Management Accounting: Systems, Methods, and Techniques

This document provides an overview of management accounting systems, methods, and techniques. It covers topics such as MA systems, financial accounting, cost accounting, inventory management, job costing, and more. The document also discusses the benefits of MAS and provides examples of different management accounting reports. It is suitable for students studying management accounting or anyone interested in learning about the subject.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
P1 MA systems and the requirements of various type of MA systems......................................1
M1 Benefits of MAS:..................................................................................................................4
TASK 2 ...........................................................................................................................................4
P2: Explain different methods used for the management accounting reporting........................4
Task 2...............................................................................................................................................6
P3 Calculation of cost by using appropriate techniques and income statement by marginal and
absorption costing.......................................................................................................................6
TASK 3............................................................................................................................................1
P4 Explaining various types of planning tools used in budgetary control along with their
advantages and disadvantages.....................................................................................................1
M3 Analysis of use of various planning tools and application of them for preparing and
forecasting budgets......................................................................................................................2
TASK 4............................................................................................................................................3
P5 Comparing the ways in which companies can adapt management accounting systems to
respond financial problems.........................................................................................................3
M4 Analysing the way in which management accounting can help to respond financial
problems......................................................................................................................................5
CONCLUSION ...............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
The concept of management accounting is concern with those technique which enable
and organisation to analyse and evaluate its capability to achieve pre defined goal or objective in
an efficacious manner. However, for maintaining the finance and operational activities of an
establishment in a smooth, the role of management accounting is regraded as an important
element. This is because, it aid managers to examine the internal financial situation and also lead
them to make best strategic decision in order to improve the overall performance of company in
an amended way (Mueller, 2018). In regard of this report, KPMG organisation has been
considered which is a reputed accountancy enterprise in worlds who offer various kinds of
services to different clients such as Excite Entertainment Ltd. However, this company operate its
business function in leisure and entertainment industry. This report covers the content regrading
management system, different reporting methods, developing income statement by implying
marginal and absorption technique of costing. Furthermore, determining the role of financial
governance and analysing the benchmarking in management accounting for responding financial
problems effectively.
TASK 1
P1 MA systems and the requirements of various type of MA systems
Management Accounting: The aspect of management accounting has been recognised
as an essential component in every form of organisation. This is because, it is concern with
those technique or procedure which comprises determining business cost, measuring,
identifying, analysing, interpreting and communicating the required information to managers as
well as help them to make best possible decisions for enhancing market share of firm. In relation
to Excite Entertainment Ltd, its managers make an initiative to understand the concept of
management accounting to evaluate their potentiality and also to measure their performance.
Due to which, company can monitor whether they are on the right track or not as well as can take
corrective course of action for enriching financial performance in an improved mode (Jovanović
and Dragija, 2018).
Financial Accounting: This determinant is relate with the recording structure that is
utilise by every small and medium type of organisation to prepare final statement of account for
determining the financial status of company. In context of Excite Entertainment Ltd, with the
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application of financial accounting, it enable them to analyse whether their managerial and
operations functions are acquiring profit or loss. Due to which, it motive them to make
alternative ways for enlarging the profitability and productivity ratio of an organisation in a
better way (Gull and et. al., 2018).
(a) Difference between management and financial accounting:
Basis Management accounting Financial accounting
Meaning This is related with accounting
system which provides relevant
information to managers in order to
make strategies, policies and plan for
completing task and making profits.
This is an accounting system in
which manager focuses on
preparation of financial statement
in order to get financial
information and make decision
accordingly.
Information This accounting is providing
monetary and non monetary
information which helps to attain
business goals.
This provides monetary
information means which are
related to money in order to
complete goals.
Objectives The objective of management
accounting is to provide assistance to
managers in making decision by
getting all information and matters.
The main object of financial
accounting is to provide financial
information to outsiders so they
can make decision regarding
investment and profitability.
Publishing and
auditing
There is no special requirement of
published and audited by statutory
auditors.
It required to be published and
audited by statutory auditors who
have special knowledge and
experience.
(b.) Cost accounting system –
This can be consider as product costing system which is used by business firms to
estimate the cost of their products and services. This is mainly profitability analysis, inventory
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valuation and cost control method which helps business organisation to get higher profits by
getting accurate cost of products and services. In context to Excite entertainment, management
are using cost accounting system to estimate the cost of their products which are providing by
organisation (Pavlatos and Kostakis, 2018). Moreover, this helps to estimate the closing value of
raw material, finished goods and other inventory in order to make financial statement. This
covers standard and direct costing which is defined as:
Direct costing: This is a simple form of cost analysis which involves variable costs to
make strategic decision. It does not involve fixed cost which remains associated in time period at
the time incurring cost.
Standard costing: This is accounting system which is used by management to identify
the difference between actual cost and the cost which have occurred for actual goods produced.
(c.) Inventory management system -
This is a tool which is used by business industry to track the goods, are getting prepared
by management across business's supply chain. This approach uses to source, store and sell the
inventory by management in order to evaluate effectively and increasing profitability. In context
to Excite entertainment Ltd., management are using inventory management system which helps
to maintain the internal control over stock, safeguarding from theft and damage, using purchase
order for tracking inventory moment etc. By using this managers of organisation enable to
evaluate the level of inventory and good which are having in business organisation. Moreover, it
helps to lace the order of goods by knowing about quantity of products (Pelz, 2018).
(d.) Job costing system -
This system is consider as cost allocation method which is used by companies to make
custom products and segregate the expenses which occurred in business organisation. This helps
to get the accurate cost for each department and make right decisions. This system is uses by
management of Excite entertainment Ltd for keeping track record of all jobs which performed by
specific client in order to deliver quality of products and services. This involves vital range of
cost that are as measured:
Contract costing – This mean cost of product is linked with customer's specific contract
which need to be complete in fixed period of time.
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Service costing – This type of cost is uses in business organisation in order to provide
services. Such as Excite entertainment is using services costing because it provides event
organising services that increases productivity.
Batch costing - It can be consider as costing which is used to assign the batch of unit cost
in order to make right decisions (Aureli and et. al., 2019).
M1 Benefits of MAS:
Cost accounting system: By using this Excite entertainment get information which
activity is profitable and which one not that helps to increase the profitability. This helps
management to define the profit and losses on periodical basis which is important for
organisation. Moreover, it helps to control over material and supply of goods and services which
increases organisational effectiveness.
Inventory management system: This is effective system which give many advantages
to business organisation as it helps to achieve efficiency and productivity in operations. Excite
entertainment uses this to minimise the inventory cost by tracking which helps to maximize sale
and profitability. This make customer happy by fast selling of products which fills the needs of
customers and increasing profitability (Tytenko, 2018).
Job costing system: This benefited to Excite Entertainment by cost ascertaining at
different stage of completing the jobs. In this managers can easily estimate the cost of job on the
basis of past information in job costing. Moreover, this is used to generate the profits from each
job which helps to maintain good performance (El Guindy and Basuony, 2018).
TASK 2
P2: Explain different methods used for the management accounting reporting.
The managerial accounting is a practice of analysing and interpreting the financial
information to increase the organisation profits and reduces the cost of the organisation. It is
method of making well informed decision by the managers in the organisation. Their are various
different report which helps in making sound decision for earning profits in the organisation.
a.)Some of the reports are discussed as follows:
Budget report: This report is very critical for the company as it helps in measuring the
companies performance for different period of time. Every organisation makes different types of
budget to understand the performance as a department wise. It is made on the bases of past
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experience and to analysis the unforeseen circumstance in the company so that cost cutting can
be done. In other words, budget report consider as internal report that provide information
regarding estimated and budgeted projections in order to get actual performance in certain period
of time. The management of Excite Entertainment are preparing budget reports in order to get
financial goals which is based on estimates and future projects that provides actual financial
performance of business corporation. By using this report managers are estimating actual cost
and compared with budgeted numbers which helps to make profits (Ng, 2018).
Account Receivable Aging reports: This report is important for maintaining the cash
flow management in the organisation which uses credit business for performing the given
activities. This report shows the customer outstanding balance for the given time period. The
aging report helps in detecting the loopholes in the collection methods. The management of
Excite Entertainment company are using this report to keep records of its unpaid customers and
receive payment from them that helps to run business effectively (Peysakhova and
Anyushenkova, 2018). This report give a list of unpaid customer invoices and credit memos
which are unused by certain date. The management are maintaining their balance sheet and
payment by keeping records of all customers and maintain the profitability.
Job cost report: Under this report, it involve the cost of material,labour and overhead for
a particular task. This report is a excellent tool for reducing the cost of the job and enhance the
productivity of the overall job. Here cost associated with a particular venture is estimated in
comparison of the revenue generated from such ventures. This is another reporting method that
uses by management in order to keep ongoing supervision on material and labour and overhead
effectively. In context to Excite Entertainment, management are using Job cost reports for
ongoing supervision in order to get good financial results. In this, management ensures that jobs
are done effectively by making financial reports and profitability (Thapayom, 2019).
Inventory and manufacturing report: This report involve the cost of inventory laying
in the store, in the production process so that overall cost of the activities are under control of the
manager. Here various different manufacturing report are compared to know the performance of
different departments and evaluated on the ground of effective cost management in the
organisation. This report is used by management of Excite entertainment to evaluate the stock
level of business organisation and make profitability. In this, management get information about
how much stock are available in ware house and which is finished that helps to place the order to
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raw material and finished goods accordingly. This report is prepared to make financial statement
which increases usefulness for actual investors and potential customers.
b.) Information presented should be accurate, reliable, relevant and up to date
It is important for organisation to present accurate, reliable, relevant, timely and up to
date information that can help to attain the business goals by completing target. If information
are not accurate, relevant and up to date then it become difficult for organisation to make right
business decision and complete their targets. For instance, the managers of Excite entertainment
organisation are presenting appropriate, useful, relevant and up to date information on time to
time basis which helps to make the business decision effectively and quickly respond to
organisational events which complete the goals of business organisation.
(c.) Management accounting system and reporting are integrated with organisational processes
From the discussion it has critically evaluated that in Excite Entertainment, management
accounting system and accounting reports are integrated as inventory management system helps
to prepare inventory report which is used to track the inventory effectively and place order to
good in order to run their business. Cost accounting system is used to prepare costing reports
which gives information about cost which are using by organisation and remove the unnecessary
cost which are running in business practices. Moreover, job costing system helps management of
Excite Entertainment to divide the cost in to separate batch so profits can be made at higher
range. In absence of such system, it become difficult for organisation to prepare reports and
make financial decision (Nguyen and et. al., 2019).
Task 2
P3 Calculation of cost by using appropriate techniques and income statement by marginal and
absorption costing
Marginal costing – This technique is consider as calculation of profit by making change
in units then production is also get changed. In this, management of Excite entertainment
organisation write off all fixed cost which occurred in organisation.
Advantages of marginal costing covers:
 It helps to maintain the long term stability in order to increase the volume of
production.
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 This determine the profitability and pricing of a product which is providing by
organisation.
 This states production planning by discovering the profit changes with level of
output and cost profit analysis.
 This is used to differentiate the cost of fixing the selling price of demanded
products in different market.
Disadvantages:
 It is challenging technique in dividing the fixed and variable cost.
 This method does not provide explanation for incremental production as well as
sales.
 This considers as all cost are variable and it vary in case of new plans and
machinery are introduced by management.
Calculation of profit by marginal costing
Absorption costing – This is also a calculation technique which is used to get the
absorption cost by absorbing all expenses. In this, all cost are gathered by management and make
a clear decision.
Advantages of absorption costing
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 This is useful to fixed the cost and pricing of products which helps to maintain the
sale of organisation.
 By using this organisation can get truthful profits at the time of generating sales.
 It reveals unproductive and resourceful employment by determining under
absorption and over absorption overhead which make profits.
Disadvantages:
 This method depends on output level which make difficulties for comparison and
cost cost control.
 Through this organisation leads less authentic product cost because it is random
method of cost portion out.
 It make difficulties for Excites entertainment to create flexible budget.
Calculation of profit by absorption costing
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TASK 3
P4 Explaining various types of planning tools used in budgetary control along with their
advantages and disadvantages
Budget is a financial plan which is generated by all the organisations to meet the long
term business goals by performing all the operations in the allocated funds (Thien, 2019). In
Excite Entertainment Ltd mangers use different types of budgets so that they can meet the long
term business requirements. In order to control the overspending of all of them budgetary control
is focused by the management. For this purpose managers also use some planning tools which
are compared in the following table on the basis of their advantages, disadvantages and
definition:
Basis Sales budget Production Budget Cash flow budget
Definition It is based upon sales
projections which are
made by managers to
meet expectations of
customers. With the help
of it management will be
able to analyse that
which department
needed how much funds
to operate.
This budget is formulated
by the business entities for
the purpose of keeping
detailed information of all
the product lines which
are manufactured by the
company. The key
elements which are
recorded in it are direct
labour, material etc.
It is an estimation of al
the cash payments and
receipts which are
analysed by the
management for the
purpose of determining
liquidity of the
organisation.

Application or
usage
It is used in Excite
Entertainment Ltd for
the purpose of utilising
all the resources
appropriately and
meeting the desired
revenues. It is made on
monthly, quarterly or
yearly basis.
Managers of Excite
Entertainment Ltd use it
for the purpose of
recording information of
different types of leisure
and entertainment services
which are offered by it to
all its clients.
In Excite Entertainment
Ltd it is used by
managers to analyse the
total cash which could be
acquired by them in
upcoming period. It is
also created on yearly,
quarterly and monthly
basis.
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Advantages With the help of it
managers can keep the
expenses under control
which is beneficial to
enhance profits.
It facilitates management
to reveal the the areas
which are required to be
strengthen.
Production budget
benefits the company by
facilitating the managers
to record and forecast
production related
expenses for future.
It is also beneficial in
determining material
losses due to shrinkage.
It is beneficial for the
organisation to determine
the available resources
which could be used to
carry out operations.
Only cash receipts and
payments are recorded in
it and all the debts are
ignored.
Disadvantages This budget is not able to
forecast the future trends
effectively.
The time required to
generate it is very high
therefore while preparing
it the managers will not
be able to pay attention
towards other processes.
It is based upon sales
budget if an organisation
is not able to prepare that
one appropriately then
production budget may
also have errors.
In order to prepare it
professional training is
required which may result
in higher spendings.
Cash related information
could be biased easily
therefore there is a huge
danger of theft.
Cash budget results in
limited spending power
and restrict the managers
to spend funds on
business activities.
Contrasting of all the planning tools: There are various types of planning tools which
are used by managers of Excite Entertainment Ltd for the purpose of carrying out operational
activities in systematic manner. All of them have various similarities such as sales, production
and cash flow budget are generated on monthly, quarterly and yearly basis (Demerjian, Donovan
and Jennings, 2019). Apart from this, another similarity among them is that with the help of all
of them manager formulate decisions for future because the data recorded in them is used by
them for same purpose.
M3 Analysis of use of various planning tools and application of them for preparing and
forecasting budgets
Managers of Excite Entertainment Ltd are using various types of planning tools such as
sales, production and cash budget. With the help of all of them they try to prepare and forecast
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different budgets for the organisation so that the planned activities could be performed in
systematic manner. For example, sales budget guide management to determine the resources
which are required by production units or the departments which are delivering leisure services.
Cash flow budget also guides managers to determine future receipts which is useful for
formulating overhead and other budgets for upcoming period (Адамов, Юхненко and Богдяж,
2019).
TASK 4
P5 Comparing the ways in which companies can adapt management accounting systems to
respond financial problems
When a company face situations such as lack of finance to carry out future expenses then
it is known as financial problems. It may take place due to various reasons such as overspending
of budgets (Penman and et. al., 2018). For entities such as Excite Entertainment Ltd it is very
important to deal with it appropriately so that long term business goals could be accomplished.
Some of the issues which are faced by the enterprise are as follows:
Unplanned expenses: It is one of the main expenses which results in lack of finance for
future activities. There are various such types of expenditures such as repair of equipments used
for leisure etc. that are taking place in Excite Entertainment Ltd. It is very important for the
managers to identify it and respond properly. For the identification of this financial challenge
key performance indicators (KPI) could be used. These are the tools which are used by
organisations to measure the success or failure of the actions which are taken by them. There are
two main type of KPIs which are financial and non financial (Hodzytska, 2019). The first one is
used to determine the operational processes which may result in higher expenses and control
them. Another KPI is used for the purpose of identifying errors in supply management. In order
to identify to the issue of unplanned expenses managers in Excite Entertainment Ltd can use
financial KPI because with the help of it the expenditures could be analysed.
Weak money management system: This type of problem also create issue related to
finance because if the managers who are responsible to manage the funds do not have proper
information about principles of financial management then it may create issues for business. This
challenge is also affecting Excite Entertainment Ltd because of lack of knowledge of rules and
regulations of accounting (Ogungbade and Tabitha, 2018). It is very important for the
4

organisation to deal with this problem appropriately to operate business systematically. For the
purpose of identification of it benchmarking could be used. It will guide the managers to
compare their accounting processes with a competitor and then determine the errors in their
system. It will be beneficial for the enterprise to attain competitive advantage.
In order to respond to the both the above identified issues financial governance could be
used. It is a framework which guides all the organisations to formulate all the final accounts and
accounting records according to appropriate principles. With the help of it, both the problems
could be dealt properly because by using it managers will be able to form the accounts
appropriately. It will be beneficial to be ready to pay the unplanned expenses and strengthen the
money management system (Zhang, 2018).
Comparison:
Excite Entertainment Ltd David Lloyd Leisure
Managers of the company are using cost
accounting system to respond the financial
challenge of weak money management system
as it helps to record appropriate information in
the books and maintain the monetary system
(Kilyar, 2019).
Price optimisation system is used by the
managers of the company as it helps them to
deal with the problem of lower profits. They
set appropriate prices for all the services
which help to retain the clients and maintain
profits.
Job order costing system is used in the company
by managers to respond the challenges such as
unplanned expenses because it helps to allocate
funding to all the jobs according to their
requirements so that possibility of sudden
expenditures could be ignored.
In order to respond the financial challenge of
lack of inventory for operations inventory
management system is used which help to
maintain the level of stock and carry out
operations properly.
Financial information:
Contribution per unit = (40-10)
= 30
Break even point = 12000 / 30
= 4000
Number of units to be sold = (90000 + 120000) / 30
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= 70000
M4 Analysing the way in which management accounting can help to respond financial problems
Excite Entertainment Ltd faces different types of financial challenges such as unplanned
expenses, weak money management system etc. In order to deal with all of them different types
of management accounting techniques could be used. These are benchmarking, KPI, financial
governance (Mohr, Raudla and Douglas, 2018). By using all of them managers identify the
challenges and respond them in systematic manner. KPI and benchmarking are used for
identification of issues and financial government is utilised to respond them systematically as it
guides the company to formulate accounting records according to appropriate principles so that
problems could be ignored.
CONCLUSION
From the report it can be concluded that management accounting is important in every
organisation which is used to take right action. Inventory management system uses to track, cost
accounting is uses to estimate cost and job costing system is used to divide the cost which helps
to make profitability. Planning tools are those techniques which uses to control the budget by
using sales, production and cash flow budget. It meets with all requirements in organisation and
accomplish business goals effectively. There are many problems faced by company, so company
uses accounting system in order to solve them effectively.
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