Management Accounting Techniques for Excite Entertainment Ltd.

Desklib provides past papers and solved assignments. This report analyzes Excite Entertainment's financial performance using management accounting.

MANAGEMENT ACCOUNTING
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Contents
INTRODUCTION.......................................................................................................................................3
LO1.............................................................................................................................................................4
Section A.....................................................................................................................................................4
LO2...........................................................................................................................................................11
LO3...........................................................................................................................................................16
Lo4............................................................................................................................................................21
Conclusion:-..............................................................................................................................................23
References:................................................................................................................................................24
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INTRODUCTION
This report of management accounting deals with the different type's primary management
accounting system and principles (methods). This is used by the Excite Entertainment in order to
remove in discrepancies and able to attain constant success. The Excite Entertainment Ltd.
Company is engaged in providing consultancy services to the clients especially on an occasional
period of time. In any organization management accounting have a vital role in taking strategies
decision in the interest of the company profit and success. In this report, it is also has been
discussed how both management accounting and financial accounting are different from each
other and how this will the management to increase their profit and make success for a long
period. Under this, the income statement from both methods (marginal and absorption) is
prepared for evaluating and finding why there is a difference between these by reconciliation.
With the proper budget and execution plans helps the company to flow their business activities in
better condition without facing any variance.
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LO1
Section A
Management accounting is the procedure Excite Entertainment Ltd. using in their business for
the purpose of analyzing and evaluating the incurring cost of the company and operations of the
business. This helps the company in preparation for its internal financial reports, through which
the company management take strategic decisions based on it. A management accounting is also
called as managerial accounting (Accountingcoach, 2019).
Financial accounting provides the procedure or method or it can be said as a tool that is used in
the business of Excite Entertainment Ltd. in order to record, summarize and reporting of the
financial transactions related with the company. It is the field of accounting.
a)
Basis Management accounting Financial accounting
Information present for The information included in
management accounting is
mainly used by internal users
like managers and employees
of the company.
In financial accounting. the
information is included for the
purpose of external users that
they use in accordance as per
the requirement. Such external
users are bankers,
government, creditors and
shareholders.
purpose The management is
accounting assist in planning,
controlling and decision-
making process.
It is made for the purpose of
producing a financial position
at the end of the accounting
period.
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Nature It includes both financial and
non-financial.
It includes information related
to financial only.
Time period It is based on historic and
forward-looking.
It is based only on historical
data.
Prepare as per requirement It can be prepared on a weekly
or monthly basis or even on a
daily basis as per requirement.
It is mainly prepared to fix
time usually at the end of the
period.
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b)
Cost accounting system provides an outline, by using this cost system the company can be in a
condition for analyzing the estimated cost of the products for the purpose of analyzing
profitability and cost valuation. And from this, managers enable to take corrective action against
the cost if any overvaluation in cost (Appelbaum, et. al., 2017).
Direct cost: It refers to the cost of material or product which is directly attributed to the cost of
the product.
Standard costing: It is a tool or technique that is used by Excite Entertainment Ltd. company for
analyzing the expected cost from the actual product cost. After that, they find the variance
between both costs (estimated and actual cost for the product).
c)
An inventory management system is a combination of hardware and software. It helps in
monitoring, controlling and maintaining the stock level in business so no overstock can be
removed and this will helps the Excite Entertainment Ltd. company to increase profitability. The
inventory management system is the primary instrument for any organization that uses inventory
in their business activities. This system helps the organization in analyzing the available stock of
goods. This tool and technology system mainly used by those organizations whose turnover is
high and needs to maintain their stock in a computerized format. This is quite expensive and
costly because it required high investment in acquiring and maintaining inventory system. This is
used by the inventory manager and it is effective for the success of the organization. From this,
the inventory manager also makes inventory reports easily and effectively as they maintain their
stock over in computerized form. Some of the benefits from the using of inventory systems are
accelerating in sales, able to manage orders, end to end tracking and maintain warehousing
management properly (Armenian, and Ardeleanu, 2017).
d)
A job costing system is a tool used by the accountant for controlling and tracking the production
or manufacturing cost of the products. By using this accounting system, the managers are helping
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to maintain a record regarding the cost of the product (semi-finished or finished goods) that
which are under the process of production for the further process and also maintain data relevant
to the business activities for producing financial information at the end of the period. This will
include direct material cost, labor cost and direct overhead cost as these costs are directly
associated with providing the services to their clients (Barr, and McClellan, 2018).
Following are different forms of benefits of the management accounting system:
Sources: By Authors, 2019
Efficiency increase:
The efficiency of the company can be attained of the company by making a comparison between
them and also from analyzing the financial accounts. Excite Entertainment Ltd. able to calculate
their financial performance and also select those possible ways that will help to increase the
company profits in the near future.
Transparency in cost:
In Excite Entertainment Ltd. company, so many costs are included. These costs should be
considered while making strategies decision (she, et. al., 2015). These decisions help the
managers for ensuring that the results should be according to the budget prepared by the
management. The cost transparency can be achieved if the plans executed as per the standard.
Helps in the decision:
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Management accounting also provides the benefit of simplifying the decision regarding business
activities. It simplifying as the decision are taken according to the accounts keep the common
perspective. For that the company management simply information and help in the interpretation
of the financial information.
Flexibility:
It should not be rigid (flexible by nature). The reports related to financial accounts are usually
are prepared at the end of the accounting period so the accountant can get enough time to make
and prepare financial records.
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Section B
I)
In Excite Entertainment Lt. organization, there so many types of managerial accounting reports
that have been used within the company (Bull, et. al., 2016). Mainly the following managerial
accounting reports had been used for analyzing the overall performance of the company at a
financial level. Some of them are as below:
Source: By Authors, 2019
Budget reports:
A budget report displays the actual performance of the company by comparison between the
actual and budgeted plans and helps to find the variance between them and enable the
management to take a corrective step in order to sort out problems.
Job cost reports:
This report is related to the cost of the product. It shows the actual expenses incurred for a
specific task. It also provides a benefit of identifying those areas in which the chance of
profitability is higher.
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Inventory and manufacturing reports:
The Excite Entertainment Ltd. company used the report for making their manufacturing units
more effective, efficient and more profitable as it provides the cost included in providing
services such as labor cost and direct overhead cost (Bull, et. al., 2016).
II)
The information that included in the financial reports of the company should be clear, accurate
and relevant to the Excite Entertainment Ltd.company as this is used by the many other people
i.e. internal and external users. If the information is clear and understandable then management
can take action for the future project and able to increase profitability. Firstly, the resultant is
compared with projected figures for finding any difference between them the take necessary
steps in order to sort out variance that occurred in the plans (Koochakpour, and Tarokh, 2017).
The resultant discrepancies show the path to the company to attained the organization goals. If
the information is not relevant as per the requirement by the management and not easily
understandable then it will create a difficult situation in front of the organization in order to
evaluate their performance.
Both management accounting system and management reporting are associated with each other
in Excite Entertainment Ltd. This will help the management to achieve their specified goals in
specified time. Both (system and reporting) provides the qualitative and quantitative information
to the company on the basis of their financial performance made during the stated period in
financial reports. The integration of both between the management system and management
report each other help in collecting the payment time for the purpose of making flexibility and
accuracy in their system so that any negligence can be avoided. It also helps in another way like
better and clear management between cost and inventory in the company. All reports ensure the
management that the decision should be taken accordingly as per the situations (Koochakpour,
and Tarokh, 2017).
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LO2
Marginal costing system
It studies those data who are variable in nature because fix cost never changes and fix over the
period. It provides an outline or a framework related to the variable expenses. Under this costing
system, variable expenses like wages, water expenses and other are totally charged against the
units produced or services provided while the fixed expenses like rent of building are totally
charged against the total expenses over the period of services or producing product.
Marginal Costing Amount (£)
Sales (8000*15) 120,000
Variable cost
Cost of sales 32,000
Selling and distribution 16,000
Contribution 72,000
Fixed cost 40,000
profit 32,000
According to the above of marginal costing, it is clearly be seen by the company management
that Excite Entertainment Ltd. is making a profit of £ 32,000 during the period from its business
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operations. This shows that company profitability always depends on the cost (Lopez-Valeiras,
et. al., 2015).
Absorption costing
In this method of costing system, all the cost related to variable cost and fixed cost is charged to
the product or services. In this, it is also seen that there is no impact on the product cost if the
production remains constant or services are the same during the period of providing services
(Lopez-Valeiras, et. al., 2015).
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