Comprehensive Management Accounting Report for Decision Making

This report delves into the realm of management accounting, providing a comprehensive overview of its systems and applications within Excite Entertainment Ltd. It begins by differentiating management accounting from financial accounting, highlighting their distinct objectives and target audiences. The report then explores various cost accounting systems, including job order costing, process costing, direct costing, and standard costing, illustrating how they are employed to analyze and control production costs. Inventory management systems and job costing systems are examined, emphasizing their role in tracking goods and allocating costs to specific jobs. The report also outlines different types of managerial accounting reports, such as budget reports and accounts receivable aging reports, and underscores their importance in decision-making, planning, and performance measurement. Furthermore, the report discusses the use of planning tools in management accounting and their significance in strategic decision-making. Finally, it addresses the application of management accounting in addressing and preventing financial problems within an organization, providing a holistic understanding of the subject matter.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
SECTION A.....................................................................................................................................1
a) Differences between Management Accounting and Financial Accounting.............................1
b) Cost Accounting system..........................................................................................................3
c) Inventory Management systems..............................................................................................3
d) Job Costing Systems................................................................................................................4
SECTION B.....................................................................................................................................5
Types of Managerial Accounting Reports...................................................................................5
Information presented must be accurate, relevant to the user, reliable up to date and timely.....6
Management accounting system and management accounting reporting is integrated within
organisational processes...............................................................................................................6
TASK 2............................................................................................................................................6
Use of different techniques of management accounting..............................................................6
TASK 3............................................................................................................................................8
Use of planning tools ................................................................................................................10
TASK 4..........................................................................................................................................11
Ways in which management accounting is applied in dealing with financial problems and
preventing financial problems in an organisation......................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting is or managerial accounting is the process in which companies
analyse their cost of production and operations in order to prepare the financial reports, records
and accounts which helps the managers in decision making process. This is the process which
looks over the events which happens in an organisation. The following report contains the details
information about he use of management accounting system, difference between the
management accounting system and financial accounting system (Wolfsgruber, 2015). This
report also contains the data about the cost accounting system which include direct cost and
standard cost. This report also focuses on the various types of system which are used in an
organisation such as inventory management system and job costing system. It also contains the
various types of managerial accounting report and their importance and why they should be
accurate. To understand the importance or managerial accounting and its integration with
management reporting within the Excite Entertainment Ltd. This report also focuses on the
different types of absorption costing and marginal costing methods and benefits of each, the
company wants to opt new methods to allocate its cost. There are various planning tools which
are used in management accounting system and their importance in decision making process are
include in this report.
TASK 1
SECTION A
a) Differences between Management Accounting and Financial Accounting
Management Accounting: Management Accounting is a process which help managers
to develop management reports and accounts which provide timely and accurate statistical and
financial information which are required by the managers to make necessary decisions to
improve day to day efficiency of the company and take short term decisions for the benefits of an
organisation. It is not considered as a specific accounting system its main focus is to provide
economic information which help managers in achieving the organisational goal (Verboncu and
VRÎNCUŢ, 2015). Following are some objective of management accounting system:
 Planning and Policy formulation: Management accounting includes the various types
of reports which shows the accurate picture of the company and focuses on the problem,
by analysing this report mangers make strategic decision to overcome those problems.
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 Interpretation process: the main objective of management accounting is to present the
financial information to top level of management to see the financial capabilities of the
company and its current market position (Tempel, 2015).
Financial Accounting: Financial accounting is a tool which is used by the management and
external users who have direct interest in the company's operation to check the performance of
he company by analysing its profit and earning per hare capacity. The external users include the
share holders, potential owners, investors, buyers, suppliers, government and employees. It is
mainly concerned with the expense, revenues, assets and liabilities of the company and show the
actual financial position of the company. The main objective of it are as follows:
 Ascertain the profitability: The main objective of the financial accounting includes the
determination of the profitability of the company, to find that the business is earning
profit or incurring loss from its operations.
 Financial Position: The second main objective of the this is to find out the financial
position of the company and compare it with the same of its competitors. This helps
mangers to implement new position in order to improve the financial stability of the
company and achieve the highest position in the market.
Difference between Financial Accounting and Management Accounting
Management Accounting Financial Accounting
Management accounting is a system which
give relevant information to the managers
which they use to make plan, policies and
strategies for the effective running of the
business.
Financial Accounting is an accounting system
which involves in preparation of financial
statement of a company In order to provide
financial information.
It is not mandatory for the companies to use
the management accounting process as per the
legal requirements.
It is mandatory for the companies to use
financial accounting to state its financial
position as per legal requirements.
It contains both monetary as well as non
monetary information.
It contains only monetary information.
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These reports are prepared on the basis of the
requirements of the company.
Financial statements are prepared at end of
every accounting period.
It covers all the areas of the organisation
including inventory management, cost
management.
It cover only the problems related to the
financial of the company. It only focuses on
the transactions done in the business.
b) Cost Accounting system
Cost accounting system is a system which focuses on getting costs of product produced
by a company after ascertaining the total input costs incurred at every step of production
including the fixed costs such as manufacturing overhead, depreciation. It is a framework which
is used by companies to allocate their cost of products to analyse the profitability and also to
control the cost and calculate the value of stock (Schaltegger and Burritt, 2017). The company
Excite Entertainment Ltd uses cost accounting system which includes the following:
Job Order Costing: It is a cost accounting system which helps the managers to evaluate
the manufacturing costs of each job order. It is important for company as it is directly related
with production of every unit of product and special orders. It help managers to identify and
create specific strategies in order to overcome the problem identified in each type of job orders.
Process Costing : This is a system which help the managers to evaluate manufacturing
cost of each process and different departments involved in the production process. This type of
system provides the cost incurred in the various process.
 Direct Cost: Direct cost is a cost which is directly associated with the production of
goods or services. This a cost which will be incurred in order to produce the goods or
services, it is considered as a variable cost which increase as the number or goods
produced increases. These cost can be directly traced to a product and are not needed to
be allocated to a specific product.
 Standard Costing: It is a system in accounting which is used by companies to identify
the difference or variance between the actual cost incurred and the budgeted cost. The
which is actually occurred by a manufacture in the process of manufacturing a specific
product is standard cost. The difference incurred in the standard cost and the actual cost is
called variance and is investigated.
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c) Inventory Management systems
Inventory management system
Inventory management system is system which is used by companies to track and keep
record of the goods through its supply chain or the part of its business operation. Inventory
includes the finished goods, raw material closing stock and work in progress. It covers inventory
from production department to retail, from finished goods stored in warehouse to the shipping of
these goods. This system allows the company to track the usage of its inventory take necessary
decisions to improve its inventory turn over ratio and improve its financial condition and position
in the market. This system involves different inventory mangers who focuses on various parts of
a supply chain for its inventory from procuring of raw material to making it available to final
consumers. Companies uses various types of techniques to manage its inventory such as FIFO
which means First In First Out, it states that the inventory which was first procured will be sold
first. LIFO it means Last In First Out, inventory which was procured in the last will sent out in
the first. Excite Entertainment Ltd uses this inventory system to keep track of its inventory and
with the help of inventory management system software the company uses it to implement
proper decision and increase its sustainability in the market (Neuland, 2018). To implement its
inventory management system company uses various inventory management software which
includes the features such as reporting tool, Bar-coding, inventory forecasting, accounting tools
or tie-ins and inventory alerts.
d) Job Costing Systems
Job Costing Systems: A job costing system is a system which is used by the mangers to
predict information about the different costs which are related to a particular job for the
production of goods or service. This information used by the manger to measure its accuracy of
estimating cost in a company, which allows to determine the price of its goods or services for a
reasonable profit. These information can also be used for the appointment of inventriable costs to
manufactured goods (Nagaratnam, Nagaratnam and Cheuk, 2016). A job costing system
basically include three types of information such as follows:
 Direct Materials: The job costing system is used to identify the cost of materials which is
incurred by the companies to produce the goods or services during the course of its
production. With the help of this system cost of each material is efficiently allocated to
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the cost of goods produced and if the goods are returned to the warehouse their cost is
directly subtracted from the job.
 Direct Labour: The job costing system is used to allocate the total cost of the labour used
by a company in order to produce its goods or services. It is related directly to a job with
the help of a time sheet, time card and networked time clock application on computer.
This help managers to identify the amount which is actually incurred by the company on
its labour in order to produce a particular product (Nagaratnam, Nagaratnam and Cheuk,
2016).
 Overhead: The job costing system is used to spread overhead costs such as production
equipment, building rent and depreciation. At the end of every accounting period the total
amount in each cost is allocated to various jobs in progress which is based on allocation
methodology.
SECTION B
Types of Managerial Accounting Reports
Management accounting reports also known as managerial accounting report is a
statement which is prepared to analyse the different aspects of the business operations. These
reports are used by the managers of Excite Entertainment Ltd for regulating, decision making,
planning and measuring the performance of the company. These reports have to be relevant and
authenticated as most of the decision in an organisation are depended on these reports. Following
are the managerial reports used by the companies in decision making process:
Budget Report: Budget report are considered as one of the most important and critical
report which helps its mangers to measure the company's performance. These reports are
generate for the entire organisation and it shows the estimated expenses which a company will be
incurring in order to produce a certain goods or service and the estimate amount of revenue
which a company can generate. Budget also be prepared by a company to calculate the estimate
cost of any investment (Kong, 2016). Budget restricts the amount allocated to a business for its
certain activities which include purchase of new assets or paying of its liabilities.
Account Receivable Aging Reports: This report is important for the managers if the
company is heavily relaying on the credit sales. This report contains the data about the customers
from which the company has to take payments. This reports help managers to prepare for the
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future doubtful debts and make provisions for them in advance. It also help them to strict its
credit policy in order to recover the amount from its receivables.
Information presented must be accurate, relevant to the user, reliable up to date and timely
The information presented in the accounting reports must be reliable and and relevant to
the users as many decisions are based on these reports. Investors uses these reports to identify the
average annual return on their investments, government uses these reports to determine the tax
liability for the company, shareholders uses these reports to find out the performance of the
company. These report must show the accurate data and relevant data and it should be time
updated to analyse its actual and current market position and it growth.
Management accounting system and management accounting reporting is integrated within
organisational processes
Budget Report: Budget report is used by the companies to find out the estimated amount
of revenue which a company can generate and the estimated amount of expenses which a
company has to incur in its operations. Managers uses this type of report to find out the problems
due to which the comp-any could not meet its previous budget and implement new strategies to
achieve it market sustainability and improve its financial position.
Accounting Receivable Aging Report: Account Receivable Aging report is directly
integrated within the organisational process as it shows the actual position of the company's
receivable and make necessary decision in order to receive the payment from them. This report
shows the amount of money which is owed to its debtors (Horváth, 2018).
TASK 2
Use of different techniques of management accounting
Absorption costing: it is a type of costing method which includes all the costs involved
in production of a product. Various costs involved in such procedures are direct material,
variable manufacturing overheads, direct labour and variable manufacturing overheads. Such
costing technique is used for the purpose of income tax reporting as well as external financial
reporting. This method expenses all the associated costs in appropriate and effective manner.
Profit and loss statement of Excite Entertainment Ltd for the year ended 2018
Absorption costing
Sales (8000 units) 120000
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Less: Opening stock 7500
Prime cost 32000
Less: fixed expenses 40000
Net profit 40500
Marginal costing: such costing is easy to understand. It is related to the variations in the
total production cost due to the production of additional unit. It only includes variable costs and
estimation of fixed cost. The variable costs are labour cost as well as material cost (Guidotti,
2015).
Profit and loss statement of Excite Entertainment Ltd for the year ended 2018
Marginal costing
Sales (8000 units) 120000
Less: variable expenses
prime cost 32000
Contribution 88000
Less : Fixed cost 40000
Profit 48000
Benefits and limitations of absorption costing are the followings:
Benefits:
 Such method is used for the preparation of final statements of any organisation.
 It helps in providing the accurate profits by considering all the associated costs in the
production of any product or service.
 Such method is useful for firms to forecast the future production in advance for
anticipating increase in the seasonal sales.
Limitation:
 absorption costing sometimes does not provide accurate assumptions of future
production.
 It also lack the analysis of volume as well as cost as it is very difficult to analyse the
reasons of the variations in the production levels.
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 It method is nor used by the financial managers to take the decisions related to selection
of product mix, choices of alternatives, buy or produce and many more (Bruehne and
Schanz, 2018).
The benefits and limitations of marginal costing are as follows:
Benefits:
 With the helps of such method, the determination along with controlling the costs
associated in production is easier.
 This method is very easy to understand and operate and less time consuming.
 It is useful in short term planning of profits as well as decision making by the financial
managers of the organisations.
Limitations:
 To distinguish between fixed and variable costs, it is very typical task.
 Such technique is not used for the preparation of the financial statements as various costs
are not included in it.
 As such concept is based on the past data, accurate picture for increasing the production
in the current or future state can not be predicted (Bradlcy, 2015).
If the company uses absorption method of costing the profit which the company will earn
is 40500 whereas if the company adopts the method of marginal costing the profit which the
company will earn is 48000. the contribution while adopting the absorption costing method is
80500 where in the case of marginal it is a 88000. As per the above calculation the method
which company should adopt is marginal costing methods as the profit and the contribution
earned through this method is more than the absorption costing method.
TASK 3
Planning tools are the instruments which guide to an enterprise in order to take corrective
action that relates to maintain the budget, implementation of initiative, intervention or
programme. It provide a clear information about company's development and maintaining
profitability by preparing effective strategy. Moreover, planning tools are the techniques that is
used to control work operating activities and profit margin by setting budgets for an organisation.
Planning tools are important because it provides information of the top management and helps to
take effective decision such as how to allocate resources to achieve organisation's goals or
objectives. For instance, Excite entertainment Ltd is an entertainment company that prepares
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budgets each year with the help of planning tools and take effective decision. It fixes financial
and performance goals with budget, make comparison with accurate results and carry off the
business activities as it is required. Following planning tools are used by Excite Entertainment
Ltd such as-
Operating budget: This budget is future study of projected expenses and incomes over
the particular period of time. It helps to create an exact picture of operating budgets that should
be in account like sales production, material cost, labour cost, overhead, administrative cost and
manufacturing cost. It is prepared on the basis of weekly, monthly and yearly that help to define
income and expenses of the organisation. Such as manager of Excite entertainment Ltd used
planning tools and prepare operating budgets by involving day to day activities, weekly and
yearly performance that decides how much should be invest in order to make profitable
organisation. Moreover, operating budget helps to give clean and clear information regarding
budget and maintain profit margin by controlling budgets.
Advantages: Operating budget helps to make effective plan for day to day activity for
business operation and defines profitability. Manager of Excite Entertainment company can track
the performance by recording actual expenses and future expenses that maintain profit margins.
Disadvantages: It consume more time to prepare operating budget because it involves
day to day transaction and need to be very careful while preparing operating budget.
Cash flow budget: This budget is used in all type of organisation that defines how and
when money comes in and goes out from a business within a certain period of time. Cash flow
states inflow and outflow of cash that defines profitability situation in an organisation. It contains
following factors like account payable and account receivable that helps to assess whether a
organisation has highly cash in hand to continue operating. The Excite Entertainment company
prepare cash flow budget in order to define in flow and out flow of cash that decides what should
be done in future to increase income. Additionally, cash flow budget states expenses of company
that needs to be control for maximize the profits. Cash budget involves all transaction that relates
to monetary term should be included to define cash flow (Becker and Ulrich, 2016).
Advantages: By preparing cash flow budget Excite Entertainment Ltd can get positive
cash flow that shows capacity of borrowing money. Moreover, it manages cash flow by tax
return and recording all incomes and expenses.
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Disadvantages: It has chances to be wrong because missing of some monetary
transaction and expenses that needs to be maintain and record. As result outflow of cash and low
profit.
Static budget: This budget is also known as fixed budget that remains constant or
unchanged. It is fixed factor that remains fix after making changes in factor like as revenues and
sales volume. Is is prepared by ending of the year to define the exact value of organisation. For
instance, manager of Excite Entertainment Ltd have fixed budget in place every year for
maintain and storing entertainment budgets that helps to define organisation profitability.
Moreover, this is an effective tools which is used to define fixed budget in order to maintain
profits.
Advantages: Static budget are useful to predict highly sales volume and cost that gives
fixed results. Such as manager of Excite Entertainment use static budget to get sales volume and
cost that helps to maintain a budget.
Disadvantages: The main disadvantages of static budget is lack of flexibility in an
enterprise which has not chances to be change.
Use of planning tools
Planning tools Its application
Operating budget It maintains transaction on daily basis that helps to Excite
Entertainment Ltd's manager to control the over expenses by
preparing operating budget. Manager should use this tool
instead of other which helps to maintain incomes and
expenses.
Cash flow tool This tools is used to get exact amount of cash come in and
goes out in any organisation. By applying this tool manager
of Excite Entertainment Ltd will be able to calculate exact
cost and can lead to improve profit margin by using this
tool.
Static budget This budget is used to get fixed amount of expenses that
need to be spent in any organisation and make it inflexible.
By applying this tools Excite Entertainment can predict
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