to resolution fiscal issues and make financial condition stronger.
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REFERENCES
Books and Journals
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