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Major Aspects Of Management Accounting of Excite Entertainment Ltd

University: University of Bristol

  • Unit No: 5
  • Level: Post Graduate/University
  • Pages: 17 / Words 4311
  • Paper Type: Assignment
  • Course Code: ACC202
  • Downloads: 53
Question :

This assessment will cover following questions:

  • Demonstrate deep understanding of management accounting systems.
  • Compare ways in which Excite Entertainment Ltd.could use management accounting to respond to financial problems.
  • Excite Entertainment Ltd is an internet media company. Explain the use of planning tools used in management accounting.
Answer :
Organization Selected : Excite Entertainment Ltd

INTRODUCTION

Managerial accounting is the contemporary area of accounting that is oriented on the mechanism of recognizing, assessing, analysing, interpreting, projecting and transmitting the information to support decision-making procedure with aim to achieve organisational objectives. This is wider field which deals with all the major aspects of management and accounting. Managing and accounting officials are main players in management accounting structure as they handle all the key operations related to management accounting. Management accounting in organisation required for effective budgeting, planning and assessment of real-time performance of company (Amahalu, Nweze and Chinyere, 2017) . 

This study covers all the major aspects and areas of management accounting like systems, reports and other concerned tools and techniques in context of Excite Entertainment Ltd. Study consist of differences among management and financial accounting. Selected corporation Excite Entertainment Ltd is related to UK's leisures and entertainment sector. Company is engaged in operations of promoting festivals and concerts at different locations across the UK. Study also contains comprehensive discussion on planning tools as well as at what extent these help in effective responding to company's financial issues.

TASK 1

Section A

(a) Management Accounting Systems:

Management Accounting implies to organisational mechanism which collects all the raw details, facts and information within organisation and transform it in meaningful and relevant information, primarily for the purpose of decision-making. This is the technique commonly used by large number of business organisation in order to identify their status. Once it has been analysed, managers will be able to plan strategies and policies in order to accomplish their goals and objectives in an effective manner. Management accounting is some times linked to financial management but these both are two different aspects (Busco and Quattrone, 2018). Here following is discussion on crucial differences among financial and managerial/management accounting, as follows:

Management Accounting

Financial Accounting

MA refers to collecting, analysing, measuring and systematically reporting information to upper-level management.

FA implies to collection of tasks that are related to framing financial statement of entity and reporting of such FS to stakeholders. 

There is no legal-requirement of reporting under management accounting.

Here financial reporting is required by relevant statues and legislations.

No formal format is prescribed here for reporting and presentation purpose.

Under FA, there are formal format is specified for reporting and presentation of financial information.

It is more wider field as it covers both qualitative aspects and quantitative aspects within entity.

It's coverage is limited to quantitative aspects and involves factual information without considering qualitative aspects within entity.

It applies historical data and forecasted data to support managerial and business decisions.

Only historical data is used in financial accounting.

This is mainly used for internal analysis and evaluation of organisation's performance. 

While financial accounting provides information for reporting financial performance for outsiders.

Here in it reports are prepared generally for internal use so there's no specific formats of reports prescribed.

Whereas in financial accounting, reports have specific formats and layout as prescribed by relevant controlling entities. 

As name suggest it supports managing personnels but practically its also help accounting officials.

Here main player in financial accounting is finance and accounting personnel. 

Management accounting involves various sort of systems which fulfil different kind of management and accountancy needs with aim to support overall managerial decisions-making process. Management accounting system refers to the framework adopted by business entity in order to acquire information which is required by the management team of the company for developing effective decisions. In this context, Excite Entertainment Ltd is using several key managerial accounting systems, as discussed below:

(b) Cost accounting system:

It is one of the most essential system which is applied for identifying the costs for organisational goods and services which help in examining profitability, estimating inventory as well as controlling the costs. It will aims in order to capture the whole cost of production with the help of estimating overall input costs in addition to the fixed costs which is included in the stages of production. For controlling costs incurred in promoting concerts and festivals, managers in Excite Entertainment Ltd apply this systems by classifying all the costs as direct and indirect, and applying standard costing. Under standard costing managers set expected costs against actual costs and any variance is analysed to find out any issue causing excessive costs (Chiapello, 2017) . Here is explanation of different terms related to this system, as follows:

  • Direct Costs: There are costs which are directly contributes in corporation's particular function, project, project and any other cost-object.
  • Standard Costs: These are costs which are normally linked with corporation's manufacturing/production costs of direct labour & materials and other manufacturing expenses. These costs are set as benchmark and compared with actual costs to assess over and under absorption.
  • Direct costing: Under this technique direct costs are measured related to any particular process, function and product. In this method costs are assigned to such cost objects to evaluate actul cost incurred to each such cost-object.
  • Standard Costing: In this technique, standard costs are applied to assess the actual performance level of entity. Variances among standard and actual costs are assessed and evaluated in this technique.

(c) Inventory management systems:

Here key focus of this systems is on Inventories which denotes goods that are addressable for sale as well as raw materials are utilised for production of services which are available to carry out sales. This is main system which deals with managing and handling of all inventories items. Along with this, it system also prevent firms idling of complete factory in case if any one of the service or products furnished breaks down and for having a steady stream for maintaining flow of materials to retailers irrespective of making a identical shipments of services which are provided by retailers. In this context, Excite Entertainment Ltd is also applying this system to manage its inventories or items used in promoting concerts.

  • FIFO: Here assumption that inventories bought first in specific sequence are considered to sold first, is used to value inventories.
  • LIFO: Just opposite to FIFO, inventories are valued on assumption that recent/latest bought inventories are sold first in particular sequence. 
  • Weighted-average cost method: Herein this method, average cost is assessed by assigning weighted to value inventories.

(d) Job Costing Systems:

This system defined as collection of activities which are related to gathering information of costs/expenses linked to particular production job. This system concerned with process/tasks of aggregating data and facts about different costs/expenditures connected to specific job. Then assign all the costs to each specific job or task. This is crucial systems which contributes in maintaining accountability in different job within enterprise. As in case of Excite Entertainment Ltd, managing personnels collects costs details of each job related to promotion of any concert, event and festival. After recognizing and classification of jobs and relevant costs they allocate all the costs to each particular job that ultimately assist them to optimise overall promotional costs ((Crutzen Zvezdov and Schaltegger, 2017).

(e) Benefits of above mentioned accounting systems:

  • Cost accounting system: This system is beneficial because it reveal of all profitable and unprofitable activities by calculation of cost, selling price and profitability of product. Such as Excite entertainment Ltd apply this system to collect proper guidance about future production policies and control unnecessary expenses. 
  • Inventory management system: This system is mainly depended on the utilization of different stock measurement method in respect to know usage and availability of resources. In the context of Excite Entertainment use this system to collect detail information about inventories and store material in warehouse.
  • Job costing System: It allows a manager to compute the profitability that earned by individual. It is beneficial system which is supporting them to better determine whether particular jobs are enviable to pursue in the future. Such as Excite entertainment Ltd company utilise this system to arrange cost of job effectively.

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Section B

(a) Various kinds of managerial accounting report

Management accounting reports are preparing by managers to collect all internal information and present various aspects of an organisation. These reports are helping to take better decision and collect data from different section of business (Diouf and Boiral, 2017). Such as, Excite entertainment Ltd prepare these reports such as:

  • Performance report: This report is produced by an organisation to analysis the performance of business and staff members at the end of financial year. For this collect information from various division to prepare report. It is using by management to take effective decisions for potential tasks that will conduct in future. Such as excite entertainment Ltd create this report to present capacity of business and individuals and according to that offer reward for motivation.
  • Accounts Receivable Report: This report is prepared by the business to record information about debtors who take goods on credit and pay in certain period of time. Accounts receivable report prepare by manager to identify defaulters and complete modification to tighten credit policies to control cash flow in Excite entertain Limited. 
  • Budget Report: A budget report prepare by company to predict future expenditure and incomes for particular financial year. The estimation based on the previous activities and add other expenses that add in next year. It is internal part of any organisation that produce by every type of business to take right decision and prepare strategies. Such as, excite entertainment use this report to compare actual and budgeted project.

(b) Why should information should be accurate, relevant and up to date

It is required to present financial information in accurate manner that helps to understand actual situation of business. These information must be related and up to date that supports to take right decision on time. If information will accurate so an accountant easily produce all financial statements. Along with, it should be related with all transactions of financial data so that internal decisions take by the managers. Such as, it is necessary to present financial information on right time to stakeholders that helps them to analysis position of enterprise.

(c) Integration between accounting reports and system for organisational processing

The organisational procedures of Excite entertainment Ltd based on the different systems and reports. The systems are applied in the entity to analyse and collect information about company and measure the performance by reports. Such as, Excite entertainment apply inventory management system to track record and collect information then prepare report where mention from starting procedure to end and how much material utilise at different level. So both systems and reports are working in effective manner (Florio and Leoni, 2017).

You may also like to read - Planning Tools Used in Management Accounting

TASK 2

Critically evaluation of marginal and absorption costing method

Marginal Costing: It is the determined by distinguished between variable cost and fixed cost, of marginal cost which is affected by changes in profit and results. In this technique mainly focus on the cost that is classified and utilised for financial statements. There are discussed different advantage and disadvantage of this method:

  • Advantage: This method easily used by the business in order to analysis of contribution of cost control due to categorised overall cost into variable and fixed cost. Thus, it is concentrating on all efforts on variable cost in order to manage cost (Gusc and van Veen-Dirks, 2017).
  • Disadvantage: This technique have some drawback because it is based on the assumption and not based on realistic things.

Income statement as per marginal costing:

Particular

 

Amount (values in pounds)

Revenues (8000 units @15 pounds per unit)

 

120000

Less: Variable cost

Opening stock (500 units @ 6 pounds per unit)

Marginal cost of production (10000 units @ 6 pounds per unit)

3000

60000

 

….....Less: Closing stock (2500 units @ 6 pounds per unit)

15000

 

Marginal cost of sale

 

48000

Contribution (15-6)= 9 x 8000

 

72000

Fixed cost

 

40000

Net Profit

 

32000

Absorption Costing: It is a kind of costing technique that cover both type of method that is en-wrapped completely during producing of financial statements. During the calculation cover both cost fixed and variable (Haynes, 2017).

  • Advantage: It is advantageous method that is applied by the company to understand the role of fixed production cost by product analysis ad set effective prising strategy. The pricing amount fluctuated as per the changes that helps to get right result on time.
  • Disadvantage: It is not good technique for managerial judgement like production mix, number of units, different alternatives and many others.

Income statement as per absorption costing:

Particular

 

Amount (values in pounds)

Revenues (8000 units @15 pounds per unit)

 

120000

Less : Cost of good sold-

Opening stock (500 units @ 10 pounds per unit)

Production cost (10000 units @10 pounds per unit)

5000

100000

 

Less- Closing stock (2500 units @10 pounds per unit)

25000

 

Absorption cost

 

80000

Net Profit

 

40000

B04388 1

Interpretation: This chart presented that there is identified fluctuation in profit margin due to calculate with different costing technique such as absorption and marginal costing. By absorption get result, 40000 Pounds and By marginal get 32000 Pounds.

TASK 3

Compare and Contrast three planning tool

1. Budgeting: Budgets are statements that based on the predication and according to that expenses and income are recorded after analysis previous year results (Kim, Schmidgall, and Damitio, 2017). To control budgeting activities follow the methods that known as budgetary control. Such as Excite entertainment Ltd prepare different types of budget in order to analysis actual performance with standard performance.

  • Zero based budget: This budget produce from Zero where all the transactions are analysed from the starting with new financial year. There are not using last years records for prepare next year budget. The manager of Excite entertainment Ltd use this budget to analysis information of different budgets. 
  • Cash Budget: This budget is part of the planning tools where is expected cash receipts along with cash disbursement in the particular financial year. Such as Excite entertainment Ltd manager produce this budget to collect overall information about the cash after that take appropriate decision in prudent way.
  • Master budget: It is one of the major planning tool that connected with financial activities that mention into budget. Through this budget accomplish all strategic goals. In this budget consist of summary of all department budget to analysis actual position of the company. Such as Excite entertainment use this budget to easily collect information about all departments after that take effective decision (Kind, Wouter Botzen and Aerts, 2017).

Comparison between master, zero and cash budget

Basis of comparison

Cash budget

Zero budget

Master budget

Meaning

This budget is explained that analysis the transactions of cash in the context of receipts as well as expenditure.

To produce this budget require to make a plan and from beginning collect all the information that are recorded in the budget as zero base.

Master budget is mainly based on the term plan where involves every division budget within company.

Main objective

The main reason to prepare this budget that Excite entertainment get proper information about the cash position and in which items spend money to control as per the structure.

It is mainly produced by the company to collect information from starting and deduct unwanted cost.

The main objective to prepare of this budget that set rough instructions to fulfil the requirement and set the objectives for certain period of time.

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TASK 4

Preventing from financial problem

1. Contribution Margin: It is a product's price less all related variables cost resulting in the increasing profit generated through each unit sold. In general manner, from sales less variable cost get amount of contribution (Napitupulu, 2018). As per the given data calculate contribution margin such as:

Particulars

Amount (Values in pounds)

Selling price per unit

40

Less- Variable cost per unit

10

Contribution per unit

30

Break even point: That point where company get no profit and no loss after calculation. There are calculated it as per the given data such as:

Particulars

Amount (Values in pounds)

Fixed cost (A)

120000

Contribution per unit (B)

30

Break even points (A/B)

4000

3. Units to achieve: There are predicted unit that on which level organisation received desired profit. To calculate profit apply particular formula such as:

Units to attain desired profit: Fix Cost + Desired profit/ Contribution per unit

Particulars

Amount (Values in pounds)

Fixed cost

120000

Desired profit

90000

Contribution per unit

30

Units to attain desired profit

7000 units

Sensitivity Analysis: It is a kind of technique that applied by the business to analysis uncertainty in result of a mathematical model as well as system. This analysis helps in decision making procedure, employing different assumption that linked with variable. Such as, an accountant set expected level of revenues that may be accomplished as a result of an investment in machine through projected level of demand etc.

It is essential feature of sensitivity analysis that use to search out particular variables that impact on the results. According to judgement maker can analysis the existence of aspects that facing for changes. The results are used for analysis risk which is related with the investment activities. Additionally, different methods used for sensitivity analysis to add variables that known as worst case and best case (Qian and Schaltegger, 2017).

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5. Assumption of break even point analysis

Break even point is mainly depended on the assumptions where consist of all costs and expenditure that can be clearly distributed into variable and fixed elements. There are defined some key assumption that are created during computation of break even point such as:

  • To calculate total cost only consider fixed and variable and ignore semi variable cost.
  • It is assuming that constant rate increase of variable cost.
  • During to calculation amount of production, do not change fixed cost. It means fixed cost do not change whether production cost increase or decrease.
  • While Variable cost changeable in proportionate of production. The particular assumption is different from the above mention assumption that refers that value of variable cost will modify as per the changes in production quantity in increasing and decreasing manner.
  • It is analysed that in fixed technology as well as no enlargement in the efficiency of labour.
  • Another assumption of the break even point analysis that selling price is not changing so it will not impact on the changes of quantity of products and other relevant factors.
  • Sales and production assume that due to analysis of break even point.
  • The total of revenues will increase because of enhance the number of production volume. So particular assumption of break even point refers that total amount of sales revenues can be enhanced when an organisation will manufacturer high number of units (Rybicka and Rybicki, 2018).

CONCLUSION

As per the above discussion it is concluded that management accounting is essential part of any organisation which is utilised by every type of business entity. Through different systems and report analysis the profitability and set goals accordingly. Both systems and reports are working together and smoothly run procedure of an organisation. There are using different planning tools to sort out the financial problems in appropriate manner. 

REFERENCES

  • Amahalu, N., Nweze, C. and Chinyere, O., 2017. Effect of backflush accounting on financial performance of quoted food and beverage firms in Nigeria. EPH-International Journal of Medical and Health Science. 2(3). pp.58-80.
  • Bebbington, J., Russell, S. and Thomson, I., 2017. Accounting and sustainable development: Reflections and propositions. Critical Perspectives on Accounting. 48. pp.21-34.
  • Busco, C. and Quattrone, P., 2018. Performing business and social innovation through accounting inscriptions: An introduction. Accounting, Organizations and Society. 67. pp.15-19.
  • Chiapello, E., 2017. Critical accounting research and neoliberalism. Critical Perspectives on Accounting. 43. pp.47-64.
  • Crutzen, N., Zvezdov, D. and Schaltegger, S., 2017. Sustainability and management control. Exploring and theorizing control patterns in large European firms. Journal of Cleaner Production. 143. pp.1291-1301.
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