Understanding of Management Accounting Systems

7 TASK 49 Comparison of organisations to respond the financial issues by management accounting systems 9 CONCLUSION 12 REFERENCES 13 INTRODUCTION Management accounting is related with the providing financial information to the management to make easy for them to frame an effective plans and decisions in order to achieve its company's desired goals and objectives. Comparison between management accounting and financial accounting system |Basis |Management accounting system |Financial accounting system | |Legal |This accounting system is not |This is the legal requirement|

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Section (A) Understanding of management accounting systems..........................................1
Section(B) Methods used for management accounting reporting..........................................4
TASK 2............................................................................................................................................6
Calculation of income statement by absorption and marginal costing method......................6
TASK 3............................................................................................................................................7
Advantages and disadvantages of different planning tools....................................................7
TASK 4............................................................................................................................................9
Comparison of organisations to respond the financial issues by management accounting
systems...................................................................................................................................9
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is related with the providing financial as well as non-financial
information to the management to make easy for them to frame an effective plans and decisions
in order to achieve its company's desired goals and objectives. For this, the accounting manager
plays an important role in maintaining financial statements which includes profit and loss a/c,
Balance sheet, Cash flow statement etc. which further help in interpreting data to prepare an
effective plans. The present assignment report is based on Excite Entertainment Limited which is
engaged in promoting concerts, festivals at different at different locations of UK. The project
includes different management accounting and reporting systems, different costing methods,
budgetary planning tool, financial problem resolving tools etc. which assist company in
maintaining strong financial position in competitive market.
TASK 1
Section (A) Understanding of management accounting systems.
Difference between management accounting and financial accounting system.
Management accounting system: It is defined as the process through which
organisations analyse, classify, and review the financial and non financial data or information
for managing the organisational processes and functions.
Financial accounting system: It is a type of accounting system which is used by the
organisations for tracking and monitoring their financial information in order to develop proper
and appropriate financial statements for both of the internal and external parties.
Comparison between management accounting and financial accounting system
Basis Management accounting system Financial accounting system
Legal
requirement
This accounting system is not essential
for the companies to prepare as there
are not any legal requirement for such
type of accounting system.
This is the legal requirement for the
organisations due to which it is highly
essential for the firms to prepare their
financial reports.
Format of
presentation
The format of the presentation of the
reports is not consistent.
Whereas this type of accounting
system has a structure which should
be followed by the firms in order to
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present their financial information.
Types of data
used
This type of accounting system uses
both financial and non financial
information.
Whereas such type of accounting
system uses only the financial data for
preparing their various financial
statements.
Area of
coverage
within the
organisation
It covers the area of internal
management of the companies.
Whereas this type of accounting
system covers both external and
internal management of the
organisations.
(b) Cost accounting system: It is a type of accounting system in which the organisations
determine the estimated cost which can occur in the development of products and services
provided by the company (Bobryshev and et. al., 2015). It includes various type of cost such as
direct cost, standard cost, process cost etc. Such type of system is beneficial for the Excite
entertainment limited company in determining the amount of funds which can be used for
promotions of different type of events organised by the company. Some of these cost
accountingFolder system are discussed below:
Direct cost: These type of costs occurs directly in the various processes of the
organisation such as product, process, department etc.
Standard costing: It is the type of costing system in which the organisations analyses the
variation between the obtained and estimated costs. BY using this kind of cost system,
organisations can evaluate the variation between the obtained and standard cost so that the
difference can be determined. However organisations get more benefits when the actual cost is
less then the standard cost.
(c) Inventory management system: Inventory management system is a kind of accounting
system which is used by the organisations for determining their current level of inventory levels,
sales, orders, deliveries etc. The Excite entertainment limited company can use such type of
accounting system for managing their various type of assets in order to determine the needs for
purchasing new inventory and machinery (Bromwich and Scapens, 2016). For understanding this
concept, organisations can use the LIFO and FIFO methods. LIFO(last in first out) method states
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that the stocks which comes in last must be sold to the customers first in order to reduce the
wastage. Whereas FIFO(first in first out) states that stock which arrives first in the stores must be
sold first. A third method can also be used by the Excite entertainment which is weighted
average method. This method is used for dividing the cost of the products which are provided to
the customers with the units available for sale.
(d) Job costing system: It is a type of costing system in which the organisations gathers the
information regarding the costs which are related with a particular job role. This type of costing
method can be used by the Excite entertainment limited company for identifying their costs. This
can be done by calculating the cost which is assigned to the job roles for carrying out their
activities (Collis and Hussey, 2017). For example, while organising event, there are different
expenses to be incurred for example lighting, catering etc. thus using such costing system help in
analysing cost incurred in such particular activities so that the amount can be charged after
adding margin on it.
Benefits of management accounting systems
The various kinds of accounting system are beneficial for the companies in maintaining
their financial and non financial information effectively so as to avoid the unwanted expenses
and costs. Excite entertainment limited company can use the various type of accounting system
which are discussed above. The benefits of these accounting system for the Excite entertainment
limited company are discussed below in detail:
Accounting system Benefit
1. Cost accounting
system
Such type of accounting system is beneficial for the Excite
entertainment in determining their overall costs which can occur in
the business functions (Hilton and Platt, 2013). This determination
is useful for the Excite entertainment limited company in
determining their overall cost which can occur in organising various
events and festivals. Also this accounting system consist of several
type of costing systems such as direct costing, standard costing etc.
Direct costing is beneficial for the Excite entertainment in tracking
the expected cost of a particular area. Standard costing is beneficial
for the company in determining the variation among the obtained
and estimated cost. For example: When Excite entertainment limited
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company determine the standard cost for organising an event which
is £50000 whereas for conducting the event, occurred cost is
£60000. In this case, standard costing method is useful for the
Excite entertainment in determining the gap between the actual and
determined cost which is £10000.
2. Inventory management
system
This system is also beneficial for the Excite entertainment limited in
managing the current stock of their inventory in the warehouses.
This method is useful for the company as it is beneficial in saving
the time and money of the organisation which can be utilised in
other functions of the company. For example: The Excite
entertainment limited company is using the inventory management
system in managing their gadgets and technology. The company can
also determine the system or machinery which is currently used by
the company by using the inventory management system (Mancini,
Vaassen and Dameri, 2013).
3. Job costing system This type of costing system is also beneficial for the Excite
entertainment limited in determining the cost which are assigned to
the different department and job roles for carrying out their
activities and processes. This type of costing method is very
beneficial for the manufacturing industry as they has a large number
of areas and departments. For example: Excite entertainment limited
company can use this costing system for calculating the cost
associated with the events in terms of cost assigned to functions for
executing the event.
Section(B) Methods used for management accounting reporting.
Management accounting differs from financial accounting in that it introduces reports for
an organisation's internal stakeholders as compared to external stakeholders. There are different
methods used by Excite entertainment limited company for management accounting report.
Some are determined as under:
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Cost managerial accounting reports: It introduces as an effective and essential method
of management accounting reports which consists accurate data about business. In this method,
material cost, labour, overhead and any other added cost are included into deliberation. In case
of, Excite entertainment limited company, they prepare such kind of reporting with purpose to
evaluate entire cost of arranging any show and event (Management Accounting Report, 2017).
Budget report: It is another type of report which includes proper information or data
about the actual expense. Income, expenditure and estimated income. Finally, such kind of report
is more effective and beneficial for an organisation to measure actual performance by comparing
real expenditure and income with the budgeted targets. Excite entertainment limited company
made such kind of report to analyse their real performance.
Performance reports: This report mainly related with the performance of employees
within an organisation. Along with this, employees performance also consider as an organisation
performance which is mainly related with completion of each activities or task within given time
duration. Mainly, such type of report are useful and essential for an organisation in measurement
of actual performance of an employees. This report will also support a third party by providing
actual and real performance of an existing company (McVay, Kennedy and Fullerton, 2016).
Inventory cost reports: It is another report which shows a breakdown of labour, material,
variable overhead, fixed overhead, and external services costs for products. Excite entertainment
limited company produce such type of report in detail and summary format for a different
number of product codes, warehouses and items. It help in reducing warehousing storage cost as
the raw materials will be ordered according to the demand of products of company. Thus, it
makes positive impact on the profitability of company.
Therefore, above mentioned all these type of reports are essential for growth and
development of an organisation. With the help of above reports, Excite entertainment limited
company can easily manage their operations and functions in effective and efficient manner. All
these report will be also useful and essential for other organisation to know actual and real
performance of existing company and invest more. Thus, it will be beneficial for success and
growth of an enterprise.
Management accounting system and management accounting reporting are integrated with
the organisational process.
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Management accounting reporting and system are integrated with the process of an
enterprise. This is why because various form of management accounting systems are must be
applied by each department of Excite entertainment limited company. For this, they needed
accurate data and information for formulation of management accounting reports which is drives
from the systems of accounting (Needles and Crosson, 2013). Along with this, Excite
entertainment limited company have different departments such as finance, marketing,
operations etc. All these departments have to use management accounting report in order to show
their materials labour etc. In this, finance department of an organisation have to used cost
accounting system for managing the media gadgets. Both, management accounting system and
reporting are interrelated with the business process and help them to achieve long term goals and
objectives within given time duration.
TASK 2
Calculation of income statement by absorption and marginal costing method
Cost: It refers to the amount which is invested in execution of different business activities
such as production, marketing, finance etc. It must be recorded under the financial statements so
that actual liquidity position of company can be identified.
Absorption costing: It is a method which is used to calculate net profitability by
including variable as well as fixed costs. It is also known as full costing method which provides
actual financial position of company thus easily attracted shareholders towards company
(Absorption Costing Method, 2019).
Marginal costing: It is another method which is used to calculate net profits by including
only variable cost and excluding fixed cost. It shows more profitability in the financial
statements thus less preferred by most of the organisations operated at small and medium level.
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
120000
51000
69000
-
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Net profit 69000
Working note*
11 Calculation of sales- 8000*15= 12000011 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*
11 Calculation of sales- 8000*15= 12000011 Calculation of cost of good sold- (Opening stock+ production overhead- closing
stock: 500*10+10000*10-2000*10=85000)
Management accounting techniques and financial reports:
It is useful technique which is used to prepare financial reports. In the given report, the
income statement of Excite Entertainment Limited is prepared for the May month. Using
marginal costing method, net profit of company is £69000 whereas using absorption costing
method, the net profit is £35000. This differences in net profits is due to inclusion of fixed cost.
TASK 3.
Advantages and disadvantages of different planning tools.
Budget: It introduces as a formal statement of estimated expenses and income based on
future objectives and plans. In simple words, it is an useful document that administration makes
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to estimate the expenses and revenues for a future time duration based on their objectives for the
organisation (Proctor, 2012). Management department of Excite entertainment limited company
prepared an accurate budget for evaluating the financial performance for a predefined time.
There are certain types of budget which are determined as under:
Sales budget: It refers as a management's estimate of sales for upcoming financial period.
Excite entertainment limited company uses such type of budget with aim to set department goals
and forecast production requirements. There are some advantages and disadvantages of sales
budget which are mentioned as under:
Advantages Disadvantages
 It is helpful for Excite entertainment
limited company in framing of sales
programming so as to accomplish the
sales targets.
 It is more essential in allocation of
resources.
 This budget mainly based on
assumptions and past data.
 It is time consuming and easily
accepted by other person of an
enterprise.
Production Budget: This budget measure the number of goods that must be factory-made
and is traced from a collection of sales forecast and planned figure of finished products
inventory. In addition, it is financial plan that includes different number of units of products
manufactured during a time period (Quattrone, 2016). With the use of this budget, manager of
Excite entertainment limited company can get data regrading the producing unit of product.
There are some strengths and weakness of production budget which are described as under:
Advantages Disadvantages
2. It is beneficial and useful for making
physical and effective control over raw
material, finished goods stock and work
in progress.
3. It is a complex process for Excite
entertainment limited company because
when manager get participate in such
process that they deliver different
production crew.
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Budget variance: It refers as a difference between the baseline and budgeted amount of
revenue or expanse, and the real amount. It is positive when the real revenue is greater than the
budget and when the real expenses is less than the budget. In Excite entertainment limited
company, budget variance occurs and generates due to sales forecasters because they are not able
to anticipate upcoming revenue as well as cost with complete accuracy. In addition, variance
analysis introduces to the research as to the ground for deviations in the financial performance or
development from the standards set by an enterprise in its budget (Ruch and Taylor, 2015).
Importance of Budget Variance: It is essential and significant for an organisation as it
help in manging budgets by comparing it with the actual costs. Budget variances helps managers
of an organisation in making detailed, efficient and forward looking budgetary decision. It highly
assist the management of Excite entertainment limited company to keep a control or monitor on
its operational performance.
TASK 4
Comparison of organisations to respond the financial issues by management accounting systems
The management accounting system is more helpful in resolving financial issues which
help an organisation in achieving market stability and financial capability among their rivals in
market (Shields, 2015). An organisation uses various accounting systems which depends on the
nature of problem. In the context of Excite Entertainment Ltd, the financial issues mentioned can
be resolved in following way:
 Calculation of contribution per unit-
Selling price per unit
Less- Variable cost per unit
40
10
Contribution 30
Interpretation- According to the above calculation, it has been interpreted 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)
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Interpretation- From above solved numerical it has been analysed 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- 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)
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: From the above calculation, the company sold 6000 units in order to achieve its
desirable profits. It is because if the company sells 4000 units then it doesn't receive any profit or
loss. On the other side, if the company sells 6000 units then they earn profit of 60000 which is
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their desired profit. Marginal costing method is most suitable to adopt by company as it shows
more profitability in financial statements which easily attracts shareholders.
Management accounting also provides maximum supports in resolving financial issues
which can be occurred due to lack of funds, employees errors at the time of recording
transactions in the financial statements etc. Here are the comparison of two organisations which
clearly shows the role of management accounting systems in resolving financial issues:
Financial issue: The financial issues arises due to insufficient amount of funds to pay all
debts, misrepresentation of financial statements etc. Along with this, there are various financial
issues which are mentioned underneath:
Lack of funds: Under this, the companies faces the issues of lower funds due to failure of
generating expected profits.
Spending more than income: Under this, the companies spends more funds than the
profits which causes big financial issue.
Management accounting methods: There are different kinds of accounting systems
which are more useful to resolve financial issues some of which are briefly described as under;
Financial governance: It refers to the systematic process framed by the management for
its employees in order to ensure that desired outcome can be achieved within allotted time period
without deviations. For example, recording of transactions in financial statement at the time
when they occur. This will reduces the chances of errors which strong the financial position of
company (Wood, 2016).
Benchmarking: It is another technique which is used to identify the rivals' strategies,
plans etc. so that it makes easy for management to update their existing plans and strategies in
order to bring company ahead than their rivals. Setting target with time frame increases the
performance level of both employees and organisation.
Key Performance Indicators (KPI): It is a technique of analysing the performance level
of employees by comparing their actual with past using different management reporting system
such as performance report. It help in enhancing the performance level of employees which
makes indirect impact on the financial performance of company (Wynn, Low and Nauta, 2013).
Basis Excite entertainment limited
company
Abbott Mead Vickers BBDO
Financial Lack of financial resources to execute This company also facing financial
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problem pre-determined task clearly indicates
the financial problems of company.
The main reason of occurring financial
issues is due to ineffectiveness of plans
and policies pre-determined by the
management due to fluctuations in
internal as well as external
environment.
problems in context of spending more
than earning. This financial issue arises
due to decrement in profits and
increment in expenditures by each
month.
Method to
solve
As mentioned above financial issue, its
can be resolved by adopting an
effective management technique i.e.
KPI. It is a technique which is used to
compare the plans and policies by
analysing the past results gained from
the similar plans and policies. If the
company adopts such technique then it
will help them in maintaining their
financial stability through updating
their plans after comparing with the
past performance.
Above financial issue can be resolved
by using benchmarking tool as it
motivates their employees to perform
well and achieve desired objective
within given time frame. It sets target
which is higher than the previous due
to which the management monitors the
performance level of employees at each
stage which reduces the possibilities of
facing any financial loss.
CONCLUSION
It has been summarised from the above project report that management accounting plays
an important role in maintaining financial stability of an organisation by using various
accounting and reporting systems such as cost accounting systems, performance report, job
costing and reporting system etc. The accounting manager is responsible to prepare an effective
budget which reduces the wastage of funds. Along with this, the manager can use suitable
costing methods among different according to their suitability and objectives. In the present
scenario, Excite Entertainment Ltd. Uses different financial problem resolving tools such as KPI,
Benchmarking etc. so as to retain their financial stability in the competitive market.
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