Management Accounting: Systems, Costing Techniques, and Planning Tools

This document provides an overview of management accounting systems, including the differences between management accounting and financial accounting. It also discusses cost accounting systems, inventory management systems, and job costing systems. The benefits and limitations of these systems are analyzed. Additionally, the document explores different management accounting reports and the importance of accurate and timely information. The integration of management accounting systems and reports is also discussed. The document further explains absorption costing and marginal costing techniques, and compares and contrasts planning tools such as budgeting, zero-based budgeting, master budget, and cash budgeting.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Section A.....................................................................................................................................1
Management Accounting Systems..............................................................................................1
Section B.....................................................................................................................................3
TASK 2............................................................................................................................................5
Absorption costing and marginal costing....................................................................................5
TASK 3............................................................................................................................................7
PART A.......................................................................................................................................7
Compare and contrast planning tools in management accounting..............................................7
Use of different planning tools for forecasting and predicting budget.......................................8
TASK 4............................................................................................................................................9
PART B.......................................................................................................................................9
Dealing with financial problem...................................................................................................9
Responding to financial problem in management accounting..................................................10
Use of planning tools to respond financial problem.................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is defined as set of methods and techniques which is used for
preparing reports and accounts to present actual situation of business operation. These reports are
helping to managers to make short term and long term decisions. It supports a business to pursue
its goals by identifying, measuring, assessing, interpreting and communicating information with
managers (Anderson, 2017). To better understand of the report selected company KPMG which
is famous accounting firm and provide services to different clients like Excite Entertainment Ltd.
This client company is part of entertainment industry and provide services in leisure as well as
entertainment. This report involves different system and reports that use to present actual
situation of company and their benefits. Along with, use both methods to calculate profitability
and it is tried to formulate the importance of costing techniques. Additionally, sort out financial
problem and applied assumption of break even analysis.
TASK 1
Section A
Management Accounting Systems
(a) Differences between management accounting and financial accounting
The term of management accounting refers to a technique which is applied by
organisation in order to analyse various business activities which is being gathered from different
departments available within the company. This techniques mainly applied by large level
business entities due to recognise their status at the market. On the other side financial
accounting is a form of accounting in which keep track all financial information of an
organisation and apply specific guidelines as well as transactions to present financial report
(Spraakman and Quinn, 2018)..
Management Accounting Financial Accounting
There are reports are preparing by organisation
to present all the internal parties of the
business like employees, stakeholders etc.
Reports and accounts are preparing to present
all the external parties like customer, suppliers
etc.
To prepare all the accounts accountant does not
follow GAAP principles and rules.
In financial accounting must follow the rues
and principles of GAAP.
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In this accounting include both types of
information financial or non financial
(Bertheussen, 2017).
There are including only financial information.
Management accounting concentrate on
different segments of business.
In case of this accounting focus on the whole
organisations.
(b) Cost accounting systems
This system mainly applied by the manufacturers to keep track record of production
activities. It is one of the significant system that is applied by system to recognise cost of
organisational goods & services. Through this system assessing profit margin and analysis stock
and control cost as per the requirement. This is considered as a significant element help in
identifying cost of the company incurred within the whole production process. This is the system
which is fundamentally needed in order to identify the costs included within the Excite
entertainment Ltd in order to accomplish their goals and objectives. This system categorised into
two way such as: Direct cost: There are consisting of all those expenses which are related with the different
business activities.
 Standard costing: It is a type of costing in which Excite entertainment gather all
appropriate information in regard of standard and actual cost.
(c) Inventory management systems
It is one of the leading system which is applied by the different types of organisation in
order to denotes goods and available for sale to customers. Through this system assess the raw
material at every manufacturing stager and analysis the requirement. It is effective system that
use by Excite entertainment to manage and controlling all the inventory items. The rationale
behind maintenance of inventories is to acknowledge the expected enhancement within demand,
protecting against unanticipated enhancement within needs and for having edge with respect to
price breaks for making orders within a bulk (Bushee, Jung and Miller, 2017).
(d) Job costing system
The particular system connected with procedure of aggregating data and facts in case of
various costs/expenditure in which related with particular job. This is also significant in
allocating or pointing key areas of operations within organisation which are responsible for
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increasing costs within enterprise. Also this systems enables managers in effective
implementation of key strategies linked with minimisation of costs and increasing profit margin.
This require detailed analysis of costs for deriving more accurate and precise results as any error
in implementation of this systems may lead to erroneous decision-making.
(e) Analysis the benefits of different systems
Excite Entertainment Ltd apply various types of management accounting system which is
beneficial for operational activities of business entity. There are defined benefits of these system
underneath: Cost accounting system: It is beneficial system that use to examine different cost which
is related to organisational procedure (Tapis, Priya and Mahon, 2017). Furthermore,
Excite entertainment Ltd use it to examine cost of all the business activities and fund will
be allotted as per the requirement. Inventory management system: This system supports to track stock and maintain proper
records that is utilised by business concern. Its main functionality is Excite entertainment
limited keep al records of inventories which is utilised and support to business to control
stock and avoid wastages.
 Job costing system: It present main function to deduct as well as enhance labour units
allotment to various tasks in the manufacturing procedure. The manager of Excite
entertainment limited selected this system as best alternative to keep track record of
various functions that are performed to fulfil the requirement of clients (Corsi, Mancini
and Piscitelli, 2017).
Section B
(a) Management accounting reports
Management accounting reports is procedure of creating various reports where consist of
numerous data in context of company's efficiency. These reports are developed by the manager
of Excite entertainment Limited to analysis the performance and take right decision. The main
aim of produce these report to assess actual position of company in critical situation and how to
deal with these situation. In the context of Excite Entertainment develop different reports such
as:
Inventory management report: Inventory means goods that produced by business entity
to sell out products and services. The purpose of produce this report to generate more income
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through these reports. In the context of Excite entertainment Ltd produce these reports by
including appropriate information that link with the control and proper utilisation of inventories
(Dávila, 2019). Through this report analysed that in which stage how much material utilised and
wastages to control it.
Cost accounting report: This report prepare by manager to gather, categorise, examine
and reporting the data for ascertaining the cost of products as well as service. It supports to
compute the efficiency of cost and arrange within the industry. Such as, excite entertainment
limited produce this report for divided cost in to different cost centres and setting as per the trend
of market. This is helpful report which is utilised for cost of products and assure by the
transactions that done by business entity.
Performance report: The particular report produced by managers in order to assess the
performance of business entity and staff members to achieve goals. It is mainly utilised for
analysing the performance of entertainment industry and enhance efficiency to become
profitable. Such as, Excite entertainment Ltd develop these kinds of report to arrange
performance of various staff members and apply modifications (Dossi, Lecci, Longo and
Morelli, 2017).
(b) Information should be accurate, relevant to the user, reliable up to date and timely
The information should be accurate, reliable and relevant of the company information
that present in the organisational reports. On the basis of these information a manager take short
and long term decisions and present actual situation of company in front of higher authorities. On
the basis of these information companies invest into other sector and conduct all financial
transactions. In the absence of reliability manager can not take right decision and face huge
losses and these information must present on right time for generate profitability and make plan
and policies on time to beat competitors.
(c) Integration of management accounting system and reports
Different kinds of management accounting system as well as reports are prepared by the
organisation of Excite entertainment Ltd to analysis all functional and operational activities. The
company apply inventory management system to analysis the utilisation of goods at different
procedure so through reports collect detail information. The cost accounting system to analysis
cost of different products and reports help to analysis past details effectively. While,
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performance report helps to assess performance of business as well as worker in their task that
helpful to run business smoothly (Yang and Liu, 2017).
TASK 2
Absorption costing and marginal costing
Absorption costing: This technique is applied by cost accountant to calculate cost of
each products as per the reason of cost of absorption is known as this method. In the context of
Excite Entertainment Ltd, managers applied this method to prepare income statement and
calculate profit in context of business (Grabner, Posch and Wabnegg, 2018). Benefits: It is advantageous for to understand the role of production cost and analysis all
appropriate pricing policy. These prices are mainly depended on absorption costing
method in which cover all costs. Through this technique neglect break up all fixed as
well as variable elements that can be done appropriately.
 Limitations: The biggest limitation of of this method that it is not easy to calculate and
face problem to compare all the results which are getting to calculate profitability.
Marginal costing: It is a accounting system in which variable costs are charged to cost
units that has been changed due to add extra unit in total production. Due to changes in variable
cost receive different results which are treated under marginal cost and cost of product. As excite
entertainment Ltd apply this method due to increase extra units of any products. Benefits: It is a beneficial method which is easily applied by every organisation and easy
to understand. On the basis of this method they prepare different types of policies and
strategies to smoothly run all operational activities.
 Limitations: There are facing high level of problem that assesses by manager due to
classifying cost in the costing and cost remain variable for longer period of time.
Income statement as per marginal costing:
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Income statement as per absorption costing:
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TASK 3
PART A
Compare and contrast planning tools in management accounting
Budget: It is a estimation of revenues and expenditure in particular set period of time
which is mainly compiled and analysis on a periodic basis. Budgets can be made for an
individual, organisation, groups and for many others to predict future activities and according to
that prepare all the strategies (Herasymovych, 2017). In the context of Excite entertainment
limited prepare of budget in order to analysis of potential situation of company. There are
applied three types of planning tools in order to assess information of company such as:
Zero based budget: It is a repeatable procedure in which a business entity utilise to
rigorously review each dollar in financial year budget, arrange financial performance on monthly
basis and develop a culture cost of management among of all staff members. All the expenditure
must be justified for particular period of time. This procedure start from Zero where all the
functions analysed from staring and not taken past year experiences as a base. The excite
entertainment limited apply this tool to analysis all the department from starting and calculate
actual cost (Hosseinzadeh and Davari, 2018). Advantage: The main advantage of this budget that it is flexible, concentrate on the
operational activities, lower cost and more disciplined formulation. Each year preparation
of zero based budgeting improve efficiency and help to analysis income and expenses
every year.
 Disadvantage: Some expenditure of an organisation is challenging to judge and require
not. This method is mainly depended on the cost as well as benefit analysis in certain
period of time. There are consisting of possibilities of resources intensiveness being
converted by savvy managers.
Master Budget: It is defined as costly business strategy that documents expected
potential sales, manufacturing levels, purchase, potential expenditure incurred etc. The master
budget is total of all the sectional budgets that is produced by all the departments. Moreover, it
consist of cash flow forecast, financial planning, cash flow predication and budging P&L of the
company. In the context of Excite entertainment limited prepare of this budget to get summary
all divisional budget.
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 Advantage: It is beneficial for owner of business because it helps to recognise issues of
every department that helps to produce different strategies for longer period of time. It
present summary of all budgets that helps to take decision in regard of business.
 Disadvantage: It is expensive method that is not afford by every organisations as well as
take longer period of time. In this budget contains information of every department so
take more time and require experts who have experience to prepare of these type of
budget other wise all results are coming wrong (Ishanka and Gooneratne, 2018).
Cash Budget: It is another planning tool which is applied by organisation to predict
future condition in context of cash. In cash budget consist of of all cash receipts, and payments
that done in future in particular accounting year. Such as, Excite entertainment limited manager
analysis future condition and focus on those transactions that can be done in future for particular
things. Additionally, cash budget is utilised as per the payments and assessing variances in
inflow and outflow of cash. Advantage: It is beneficial for an organisation that provide detailed information about
cash and helps to predict liquidity condition. This budget supports to avoid any debt
circumstances that further result is acquiring right in context of current cash at work
place. Through this budget manager easily analysis of actual situation of company and
how to change due to different expenditure (Kim, Schmidgall and Damitio, 2017)..
 Disadvantage: It become reason of distortion because of do not provide right cash inflow
profit. No credit transactions are consisting in the cash budget that create problem to fails
in providing right position of an organisation. There are defining limits of particular areas
of spendings that create problem in further investments.
Use of different planning tools for forecasting and predicting budget
To predict the situation of business in future require to apply different types of planning
tools which are applied to analysis the present situation. On the basis of present situation apply
cash, master and zero based budget that helps to forecast situation in future and how to prepare
strategies according to it. The master budget is summary of all the budget that provide results in
short manner, the cash budget provide information about liquidity in order to analysis cash
inflow and outflow. The zero based budget helps to analysis all sections from starting and help to
know strength and weakness of each department.
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TASK 4
PART B
Dealing with financial problem
Financial problems are those problems that arise in business due to have less financial
resources and complete all different activities as well as operations. It is required for the different
business concern to execute different strategies and take right decision so that all of them could
be sorted effectively (Kornberger, Pflueger and Mouritsen, 2017). In the context of excite
entertainment limited face different types of problems that are mentioned below: Lower profits & revenues: This type of financial issue origin in the company when
continuously level decreasing sales of company. It impact on the profitability in direct
manner and company face problem of lack of liquidity. This problem has been sorted by
the Benchmarking in which is helping to get minimum expected result that set by the
company. It is a measurement tool that measure the performance from another company
to identify all strategies.
 Unforeseen expenditure: In entertainment industry government change any type of tax
rate and other rates that direct relate with the entertainment. These are creating problem
for the business and taking place suddenly. As a result the manager of excite
entertainment limited apply various monetary sources to over come from the particular
situation. To analysis this problem apply key performance indication where consist of
both types of information like financial and non financial. According to that business
measure the performance and identify the problem (Lamberton, 2017).
Comparison between both organisations
Basis of
comparison
Excite limited company PC clothing limited company
Financial
issue
In this company identify the issues of
lower profit and margin due to
decrease sales in particular period of
time. It create problem for the business
and their funds & reserves use to pay
their debts and performing activities.
The financial problem identify in this
company of sudden expenses that arise
in the company any time and create
problem in organisational procedure.
Due to this problem do not predict
actual situation of business entity.
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Technique To identify this problem in the
company apply method of
benchmarking in which compare
strategies with same industry company
and identify all the points that create
problems.
To recognise this problem require to
apply key performance indicator that
helps to categorise activities into
financial and non financial manner.
There are focusing those expenses that
increase cost of business.
MAS For this financial problem apply cost
accounting system where set right cost
of each product as per the trending of
market. According to that sell out in
the market and fulfil the requirement of
business (Oldroyd, 2017).
There are applying job costing system
to in order to analysis cost of different
aspects and analysis those expenditure
that arise mid time. So according to job
role set these cost and smoothly run of
business activities.
Responding to financial problem in management accounting
Every business concern face many problem during to financial year that impact on the
organisational procedure. To sort out these problems require to apply management tools like KPI
and benchmarking. These are measurement tool that utilise to identify financial problem and
provide right solution as per the structure of the business.
Use of planning tools to respond financial problem
Planning tools are applied by the business to aware for the different financial problem
that arise in the business any time. Through different types of budget predict these problems and
according to that all the strategies in excite entertainment limited to get appropriate results in
certain period of times. Cash, master and zero based budget forecast the situation and offer
effective solution on right time (Oyewo, Ajibolade and Obazee, 2019).
Calculations:
BEP to attain desired profit = Fixed cost + desired profit / contribution per unit
= 120000+90000
= 210000/30
= 7000 units
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Profit of sale of 7000 units
Sales (7000*40) = 280000
- Variable cost = 70000
Contribution = 210000
- Fixed cost = 120000
Profit = 90000
CONCLUSION
As per the above report it has been concluded that management accounting is part of the
every organisation that helps to present inner situation that based on the different financial and
non financial information. There are producing different types of reports that use to present
actual position of the business and how to take effective decision to get profitability for longer
period of time. Here are applied planning tools to sort out the financial problems and these tools
are cash budget, master budget and zero based budget. There are identify hose financial problem
that occur in particular financial year and impact on the business procedure so fir this require to
apply management accounting system as well as management accounting tols such as key
performance indication and benchmarking.
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