Management Accounting: Comparison, Costing Techniques, and Planning Tools

This document provides an overview of management accounting, including a comparison between management accounting and financial accounting, different costing techniques such as absorption costing and marginal costing, and planning tools used in management accounting like budgetary control.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................7
TASK 3..........................................................................................................................................11
TASK 4..........................................................................................................................................12
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
The management accounting a way of guiding managers of business entities in order to
take corrective actions and steps (Oldroyd, 2017). Under this accounting monetary and non
monetary data are utilised for preparation of reports as well as these reports are prepared as
accordance of need of companies. In the report a company is selected that is Excite entertainment
limited. It is located in UK and operates in entertainment aspect. The project report covers
various MAS and MA reports. As well as two income statements are prepared by use of give
data. In addition, planning tools are also covered under the budget. Further, role of MAS in
sorting monetary issues is covered in the project report.
TASK 1
Section A
(a) Comparison between MA and Financial accounting.
Management accounting – It can be defined as a kind of accounting approach that is associated
with process of recording companies financial and non financial transactions in a systematic
manner. The purpose of recording these transactions is to produce internal managerial reports
which can be used at important decision level.
Financial accounting – This accounting is completely variant from above accounting. It is a type
of accounting which is linked with procedure of collecting monetary informations with an
objective of preparing monetary reports (Busco and Quattrone, 2015). These reports are being
used by both internal and external aspects for own purposes.
Difference :
Basis MA Financial accounting
Publication of
reports
The MA reports are prepared and
presented to internal users specially
for managers and board of directors.
While in this accounting, monetary
reports are presented to all
stakeholders who are linked with
companies.

Format of
preparing reports
There is no any specific format by
which reports can be prepared. Most
of the organisations, produce these
reports as per own suitability and
understanding.
On the other hand, in this accounting
it is necessary for companies to
prepare the monetary reports as
according to international financial
reporting standards.
Nature of
information
which is used
Under this accounting, both monetary
and non monetary information are
utilised by accountants for
preparation of reports.
In this, only monetary information is
applied for producing reports by
accountants.
Various types of MAS:
(b) Cost accounting system – This is an accounting system which is integrated with the
systematic process of gathering information about monetary aspects of different functions and
activities. On the basis of all collected data regards to cost of various aspects finance managers
of companies make corrective projection of futuristic expenditures. In addition, this accounting
system is widely used in those organisations wherein large number of monetary transactions are
done on regular interval. In the above chosen business entity Excite entertainment limited
company, their finance managers trace the usage of their monetary resources in different kind of
operations. It overall helps in making an effective control over expenditures.
(c) Inventory management system – In the context of this competitive business environment only
those companies can sustain who manage their costs and inventories in an effective manner
(Grace, Phillips and Shimpi, 2015). So basically, stock management system can be defined as
an accounting system that combines with the manufacturing department of companies and keeps
the detailed record about how much quantity of material are bought and how much quantity is
being used for production. By assessing useful information about stock, the production manager
of companies can trace daily consumption of material in manufacturing process and as per it
control total storage cost. In the aspect of above Excite entertainment limited company, their
managers of stock collect important data about how much number of gadgets are used in
organising events. As well as assess the requirement of purchasing new equipments.

(d) Job costing system – It is a type of accounting system that is associated with process of
accumulating cost of each produced output. The significance of this accounting system is that
due to information of each units' cost managers can focus on investing those units which are
profitable for them. It is essentially needed by organisations in the case when more then one
units are produced. In the aspect of above Excite entertainment limited company, their managers
are using this accounting system in order to gather information about each job's cost separately
that involves in the process of managing any kind of events or functions. As well as their finance
manager can become able to focus on those activities that are leading as cause of higher cost.
(e) Benefits of above described MAS.
Name of MAS Role for the business activities and operations
Cost accounting system This accounting system is related with process of predicting future
costs of operations and activities (Smith, 2015). In the aspect of
above chosen business entity Excite entertainment limited they are
getting advantage from this accounting system by minimising
unwanted expenditures.
Inventory management
system
This accounting system acts effectively by coordination of
production department. Such as in the context of above Excite
entertainment limited company, their event manager gather
information about total number of equipments and gadgets are used
in events and functions.
Job costing system This is an accounting system which computes each produced
outputs cost. In the above Excite entertainment limited company,
their managers calculate each individual activities' cost which
engage in process of organising any event.
Section B
(a) Various kind of managerial reports
MA reports – The term MA reports can be defined as those written document which include
information about monetary and non monetary aspects. These reports are prepared and published

to internal department of companies such as managers, board of directors, employees and many
more. The accountant of Excite entertainment limited company, produce different kinds of
reports which are mentioned below :
 Inventory reports – Under these reports information regards to available commodities in
stores, is included. Basically, the stock reports are needed to be updated on a daily basis
because in business entities materials are utilised for production and prepared products
for selling. In the absence of this report, it can be difficult for companies to manage their
all materials and production process. In the aspect of above Excite entertainment limited
company, their event planners utilise important information about used equipments in
different functions and events.
 Performance report – It is a kind of report which is helpful for managers in order to check
progress of different aspects (Sithole, Abeysekera and Paas, 2017). Mainly, in this report
information of actual and estimated outputs is included. As well as by utilising key
informations through this report, managers become able to trace the variances of different
aspects. In addition, by help of this report managers can decide about promotion and
growth of their employees. In the context of above Excite entertainment limited
company, their event managers get information about compared outcome of estimated
and actual revenues.
 Account receivable ageing report – This is a type of report that contains information
about total debt amount of debtors who are liable to make payment to the company. As
accordance of this report, the finance managers of business entities can focus on those
debtors who are not making payment on time. In addition, it becomes easier for
companies to prepare cash budget because of information regards to total cash that is
needed to be collect from debtors. Same as in the aspect of above Excite entertainment
limited company, their managers make a systematic plan to collect debt amount from
those debtors who are making delay in payment of organised events.
 Cost accounting report – This is a report which consists information about estimated and
actual cost of various operations (Burritt and Christ, 2017). Basically, it is prepared by
integration of cost accounting system because information. By assessing useful
information through this report, managers of companies easily highlight those activities
which become cause of monetary lose. In the aspect of above Excite entertainment

limited company, their event planners are using this report for calculating cost of each
activities which occur in process of organising different events and functions.
So these are the key MA reports.
(b) Why information should be accurate and relevant to user.
This is important that accounting information should be accurate and understandable so
that managers can relay on that in order to take important decisions. Below some characteristics
of good information are demonstrated that are as follows such as :
 Accuracy – It is one of the important characteristics of accounting information that it
should be accurate because if information will not be correct then it can be difficult for
managers to take corrective actions.
 Relevancy – In addition, the accounting information should be relevant to business
transactions (Christopher, 2016). This is so because if information will not be relevant
then it can be difficult for businesses to create competitive strategies.
 Reliable and up to date – As well as accounting information should be reliable and
updated because financial transactions are done day by day in companies. Thus, it is
important to keep updated to accounting informations.
 Presentation of data on time – Apart from these characteristics, another important
characteristics of accounting information is that it should be presented to stakeholders on
right time whenever managers need.
Hence, these are the main characteristics of good accounting information.
TASK 2
Section (A)
Absorption and marginal costing method:
There are mainly two kinds of costing techniques which are used by accountants in order
to produce income statements at the end of year that are as follows :
Absorption costing – It is a type of method of preparation of income statement in that both fixed
and flexible costs are assigned as cost of product. As well as absorbed in fully manner during

computation of cost. This method has some drawbacks and benefits that are demonstrated below
such as :
Advantages -
 Tracks profit in an accurate manner – It is one of the important benefit of this method that
in this profits are calculated in a corrective manner. Basically, by help of it businesses
can view an accurate picture of profits in front of stakeholders.
 Accounts for all production costs – Along with the above benefit, another importance of
this technique is that under it all types of costs are absorbed. As well as accountants
become able to keep record of different costs such as direct material, rents, salaries &
wages and many more.
Disadvantages :
 Does not help in improvement of efficiency – Basically, this costing technique does not
help in the aspect of enhancing efficiency (Webb and Chaffer, 2016). It is so because in
the case when fixed cost is higher then this may become difficult to find out variation in
cost. Due to this, it becomes tough for managerial aspects to take crucial decisions in
order to improve operational efficiency. Not useful for comparison of product lines – By implementation of this costing technique
for preparation of income statements, companies can not compare their profits at different
lines of product.
Marginal costing – This is a costing technique in which both costs are assigned in different
manner such as fixed cost as period cost. On the other hand, flexible cost as unit cost. Same as
the above method, it also has some limitations and benefits that are as follows :
Advantages -
 Constant in nature – In the short time period, the variable cost flex time to time but in
long time period the marginal cost remain same.
 Better control over cost – As well as by help of this method, companies can become able
to keep an effective control over cost. It is so because under this, both costs are
categorised separately and fixed cost is excluded from total production cost.
Disadvantages -

 Time element is ignored – One of the key drawback of this method is that under it, time
elements are ignored. This is so because in long time period, all types of costs varies at
different levels but in marginal costing method it is not considered.
 Unrealistic assumption – Under this costing method, it is assumed that selling price will
remain constant at various production stage (Cooper, 2017). In the aspect of practical life
of businesses, it is not possible.
So as per the above critical evaluation, this can be guided to managers of Excite entertainment
limited company that they should apply absorption costing.
In the aspect of given data profit and loss account are prepared by help of both costing methods :
Income statement on the basis of absorption costing method :
Particulars Amount
Sales (8000*5) 120000
Less : Cost of good sold:
Opening stock (500*10)
Production (10000*10)
5000
100000
Less- Closing stock (2500*10) 25000
Absorption cost 80000
Profit 40000
Income statement as per marginal costing:
Particulars Amount
Sales (8000*15) 120000
Less: Variable cost
Opening stock (500*6)
Marginal cost of production (10000*6)
3000
60000
Less: Closing stock 15000

Marginal cost of sales 48000
Contribution 72000
Fixed cost 40000
Profit 32000
Interpretation of above produced income statements :
On the basis of given data, two P & L accounts prepared that are showing different
amount of profit in the end. In the aspect of absorption costing method, this can be find out that
there is net profit of 40000. As well as under this method, both fixed and variable costs are
absorbed in a detailed manner.
On the other hand, in context of marginal costing technique this can be stated that there is
net profit of 32000. Under this method, fixed cost is not assigned as cost of unit. Only, variable
cost is taken as cost of product. So overall, in both conditions value of profit is different though
data are similar. The reason of this variation is allocation of costs in both of the costing
techniques.
TASK 3
Part (A)
Planning tools that are used in MA.
Budgetary control – It can be defined as a way of setting monetary and non monetary goals in
order to keep an effective control. Under this approach, budgets are used for managing
performance. In the Excite entertainment limited company, their accountants apply below
mentioned budgets which are as follows :
 Sales budget – This is a type of budget which is prepared by accountants in order to help
the finance and production departments (Ross, 2017). Under this budget, information
about estimated sales units and values as well as about total cost that may occur in
process of selling products. By help of this budget, the production department of
companies carry further manufacturing activities. In addition, the finance department also
allocates fund in the process of production as accordance of information deriving through
this budget. In the aspect of above Excite entertainment limited company, they are using

this budget for an objective of keeping a crucial control over their new gadgets and
equipments.
Advantages – This budget is beneficial for companies because by help of it, growth can
achieved. It is so because if sales target will fulfil then automatically revenues will raise.
Disadvantage – One of they drawback of this budget that it consumes too much time and
cost in order to do proper research about possible sales outcome.
 Production budget – This is a type of budget which contains detailed information regards
to total material and equipments will be needed in future for meeting the actual targets
(Hosseinzadeh and Davari, 2018). As well as this budget includes data about futuristic
possible cost for production. In the above Excite entertainment limited company, their
event managers make balance between the need of new gadgets and available items.
Advantages – It is beneficial for companies for reducing additional production expenses.
Disadvantages – One of the key drawback of this budget is that it is not suitable for small
businesses because of higher cost of producing budget.
 Cash budget – In this budget information about possible activities regards to cash
activities is included. By help of it, the managers of companies become able to check the
need of cash in order to complete future activities. The accountant of Excite
entertainment limited company, produce this budget that help to their event managers in
management of total cash.

Advantage – This budget is beneficial for companies in order to reduce unwanted expenses
because it guides managers to make investment wisely.
Disadvantage – The drawback of this budget is that it is not beneficial in the case when there is
opportunity in the external environment. It is so because it limits the managers to expend apart
from the estimated targets.
Use of planning tools to solve financial issues.
This is essential for companies to overcome from financial issues in less time period so
that loss can be prevented (Ozyapici and Tanis, 2016). The planning tools help to managers in
providing complete information about financial transactions of an accounting period. Such as in
the above Excite entertainment limited company, their accountants are using different kinds of
budgets like production budget, sales budget and many more in order to estimate and allocate
financial resources. So overall, role of planning tools are crucial for sorting monetary issues.

TASK 4
Part (B)
Contribution = This can be defined as difference between sales and variable cost and it is
calculated by below mentioned formula :
Calculations:
BEP to attain desired profit = Fixed cost + desired profit / contribution per unit
= 120000+90000
= 210000/30
= 7000 units
Profit of sale of 7000 units
Sales (7000*40) = 280000
- Variable cost = 70000
Contribution = 210000
- Fixed cost = 120000
Profit = 90000
Analysis – On the basis of above calculation, this can be guided to sales department that they
should sale 7000 units in order to attain profit of £90000. This is so because if they sale 4000
units then there is condition of no profit and loss.
Comparison of ways in which management accounting is applied in dealing with financial
problems and preventing financial problems.
Financial problem – In the aspect of recent business environment companies who are able to sort
monetary issues in less time, get competitive advantage (Dayanandan, Ivanof and Karahan,
2016). Basically, the financial issue can be defined as a situation in that businesses do not have
sufficient amount of funds to operate the functions and activities. Below some types of financial
issues are mentioned that are as :
 Lack of liquidity – It is a kind of issue in that companies' liquidity ratio start to decrease
continuously and as a result they face the problem of enough cash for payment of short
term debts. The cause of this monetary issue is increasing in total debts and

mismanagement of total expenses. Such as the above Excite entertainment limited
company, is facing this financial issue.
 Decreasing in total sales revenues – This is a type of monetary issue that arise in
companies because of lower selling units (Veen-Dirks, 2017). There are many reasons of
this issue such as inefficiencies of internal departments, cut throat competition and many
more.
Techniques to identify issue :
 KPI -It is a type of technique that is associated with process of measurement of actual
monetary outcomes of different aspects. Basically, it evaluates the performance at short
term basis. In the aspect of finding monetary issue, this is helpful because during
assessment of performance managers of companies can easily deduct the areas that are
causing as monetary lose. In the above Excite entertainment limited company, their
monetary issue has been identified by help of this technique.
 Financial governance – This is an approach which gather and record monetary transaction
of companies in a systematic manner (Tucker and Leach, 2017). By help of this
approach, the managers of companies can find those transactions whose expenses is more
then estimation. Thus, it plays an important role for measuring monetary issues.
Comparison :
Basis Excite entertainment limited
company
Minor entertainment limited
Monetary issue This company is facing problem of
lack of liquidity for their operations
and activities. Basically, they don't
have enough current assets for paying
current liabilities.
They are facing the problem of
decreasing in total sales revenues. As
a result they do not have enough funds
in order to pay their shareholders and
creditors.
They are using “KPI” for measuring
exact monetary issue in their
operations. By utilising key
The company is using “financial
governance” for finding actual issue.
It becomes possible because by help

information through this approach
they get an idea of actual issue.
of this they get information about
those financial transactions which are
causing as lower monetary
performance.
The company is using “cost
accounting system” for sorting their
issue. They are applying this system
for those activities in which their costs
are high and focusing on those aspects
that can increase cash (Brown and
Dillard, 2015). Thus, by this approach
their issue has been sorted.
Their financial issue has been sorted
by “price optimisation system”. This
is so because they are revising price of
their events and function that is
helping in attracting more customer.
Hence, their monetary issue is sorted
out by help of this accounting system.
CONCLUSION
On the basis of above project report it has been articulated that in the absence of applying
MA in business function, this is difficult to survive for companies. The report concludes about
various accounting system and their role for businesses. As well as vital range of MA reports are
also mentioned in report. In addition, income statements are produced as accordance of given
monetary data. Further, three key planning tools: production, sales and cash budget are
mentioned along with their role. In the end, importance of MAS in overcoming from monetary
problems is concluded.

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