Management Accounting: Techniques, Systems, and Reporting

This document provides an overview of management accounting, including the differences between management accounting and financial accounting. It discusses cost accounting systems, inventory management systems, and job costing systems. The benefits of management accounting systems are also explored. The document then covers different types of marginal accounting reports and explains why accurate, relevant, reliable, and timely information is important. It evaluates how management accounting systems and reporting should be integrated into organizational processes. The document also includes a task on calculating costs using cost analysis techniques and preparing income statements using marginal and absorption costs. It concludes with a task on the advantages and disadvantages of planning tools used for budgetary control and a comparison of how organizations adapt management accounting systems to respond to financial problems.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
(a) Different between Management accounting and Financial Accounting................................1
(b) Cost accounting system.........................................................................................................2
(c) Inventory management systems.............................................................................................2
(d) Job costing systems...............................................................................................................3
(e) Benefits of management accounting systems........................................................................3
(a) Different types of marginal accounting reports.....................................................................3
(b) Explain why information presented should be accurate, relevant to the use, reliable up to
date and timely............................................................................................................................4
(c) Evaluate that how management accounting systems and management accounting reporting
should be integrated organisation operational process................................................................4
TASK 2............................................................................................................................................5
Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs...........................................................................................5
TASK 3............................................................................................................................................6
Advantages and disadvantages of different types of planning tools used for budgetary control6
TASK 4............................................................................................................................................9
Compare how organisations are adapting management accounting systems to respond
financial problems.......................................................................................................................9
CONCLUSION ...............................................................................................................................9
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting is a tool and technique that is utilised by the administrators in
most of the business firms with the motive of analysing the capability of the organisation to
accomplish its predefined aims. To perform in all the business activities and operation in
efficacious manner, it is crucial for all the entities to organise it every year so that intrinsic
information can be collected to take effective decisions for future (Abernethy and Wallis, 2018).
This assignment is based on KPMG which is a leading accountancy company across the world
and offering its services to its diverse customers like Excite Entertainment Ltd. It is operating its
business activities and operations in entertainment and leisure sector. This written document will
include information about management accounting system, reporting methods, framing of
income statement by using marginal absorption techniques. Further, will discuss role of financial
governance and benchmarking in management accounting is correlated to respond financial
problems in efficacious manner.
TASK 1
Section A
(a) Different between Management accounting and Financial Accounting
Basis Management accounting Financial accounting
Meaning It is an activity and technique
of managing, organising and
controlling the financial
information of a company and
provide it to the administrators
to devise policies, plans and
strategies for effective running
of the business.
It is an accounting system
which mainly concentrates on
formulating financial
statements of the company to
offer information to the
interested parties (Alawattage,
Wickramasinghe and Uddin,
2017).
Information The information which is
provided by this technique is in
term of monetary and non-
monetary.
It provide only monetary
information of the company.
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Objective The major purpose of it to help
the management in planning
and determination devising
activity in term of offering
brief information about several
matters.
The main objective of it is to
offer financial data to outsiders
(Falla and Opstad,2014).
Time frame These reports are defined as
per the requirement of the
company.
Financial statements are
designed in the end of the
accounting period.
(b) Cost accounting system
It can be explained as a system which is basically used by the enterprises for monitoring
the actual cost which is faced by them during the time of performing organisational actions and
operations. In Excite Entertainment Ltd., administrators of the company can use it to identify the
reasons of all the expenditures which are occurred cause of business activities.
Direct costs- In it, all the expenditures are instantly affiliated with the business operations
and known as the part of these kind of costs. These kind of expenses faced by the managers of
the respective company in term of promoting concerts, festivals across UK.
Standard costing- This technique can be used by Excite Entertainment Ltd. Yo collect
data towards those components which are providing outcome in variation among standard and
actual cost.
(c) Inventory management systems
This system is used by the companies to administrate all the products which are utilised
subject to organise operations efficaciously. In Excite Entertainment Ltd., it can be apply by the
administrators to keep record of all the inventories in which is being utilised by workforce to
offer leisure to the consumers.
LIFO- In it, the firms concentrates on those inventories which are purchased in last and
used first in the manufacturing activity (Feng and Ho, 2016). In respective company, this
technique can be use for efficient stored of the inventories.
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AVCO- In Excite Entertainment Ltd., this technique can be used by the management of
the company for setting the price of their goods and services as per the basis of average cost of
the production.
FIFO- Within this inventory valuation system products which are purchased first are
utilised first in context of manufacturing.
(d) Job costing systems
This management accounting system is basically used by the large companies in order to
divide all the expenditures which are providing outcomes from various jobs (Giacomini, Sicilia
and Steccolini, 2016). In Excite entertainment Ltd., the administrators are utilising this method to
maintain the record of all the jobs which are executed as per the specification of the customers. It
is crucial for the firm because it can assist in segregating diverse expenditures accordant to the
clients.
(e) Benefits of management accounting systems
Cost accounting method is beneficial for measuring the cost of each individual group of
result. With the help of it, the respective company can assess its unit's cost. Inventory
management system help in storing material in warehouse which direct to efficacious control
upon over the storage cost. With the implication of this method, the respective firm can make
control over storage cost. Job costing system is crucial for calculating and offering information
about the cost of each production unit or aware about the cost of every product which they
consume in their actions.
Section B
(a) Different types of marginal accounting reports
It is an activity of formulating management reports which is used by all the organisations
for analysing the actual performance of the business of the firm. In Excite Entertainment Ltd.,
administrators are framing several kinds of reports in order to maintain brief data of business.
Account receivable report- It is the report which consists in depth material subject to the
unpaid amount which was not paid by consumers during the time of buy. In respective company,
the administrators of the firm are framing this report in order to monitor the amount which is
owned by their potential customers. It is crucial for the company because it assist the firm in
determine entire outstanding which will be accepted by the firm in future.
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Inventory management report- In is an written document which involve important
information of inventories that are utilised by the firms to execute all the operational actions and
activities (Hertati, and Sumantri, 2016). In respective company, the managers are designing the
aims and objectives of the business and the firm having effective inventory to provide
entertainment and leisure services of the organisation.
Performance report- These kind of reports are formulated by the companies to determine
that all the employees and business is executing in better manner or not. The administrators of
Excite Entertainment Ltd., are also generating it to analyse that workforce are performing in
effective manner in context of accomplishing the business objectives and aims (Jing and
DUMITRU, 2015). It offers several advantages to business which consists facilitation in offering
bonus to workers, taking decisions for upcoming time etc.
(b) Explain why information presented should be accurate, relevant to the use, reliable up to date
and timely
The data or information should be accurate, reliable and relevant up to date cause of
several mentioned reasons:
Accurate- The data is accurate because the administrators take effective and right
decision in context of business and business activities & operations.
Relevant- The accounting data should be relevant in context of firms financial
transactions because if the data will not be effective, it can be hard to rely on the information.
Reliable- The accounting data should be reliable because in the absence of this feature,
the firm can not make right or effective determination.
Timely- The accounting data should be provide ion correct time so that organisations can
devisee plans and strategies to beat the rivals.
(c) Evaluate that how management accounting systems and management accounting reporting
should be integrated organisation operational process
In Excite Entertainment Ltd., the administrators are obsessed with maximised execution
of the company for this motive, diverse systems and reports are utilised by them which are
affiliated to management accounting. The main motive of all them is to offer brief data in context
of execution and operational efficiency of business (Kihn and Näsi, S., 2017). For instant, cost
accounting method is utilised b y the administrators of the company to differentiate all
expenditures which are resulting from activities and operations. Apart from it, managers are
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framing administration reports like inventory management report, performance report etc. These
reports are crucial to analysing or assessing the actual performance or the employees and the
business of the company.
TASK 2
Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs
Absorption costing- It is an accounting technique which utilised in cost accounting to
analyse the cost of absorption. In Excite Entertainment Ltd., the administrator usage it for
identifying the best method to formulate the income statement so that effective data can be
collected in context of business (Nimtrakoon, S. and Tayles, M., 2015). The major advantage of
this technique is that it provide direction to the manager to formulate plan of actions to maximise
operating incomes for for the firm for a particular time frame. The limitation of it is that the issue
which is suffered by the analysers during the time of comparing outcomes as all the expenditures
which are considering at the time of utilisation it to calculate profitability.
Marginal costing- It is another technique of accounting which is utilised by the firm to
identify the cost and fund which gets modify when the units in entire manufacturing is changed
by senior mangers. At time of usage of this technique, the administrators of the respective
company write off all the fixed costs. This technique is beneficial because it is easy to
acknowledge so assist in designing the plan of actions for the growth and development. The
drawback of it is that there is high level of problem which is suffered by the analysers at the time
of classifying costs.
Income statement as per absorption costing:
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
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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
There are several types of management accounting techniques which could be utilised by
Excite Entertainment Ltd. Some of them are defined as beneath:
Historical costing- In this costing technique, all the data and figures in balance sheet and
other financial documents should be recorded in actual amount rather than book value (Papazov,
E. and Mihaylova, L., 2015). With the assistance of it, actual position of the business if the firm
could be monitored.
Standard costing- In this costing technique, the divergence among actual and budgeted
figures are determined. It assists administrators to identify the reasons of which the current
condition of the business are influencing and the forecasted position of the firm.
Financial report showing results of profits for January 2020
Particulars Amount
Marginal costing method 32000
Absorption costing method 40000
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From the income statements which are formulated for Excite Entertainment Ltd., it has
been summarised that marginal costing is providing outcomes in term of profits of 69000 and
absorption method is reflecting the net income of 35000. The major reason of the differentiation
is ignorance of fixed cost in marginal costing. By determining the current situation , it has been
suggested to the company to utilise the first method and technique which is showing or
indicating net profit of 69000.
BE Formula
Formula=TFc + TP / SPpv - VCpv
=£500 + £700 / £30 - £10
=£1.200/ £20
= 600,000 Units
Budget is plan for a future period in economic terms
Q= £10* £40= £400
R= £8* £36 = £288
S= £11* £20= £ 220
= £908
BREAK-EVEN CHART
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Break-even chart CVP table
Units TFC TVC TPC TR Profit
1000 120 10 130 40 90
2000 120 20 140 80 60
3000 120 30 150 120 30
4000 120 40 160 160 0
5000 120 50 170 200 -30
6000 120 60 180 240 -60
7000 120 70 190 280 -90
8000 120 80 200 320 -120
9000 120 9000 210000 360 -120
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VCpv= 10
TPpv= 40
TFC= 120
TFC= Total fixed cost
TVC= Total variable cost
TPC= Total price cost
TR= Total revenue
SR= Sales revenue
TP= Target profit
TASK 3
Advantages and disadvantages of different types of planning tools used for budgetary control
Budgeting
It is an activity of designing a plan to spend the finance. It can be an estimation of
expenses and revenue over a specified forthcoming time period which is basically complied and
re-measured on a periodic basis (Revellino and Mouritsen, 2015). In term of companies, it is an
internal too, which is used by the administration to have the information about future expenses
and profits.
Budgetary control
Budgets are financial documents that consists estimations about the expenses or profits
which are formulated after determining aims and objectives of the firm. Methods and systems
which are adopted by the enterprise for controlling fiscal execution by preparing addition to
applying distinct budgets is known as budgetary control. Finance function of Excite
Entertainment Ltd. Design several budgets and examine the outcomes with the help of this
mechanisms and with the assistance of it they can comparison among actual performance with
the approximation.
Different planning tool
Zero based budgeting- It is a budgeting tool in which all transactions are justified for the
starting of new accounting period. In Excite Entertainment Ltd., it can be utilise to scratch all
expenditures to zero every time in context of justify the fund according to the business aims.
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Advantages- These kind of budgets generates growth options to the administrators and it
assist in capitalising resources on inefficiencies addition to identifying creations for minimising
costs.
Disadvantages- The main draw back of this tool is to prepare budget at at company
which take more time as the process of designing consists new aspects in each cycle that takes
more duration in analysing the actions for devising estimation.
Cost budget- It is another planning tool in which expected cash receipts together with cash
disbursements are recorded for accounting period (Richardson, 2015). In Excite entertainment,
with the help of it, the administrators can gets total information about cash status so that further
critical determinations in term of creating reserves and uses in effective way are designed.
Advantages- The major benefit of this tool is that it make realistic predictions and
monitors financial statements so to look into expenses that are devised in the period.
Disadvantages- The limitation of it is that it limits the areas of spending that providing
outcomes in term of preventing growth options to make future investments by the firm.
Break even analysis
It is a financial tool which assists the company in determining at hat stage the firm or a
new service or a product will be profitable (Schaltegger, Burritt and Petersen, 2017). In context
of respective firm, it is an financial analysis or calculation for monitoring the number of products
services an organisation should sell to cover its costs. It is a situation where the firm can neither
making fund and nor losing cost but all the costs have been covered. This analysis is beneficial to
examine the relation among the variable and fixed cost and revenue. This analysis is beneficial
because it help in monitoring the impact on profit on modifying to automation from manual.
Fixed cost-It is also known as overhead cost and fixed cost also consist interest, taxes,
salaries, rent, labour cost, energy costs and others. These all cost are fixed because no matter
how much the firm sell.
Variable cost- It is the cost that will maximise or minimise in direct relation to the
manufacturing volume. In excite Entertainment, it consist raw material, fuel and other costs that
are directly connected with the production.
Limiting factor analysis
It refers to any resource which the business requires to manufacture the products it sells.
There is no point in forecasting high unit sales if the business is not able to manufacture the
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amount it requires (Seal and Mattimoe, 2014). This analysis consist different factors because a
business will always have at least one limiting component. The factor which are consisted by this
analysis are :
 Production capacity
 Skilled labour
 material suppliers
 Finance capacity
 Premises such as factory or office etc.
 market demand fro the product
TASK 4
Compare how organisations are adapting management accounting systems to respond financial
problems
1. Contribution Margin: It is a term which is used by business in different ways but mainly used
to now products and deliver a services then less the variable cost of delivering product. In
general way, it is defined that from the sales less amount of variable cost and get amount of
contribution margin. From the provided data calculate contribution margin in such manner:
2. Break even point: It is outlined as a break even point where organisation get no profit and no
loss because of company do not face any type of loss. As per the given data calculated BEP in
pounds:
Particulars Amount (Values in
pounds)
Fixed cost (A) 120000
Contribution per unit (B) 30
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Break even points (A/B) 4000
3. Units to achieve: There are calculated those units that based on the fixed cost and desired
profit. After that get amount of the desired level of profit units that achieve in certain period of
time.
Sensitivity analysis: It is an analysis which determines that how different values of an
independent variable affect a specific dependent variable under a given set of assumptions. On
the other hand, this analysis study how different source of uncertainty in a mathematical model
contribute to the model's overall uncertainty. Sensitivity analysis can be utilised to assist make
predictions in the share prices of publicly-traded organisation or how interest rates affect bond
prices. It is beneficial because it help in understanding relationship among input parameters and
outputs, testing the robustness of the output, quantifying uncertainty and finding out optimal
parameter settings in the model.
5. Assumption break even point analysis
In order to do break even analysis require to follow some assumption that helps to
calculate break even point easily. There are mentioned some assumption of break even analysis
such as:
 To calculate break even require to calculate overall cost where consider fixed and
variable cost but neglects semi variable cost.
 When company manufacturing products that time fixed cost remain same whether
production increase or decrease.
 As per the assumption it is accepting that there is no changes in labour efficiency as well
as in constant technology.
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 The main assumption related with selling price which is not changing because it do not
impact on the changes in production will increase or fall down (Vasarhelyi, Kogan and
Tuttle, 2015)..
 Variable cost is dynamic because of it depends on the changing outputs so it is different
from the fixed cost because variable cost will change as per the fluctuated situation of
business.
 When company have different items for production so in this condition organisation
applied product mix method in unchanged or stable manner.
 If manufacturing units increasing so according to that total of profitability also
increasing. In other words, according to this assumption total amount of sales income
enhance due to manufacturing higher number of units.
 According to this assumption company do not manufacturing more than one product
otherwise these are not applied.
 The production results and profitability has been changed due to alteration in sum of
sales revenues.
 Production mix is stay same because of it will not impact on the fluctuation in relatable
elements.
As per the above assumption of break event point analysis it is getting that all
assumptions are not easy to apply in practical life some are remain in theoretical manner. Such as
one assumption refers that is not possible in an organisations. There are different assumptions
that are not applied and seems wrong. For example, enhance variable cost at a fixed rate is not
possible due to increase it as per the situation of production activities in business and some times
it based on the sales.
CONCLUSION
As per the above information, it can be summarised that management accounting is an
effective process of managing cost and providing information about the financial and non
financial information to the company about its business. There are different accounting reporting
methods which are crucial for managing the financial and accounting information of the
company. Marginal and absorption accounting techniques are beneficial to formulate income
statement of the enterprise. Different planning tools like zero based budgeting, break even
analysis and others a re crucial and used for budgetary control.
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Online
Difference Between Financial Accounting and Management Accounting. 2020. [Online].
Available Through: <https://keydifferences.com/difference-between-financial-
accounting-and-management-accounting.html>.
Break-Even Analysis. 2020. [Online]. Available Through: <https://cleartax.in/s/break-even-
analysis>.
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