TASK 11 P1 Management accounting and its different system

Management Accounting INTRODUCTION 1 TASK 11 P1 Management accounting and its different system 1 P2 Explain different method of management accounting and reporting 2 M1 Evaluation of benefits that various management accounting system 3 D1 Management accounting systemand management reporting systemare integrated with process of organisation 4 TASK 24 P3: Calculation of cost using different costing methods 4 M2 Management accounting technique and financial reporting documents5 D2 Financial report which apply to interpret business activities 5 TASK 36 P4 Advantage and dis-

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and its different system.............................................................1
P2 Explain different method of management accounting and reporting................................2
M1 Evaluation of benefits that various management accounting system .............................3
D1 Management accounting system and management reporting system are integrated with
process of organisation...........................................................................................................4
TASK 2............................................................................................................................................4
P3: Calculation of cost using different costing methods........................................................4
M2 Management accounting technique and financial reporting documents..........................5
D2 Financial report which apply to interpret business activities...........................................5
TASK 3............................................................................................................................................6
P4 Advantage and dis-advantage of different types of planning tools used for budgetary
control.....................................................................................................................................6
M3 Usage of different planning tools to prepare and forecasting budget..............................8
TASK 4............................................................................................................................................8
P5. Organisations are adapting management accounting systems to respond to financial
problems.................................................................................................................................8
D3 Various planning tools to resolve financial problems....................................................10
M4. Management accounting in response to financial problems can lead organisation to
sustainable success...............................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting refers to the process of recording, summarising and evaluating
the financial information so as to make corrective decision for the betterment of an organisation.
It assist the management to formulating an effective plans and strategies which help company in
retain their financial position among their rivals in competitive market. Analysis of financial
information such as profit and loss a/c, Balance sheet, Cash flow statement etc. help management
in using various management accounting and reporting systems to achieve stability in market.
The present assignment report is based on Excite Entertainment Ltd. which operates in leisure
and entertainment industry in the UK. It is engaged in conducting activities related with
promotion of concerts and festivals throughout the UK. The report discusses the different
management accounting and reporting systems along with their benefits to an organisation. The
report also includes different costing methods and budgetary control tools, financial resolving
tools etc.
TASK 1
P1 Management accounting and its different system
Management accounting is well-defined process that work for recognising, presenting
and summarising of different financial transaction of an organisation. For record of financial
transaction different account are need to be maintain such as balance sheet, profit & loss account
and cash flow statement. This concept is useful to tracking the future cost of company that will
be bear by company in future to operate their business operation (Ax and Greve, 2017).
The management of Excite Entertainment Ltd. use different accounting system to
maintain their financial records. As management accounting system help an organisation to take
decision by which company achieve their desired goals and objective. Some accounting system
that can be adopted by Excite Entertainment Ltd. are as follow:
Cost accounting system- This accounting system help to analysis cost of goods or
services which include variable as well as fixed cost of a company. For Excite Entertainment
Ltd. it is beneficial because it provide estimated cost that is invested by company to manufacture
different products and net profitability that is invested by company for future.
Job costing system-
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With job cost accounting system Excite Entertainment Ltd. can calculate the total cost of
company that is incurred to manufacture different goods and services. This will be useful for
Excite Entertainment Ltd. because with this system financial department of company compute
estimated cost that is endure for making single unit product (Garrison and et. al., 2010).
Price optimisation system- With price optimisation system Excite Entertainment Ltd.
identify their different potential customer that will buy products from company in future. For this
researcher are hired by management which help company to find out satisfaction level of their
existing customer. It help company to secure their estimated profits for future.
Inventory management system- With this system company find their current position of
asset that are stored or present in company warehouse. For Example- Excite Entertainment Ltd.
use this system to ensure that essential goods that are demand by customer are present in the
stock. Example- IF any firm want to identify or track their loan’s then this system help to check
current status for company (Management accounting and its importance, 2019).
Difference between management accounting and financial accounting
1. The term management accounting is useful for company to develop long term plans and
policy for a company. As they contain necessary information and relevant information
that is used by company to make effective decision. While the term financial accounting
is used to prepare financial accounts for company such as balance sheet, fund flow
statement etc. IT help company to ensure their current financial position in finance sector
or market (Gibassier and Schaltegger, 2015).
2. Management accounting is use by the internal department and top management of
company. As they are authorize and responsible to make strategy for business. While in
financial accounting the role of external parties is included like investor, banks and
stakeholders of company.
3. With management accounting company focus for future perspective while in financial
accounting company approach present and historical approach for business.
P2 Explain different method of management accounting and reporting
There are different type of management accounting reporting system which facilitate
management to identify their current position in present scenario. With this an organisation
prepare different plan and policy which help company to accomplish their objective. Several
management reporting systems that are implement by Excite Entertainment Ltd. are as follow:
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Performance report- This report is prepare to measure the actual performance of an
employ. With this company find the actual position and performance of their employees. As with
this interaction between company and employ it is easy to find issue that are face by them to
achieve their task. With performance report financial manager of Excite Entertainment Ltd..
make corrective decision which are useful to find alternative of problems that are faced by
employees (Lavia López and Hiebl, 2014).
Account receivable ageing report- This report is beneficial for company as it contain
information about all debtors that purchase product from company on credit. With this financial
department of Excite Entertainment Ltd. identify those debtor who does not paid their amount.
As with this it is easy for company to make effective plans for recover amount that are need to be
collected from different debtors.
Cost managerial accounting report- With the whole statement is found out that is
invested by company to perform their regular operation. The cost accounting help company to
calculate all expenses and cost that incurred to develop or produce product before sell them into
market. Along with this it is useful to calculate income that is earn by company after selling
product into market.
Budget report- This report is useful to allocate cost for each department that is relate with
company. In case of Excite Entertainment Ltd. the cost that is forecasted by company is useful
and according to it company provide money that is actually needed to make a product without
any waste of fund. It also company to reduce their cost and to improve utilisation of company
resources.
M1 Evaluation of benefits that various management accounting system
1. Advantage of cost accounting system- This help management to decide price of
different products by analysing their manufacturing cost. Along with this extra cost that
include in manufacturing cost is predicated and reduce by company (Mokhtar, Jusoh
and Zulkifli, 2016).
2. Advantage of inventory management system- with inventory system Excite
Entertainment Ltd. found position of stock and it is useful to manage company
resources as it help to meet with customer demand with in minimum time period. Apart
from this it is useful to save extra cost that is paid by company to save their product.
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D1 Management accounting system and management reporting system are integrated with
process of organisation
With this both accounting and reporting system of management company found different
resources that are needed to achieve company goal and target. For example- management
reporting that relate with purchase of raw material is only done if it is managed in accounting
system. Like it is useful to record different transaction that are need to maintain in management
accounting (Pavlatos and Kostakis, 2015).
TASK 2
P3: Calculation of cost using different costing methods
Cost: It refers to the amount which is invested in execution of different business
activities such as production, marketing, HR etc. after taking into consideration of financial
position of an organisation. It is classified into two parts which are mentioned as under:
Absorption costing: It is kind of costing method which is mostly adopted by large sized
organisation in order to present their actual financial position by including both variable and
fixed cost. It is also known as full costing method (Absorption costing. 2018).
Marginal costing: It is a method of costing which is mostly used by small and medium
sized organisation due to having an objective of showing more profitability in its financial
statements so that maximum number of shareholders are attracted. Under such costing method,
only variable cost are taken into consideration and ignoring fixed cost. Due to this, it is also
known as variable costing method.
Income statement by absorption costing method:
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
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Working note*
a.i. Calculation of sales- 8000*15= 120000
a.ii. 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)
Particular Amount(in £)
Sales
Less- Cost of good sold
Gross profit
Less- Selling and manufacturing expenditures
Net profit
120000
85000
35000
-
35000
Working note*
a.i. Calculation of sales- 8000*15= 120000
a.ii. Calculation of cost of good sold- (Opening stock+ production overhead-
closing stock: 500*10+10000*10-2000*10=85000)
Interpretation: It is clearly identified from the above net profit calculation that using
absorption costing method, Excite Entertainment Limited generates profits of £24500 in the
month of May which is lower than the profits generated using marginal costing method.
The differences in net profit by using marginal and absorption costing method in the
month of may is due to inclusion of fixed cost. Due to this, mostly organisations usually adopts
marginal costing method in order to minimise the financial losses.
M2 Management accounting technique and financial reporting documents
Excite Entertainment Ltd. identify their current financial position by executing different
accounting tools and technique that include financial statement analysis and cost accounting
system. As accounting technique are very useful to record monetary data in sequential form.
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D2 Financial report which apply to interpret business activities
In organisation such as Excite Entertainment Ltd. there are huge number of transaction
that take place on regular basis. For this case company interpret this data or transaction as it help
to know the amount that invested by company to operate their business activity.
TASK 3
P4 Advantage and dis-advantage of different types of planning tools used for budgetary control.
Budget- this work as inner strength and tool for the company. With this company decide
to calculate their income and overheads for upcoming year. Company make budget for different
terms like monthly and quarterly. Budget is made for everything such as money, material and
machine that inter-relate with company activities.
Types of budget
Cash flow budget- For specific time period cash flow budget help company to find out
that from where cash came in company and where it is expense. With cash flow budget company
is able to find out that if they has surplus amount to start new project. Like in context of Excite
Entertainment Ltd. company develop budget to check if they are able to control extra expenses or
not.
Financial budget- This budget is essential to monitor their expenses and income for
longer period. Like for whole year, usually it include fund flow for the business. Effective and
efficient financial budget help Excite Entertainment Ltd. to show their strength in market.
Static budget- The static are not flexible so they cannot be changed. To change static
budget price should be up or down then it impact on business. Example- Fixed had to bear by
each and every organisation whether they are working on a project or not.
Budgetary control- This refer that how manager utilize their budget. For each year
budget is different. So in this case manager or company has to achieve their goals with in pre-
determined budget. Like Excite Entertainment Ltd. help their clients to maintain their sale
budget, salary budget etc. it depend on client that what type of budget is need for their project.
Contingency tool- This tool is used when a negative event is faced by company. For this
difficult situation company prepared themselves to respond in future. As contingency plan is the
method by which an organisation deal with different threat that are face by them in upcoming
future.
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Advantages:
 In hard or difficult situation company has to face various dispute by which they
productivity of company will be slow down. For this contingency tool help company to
find that who is responsible for such difficult situation (Shah, Malik and Malik, 2011).
 At time of unexpected bad situation company found different instability in company. In
context of this contingency tool help management to stable their business for this tough
period.
Disadvantage:
It is not useful for every situations at occurs in market environment. Along with this,
sometimes the managers find difficulties in interpreting the exact situations which are contingent
in nature due to which the possibilities of facing losses are more.
Flexible budget- It is the simplest from for create a budget, In this case several benefits
that relate directly company revenue are included. Because of small change in market price of
company product is increase or decrease. As in this situation flexible budget is suitable for
company.
Advantages:
 For retail business it is flexible budget are very useful as there is price change in small
factors. Such as discount, offers etc. As in this case the cost of business products are
directly add to the revenue. Excite Entertainment Ltd. create budget for small houses as
well as for industry.
 Products for which business is not able to update their price and it is not easy to decide
figures. For such complex budget company use professional services like Excite
Entertainment Ltd. help other organisation to create budget (Zaleha Abdul Rasid, Ruhana
Isa and Khairuzzaman Wan Ismail, 2014).
Disadvantages:
 It is very hard for company to decide in budget difference between variable cost and
fixed cost. So this last movement change for company budget increase complexity and
delay in process of decision making. It is hard to manage and operate accounting software. As it is time consuming process to
enter data in table or software.
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Forecasting tool- Flexible budget are most essential part for the development of business
strategy. With forecasting tool company analysis different factors of market which include
upcoming sale, new area for business etc.
Advantage:
 The advantage of forecasting tool is that with such effective tool company provide
valuable information for their business. It is beneficial because it help company to secure
their business.
Disadvantage:
 For predict future environment of market is very difficult because in this case company
has to face monitor dynamic changes that take place in market.
M3 Usage of different planning tools to prepare and forecasting budget
Contingency tool, forecasting tool and budget are some planning tools by which an
organisation analysis and predict unnecessary expenses that are not included in pre-determine
budget. With implement of such tools Excite Entertainment Ltd. is able to reduce their company
cost by preparing cost effective technique for their business operation. It help company to
complete their business activities within decided budget.
TASK 4
P5. Organisations are adapting management accounting systems to respond to financial
problems.
Financial problems: It is a deviation which restrict an organisation to attain
sustainability for future period of time as financial issues causes shortage of funds which makes
difficult for management to get an adequate amount of resources that will be required in
execution of different business activities.
 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- It has been analysed from the above calculation that break even point is
calculated by dividing fixed cost (120000) by contribution per unit (30). Hence the break even
point is of 4000 (in units).
 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.
 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- It has been interpreted that if company sells the 4000 units then they
failed 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)
Contribution
Less- Fixed cost
Profit
240000
60000
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- As per the above calculation, company if sell 6000 units then only they can
achieve desired profit. As if the company sell 4000 units then they failed to achieve desired
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profit. Aside this, company if sells 6000 units then they will achieve desired profit as per the
above calculation.
Along with this, there are also faces various financial issues due to several reasons which are
mentioned as under:
Problem of Cash Flow: It is the situation of problem which arises in front of the
company whenever they do not have the fund to pay off their liabilities. These types of problem
arises whenever organisation do earn less amount of profit or suffers from various losses. In
context of Excite Entertainment Limited, they are also facing the similar situation because they
are unable to pay the debt amount to creditors. The main problem was unnecessary expenditure
which they had done throughout the year.
Risk Management: It is necessary for every organisation to take risk while conducting
any of the business activity because it helps to sustain in competitive market. Number of policies
are also required to formulate to overcome from the risk which arises in front of the company. In
context of Excite Entertainment Limited, they had also commenced and formed various
strategies to overcome from the risk but most of the they failed to do so.
Money Management: It is the modern approach to manage the budget, day to day
spending and saving which is available with the organisation. If this can be done is a systematic
manner they organisation can easily increase the overall profit of the company. Excite
Entertainment Limited have also formed the number of policies and provision so that they can
effectively control the management of money.
Working Capital: Any of the organisation requires working capital to manage day to day
activity so that daily basis targets can be achieved. If association is unable to manage it, they
have face problems. Excite Entertainment Limited is also facing the problem of working capital
as they do not have that required working capital and because of that liability is increasing day
by day.
Financial governance: Financial governance is defined as the way through which an
organisation gathers, manage and monitor the financial data of firm so that the challenges can be
managed properly. The managers are responsible for controlling the accuracy of the financial
statements of the firm.
Management accounting approach: Management accounting approaches is defined as
the utilisation of techniques of accounting for resolving the problems at the workplace of an
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organisation. Through this approach, managers and employees can utilise the resources of
organisation in an effective manner in order to achieve the organisational goals Excite
entertainment is using various approach for resolving their financial concerns and issues. These
approaches are discussed below:
 KPI: Key Performance Indicator is used by the organisations like Excite entertainment
for measuring the performance of their firm which is done by comparing the
organisational performance with the competitors of firm. This is done for achieving the
organisational goals effectively. Effective KPI is useful for focusing on the functions and
processes of the organisation. Excite entertainment is using this approach for measuring
their progress in order to achieve the strategic goals and performance targets. These KPI
techniques is beneficial for the firms in setting and comparing their standard for measure
the progress of achieving the goals and expected performance of firm (Qian, Burritt and
Monroe, 2011).
 Benchmarking: Benchmarking is used by the Excite entertainment for measuring their
performance with their competitors firm. The comparison is done on the basis of
measure, strategy, programme as well as quality in the different organisation processes
and function so that proper changes or modifications can be done. This approach is used
by the Excite entertainment for determining the opportunities for improvement as well as
to reduce the gaps in the performance by monitoring the performance in an particular
period of time.
Comparison between Excite Entertainment Limited and Live Arts Entertainment Ltd.
Basis of Difference Excite Entertainment Ltd. Live Arts Entertainment
Ltd.
Problem The main issue faced by Excite
Entertainment Ltd. is lack of
management and employees
support and mis-utilisation of funds
This can be arise due to having lack
of knowledgeable and skilled
employees who are less efficient in
bringing out maximum profitable
The issue faced by Live Arts
Entertainment Ltd. is risk
management and problem of
cash flow. The selected
organization fails to analyse
and formulate strategies to
minimize the uncertain risk.
The chosen organisation faces
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outcome from the available
resources.
difficulties due to failure of
strategies formulated for the
purpose of tackling of risks.
Approach KPI and Benchmarking is most
effective tool which must be
adopted by chosen organisation as it
help in increasing efficiency and
productivity of employees through
providing them target with
deadline.
Financial governance is an
effective tool which must be
adopted by an organisation as
it help in operating different
business activities in
systematic manner which
ensures the success of pre-
determined strategies and plans
framed by the management of
an organisation.
D3 Various planning tools to resolve financial problems
Different types of planning tools are present in accounting method such as flexible, static
budget etc. which help Excite Entertainment Ltd to estimate future. This help company to
operate business activity under allocated budget. As it help company to avoid financial problem
that are faced by company.
M4. Management accounting in response to financial problems can lead organisation to
sustainable success.
KPI and Benchmarking are such two techniques which is more useful for Excite
entertainment Ltd. to resolve their financial issues as it assist them in enhancing the efficiency
and performance level of their employees through providing them target with deadlines. There
are different financial issues such as lack of employees support, mis-utilisation of resources etc.
which can be only resolved through using various tools such as KPI, Benchmarking etc.
CONCLUSION
It has been concluded from the above project report that management accounting is an
essential part of an organisation who manages and records all transactions made on daily basis
under the financial statements such as profit and loss a/c, Balance sheet, Cash flow statement etc.
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For this, accounting manager is held liable to use various management accounting and reporting
systems such as cost accounting system and report, performance report, price optimisation
system etc. It also required to use most suitable costing methods among marginal and absorption
according to their mission and objectives. Along with this, the financial issues which restrict an
organisation to achieve its desired objectives can also be resolved through using various financial
tools such as KPI, Benchmarking, Financial governance etc.
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REFERENCES
Books and Journals
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research. 34.
pp.
Garrison, R.H. And et. al., 2010. Managerial accounting. Issues in Accounting Education. 25(4).
pp.792-793.
Gibassier, D. and Schaltegger, S., 2015. Carbon management accounting and reporting in
practice: A case study on converging emergent approaches. Sustainability Accounting,
Management and Policy Journal.6(3), pp.340-365.
Lavia López, O. and Hiebl, M. R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of
Management Accounting Research.27(1).pp.81-119.
Mokhtar, N., Jusoh, R. and Zulkifli, N., 2016. Corporate characteristics and environmental
management accounting (EMA) implementation: evidence from Malaysian public listed
companies (PLCs). Journal of cleaner production.136. pp.
Pavlatos, O. and Kostakis, H., 2015. Management accounting practices before and during
economic crisis: Evidence from Greece. Advances in accounting.31(1), pp.150-164.
Qian, W., Burritt, R. and Monroe, G., 2011. Environmental management accounting in local
government: A case of waste management. Accounting, Auditing & Accountability
Journal. 24(1). pp.93-128.
Shah, H., Malik, A. and Malik, M.S., 2011. Strategic Management Accounting-A Messiah For
Management Accounting?. Australian Journal of Business and Management Research.
1(4). p.1.
Zaleha Abdul Rasid, S., Ruhana Isa, C. and Khairuzzaman Wan Ismail, W., 2014. Management
accounting systems, enterprise risk management and organizational performance in
financial institutions. Asian Review of Accounting.22(2). pp.128-144.
Online:
Management accounting and its importance [Online]. Available through:
https://www.invensis.net/blog/finance-and-accounting/what-is-management-accounting-
and-its-importance/
Absorption costing. 2018.[Online]. Available through:
<https://www.accountingtools.com/articles/what-is-absorption-costing.html>.
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