Management Accounting Report: Financial Reporting and Planning Tools

This report provides a comprehensive overview of management accounting, focusing on its core concepts, various systems, and practical applications within an organization. It begins by defining management accounting and contrasting it with financial accounting, emphasizing its role in internal decision-making and planning. The report then delves into different types of management accounting systems, including cost accounting, inventory management, and job costing, explaining their functionalities and benefits. It also explores various management accounting reporting methods, such as budget reports, accounts receivable aging reports, and performance reports. Furthermore, the report examines the benefits of management accounting systems and their integration within an organization, highlighting the role of financial reporting and planning tools in budgetary control. A case study of Excite Entertainment is included to illustrate the practical application of these concepts. The report also includes a comparison between different management accounting systems, used by the organization in resolving the financial problems which leads the organization towards sustainable success. Finally, it concludes with a summary of the key findings and insights.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
P1 Concept of management accounting and different types of management accounting systems
................................................................................................................................................3
P2 Different methods used for management accounting reporting........................................5
M1 & D1 Benefits of management accounting system and integration of management
accounting reporting in the organization................................................................................6
P3 Appropriate techniques to prepare income statement using marginal and absorption cost8
M2 & D2 Application of management techniques in preparation of financial reporting
documents.............................................................................................................................11
P4 Advantages and disadvantages of different types of planning tools for budgetary control11
M3 Use and application of different types of planning tools in forecasting budget............14
P5. Comparing the different management accounting systems used by the organization in
resolving the financial problems which leads the organization towards sustainable success. 15
Comparison between Excite entertainment and ABC company-.........................................17
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................19
Books and journal.................................................................................................................19
Online...................................................................................................................................20

INTRODUCTION
Management accounting is the representation of the accounting information in a way that
helps the managers in creation of its policies and the routine operations of the undertaking. It
relates with the utilization of the accounting data that is collected with help of cost accounting for
meeting the purpose in relation to the policy formulation, control, decision making and planning
by the management. It links the management of the company with the accounting because
accounting information is needed and plays a crucial role for the mangers in taking the most
appropriate decisions. The present study is based on Excite entertainment, a leisure and the
entertainment industry of the UK. The business of this company is to promote the concerts and the
festivals throughout the locations in UK. Furthermore, the report explains the concept and the
significance of the various systems of the management accounting. It also describes the several
reports that are prepared by the managers and the different planning tools of the budgetary
control.
P1 Concept of management accounting and different types of management accounting systems
Accounting that helps the management is simply known as management accounting. The
process to develop management reports and accounts that present brief, accurate and timely
information relate to finances to make day to day decisions for managers is what is known as
managemenrt accounting. It is a study of accounting which is related to management of the
company. It is required to know the financial situation in the business (Bromwich, 2016). It helps
in formulating policies and procedures and assist the management of the company in getting better
results. It also serves as a mean of communication through whole organization. It does not limit
itself to quantitative information but also takes qualitative information into consideration which
cannot be measured like employee's level of satisfaction etc. There is another branch of
accounting that is financial accounting which differs from management accounting in certain
way :
Financial accounting Management accounting
It is for the people outside of organization as it
contains only financial information about the
company.
It is for the internal users of the company and
contains both quantitative and qualitative
information.

It is required by law and need to be according
to I.A.S within Europe.
It depends upon historical information.
It is not compulsory to do management
accounting.
It is future oriented (Alsharari, 2015).
Different types of management accounting systems
Cost accounting system – A cost accounting system is used by the company to estimate
the cost of their products for analysis of profitability, inventory valuation and control of cost.
Estimating the cost of company's products and services is essential for profitable operations. The
company with cost management system can know which products of the company is profitable
and non profitable by analyzing correct cost of the product. In simple words, it tracks the flow of
inventory through various stages of production which includes raw materials, work in progress
and finished goods (Kastberg, 2016). In excite limited, it tracks raw materials as they go through
the stages of production and slowly turn into finished product. When raw materials are put into
production, the system immediately records use of materials by crediting raw material account
and debiting goods in process. It helps the production manager of the company tom see how much
inventory is in every stage of production at any point of time. There are two types of costs :
Direct cost – Direct costs are variable cost that can easily be recognized as projects of the
cost. It is calculated at the beginning of the cost sheet. The total of direct costs in the cost sheet is
called prime cost. Examples of direct costs are direct material, labour and wages.
Standard cost – It is also known as indirect cost which are not that easily identifiable.
They can also be called as fixed costs and are ascertained after calculating direct costs. The
aggregate of indirect costs are called overhead cost which include salary, rent etc.
Inventory management system – This system tracks goods through entire chain of supply
in the business or the part of the business in which it operates. It covers everything from
production to retail, warehousing and shipping the products to the consumers along with all the
movements of stock (Goddard, 2017). Each company has different requirements and inventory
management system includes bar coding, tools for reporting, forecasting for future needs of
inventory, tools accounting etc. In short it is then combination of software and hardware which
oversees maintenance of products that are in stock and are ready to sent to consumers. The two
methods of inventory valuation are :
LIFO – When the inventory comes in lase is sold at first known as last in first out.

FIFO - When the inventory arrived at first sold at first is known as first in first out.
Job costing system – Job order costing is a system that assigns and accumulates cost of
manufacturing of individual unit of output. It is used when products manufactured are different
from each other and each item has individual cost. The job costing system includes direct
material, labour, and overheads. It maintains separate account for each job from the date of
commencement till the date of completion which enables the company in knowing the cost of
each job. It enables the company in comparing actual cost with estimated cost for separate jobs
and helps in finding out profit or loss made on each job. The two process of this costing system
are :
Job costing – It does detailed accumulation of cost of production to individual specific
groups. It is used for unique products and small production runs. In job costing, record keeping is
required and time and material are charged to specific jobs. It is more likely to be used in the
company for billing to customers.
Process costing- It is used for standardized products and mostly used for large firms. It
aggregates cost therefore requires less keeping of records.
P2 Different methods used for management accounting reporting
Management accounting reports are used in the organization for the purpose of planning,
decision making, regulating and measuring performance in the company. These reports are
prepared throughout according to the requirements of the company. It can be created on weekly,
monthly or quarterly basis. As many decisions are based on the authenticity of these reports
therefore it is important that the information provided in these reports are clear, concise and
accurate. There reports need to be prepared by specialized person in timely manner as many
decisions are based on these reports. Managers also see these reports and take decisions regarding
bonus, incentives etc and convert them into useful information from the company. The reports
are :
Budget report – Budget reports are very important in measuring performances of the
company. The budget report is generated as a whole when business is small, and when business is
large it generates department wise. The estimation of budget is made on experience of manager
which helps the company in dealing with uncertainties (Robinson, c2016). A budget of the
company lists all the sources of earnings and expenditures which shows the clear picture of

company and shows the path to achieve goals and objectives of the company by staying in the
budget.
It guides the mangers to offer incentives to which employee, to cost cut where necessary
and negotiate with suppliers etc therefore budget report is essential for efficient working of the
organization.
Account receivable aging report – When business of the organization extends credit to its
creditors then these reports are important to the organization. These reports take balances that are
remaining from the client and break down the balance which is owed by the company from the
customers based on specific time periods like 30, 60, 90 days and so on. This helps the manager
of the company in finding out the defaulters and problems in collection process. In case the
company come to know that it has many defaulters the credit policies of company need to be
tighter as cash flow is important aspect of the company and if defaulter are high, cash flow of the
company will not be sufficient to meet daily working requirements. However, it is important to
ignore some bad debts but the company cannot make it a habit.
Performance report – These reports are created to review the performance of the company
as well its employees at the end of the term. The performance report for each department is
generated in large organizations to see and analyze that how each department is performing. The
managers use these reports to make key strategic decisions about the future of organization. The
performance related reports shows how the companies operations are being performed and how
employees are performing in the organization (Begg, 2016). When company set some standards
for performance and if it doesn't happen that way, these reports helps in pointing out the flaws in
their setup and strategy. Individuals are awarded for their commitment and performance based on
these reports and also decisions regarding bonuses and incentives is taken on the behalf of these
reports. The performance report is important for company to keep an accurate measure of their
strategy toward their mission.
M1 & D1 Benefits of management accounting system and integration of management accounting
reporting in the organization
Management
accounting systems
Benefits
It helps the company in doing analysis of cost
object by computing revenue and expenses of

Cost accounting
system
product, product line to determine which one
is profitable.
It helps in Excite limited in finding issues as
well as its cause by drilling down the data and
then recommend solutions to the manager of
the company (Robinson, 2016).
When Excite limited makes bill for the
customer based on the cost incurred, this
system roll the information into billings of
customer.
It also helps Excite limited compliance of
budget as actual cost is compared to standard
cost and see if any part of the business is
spending ore than expected.
This system helps Excite limited in
accumulating its cost of inventory for the
purpose of financial reporting.
Job costing system
It helps Excite limited in knowing the cost
that incurred at completion of each task
separately.
It helps Excite limited in comparing present
job with the previous job so that the company
can judge its performance (Advantages and
disadvantages of job costing, 2019).
It allows each element of cost, selling price
and profit to be compared with the estimated
cost so that cost can be controlled and profit
can be maximized of each task.
This system allows Excite limited to allow up

Inventory
management system
to date level of stock to be available to the
staff of the company when they need it. It
then gets deliver to the customer real quick
and results in retention of customers.
This system assists the company in making
forecast abut the requirement of inventory
which saves financing cost, warehousing rent,
lighting, security cost and all the holding
costs (Benefits of strong inventory
management system, 2017).
It provides flexibility to Excite limited to
adapt to situations that are unpredictable. It
gives strong visibility over inventory and
allow the organization to analyze and solve
problem as soon it occurs.
The management accounting system when integrated with management accounting reports
lead to increase in performance of the company and continuous improvement (Otley, 2016). In
excite limited, the company with the help of cost management system create budget and cost
reports, which helps the company in estimating the cost of each task of the company which align
to job costing system and helps the company in finding out the profitable product of the company.
This system along with the preparation of reports help in measuring effectiveness of all the major
activities which enhances the performances of employees departments etc. In excite limited, the
performance reports can show the performance of each employee and department and can
compared with the data generated from job costing system to evaluate the outcomes. These
systems monitor quality related cost and contribute to continuous improvement and help company
in delivering high quality service.
P3 Appropriate techniques to prepare income statement using marginal and absorption cost
Absorption costing

Particulars Amount (in
£)
Per unit cost (in
£)
Net figure
(in £)
Sales 8000 15 120000
Opening stock 500 10 5000
production 10000 10 100000
Closing stock 2500 10 25000
Cost of goods sold
(Opening stock + purchase –
closing stock) 80000
Net profit 40000
Marginal costing
Particulars Amount (in
£)
Per unit cost (in
£)
Net figure
(in £)
Sales 8000 15 120000
Opening stock 500 6 3000

production 10000 6 60000
Closing stock 2500 6 15000
48000
Contribution
(Sales – variable cost) 72000
Less: fixed production overhead 40000
Net profit 32000
Meaning – Marginal costing takes variable costing into consideration, as cost of product
and take fixed cost as cost of the period whereas absorption costing considers both variable and
fixed costing as the cost of product. Under marginal costing the profit is calculated using profit
volume ratio whereas it reduced under absorption costing as it consider the fixed cost in product
cost only. Marginal cost shows contribution per unit whereas absorption costing shows net profit
per unit.
Benefits- It is easier to determine and helps the company in controlling cost of production.
It is easy to understand and operate and can be combined with standard or budgeting costing
without any difficulty. It is the best method for the company when it has to make short term
planning and can easily be demonstrated with charts and tables.
On the other hand, absorption costing accounts for all the production cost and not just
direct costs (Robinson, 2016). It includes fixed costs such as salaries, rent etc. and picture of cost
per unit which helps the management of the company in evaluating profitability and deciding
price of products. It tracks profits more accurately and anticipate sales for the future. The other
benefit is that is GAAP compliant and need to report to Internal revenue service.

Interpretation – From the above calculation, it can be said that Excite limited will use
absorption method of costing as it includes both the cost whether fixed or variable which present
the outcome of profit more accurately. Excite limited also has constant demand for products
which makes the calculation of costing easy and quick. It also helps in preparation of financial
statements as it is accepted under GAAP. The difference occur in both the costing as marginal
cost only takes additional cost per unit in consideration and shows contribution per unit whereas
absorption cost takes both variable and fixed cost into consideration and calculates profit earned
per unit.
M2 & D2 Application of management techniques in preparation of financial reporting documents
Financial reporting documents which can be prepared with the help management
techniques in the organization are -
Income statement – The income statement of the company helps in improving profitability
of Excite limited by showing gross profit and net profit which helps the company in finding
reasons of bad performance of the company.
Balance sheet – This financial statement help Excite limited in knowing the financial
condition of the company. Under this the assets and liabilities of the company are separated and
then the company know its net worth.
Fund flow analysis – It helps Excite limited in knowing finding sources and application of
the business that will indicate from where does the funds come from in the company and where
they were used which helps the company in making decisions for future.
Cash flow analysis – Cash flow is the movement of cash and bank balances in the
company (McWatters, 2015). Under this, the movement of cash is tracked under Excite limited
which helps the company knowing its cash position weather deficit or surplus.
These documents help Excite limited company in figuring out their financial position and
where they stand in the market in terms of profit and sales with their competition. Good balance
sheet and income statement shows good reputation of the company and attract customers and
shareholders for investment which lead to competitive advantage for the firm.
P4 Advantages and disadvantages of different types of planning tools for budgetary control
Advantages and disadvantages of different planning tools :

Operating budget – This budget takes company's expenses, cost and income expected
based on annual performance of the company (Berry, 2016). The accountant of the company
create operating budget before accounting period starts to include income and cost projections.
This budget takes historical data to create a budget based on sales performance, current trends in
industry, products expected and other competitive forces. The companies often create more than
one operating budget to anticipate decline in profit or boost in profitability due to new product
launch.
Advantages Disadvantages
It helps in managing current expenses. It takes
office rent, salaries of employees into account
as these expenses cannot be ignored.
It helps in projecting expenses of future by
evaluating past and current expenses which can
benefit the budget of the company.
It helps to reduce debt as the goal of operating
budget is to build financial reserves in the
organization (Begg, 2016). It leads to planning,
saving and investing for unseen circumstances.
It is time consuming process which leads to loss
of productivity ion Excite limited.
These budgets are associated with financial
outcomes and do not deal with subjective issues
of the company.
Too many operating budget can create chaos
and confusion.
Zero based budget- It is an approach that refers to the preparation and the planning of the budget
from scratch or zero base. Under this budgeting, all the expenses are justified before adding into
the actual budget. The foremost objective of this budgeting is reducing the unnecessary cost by
assessing the areas where the cost could be cut down.
Advantages Disadvantages
Excite entertainment by using this approach
could allocate its resources efficiently as it do
not contain any previous budget allocations.
Zero based budget facilitates the framing of
the budget from zero which needs involvement
of the larger workforce. Most of the