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Management Accounting System in KPMG

University: UK College of Business and Computing

  • Unit No: 5
  • Level: Post Graduate/University
  • Pages: 16 / Words 3980
  • Paper Type: Assignment
  • Course Code: ACC20007
  • Downloads: 62
Question :

This assessment will cover the following questions:

  • Excite Entertainment Ltd is a company engaged in offering reliable, efficient services to making the event memorable. Describe about the accuracy and relevance of the information generated from the accounting?
  • What role does finance manager has to play in making assumptions about the sales?
  • Explain the implications that arise in management accounting that hinders the success of an organisation?
Answer :
Organization Selected : KPMG

INTRODUCTION

Management accounting is a tool and technique that is utilized by administrators in most business firms with the motive of analyzing the capability of the organization to accomplish its predefined aims. To perform all the business activities and operations in an efficacious manner, it is crucial for all the entities to organize it every year so that intrinsic information can be collected to take effective decisions for the future (Abernethy and Wallis, 2018). This assignment is based on KPMG which is a leading accountancy company across the world and offers its services to its diverse customers like Excite Entertainment Ltd. It is operating its business activities and operations in the entertainment and leisure sector. This written document will include information about management accounting systems, reporting methods, and framing of income statements by using marginal absorption techniques. Further, will discuss the role of financial governance and benchmarking in management accounting is correlated to respond financial problems in an 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.

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.

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.

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 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:

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5000

100000

Particulars

Amount

Sales (8000*5)

120000

Less : Cost of good sold:

Opening stock (500*10)

Production (10000*10)

Less- Closing stock (2500*10)

25000

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

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.

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.

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 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:
  1. 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

Break even points (A/B)

4000

  1. 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.
  1. Sensitivity analysis:
  2. 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.
  • 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.

REFERENCES

  • Abernethy, M. A. and Wallis, M. S., 2018. Critique on the'manager effects' research and implications for management accounting research. Journal of Management Accounting Research.
  • Alawattage, C., Wickramasinghe, D. and Uddin, S., 2017. Theorising management accounting practices in Less Developed Countries. The Routledge Companion to Performance Management and Control. pp.285-305.
  • Anderson, S. W. and Dekker, H. C., 2014. The role of management controls in transforming firm boundaries and sustaining hybrid organizational forms. Foundations and Trends® in Accounting. 8(2). pp.75-141.
  • Fallan, L. and Opstad, L., 2014. Beyond gender performance in accounting: does personality distinction matter?. Accounting Education. 23(4). pp.343-361.
  • Feng, S. and Ho, C. Y., 2016. The real option approach to adoption or discontinuation of a management accounting innovation: the case of activity-based costing. Review of Quantitative Finance and Accounting. 47(3). pp.835-856.
  • Giacomini, D., Sicilia, M. and Steccolini, I., 2016. Contextualizing politicians’ uses of accounting information: reassurance and ammunition. Public Money & Management. 36(7). pp.483-490.
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