Management Accounting Assignment : Excite Entertainment Ltd

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
TASK 2............................................................................................................................................4
TASK 3 ...........................................................................................................................................5
TASK 4 ...........................................................................................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES .............................................................................................................................11

INTRODUCTION
Management accounting performs a vital role in the corporation and it is provide useful
information to the manager so that they can better decisions related to the growth of organisation.
It emphasis towards management & performance of control functions and it is the process of
analysing, measuring and interpreting the financial information and data which is useful for the
corporation to achieve its objectives (Tucker and Lowe, 2014). To better this concept Excite
Entertainment Ltd has been chosen which belongs to leisure and entertainment industry of
United Kingdom. There are various topics are covered in this report such as: to describe
management and the systems of it, methods used for management accounting reporting,
appropriate techniques of cost analysis to prepare an income statement using marginal &
absorption costs. Apart from this, it also discuss about advantages & disadvantages of distinct
types of planing tools used for budgetary control and how corporations are adapting management
accounting system.
TASK 1
Management accounting & its different types of systems:
Management accounting is the process which is useful to evaluate business cost &
operations to prepare financial statements (Tucker and Parker, 2014). It provide help to the
management to take effective decisions which support the growth of company. Excite
Entertainment Ltd can apply different types of management accounting systems which are as
mention below:
Cost accounting systems: This specific system has been used by the organisation in
order to anticipate costs of its products so company can analyse the profitability (Richardson,
2012). It is help to measure & record the cost which occurs in production process so it is
important for Excite Entertainment Ltd to use this system in order to maintain records which are
faced by organisation by providing entertainment services to the clients. As corporation used this
to record all activities that are performed by the company. There are basically two types of cost
accounting system which are as: job order costing and process costing (Quattrone, 2016).
Inventory management system: This system is an integration of technology which is
helpful to monitor and check the inventory in business. It is useful for the Excite Entertainment
Ltd in context to the ordering and managing the stock of the corporation. It involves management
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of raw material, elements & finished products. For the organisational growth it is very useful
function which eventuate the health of supply chain (Quattrone, 2016). With the help of it
management can maintain centralised record of each assets & items which are of control by the
company. It is beneficial for the corporation in order to analyse how much units have been sold
and how much are required to purchase. As effective inventory system is helpful to minimise the
unnecessary cost.
Job costing system: This system has emphasis to analyse the cost which involves in job.
It is used by the Excite Entertainment Ltd to gather information related to the cost associated to
the particular product or service (Parker, 2012). To analyse the accuracy of a organisation's
estimating system this tool will be useful. There are various information is require in order to
collect information about this system.
Direct material: This job costing system is help to determine the cost of direct material which is
used in by the company for the production process.
Direct labour: It is important for the Excite Entertainment Ltd to analyse the cost of labours
which provide entertainment services to the clients.
Overhead: It is the unnecessary expenditures which can affect the profitability of the
organisation. It involves depreciation on production equipment & building etc.
Difference among management accounting & financial accounting
Financial accounting- The financial accounting may be defined as a kind of accounting system
which is related with the summarising, analysing and reporting the financial transaction of a
business.
Financial accounting Management accounting
It is the process of preparing financial
statements of organisations which is helpful
to provide financial strength & position of
corporation to the consumers, creditors,
investors etc.
Management accounting is the process of
analysing, measuring & interpreting the
financial information and data which is useful
for the corporation to achieve its objectives
(Nixon and Burns, 2012).
It emphasis to provide information to external
parties such as: lenders, public regulators
(Parker, 2012).
This accounting takes companies financial
information & develops reports for
confidential and internal use by managers in
order to analysing ways to runthe corporation
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more smoothly.
Management accounting deals with internal
system of an organization and evaluates and
measure its processes for the management of
the company.
Financial accounting deals with providing
information to those outside the company, like
as creditors and stockholders.
Explain various methods which are used in context to the management accounting
reporting
For an organisation it is important to make accounting reports as per the requirement and
as per the specific format. Management accounting reports are used by the Excite Entertainment
Ltd to identifying & interpreting financial data & information so that management of company
can take effective decisions for the growth of firm (Merchant, 2012). Financial position and
stability can be analysed that is beneficial to understand how the business operations has been
performed. It provide the detailed information about the business activities. Better plans and
policies can be formulate by the management with the help of these reports.
Budget report: This report is useful for the organisation in order to prepare an
appropriate budget. As the management of Excite Entertainment Ltd can use this report to
manage and compare expected budget projection with actual performance. With the help of this
report company can analyse the level of expenses and if these are more than it is require to take
corrective actions. Almost all corporations make this report so that financial results can be
maintained. As the management of organisation is responsible to set the amount as per the size
and nature of business (Nixon and Burns, 2012).
Accounts receivable aging reports: As the companies use these type of reports when
too much credit transactions takes place in the business of organisation. This report has consist of
bills and invoices. By using this report Excite Entertainment Ltd can know which consumers
does not make the payment. As the complete information about the consumers such as: name,
date & amounts and mode of payment (Kihn and Ihantola, 2015). This report is useful for the
organisation to analyse the effectiveness of the credit & collection functions.
Performance reports: By using this an organisation can know the performance of its
business. For the corporation it is important to know the performance of business and if it is not
up to the mark than corrective actions has to be taken by the management which support the
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growth of firm. To know the shortcomings in business it is very useful so that organisation can
know what are the key areas which have to be emphasized. As Excite Entertainment Ltd will
utilise this report in order to take effective decisions which are associated to the projects. As the
company belongs to entertainment industry and with the help of this report it can know the
performance of entertainment related projects.
Cost managerial accounting report: Production cost can be identified with the help of
this report. As raw material, labour cost, electricity cost are the elements of production cost. As
the management of Excite Entertainment Ltd can develop this report to keep records about the
clients information and data. With the help of this report, corporation can set the price of the
project (Kihn and Ihantola, 2015).
TASK 2
Techniques of cost analysis to prepare an income statement by using marginal and
absorption costs:
Marginal cost: This cost incurred on one additional unit of output. It is calculated in the
situations when BEP has reached and it is the variable cost which involves material & labour
cost (Kaplan and Atkinson, 2015). For the resource allocation this is used by Excite
Entertainment Ltd. As this cost is consider when enough items are required to produce which is
helpful to cover production & fixed costs are at BEP.
Absorption costing: For the valuation of inventory this method has been used by the
organisation. It involves cost of manufacturing a product which consist of both variable as well
as fixed cost. It includes cost of overhead, material etc. As the main advantage of this system is
that all fixed expenditures does not involve in cost of goods (Kaplan and Atkinson, 2015).
Income statement from absorption method:
Sales 120000
Less- Cost of good sold:
Opening stock 5000
Production 100000
(-) Closing stock -20000 -85000
Profit 35000
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Interpretation- From above solved numerical it has been analysed that sales is of £ 120000 and
it is being deducted from the cost of good sold which is being calculated by adding the operning
stock (5000) and production cost of £ 100000. Further, it is deducted from the closing stock
(20000). Through this, the net profit is calculated which is of £ 35000.
Income statement from marginal method:
Sales 120000
Less: variable cost
Opening stock 3000
Production 60000
(-) Closing stock -12000 -51000
Contribution 69000
Profit 69000
Interpretation- On the basis of above solved numerical it has been analysed that, the sales
amount is of 120000. It is being deducted from the variable cost which is of £ 63000. As well as
closing stock is of £ 12000 which is being deducted from the from the variable cost. After that
contribution is calculated that is of £ 69000. In the absence of selling and manufacturing
overhead, it has been considered as net profit.
TASK 3
Advantage & disadvantage of distinct types of planning tools used for budgetary control
Budget: It shows the income and expenditures which are associated with the plans and
strategies which contribute in the growth of company (Hiebl, 2014). It is being prepare for the
future and it is a planning tool which is helpful to determine the performance of the business. As
Excite Entertainment Ltd prepare budget so that it can make plans and strategies which are
related to gains and expenditures. As the organisation can make this so that it can make better
planning for the future expansion of projects which are related to the entertainment. Corporation
can develop this with the help of spreadsheet, business software so that chances of errors can be
minimise.
Budgetary control: With the help of this organisation can evaluate the distinct results
with budgeted figures related to current as well as future performance. In planing and controlling
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this is very useful for the corporation (Hiebl, 2014). As Excite Entertainment Ltd uses different
systems which is used to manage the budget as per the requirement. In this procedure
management can set financial & performance objectives which are related to the budget. As
budgetary control is helpful to manage the unnecessary expenditures which leads to maximize
the profits. There are various planning tools which can be used by the organisation and these are
as mention below:
Zero base budget: Under this specific method all expenditures and gains are evaluated
by new product. As Excite Entertainment Ltd can prepare it so that effective plans will executed
which support the growth of organisation (Fullerton, Kennedy and Widener, 2013). In this
method budget has been prepared from the scratch with a zero base. Under this process
expenditures for new period has determined on the basis of actual expenditures which occurred
& not on differential basis.
Advantage
The main advantage is that each activity has justified and explaining the gains that every
cost will brings in context to the organisation. It is helpful for the organisation to maximize the
efficiency so that objectives can be accomplish as per the requirement (Fullerton and Widener,
2013).
Disadvantage:
The main issue which is related to it as this is time taking procedure and if the manager
have lack of knowledge about this subject than goals can not be accomplished as per the
requirement.
Incremental budget: This budget has slightly changed from preceding period's budgeted results.
As increment is the motive of every organisation and Excite Entertainment Ltd make this budget
so that business can expand and generate higher profits (Cooper, Ezzamel and Qu, 2017) .
Advantages
To make incremental budget is simple and it helpful for the organisation to make
effective plans for the future (Chenhall and Moers, 2015). It is beneficial to measure the
improvement and reflects the true financial position of the corporation.
Disadvantage
As the main disadvantage of this budget is that it often leads divisions to spend higher
funds. Budget is prepare with slight changes than trends will be little incentive to produce a
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complicated review. As the information and data of previous budget does not reliable than
incremental budget will provide irrelevant information which can hamper the performance of
Excite Entertainment Ltd (Merchant, 2012).
Rolling budget: It is that budget which is frequently modified to add a new budget
period is completed. So it includes incremental extension of existing budget model. As this tool
can be used by the Excite Entertainment Ltd to replace the old budget and make another budget
for the upcoming accounting period. For the financial planning it plays a vital role and provide
contribution in the growth of corporation. With the help of this funds can be reallocate from the
non performing segments to performing segments. It is required for the company to modify and
update it every year so that changes can be monitored (Cooper and Qu, 2017).
Advantage:
The main advantage of this budget is that it is flexible in nature and measures the changes
form the preceding year into the next (Tucker and Parker, 2014). It provide help to become more
responsive to unexpected fluctuations in the situations and allow to make changes in upcoming
year.
Disadvantage:
The main disadvantage of this budget is that company have to make a new budget year
after year. It is important for the organisation to analyse the past year data and information and it
previous information is not sufficient or irrelevant than new budget does not make for the
upcoming year.
Flexible budget: It Merchant, K. A., 2012. is that budget which is flexible and changes
can be occur as per the requirement. It emphasis the uses of income & expenditures produced in
the current production as a baseline & anticipate how expenditure & income have alter depend
upon changes (Tucker and Lowe, 2014). With the help of this budget Excite Entertainment Ltd
can measure the performance and take corrective actions which support the growth of
corporation.
Advantage
It is beneficial for the organisation to analyse the better position in the market and control
the unnecessary cost which is helpful to maximize the profits.
Disadvantage
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It requires rigid planning and with it targets can not be fulfilled and some time it becomes
unrealistic so that it does not understandable (Chenhall and Moers, 2015).
TASK 4
Part (b)
Management accounting systems to respond to financial problems:
Financial problem in Exite entertainment ltd: Though organisation prepare several
ways to manage the financial resources of company (Hiebl, 2014). But still management of
respective company faces hurdles while dealing with real situation like at the time of customer
satisfaction, decrease in revenue, variance and so on. Thus, there are several tools that help to
resolve the problem and they are defined below:
KPI: KPI refer to the key performance indicator it is used to measure the success of
employee as well as business. It is one of the most essential methods that helps to enhance the
existing performance of employee. Thus, before making the use of KPI company must know the
goal of employee as well as department. Herein, Excite entertainment limited uses such indicator
for various level of company. It include high as well as low level of KPI, high level of KPI
emphasise on the performance of selected company as a whole. Whereas, low level focuses on
each specific department such as human resource, marketing and so on. Thus, such indicator
helps the company to enhance the current performance by helping overall organisation to
develop successfully. Further, it helps in making effective decision by allocating the task as well
as work effectively (Tucker and Parker, 2014).
Financial governance: financial governance refer to the process of collection,
management as well as control of data or valuable financial information (Fullerton, Kennedy and
Widener, 2013). Such governance can help Exite entertainment limited company to track the all
transaction of business which are financial in nature. Further, it helps in managing the
performance as well as operations of business.
Financial problem: While running the operations of business there are huge financial
problem which are faced by organisation. For instance, uncontrollable cost, increase in outflow
as compare to cash inflow, issue while raising fund as well as debt problem (Cooper, Ezzamel
and Qu, 2017). This problem disturb the functioning of business due to which KPI method is
used. It basically helps to resolve the problem of company.
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Bench-marking: Benchmarking is a tool used to enhance the performance of business by
making the comparison between one company with other company. This method is adopted by
exite entertainment ltd to enhance the personal growth of business by achieving their standard.
Exite entertainment ltd Ever Joy Enterprises
Respective company makes the use of both
indicator such as KPI as well as benchmarking.
This helps the business to enhance the
performance of internal staff with passage of
time. Along with that comparison is made on
similar type of business to achieve the better
result (Chenhall and Moers, 2015). Thus,
selected company gets the advantage of
financial governance which helps them in the
timely disclosure of statement and meeting the
standard successfully.
This enterprise lacks in keeping the track on
the performance of employees. As they does
not uses the KPI indicator successful. This lead
to lack in maintaining coordination among the
internal staff and hence affect the performance
of business (Tucker and Lowe, 2014).
Calculations:
Calculation of contribution per
unit:
Selling price per unit 40
Less: variable cost per unit -10
Contribution per unit 30
BEP in units: Fixed cost 120000 = 4000 units
Contribution per unit 30
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BEP to attain desired
profit:
(Fixed cost + desired
profit) / 180000 =6000 units
Contribution per unit 30
Profit at sales of 4000
units
Sales (4000*40) 160000
(-) Varible cost (4000*10) -40000
Contribution 120000
(-) fixed cost -120000
Profit/loss 0
Profit at sales of 6000 units
Sales (6000*40) 240000
(-) Varible cost (6000*10) -60000
Contribution 180000
(-) fixed cost -120000
Profit/loss 60000
CONCLUSION
As from the above report, it has been concluded that it is required for the organisation to
follow the different types of management accounting systems as per the requirement. Various
methods of accounting reporting are necessary to be consider. Income statement has been
prepared which is based on absorption and marginal costing. There are various advantages &
disadvantages of budgetary control and it is require to use according to the need and suitability
so productive results will produce. As there are various types of financial problems which arises
in the organisation and can hamper the performance of company and management accounting is
helpful to resolve it so that business operations can continue smoothly.
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