This assessment will cover following questions:
- Excite Entertainment Ltdoffers event and entertainment services in UK. What different tactics are used for management accounting reporting?
- What are the pros and cons associated with the used planning for budgetary control?
- How does management accounting system respond to financial problems?
Management accounting is the provision of financial data and advice to a company which is use for in the organization and development of its business. This is the techniques which is involved preparing and providing financial and statistical information for manager in an organization so that they can facilitate decision-making business. Management accounting represent the internal errors and complications related to the company financial position and help to manager to set effective measures to overcome those financial problems. This report if based on Excite Entertainment Ltd company, a British company and operates in leisures and entertainment industry in UK.
The report will demonstrate the understanding of different accounting system which have required for company. This will explain different methods for management accounting report. The report will include calculations using techniques of cost analysis. This explains different types of planning tools used for budgetary control with benefits and drawbacks. At the end of report will compare organizations are adopting management accounting system to respond to financial problems.
A) understanding management accounting system.
Management accounting is known as the managerial accounting which is defined as process of providing financial information to manager for taking decisions. On the other side, financial accounting is the recording and presentation of information for benefits of various stakeholders of organization (Bromwich and Scapens, 2016). Difference between management and financial accounting are as follows:
Management accounting reports on specially what is causing problems and how to fix them.
Financial accounting report on the profitability of the business.
This is not covers under the laws and regulations.
This is governed by standard, laws and regulations (Difference between financial and management accounting, 2018).
The main purpose of management accounting is to help internal management for taking decisions.
This help to creditors and investors take investment decisions.
Management accounting system: this helps in improving productivity and efficiency in production for the organization in order to posses higher profitability and greater market share for business growth and development. Some management accounting system are discussed below:
Cost accounting system:
It is the techniques which enables Excite Entertainment Ltd in cost estimation for the various activities for determine profit analysis, valuation of inventory and cost control. Cost accounting system is mainly used for determine the cost of different product of production department of the organization (Bui and De Villiers, 2017). This help to determine profit and revenue as well and this includes such activities like work in progress, finished goods and inventory. This includes direct and indirect material, overhead expenses and labour cost. This includes direct and standards costing which explains below:
- Direct costing: A direct costing is the price which can directly tied into the production of specific goods and services. Example of direct cost are direct labour, direct material, manufacturing suppliers, wages for production etc.
- Standard costing: This is the accounting system which is used by manufacture to identify the difference or variances between the actual cost and produced goods.
Inventory management system:
An inventory management system is the combination of technology and processes which oversee and maintenances of stoked products within the organization. This involves management of supply chain process of organization and enables the company in effective decision-making process and investment. It manages orders from market and the product supplied and all the activities which are related to these activities and help to company in better delivery of goods at market to overcome sales demand (Collis and Hussey, 2017). This system uses some methods for managing stocks which are explains below:
- FIFO: Stands for first in first out, the cost is associated with the inventory which was purchased first is cost expensed first.
- LIFO: stand for last in first out, this assumes that the most recent product added within the company inventory sold first.
- Weightedaveragesmethod: This is divide the cost of goods available for sale, which is yields the weighted average cost per unit.
Job costing system:
This system is monitor expenses and assigns manufacturing costs of each product. So that, managers are able to keep a track on their expenses. This help to determine manufacturing cost which are dividing them into the overheads, material cost, labour cost and estimated actual values. The company Excite Ltd uses method to control the raw material, equipment cost and hours of labour.
Benefits of management accounting system:
Management accounting system is beneficial for Excite Entertainment Ltd in planning, controlling, organizing and coordinating their business activities for better growth of organization. It helps to improve efficiency, performance and productivity of organization for attain different economics scale (Granlund and Lukka, 2017). This report is enables the stakeholders in identification of problem in the organization and frame effective measures or strategies to overcome those problems which are face by company. This is also helpful for planning budget and various cost estimation for organization.
B) Methods used for management accounting reporting
Management accounting report are used for planning, formulating, regulating, decision-making process and measuring performance. These reports are generated through the accounting and book keeping period or as per requirements of businesses. This help to provide relevant information to manager of company which is further enabled in making strategic decisions for solving issues. There are different types of management accounting report are as follows:
This is the tool which is used in performance evaluation of the company. This help to compare the actual result by preparing budget plan for identify the differences between them. This is compare by past performance of company with current one and implement important steps and actions for gaining higher profits (Hiebl, 2018). This involves estimation of cost and revenue of organization and later work for gaining higher profits.
Account receivable report:
An account receivable report is the records which shows unpaid balances of invoices that are along with duration of outstanding. This report is primary technique and tool which is used for collection personal determine invoices. This help to determine credits to provide by customers to company. This includes all the important information related to the people who own company money and keep track on it.
Performance report is based on the performance of something. That report are routinely produced by government bodies which beings financed by public money. This report is addresses the results and outcomes of each activity or individual work. This compare the budget and standard and variance between two figures (Joshi and Li, 2016). This is the detailed understanding of company performances which is reflected performance of Excite Entertainment Ltd. This provides provide all important information and data to stakeholders which are related to company performance and help to make better decision for improvement purpose. This help to make estimation of profitability for company by representing current status of company performance.
Cost report is the financial report which identifies the cost and charges of various activities which are happens within the company. This provides the complete information of cost accounting of company. This will also provide information about all those transactions which are related to the cost accounting and expenses or revenue. This determines cost of each element and activity of organization which includes products, services, distribution, manufacturing process and another elements. This help to manager of Excite Entertainment Ltd to keep a watch on every cost of company (Latan and et.al., 2018). Through which is able to determine strategies for reduce the extra cost and expenses in various areas.
Methods of management accounting system:
Marginal costing: this refers with the changes in actual cost by adding up of units in production. This technique concerned with the effect of fixed overhead on profitability of business.
- Marginal costing is constant in nature because this is stable.
- This is divided into fixed and variable cost. As per that management can control marginal cost effectively (Advantages and Disadvantages of Marginal Costing, 2017).
- This is helpful for determine what is profitable for company to buy or manufacture products.
- In this very difficult to analysis overheads.
- It does not explain complete information and the reason to increase production and sales.
- In this method have less effective cost control.
Absorption costing: this costing is calculated and considers all the costs which involved in process of production. This drives direct and indirect cost with the accurate results of work.
- This cost take account into the all costs of production, not just on direct cost as variable costing (Malina, 2018).
- This provides a more accurate information of profitability than variable costing if all the products are not sold same accounting period.
- This costing is fails to provide a good analysis of cost and volume as variable costing. As per that, it does not help to improve operational efficiency of company.
- This is not useful for the comparing the potential profitability of different product line.
Calculation of cost and preparing income statements.
Marginal costing: This is costing is technique within variables cost been charged to the units of the cost whereas fixed cost for a particular period. This refers the different principle of variable costing which are directly linked with direct units of cost and fixed cost which are relevant period is been written off wholly against contribution for the particular period. The main concept of marginal costing is based on behaviours of cost which is varies with the volume of production (Nuhu, Baird and Appuhamilage, 2017). This is also known as the variable costing method that is only variable cost of included and per units cost is attained based on variable cost.
Absorption costing: This is the another method of concluding cost attached with the process of production and apportioning with individual products. This is the type of costing which is needed by an accounting standard in order to create valuation of inventory mention into the balance sheet. The product is absorbed broad range of variables or fixed cost. These costs are not recognized as an expenses in month (Otley, 2016). It remains with the inventory as assets unless such time as an inventory is been sold at the point of time when COGS is charged.
Profits and loss statement as per absorption costing:
Computation of per unit cost:
Calculation of cost of goods sold:
Profit Statement as per Marginal costing:
Working note of calculation of cost of goods sold:
Calculating the per unit cost by employing marginal costing method:
From the above evaluation and calculation it has viewed and analysed that, the profits with an application of absorption costing as 40000 and marginal costing as 32000. These shows that the absorption costing is the better tools and techniques as compared to marginal costing as providing a true picture of profitability by considering both variable and fixed cost in effective manner.
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A) Advantages and disadvantages of three planning tools
Planning tools are mainly used by company to manage their accounts and improve their performance by adopting various strategies and methods for control the factors which are arises to maintain sustainability in the company. This help to company for take effective and better decision-making to achieve goals and objectives in the near future. The proper planning tool is implemented by planning proper budget (Qian, Hörisch and Schaltegger, 2018). Thus, budget is mainly prepared by company to examine the income and expenditure in company. Those are interprets accurate flow of income to identify company structure to expand their business and its activities into the national and international market. The planning tool is the important for company to manage effectiveness for proper planning. For that here is shows some planning tools which are as follows:
Cash flow budget:
The cash flow budget is mainly prepared by the company for examine actual cash incurred through estimating cash flows either inflow and outflow from the day to day activity. Through this budget is help to company for analysis actual cash which is incurred and make proper balance their working through investing into the certain projects (Quattrone, 2016). There are some advantages and disadvantages of cash flow budget are as follows:
- They can borrow loan from investors and bank by presenting their stability to reputation by having the surplus cash.
- Company has surplus cash by managing their accounts by that they can buy more resources to increase stability into the market place.
- There are more chances of fraud in the company because that manipulates interest of employees by viewing surplus cash in the company.
- In case of budget is not properly maintained, in that case no chances of loss money.
Thus, in case of Excite Entertainment Ltd company, they can use such planning tool for examine estimated cash inflows and outflows at the time of dealing in certain activities for gain more profits in effective manner. This help to balance their process by analysing expenses of company that are incurred in near future and plan strategies as per activity.
These budget are mainly prepared by company for track records of units produced by individual employees for working in the organization. These are based on sales budget and stability for determined analysis of the actual sales which are occurred within the company. There has the various and certain factors which are inclusive within the production budget related to the equipments, labour and raw material (Production Budget, 2019). This is used for examine actual cost incurred at the time of producing and introducing products of company. This planning tools are have some advantages and disadvantages which are as follows:
- This helps in maintaining an effective level of balance between the sales and inventory production of company. This is highly contributed for coordinating with policies and plans which are related to products.
- This provides the proper guidances and plan for organize as it gives target of production which is related to the management of company.
- By setting target being using the production which gives the proper motivation to the employees of the company to work harder to achieve goals in time and in effective manner.
- The preparation of production budget of company is helpful because that is one time-consuming processes as it is requires to be lost of time and efforts of management.
- Every person the company have with different mins sets and also have different thinking to present and complete task in effective manner. As per that, it is possible that all the employees of organization might not able to accept production budget that is prepared by top management of company.
- For the newly operates company have not the past data and experiences, in that case it is very difficult to estimate figures for production budget.
In case of Excite Entertainment Ltd, dealing in innovative design of products and services. In that case they required lots of raw material for produce new services. In that they are requires finding proper management of cash, so that they can fulfil demand and needs of customers through launching new thinks in market place. This planning tool is effective and valuable for the manager to manage accounting accurate formatting.
Zero based budgeting:
This is an accounting practices which force manager to think about spends money in every budgeting period. This budget is mainly stated from the zero base, and they are prepared for analysis the real expenses and incomes (Soderstrom, Soderstrom and Stewart, 2017). There have not any chance to carry forward previous year budgets and any other surplus income that is occurred from the previous year. There are several advantages and disadvantages of the Zero based budgeting are as follows:
- Zero based budgeting is based on decision-making for taking effective and better decisions, this budgeting completely ignores the past years figures.
- This budgeting have effective aim to analyse cost benefits which does not make focus on studying the changes in expenses and preparing the proper variance analysis.
- There have not any chances to get accurate results and things which are related to neglected before adding in the budget for maintain interest of employees in the premises for longer terms.
- There have some chances of fraud to entries as personal expenses are also includes the budgeting.
- There have a larger number of employees this budget is not effective as it results in time-consuming concepts.
Thus, in case of Excite Entertainment Ltd, this is the planning tool is effective for making better decision as that can communicate with their employees and each department. This analysis all those factors which results in causing any type of issues for achieving their goals and target more easily.
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B) Comparing management accounting system to respond to financial problems
There are including some management accounting system to solve some financial problem which are arisen within the company. Financial problems are increasing cost, lack of funds, delaying in delivery of products and services, unmanaged quality of products, poor performance and lack of controlling.
It is effective strategic tool which is identifies and improve several internal functions of the business. This is used for measuring feedbacks to the management for working in better manner (Usenko and et.al., 2018). This is effectively helped to solve financial problems that are occurs relating to lacking of funds viewing all the major perspectives of business.
Key performance indicator:
This is also management accounting technique which is measurable values for organization which is shows that an effective and valuable way in which an entity achieve their business objectives. In that case company can use KPI tools at various levels for evaluating success to achieve goals and reach out to the target effectively. This is effective and valuable for company to solve their financial problem in relation to lack of controlling and poor performance management.
This referred as the practices of comparing processes and performance of company with which performance its rivalry in respect of quality of products and financial or operational performance. This tool and technique is helpful for gaining competitive advantage against of competitors through adopting various best and effective practices (Van der Stede, 2017). That is enabled for company to solve problems with regard to financial aspects which involves delaying delivery of products and services, higher manufacturing cost and unmanaged quality of product and services.
It is the effective and valuable technique which is reflects the quantitative investigation of different planning and actual behaviour patterns. This is effective for using within the organization for ensure about controlling business. This is effective for overcome those financial problems which are faces by company related with deviation, non meeting of the budgeted standard etc. This is effectively includes investigation of such a differences so that an outcome is the difference statement from an expectations and interpretation of those variances which are occurred within the company.
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Excite Entertainment Ltd.
The company can use balanced scorecard tool for resolving those mentioned financial problems in effective manner.
On the other side, it can adopt KPI and variance analysis tool for overcoming financial problem of company in proper manner.
Calculating cost volume profits analysis:
From the above study, it has summarized the understanding of management accounting system and importance for organization to taking various decisions. The report has also included various management accounting report and methods used for management accounting reporting. This stated the calculation of cost by using different techniques and methods of cost analysis. The report discussed different planning tools for budgetary planning and understand advantages and disadvantages of cash flow, production and Zero based budgeting. The report concluded by the comparing different ways in that organization uses and adopting responds for overcome to the financial problems of company.
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- Bui, B. and De Villiers, C., 2017. Business strategies and management accounting in response to climate change risk exposure and regulatory uncertainty. The British Accounting Review. 49(1). pp.4-24.
- Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International Higher Education.
- Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms: Reviving contextuality in contingency theory based management accounting research. Critical Perspectives on Accounting. 45. pp.63-80.
- Hiebl, M. R., 2018. Management accounting as a political resource for enabling embedded agency. Management Accounting Research. 38. pp.22-38.