Management Accounting for Business Success

The provided report concludes that management accounting is useful for deciding project costs and helping organizations obtain their goals. Planning tools aid in budget control, leading to enterprise process improvements. The report suggests adopting planning tools and management accounting systems to solve financial problems.

Management
accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
Task1................................................................................................................................................1
(a) Management accounting reports.............................................................................................2
(b) Needed information should be accurate.................................................................................3
Task2 ..............................................................................................................................................4
Managerial and Absorption costing method................................................................................4
Task 3...............................................................................................................................................6
Planning tools to control the budget............................................................................................6
Task 4 ..............................................................................................................................................8
Application of management accounting to solve financial problems .........................................8
CONCLUSION................................................................................................................................9
REFERENCE.................................................................................................................................11

INTRODUCTION
Management accounting very important in any organisation because it helps to provide
various information and make further business decisions. The owner of business enterprise
prepares different types of accounts that is used to get financial information. Management
accounting states various data in order to increase the profitability through managing accounts
(Andon, Baxter and Chua, 2015). Excite Entertainment Ltd is UK based company which
organises promotion concerts and festivals at different location in UK. This report will
emphasise on management accounting systems, difference between management accounting and
financial accounting, accounting reports and calculation of cost by using marginal and absorption
costing method. Moreover, this report will define planning tools which is used to control the
budget and management accounting that helps to solve the financial problems.
Task1
Part A
(a) Management accounting and financial accounting
Financial accounting Management accounting
It helps to define, analyse, storing and
summarizes the financial information of
enterprise.
It helps to take correct or effective business
decision by managing accounts.
This is not based on the management
accounting.
It get help from financial accounts in order to
make correct business decision.
Companies are bound to build financial
accounts that provides information about all
transactions.
Management accounting does not follow any
statuary compliance.
(b) Costing Accounting system: This is also known as product costing system which is
used by all industries to get the budget of cost for goods and services. Moreover, by using this
system an organisation can imagine future profits. Such as Excite Entertainment Ltd apply this
system to analysis the cost of business activities and control over excess cost (Aryee and et.al.,
2015).

Benefits: It help Excite Entertainment Ltd to make future plan by evaluating the
profitability. Moreover, it helps to accomplish organisation's goals at low cost with high
efficiency.
Costing system involves different cost like-
Direct cost: It is used to calculate the prices of specific products. It contains direct
material, labour, commission, wages piece rate and direct supplies of products. It is beneficial to
calculate the overall cost of specific product and services.
Standard costing: This is used to calculate the price of budgeted and predetermined
performing activities. Excite Entertainment Ltd can use its as target cost which considers actual
cost of products. Additionally, it help in comparison with exact cost and the analysis of variance
in order to gain profits (Ashraf and Uddin, 2015).
(c)Inventory management system: This is used by Excite Entertainment Ltd to track
inventory level, sale order, purchase order and deliver the goods and services. This is important
to keep the records of delivered goods and services and place next order after selling the stock.
Manufacturing industries apply this system to storing the stock and use FIFO and LIFO method
to sale the products.
Benefits: It helps Excite Entertainment Ltd to save the money and time by applying
inventory system. It is very useful to keep track of goods which is ordered by an enterprise in
context to save time and money.
(d) Job costing system: It is used to delegate the producing cost for each product and
keep track of all incurred expenses in a firm. Such as Excite Entertainment Ltd uses this system
to allocate job cost at accurate price and track the cost for generating profits. It distribute costs in
which department need to investment in order to get profits.
Benefits: It is helpful to determine the cost before manufacturing a product. Excite
Entertainment Ltd maintain this system to ascertain the accurate cost of department and
evaluating the profitability (Gow, Larcker and Reiss, 2016).
Part B
(a) Management accounting reports
Accounting reports are the actual data of companies’ transactions that decides what need
to do in order to expand the business and profitability. This reports are very useful because it
provides organisation's internal information which is collected from financial accounting. The
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manager of Excite Entertainment Ltd prepares management reports for making planning,
conducting, evaluating performance and making effective business decision. It prepares
management accounting reports such as-
Budget reports: This is internal report which is used by managers to compare the
estimated projects with real projects. The managers of Excite Entertainment Ltd can solve the
problems raising in business activities and make the actual budget with the help of financial
information. Basically, it is used to compare the budgeted data with real data in order to get
profits. This report helps to analysis the financial goals which is based on budgets and future
assumptions.
Costing reports: This is financial reports which describes expenses and cost that relates
to business activities. The manager of Excite Entertainment Ltd prepares costing report to know
the actual cost of their manufactured products and helps to take corrective actions. By applying
this report, manager can ascertain the actual cost of industry and therefore, increases the
profitability(Järvenpää and Länsiluoto, 2016).
Performance reports: In Excite Entertainment Ltd, managers prepare performance
reports that is used to evaluate employees as well as organisation's performance. This report is
prepared on the basis of month that help managers to assess the performance of staff and reward
them for well performance. Moreover, it helps to increase the motivation of employees and retain
for long period of time.
(b) Needed information should be accurate
The information and data of budget reports need to be accurate, relevant, appropriate and
reliable up date because any organisation take decision on the basis of reports. Reports provides
true and fair information and helps to take further decision. By using this reports Excite
Entertainment Ltd's investors can make further investment decision and government use reports
to identify the tax amount that is used in development and growth of country. If information will
be relevant, accurate and up to date then managers can make effective business decision that
helps to increase the productivity. If any changes arrived in financial reports it need to be
mentioned in order to know the actual cost and performance of business organisation (Leotta,
Rizza and Ruggeri, 2017).
From above mentioned reports it has been evaluated that management accounting system
and accounting reports are co-ordinated in Excite Entertainment Ltd. Such as managers uses
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inventory management system, cost accounting system that is used to prepare cost reports and
management reports that helps to make business decision. Managers also prepares budget reports
that gives relevant information about cost and maintain productivity by applying accounting
system. In other words, accounting system contribute to ongoing improvement in Excite
Entertainment Ltd and reporting are integrated to estimate the job price by reducing the cost.
Task2
Managerial and Absorption costing method
Marginal costing method: This costing method is used by the enterprises when they
want to find out the minimum cost which will be incurred if company will produce that product.
The product which has no demand in existing market but it comes as an offer from new market
or an offer from new customer. In this costing method, company shall not consider fixed cost at
all. In marginal costing, an organisation consider only that cost which is relevant for producing
an product (i.e. relevant cost only).
Benefits: It help Excite Entertainment Ltd to maximize production by utilizing available
resources such as fixed and variable cost. Moreover, it helps to allocate the resources efficiently
and increase profitability (Luft, 2016).
Limitation: It may be difficult to discriminate the total cost in to fixed and variable cost.
Its profits are not constant because it involves variable cost and expenses.
Calculation of profit by Marginal costing method (Amount in £)
Particulars Rate per unit May month
Selling Price 15 120000
Less: Marginal Costs
Variable production
overheads per unit 2 16000
Total 104000
Less: Opening inventory 6 3000
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Gross Profit 101000
Less: Fixed Costs
Fixed selling expenses -
Fixed admin expenses -
Fixed Production cost 40000
Less: Sales commission -
Net Profit 61000
Absorption costing method: It is a managerial accounting cost method for calculating
all costs related with In absorption costing, an organisation consider all types of cost whether it is
historical or future cost (i.e. relevant cost, irrelevant cost or sunk cost). This costing method is
used by the enterprises when they want to find out the total cost of its regular product which it is
producing and for which, there is a demand in the market. In this costing method, company
consider the fixed cost (either avoidable fixed cost or unavoidable fixed cost).
Benefits: It help Excite Entertainment to prepare financial accounts by showing less
changes in profits of the organisation. Moreover, An organisation can calculate cost of each unit
through absorption costing method.
Limitation: It is not appropriate to make effective business decisions by using absorption
costing method. It is hard to find variation in cost that arises at different production level.
Calculation of profit by Absorption costing method (Amount in £)
Particulars Rate per unit May month
Selling Price 15 120000
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Less: Absorption Costs
Variable production
overheads per unit 2 16000
Fixed Production cost 40000
Total 64000
Less: Opening inventory 6 3000
Add: Closing Inventory 6 15000
Gross Profit 46000
Less: Fixed Costs
Fixed selling expenses -
Fixed admin expenses -
Less: Sales commission -
Net Profit 46000
Interpretation:
Excite Entertainment has net profit of £ 61000 in marginal costing and net profit of £
46000 in absorption costing, it is clearly sated that there profits in marginal costing is higher than
absorption costing. This is because in marginal costing, there should be only relevant cost
should be considered as compared to absorption costing. Therefore excite company should select
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marginal costing for calculation of income statement for providing better profitability of the
company' business.
Task 3
Planning tools to control the budget
Planning tools are the techniques that is used to make future planning and controlling the
budget. It helps to control the excess budget and earn more incomes. The managers of Excite
Entertainment Ltd uses different types of planning tools to assures financial stability and increase
the business performance in order to make effective business decision. Budget is the roughly
estimation of income and expenses that helps to make financial business decisions and by
solving the financial problems (Massaro, Dumay and Garlatti, 2015). Moreover planning tools
are helpful to overcome the cost and ascertain profits. Excite Entertainment Ltd uses different
type of planning tools such as-
Master Budget: It involves planned operating budget and financial budget that shows
enterprise's goals and objectives. It contains a brief estimation of all incurred cost and revenues
to define the future profits. It gathers all needed information that relates to business activities in
order to make profits. The manager of Excite Entertainment Ltd can prepare master budget that
states how much an organisation is gaining and spending money at business activities. Moreover,
it helps to know the overall profits of an enterprises.
Advantages: It helps to give information about earning and spending that needs to make
profits. It is the superior budget which involves all cost and incomes in order to define profits.
By using this budget Excite Entertainment Ltd can identify the problems and make planning a
head in order to state profits (O'Dwyer and Unerman, 2016).
Disadvantages: It may be difficult to update for all organisation because it involves
number of transaction. It is also difficult to read and understand for Excite Entertainment Ltd 's
managers because it contains all spendings and revenues of engage business.
Zero base budget: This budget is mostly used in newly start up organisation and in new
accounting period. This budget is not depend on estimation and past year information. It contains
actual expenses and incomes in order to determine profits. The Excite Entertainment Ltd can use
this tools in order to calculate actual cost from new accounting period. Under this budget, each
business activities need to be justify, classify and distributing the revenues for generating the
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profits. This budget is different from traditional budget because it does not consider any previous
information in order to raise profits. It assumes that no remaining balance need to be carry
forward or no expenses should be pre determined.
Advantages: It may be useful for Excite Entertainment Ltd such as it provides accurate
and appropriate information which impacts positively on business. It helps to allocate the
resources efficiently as it does not consider historical information. Moreover, by applying zero
base budget manager can identify opportunities for expanding business.
Disadvantages: This is time consuming tool that consume more time for preparing such
budget. It requires high man power to engage the business and also need high spendings. So it
may not easy for Excite Entertainment Ltd to build such budget because it needs high spending,
and expertise staff.
Cash Budget: This is important tool that is used to make planning of expected cash
receipts and payments while business activities. It contains inflow and outflow of cash such as it
considers income, expenses and loan amount. Additionally, it is an estimation of industry's
projects that states liquidity position for future period. The managers of Excite Entertainment Ltd
prepares cash budget in order to manages the cash flow of company. By using cash budget it
assure how much money is required to achieve organisation's goals or objectives. Additionally, it
helps to make enough amount to pay the due or outstanding expenses (Advantages and
disadvantages of cash budget. 2015).
Advantages: It is beneficial to avoid the debt by spending the cash on business activities.
It help Excite Entertainment Ltd to define the exact profits by defining the expenses. It also helps
to communicate easily with financial position of the company.
Disadvantages: It is not easier to prepares because it includes only cash transaction
which are incurred while business activities. There is need to keep high security because
information can be theft through internal management. Moreover, it limits on Excite
Entertainment Ltd's spendings.
Application of planning tools
From above mentioned planning tools it has been analysed that planning tools are useful
to solve the financial problems such as cash budget helps to give all information about cash
transaction and also state future financial position. By using cash budget Excite Entertainment
can limits on spending that leads to solve financial issues. Moreover, by application of master
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budget managers can identify the financial problems and plans a head to solve the financial
problems. And by using zero base budget Excite Entertainment Ltd can get actual cost of engage
business activities that leads to organisation success by solving financial issues.
Task 4
Application of management accounting to solve financial problems
Calculation of cost and profit
Interpretation: In above calculation, industry need to sold 6000 units in order to obtain £60000 as
profits. As it has variable cost £10 per unit and fixed cost is £120,000 and desire profit is £60000
. So company need to produce and sell 6000 units to get expected profits.
Financial problems: It considers a critical situation which impacts on business
transactions such as financial problems. The manager of Excite Entertainment Ltd are facing
different types of financial problems that reduces profits of the company (Sohn, 2016).
High spending: Excite Entertainment spending more money on business activities that
creates financial problems such as high expenses low incomes.
Low profitability: Another financial problems is facing by Excite Entertainment such as
low profit margin that increases the overall cost of organisation. Its cash inflow are less than out
flow that reduces its profits.
KPI: This is a technique which helps to measure the performance of workers and
industry in order to obtain profits. The manager of Excite Entertainment can use this tool to
evaluate the employees performance and rewarded for well performance.
Benchmarking: Excite Entertainment may use this tool to compare the performance
among two industries that guides what need to do in order to accomplish targets and maximise
profits (Uyar and Kuzey, 2016).
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Financial governance: It includes set of rules and regulations which are established by
corporate body or government in order to solve the financial issues. Moreover, by following
rules and policies an organisation can maximise the profits and expand the business.
Excite Entertainment Ltd Qdos Entertainment
It is facing low profitability issues because lack
of pricing strategy and marketing events.
It is facing High spending problems that
increases its debt and reduces incomes.
It should use cost accounting system that helps
to make effective Job costing strategy by
maintaining productivity.
It should adopt inventory management system
that helps to track the stock and will take next
order as per demand.
It can use master budget to keep records of all
expenses and incomes that will lead to solve
financial problems.
It should use zero base budget that will help to
consider only actual expenses not past
expenses.
CONCLUSION
From the above report it has been concluded that management accounting are useful to
decides the cost of each project and helps to obtain the goals of organisation. Moreover, it helps
to provide all information regarding business activities in order to maximize profitability.
Planning tools helps to control the budget that leads to enterprise process. Additionally, this
report state that organisation should adopt planning tools and management accounting system to
solve the financial problems.
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REFERENCE
Books and Journal
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Aryee, S., and et.al., 2015. Accounting for the influence of overall justice on job performance:
Integrating self‐determination and social exchange theories. Journal of Management
Studies. 52(2). pp.231-252.
Ashraf, J. and Uddin, S., 2015. Management accounting research and structuration theory: a
critical realist critique. journal of critical realism. 14(5). pp.485-507.
Gow, I. D., Larcker, D. F. and Reiss, P. C., 2016. Causal inference in accounting
research. Journal of Accounting Research. 54(2). pp.477-523.
Järvenpää, M. and Länsiluoto, A., 2016. Collective identity, institutional logic and
environmental management accounting change. Journal of Accounting &
Organizational Change. 12(2). pp.152-176.
Leotta, A., Rizza, C. and Ruggeri, D., 2017. Management accounting and leadership
construction in family firms. Qualitative Research in Accounting & Management. 14(2).
pp.189-207.
Luft, J., 2016. Cooperation and competition among employees: Experimental evidence on the
role of management control systems. Management Accounting Research. 31. pp.75-85.
Massaro, M., Dumay, J. and Garlatti, A., 2015. Public sector knowledge management: a
structured literature review. Journal of Knowledge Management. 19(3). pp.530-558.
O'Dwyer, B. and Unerman, J., 2016. Fostering rigour in accounting for social
sustainability. Accounting, Organizations and Society. 49. pp.32-40.
Sohn, B. C., 2016. The effect of accounting comparability on the accrual-based and real earnings
management. Journal of Accounting and Public Policy. 35(5). pp.513-539.
Uyar, A. and Kuzey, C., 2016. Does management accounting mediate the relationship between
cost system design and performance?. Advances in accounting. 35. pp.170-176.
Online
Advantages and disadvantages of cash budget. 2015. [Online]. Available throughg:
<https://freebcomnotes.blogspot.com/2017/07/cash-budget-meaning-features-and.html>
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