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Information Related To Management Accounting Systems of Excite Entertainment Ltd.

University: University of Bristol

  • Unit No: 5
  • Level: Post Graduate/University
  • Pages: 14 / Words 3450
  • Paper Type: Assignment
  • Course Code: BBAC501
  • Downloads: 60
Question :

This assessment will cover following questions:

  • Excite Entertainment Ltd is associated in conducting successful events and parties. Explain the integration of management accounting systems and management accounting reporting?
  • What is the importance of accuracy in the information and data produced?
  • Describe the techniques with respect to marginal costing and absorption costing?
  • How the accounting is applied in solving financial problems?
Answer :
Organization Selected : Excite Entertainment Ltd

INTRODUCTION

The term management accounting (MA) is a form of accounting which is aligned to procedure of gathering monetary and non-monetary data from different resources to produce inner reports (Nimtrakoon and Tayles, 2015). These reports act as a crucial framework to take important decisions. The aim of project report is to understand about importance of MA for inner stakeholders of corporations. This report is based on a company that is Excite entertainment limited company. The company operates its operations in promotion of concerts and festivals. This company is a client company of “Grant Thornton” that is a leading accountancy firm in UK. The project report covers detailed information about detailed understanding of management accounting systems (MAS), MA reporting, planning tools etc.

TASK 1.

Section (A)

(a) Difference between MA and financial accounting:

Basis

MA

FA

Mandatory

 MA is not necessary as financial accounting.

While financial accounting is essential to be applied in companies accounting process.

Format

In this accounting any specific format to produce inner reports is not applied.

On the other hand, under its financial statements are prepared as per the accounting standards.

Information

In MA, information about financial and anti-financial aspects is included.

In this accounting only financial information is included for further process.

Time frame

In this accounting, there is no any specific time to prepare internal reports.

On the other hand, under this financial statements are prepared at the end of an accounting period.

(b) Cost accounting system- This accounting system is applied by production department of a business entity in order to manage expenses of different functions. Its objective is to keep an effective control over additional and unwanted cost. This is based on two types of costing methods which are direct and indirect costing. The direct costing is defined as charging cost of product which is variable (Papazov and Mihaylova, 2015). While indirect costs are those which are not directly linked to a particular cost object. In the context of above Excite entertainment limited company, this accounting system is applied to manage overall expenses regards to organising any event.

(c) Stock management system- It is an accounting system which is based on evaluation of quantity of stored stock by help of different techniques such as LIFO, FIFO etc. The objective of this accounting system is to keep control over usage of raw material in production process. In the Excite entertainment limited company, this accounting system is applied to track usage of instruments in organising an event.

(d) Job costing system- In this accounting system cost of per unit is calculated by assigning cost of job of each item. This is beneficial for those companies whose product portfolio is larger. In the Excite entertainment limited company, their managers apply this accounting system to track cost of organised event as well as cost of each function.

(e) Benefits of accounting systems:

  • Cost accounting system- It is associated to reducing cost of different activities and operations. In the above company, this contributes to their finance department in order to minimising those expenses which are unwanted.
  • Stock management system- This is linked with managing cost of materials that are stored in warehouses. In the above company, their manufacturing department implies this accounting system to better management of stored raw materials.
  • Job costing system- It contributes in calculating cost of per unit separately. In Excite entertainment limited company, they apply this accounting system to manage cost of job as well as finding value of per unit cost.

Section (B)

(a) Different kinds of MA reports.

In business environment, different MA reports have a major role in strengthening the business operations and determining the weak areas of business and task. These areas are needed needed to be altered and modified to make maximum profit for company. Some of these are detailed below:

Budget report: This report is mainly prepared to examine the overall performance of business in a specific year (Revellino and Mouritsen, 2015). In excite Ltd, manager can prepare budget report to ascertain the performance of various department and even regulate cost with the budgeted figures. The estimated budget for a year is figure out from the past expenses and appropriate steps are made according to variance analysis.

Accounts receivable ageing report: This is consider to be a crucial report to manage cash flows in company which offer credit facilities to customer. With the help of this report manager in respective firm can make intimate customer according to their payment deadline and with outstanding balance. Company can also make tighter credit policies if debt because of delay payment.

Job cost report: This report is prepared for evaluating the total cost involved on various job within an organisation. Manager can easily coordinate with the income prediction for ascertaining the Job profitability. In Excite Ltd, manager by using this report can find out the jobs which are not producing favourable report and make steps to improve these jobs to increase profit margin.

B) Features of collected information

It is really essential that information provided in various ways should be trustworthy, up-to-date, genuine and up to date in a timely manner as it supports various useful decisions. Manager should ensure that document does not include any type of error and that these are compelled in accordance with accounting principles. In Excite entertainment management Ltd track and periodically use various reports to recognize industry patterns to find out that company is making income.

C) Critical evaluation of management accounting systems and reports.

In Excite Entertainment Ltd, different method and accurate documents are valuable because they are equally relevant in achieving the pre-planned performance. Like cost management system helpful in allocating overall cost related to various business operations and procedures. Thus, it help in preparing cost report which record each and every cost incurred in various operation and make certain plan to regulate expenses or not in a year.

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TASK 2

Financial report for the month of January 2020

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

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

In the table above different costing techniques are used to formulate income statements for the month of January which aid to determine the net profit. It is interpreted that net profit from absorption costing is 40000 and by marginal costing the profit is 32000 GBP. The main reason of difference in profit figures is because variable cost gets absorbed in absorption costing techniques.

Benefit and drawback of Absorption costing:

It can be defined as a type of costing method where all spending classes are completely absorbed by preparing financial statements (Richardson, 2015). All operating costs and variable costs were defined in this method as price of the product.

Benefit:

  • In estimating profit margin, it did not include the distinction between fixed and variable cost.
  • Such costing approaches promote identifying the use of fixed production costs through price valuation and the application of effective pricing strategies (Vasarhelyi, Kogan and Tuttle, 2015).

Drawback:

  • It is not really efficient in constructing agile budgets, because absorption expenses don't include expense separation.

Advantages and limitation of Marginal costing:

In this method all the variable cost which are used in producing a unit output is being subtracted from sales figure in order to get the contribution. Later on fixed cost are removed form contribution to ascertain the net profit.

Advantages:

  • It ensure valuable cost control method by segregation of the variable and fixed cost.
  • This method support the manager to determine the profit margin, price and tendering of company goods.
  • Different in cost figures aid in fixing the best selling price because a particular good is demanded in market at different price.

Limitation:

  • Many time this method is confusing for the manager as it is difficult to separate the cost into fixed and variable components.
  • Sales price may gets modify with the changes in operation level.

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TASK 3

Compare and contrast three planning tools used in management accounting

Budgetary management is said to be focused on strategies which are selected by an agency to monitor financial performance by planning addition to executing different budgets. There are various kind of budgets which can be used by excite entertainment limited as a planning tool. So that they can easily ascertain the outcome with the support of budgetary control system and these results are compared with estimated figures. Some of these are discussed underneath:

Production budgets: By using this budget as a planning manager of excite Ltd can make decision related with optimum manufacture level after interacting with different departments. This help in attaining the maximum level of profit with favourable cost. Therefore, company executives must include budgetary controlling in their work since it helps in the preparation of particular period budgets and in monitoring or recording of costs associated to the operations carried out in that span. So it is necessary for the manage to prepare these budgets with utmost care as it have a direct influence on sales and cash budgets.

Benefits: This budget presume an inbuilt place among sales and stock budget and thus support in make strong polices related with inventory and sales. Most importantly this budget help in ensuring the physical controlling of stack at different level which tends to increase the productivity level.

Drawbacks: The main disadvantage of this budget is that it do not clear the macro economic trends due to which production level gets impacted. It consumer more time and require skills which might hamper overall performance of company.

Cash Budget:

These expenditures plan have a crucial part in overall company budget anticipation and estimating (Benefits of Cash budget, 2020). Changes within cash level due to business operation are recorded in order to determine the productive activities. With this program, administrators of Excite Entertainment Ltd receive full cash balance details so further important decisions are formulated prudently in the sense of generating savings and utilizes.

Benefits: Cash budget advantages the organization in preventing any mortgage conditions which further lead uneven cash outcomes. Managers create practical forecasts for cash projections and review financial statements in order to assess investments that are produced in the time frame.

Limitation: It also defines the limitations of the expenditure areas which participate in the prevention of possibilities for potential company expenditures.

Master budget: In comparison to schedules, one of the centrally planned resources that involves interrelated financial systems to meet strategic business targets. This specifically tracks the levels of production, future costs accrued, anticipated potential sales, capital expenditure, acquisitions and other other loads to also be returned.

Benefits: Employers benefit from the master plan in finding problems through analysing certain departmental budgets and plan accordingly. It offers an overview of several other budgets, as a result of which entrepreneur analyses total income as well as the existence of costs incurred in their entirety.

Limitation: Master budget normally takes longer maintenance period and is not easy to change leading to the presence of long explanations along with maps. With master schedule, executives fail to acknowledge new business growth prospects.

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Comparison between master, cash and production budget

Basis of comparison

Cash budget

Production budget

Master budget

Meaning

This is related with estimating the cash inflows and outflows through different business activity (Schaltegger, Burritt and Petersen, 2017).

It is mainly prepared to figure out the total production level within a specific period and compare with budgeted figures. 

Master budget is the main budget which includes all other budgets

Main objective

The key objective for implementing cash budget is to obtain faithful idea related with cash structure and availability.

The primary objective of this budget is to ascertain the production capacity of company within a year and make better policies to increase the output level.

Master budget have a crucial objective i.e to increase the overall profit margin of company in nearby future.

TASK 4

Ways in which management accounting is applied to deal with financial problems

There can be various financial issues to a company because of different reasons which can lead to reduce the overall profit margin. Management accounting techniques such as KPI benchmarking can be used to determine the certain issues while financial governance can be used to solve these problems. These techniques are discussed underneath: 

KPI: This is known as a key performance indicator that identifies practices based on their feasibility and cost standard. With the support of this current business performance may be monitored and important decisions should be made (Seal and Mattimoe, 2014). This help manager of respective firm to determine the monetary problem of higher spending than earning.

Benchmarking: In this method, performance of company is compared with other firm dealing in same industry. Manager of excite Ltd can use this method to figure out the improper flow of cash due to which many operation get hamper.

Financial governance: If company encounter any type of financial problem, then it plays a major role in the system of addressing that concern. It was defined as a sort of tool that systematically gathers and manages all business transactions of corporations. With the help of this tool above detected financial issues are resolved by the manager of excite entertainment Ltd.

Comparison of organisations:

Basis of comparison

Excite limited company

PC clothing limited company

Financial issue

Company faces the issue of increasing operating cost and lower sales.

The company is facing financial issues related with poor management of cash and cash equivalent.

Technique

Manager uses benchmarking to see what other companies are doing to control cost.

In this company, KPI is implemented to make better plans which strength the cash structure (Vasarhelyi, Kogan and Tuttle, 2015).

Calculations:

BEP to attain desired profit = Fixed cost + desired profit / contribution per unit

= 120000+90000

= 210000/30

= 7000 units

Profit of sale of 7000 units

Sales (7000*40) = 280000

- Variable cost = 70000

Contribution = 210000

- Fixed cost = 120000

Profit = 90000

So the above calculation clearly state that company must sell 7000 units which will be beneficial in making a profit of 90000 GBP.

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CONCLUSION

It is concluded, that management accounting system and reports are integrated together in organisation which support in preparing better and faithful reports. Different sort of MA techniques are beneficial in calculating actual profit figures Planning tool like cash, master and production budgets are effective to prepare entire budget and makes ways to resolve financial issued.

REFERENCES

  • Nimtrakoon, S. and Tayles, M., 2015. Explaining management accounting practices and strategy in Thailand: A selection approach using cluster analysis. Journal of Accounting in Emerging Economies. 5(3). pp.269-298.
  • Papazov, E. and Mihaylova, L., 2015. Organization of Management Accounting Information in the Context of Corporate Strategy. Procedia-Social and Behavioral Sciences. 213. pp.309-313.
  • Revellino, S. and Mouritsen, J., 2015. Accounting as an engine: The performativity of calculative practices and the dynamics of innovation. Management Accounting Research. 28. pp.31-49.
  • Richardson, A. J., 2015. Quantitative research and the critical accounting project. Critical Perspectives on Accounting. 32. pp.67-77.
  • Schaltegger, S., Burritt, R. and Petersen, H., 2017. An introduction to corporate environmental management: Striving for sustainability. Routledge.
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