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Planning Tools Used in Management Accounting- Excite Entertainment LTD

University: University of Birmingham

  • Unit No: 2
  • Level: Post Graduate/University
  • Pages: 17 / Words 4283
  • Paper Type: Assignment
  • Course Code: CMSE11101
  • Downloads: 161
Question :

This assessment will cover following questions:

  • Evaluate how management accounting systems and management accounting reporting should be integrated within Excite Entertainment Ltd Operational processes.
  • Excite Entertainment Ltd is an internet media company. Explain the use of planning tools used in management accounting.
  • Explain how, in responding to financial problems, management accounting can lead organisations to sustainable success.
Answer :
Organization Selected : Excite Entertainment LTD

INTRODUCTION

Management accounting is regarded as the application of professional skills as well as knowledge into formulation of accounting information in such a manner so that this assists firm's manager to develop policies as well as plan and control their operations (Management Accounting – Meaning, Advantages & Functions, 2020). As per the given scenario, this report is based on Excite Entertainment LTD. It operates into leisure as well as entertainment industry and its vital practices is promotion of festivals and concerts in all over United Kingdom. The topics which are going to described in this report are distinguish among financial and management accounting, inventory management system, job costing system, advantage of many kinds managerial accounting report, integration of managerial accounting system and report into firm's operational procedures. Moreover, preparation of financial report using costing techniques and comparison among three planning tools are explained. Apart from this, comparison among ways the two entities applied management accounting system for preventing from financial issues are also discussed in this report.

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LO1

Section A

a) Differences between Management Accounting and Financial Accounting.

Management accounting is differ from financial accounting as this rendered data to person into entities. On other side financial accounting is basically for outside peoples like shareholders (Biemans, 2018). So, differences among two are described underneath:

Basis

Management accounting

Financial accounting

Purpose

The management accounting is utilised for internal purpose.

Financial accounting is utilised for external report mainly.

Regulation

 This is not regulated or governed through any legislation.

This has been represented according to the standards.

Contents

This consists both financial as well as non financial information.

This consists only financial information.

b) Cost accounting systems

This regarded as a system that is mostly applied into entities for an intent of ascertaining exact cost that is incurred during implementing the operative practices. Therefore, manager of Excite Entertainment LTD are applying this for an intent of identifying reasons of whole expenditures that are taking place because of their operations. This is vital for their business as this may direct its managers to ascertain the aspects that are outcomes into more cost. In is of two kinds such as direct as well as standard costing. Both of them are explained below:

  • Direct costing: Whole expenditures that are directly associated to practices of enterprises are considered as the part of direct costing (Brunswicker and Vanhaverbeke, 2015). So, this type of cost is incurs into Excite Entertainment LTD during the promotion of festival as well as concerts.
  • Standard costing:This is considered as the kind of cost accounting system that is utilised into various firms like Excite Entertainment LTD for collecting information related to factors that outcomes into deviation among actual as well as standard cost.

c) Inventory Management Systems

This is regarded as a managerial accounting system which is usages through business concern for managing whole products that are utilised aspects to perform practices in efficacious way. Therefore, the manager of Excite Entertainment LTD utilised for maintaining the whole records so that they can able to know that where is usages through staff for rendering leisure to customers. It is of three kinds such as Last In First Out (LIFO), FIFO and AVCO.

d) Job Costing Systems

It is regarded as managerial accounting system that is mostly applied into large entities for segregating overall expenditure that outcomes from several jobs (Carayannis, Sindakis and Walter, 2015). Therefore, manager of Excite Entertainment LTD apply job costing system to track the record of each and every jobs that are done based upon particular consumers. This is vital for firm as this may aids in segregating several expenditure as per their audiences.

e) Evaluate the benefits of the above management accounting systems to your client

The above explained system of managerial accounting has many advantages or benefirs that are explained underneath:

  • Cost accounting system:This managerial accounting system that is based on calculating and handling overall expenditure. For instance, manager of Excite Entertainment LTD do appropriate assumption related to futuristic cost and control upon useless spendings.
  • Inventory management system:This is based on the utilisation of many inventory valuation methods to track usages of raw materials. This aids manager of Excite Entertainment LTD to obtain essential information in respect of total quantity of material that is stored in their warehouses.
  • Job costing system:This is basically related with calculating the cost of each job units. So, this aids manager of Excite Entertainment LTD to handle and trace cost of jobs in more efficient manner.

Section B

a) Describe different types of managerial accounting reports

Managerial accounting reports is Define as the method of forming reports that is followed by overall entities to examine actual performance of enterprises (Lager, 2016). Therefore, in Excite Entertainment LTD some reports are prepared which are explained below:

  • Account receivable ageing report:It is define as managerial accounting report which consists information associated to whole customers or debtors who have not done payment. Therefore, the finance manager of Excite Entertainment LTD formulate account receivable report so that they can obtain knowledge regarding that users whose payment is due.
  • Performance report:Into this type managerial accounting report, information regarding performance of each aspects is included. The main intent of performance report is to aids Excite Entertainment LTD managers to undertake effective steps in respect of workers development as well as promotion as per their actual performance.
  • Budget report:Into this managerial accounting report, information associated with actual and estimated financial outcomes is included. Therefore, Excite Entertainment LTD prepare budget report so that they become competent for maintaining effective monetary performance.

b) Explain why information presented should be accurate, relevant to the user, reliable up to date and timely.

This is very much essential for whole entities such Excite Entertainment LTD to keep its financial information up to date, accurate as well as relevant. It is so as if data accurate then this is easier for their accountant to develop financial statements (Möller and Halinen, 2017). Also, there has to be connection of financial data with the transaction of entities for taking internal decisions. Likewise, it is vital to shows the financial information at certain time period in order to make stake holders understand and provide knowledge related to Excite Entertainment LTD business performance.

c) Critically evaluate how management accounting systems and management accounting reporting should be integrated within Excite Entertainment Ltd Operational processes

Within Excite Entertainment LTD. Their managers are focused towards enhancing performance of entities for this intent various managerial reports as well as systems are applied through them that are associated with management accounting. The main aim of all these is to render effective data in respect of business operative effectiveness and performance. Such as cost accounting system is utilised through its managers for segregating several expenditures that outcomes from practices. Where as, managers are developing managerial reports like performance with the assistance of this exact position of entities as well as efforts that are developed through its staff are evaluated.

LO2

Produce a financial report, comparing profit or loss using Marginal Costing and Absorption Costing techniques

Absorption costing: This is also known as the full absorption costing which is a method of management accounting that is utilised through entities to capture whole cost related with producing specific goods. Moreover, this is mostly needed for external financial accounting as well as income tax reporting (Mousavi, Bossink and van Vliet, 2018). Therefore, manager of Excite Entertainment LTD used this for identifying suitable method for developing income statement.

  • Benefits: This directs managers through out its ways where it may develop plan of action for maximising operating incomes for business for certain time duration.
  • Limitation:The crucial limitation of this is the problems hat is faced through examiners at the time of comparing expenditure and outcomes are considered during utilising this for computing profitability.

Marginal costing: This is regarded as the methods of cost accounting as well as decision making which is utilised for internal reporting where only marginal costs are charged to units of cost and fixed one are considered as lump sum. This is also called variable, contribution and direct costing. With the assistance of marginal costing the manager of Excite Entertainment LTD can write off whole fixed cost to get effective results.

  • Benefits:This represents the clear the affects upon profitability of variations into sales volumes. Also, this is helpful in making managerial decision as it renders more accurate measures for it (Talukder, 2016).
  • Limitation: The main limitation of marginal costing is that the overall cost can not be segregated within variable as well as fixed cost. Also, this is tough to pre- determine the variability degree of semi variable costs.

Calculation:

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

graph

Interpretation: As per the above graph, this has been interpreted that there is variation within net profitability as this is calculated from the marginal costing technique as well as absorption costing technique. The net profitability computed with the assistance of absorption costing so value is 40, 000 pounds. On the another side, the value comes while calculation is done through marginal costing is 32, 000 pounds.

LO3

Part A

Compare and contrast three planning tools used in management accounting

Budget are regarded as statement which includes approximation in respect of expenses that are formulated after examining the whole organisational goals. The methods which are undertaken through firm to control monetary performance by creating addition towards executing distinct budgets is considered as budgetary control. Therefore, Excite Entertainment LTD financial manager develops many budgets as well as ascertain outcomes with the assistance of budgetary control techniques where they may able to perform comparison among actual performance with approximated one. Through this, it can able to identify discrepancies together by taking effective actions at certain period.

Various kinds of planning tools

Some kinds of planning tools which are utilised through Excite Entertainment LTD are described below:

  • Cash Budget:This is regarded as planning tools in which anticipated receipts of cash along with cost disbursements are recorded for accounting period (Tidd and Bessant, 2018). With the assistance of this budget, the Excite Entertainment LTD manager obtain effective as well as complete data regarding position of cash so that they can able to formulate strategic decisions in respect to develop revenue and utilised it into prudent way. Moreover, this is also utilised during crucial payment as well as examining variance into cash inflow or outflow.
    • Advantages: This assist respective organisation to obviate any debt situation which may outcomes in obtaining effective outcomes regarding present cash at work area. Moreover, it aids their manager to devise realistic assumptions as well as examine monetary statement so monitoring spendings which are done during period.
    • Disadvantages: In this not any credit transaction are recorded so this will not able to render accurate business position. This also bound the expenditure limits which outcomes into preventing opportunities for doing futuristics investment through entities.
  • Master budget:This is considered as the central planning tool which comprises interlinked monetary programmes along with budgets for attaining the strategic objective of entities. This is fundamental documents in which level of production, capital investments, anticipated future sales and others which are to be repaid along with obtained one. Therefore, manager of Excite Entertainment LTD can develop master budget so that they can able to make some rough guidelines regarding nearest expectations.
    • Advantages: With the assistance of this respective organisation owner find the issues through reviewing another department budgets for planning ahead. This facilitates the summary of another budgets because of which they can able to examine overall earning as well as incurred expenditure nature as whole.
    • Disadvantages: This budget is too time taking during its up gradations as well as not simple for altering because of lengthy description involvement along with charts. It fail to undertake new opportunities of development for entities.
  • Zero Based budget:This is regarded as the planning tool in which whole transaction is are justified initiation of new accounting period (Winterhalter, Zeschky and Gassmann, 2016). So, Excite Entertainment LTD manager utilised this by scratching whole expenditures from zero each time for justifying the money spent according to the objectives of business.
    • Advantages: This budget develop an opportunities for Excite Entertainment LTD manager as this aids them to capitalise resources upon ineffectiveness along with identifying innovations so that they can able to minimise the cost.
    • Disadvantages: The formation of this budget consumes more time of Excite Entertainment LTD as the method of preparing this includes new prospects into every steps which take more time to evaluate practices for performing approximation.

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Among the above three budgets, Excite Entertainment LTD prepare the cash and master budget as this assists them in approximating position of cash as well as measuring performance departmental wise.

Comparison between master, zero and cash budget

The comparison among budgets such as zero, cash and master are described below:

Basis

Cash budget

Zero budget

Master budget

Definition

This is considered as a plan which includes anticipated amount of cash related to expenditures as well as receipts.

This is considered as plan where whole expenditures are justified as well as starts from scratch.

This is considered as plan which includes another budget that are formulated at various divisions into entities.

Aim

The aim of preparing respective budget through manager of Excite Entertainment LTD so that they may able to obtain fair idea regarding actual position of cash as well as available cash for meeting their obligations.

 The aim of zero based budgeting is to reduced useless expenditure.

This budget is formulated with an intent for setting rough guidelines so that futuristics desires can get attained.

All the above mentioned budget such as zero based, cash and others has some similarity that all those are utilised for effectual planning tools as well as assists into Excite Entertainment LTD futuristic monetary planning. Moreover, with the assistance of all these budget, it manager can able to set both long term and short term objectives, examine variations into anticipated and exact results as well as devise plan of action from developments.

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LO4

Part B

Compare ways in which management accounting is applied in dealing with financial problems and preventing financial problems in an organisation

Financial problem is regarded as that issues which occurs due to shortage of monetary resources for accomplishing the several operations as well as practices. Moreover, this is vital problems for entities as due to lack of appropriate monetary resources business concern can not able to exists into competitive atmosphere. There are essential range of financial problem that Excite Entertainment LTD are facing as well as few of them are described below:

  • Low profitability: This type of monetary problems which incurs into entities because of frequent reduction into practices which are revenue producing. Within this, business concern faced the issue of shortage of liquidity as in profitability will be low them they will not obtain sufficient cash amount. The main cause to occurs this monetary problem is enhanced expenditure amount. So, Excite Entertainment LTD is going through this problems as it becomes main reason of its low performance.

Methods for minimising monetary problems

Some methods which are used by Excite Entertainment LTD for reducing the financial problems are described underneath:

  • Key performance indicator (KPI):In this method of reducing financial problems, practices are find based on its cost as well as profitability level. Because of this practices that outcomes into high cost in comparison to standard cost which are represented as a cause of monetary problems (Wymbs, 2016). As per this, entities can able to formulate future plans of action.
  • Ratio analysis:This is regarded as a type of method that is related with computation of various kinds of ratios for describing actual monetary problems. For example: Excite Entertainment LTD is utilising this method for identifying the reason of actual financial problems. It calculate ratios such as profitability ratio as well as through assistance of this real issues is identified.

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Comparison

Basis of comparison

Excite limited company

PC clothing limited company

Financial problem

The financial problem which is faced through respective organisation is reducing profitability level. Because of which its capital are reducing for paying debts as well as doing practices.

It is facing the financial problem of reduction into sales. As because of this, its competitive existent gets weaker and capital are minimising.

Technique

It utilises techniques of ratio analysis in order to identify the actual monetary problems. With the assistance of this, it can able to compute net profitability margin ratio which direct them to understand the actual issues.

It utilises the Key performance technique as it identify as well as develop plans for resolving the problems. So, through utilising it they can concentrate upon that practices which outcomes into high costs.

Management accounting system

It is utilising the cost accounting technique for sorting out the monetary problems. As through using this they can able to know about the exact expenses as well as may try to reduce that which will outcomes into enhancing profitability.

It is utilising the price optimisation system for resolving the monetary issues. As with the assistance of this it may revised its pricing startegies as well as set reasonable price that may be acceptable through clients. Therefore, its sales reduced and issues of sales reduction get resolved.

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

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CONCLUSION

From the above report, it has been concluded that Management accounting is differ from financial accounting as this rendered data to person into entities. On other side financial accounting is basically for outside peoples like shareholders. Moreover, some systems are used for recording the cost and others. In addition to this, entities develops many budgets as well as ascertain outcomes with the assistance of budgetary control techniques where they may able to perform comparison among actual performance with approximated one.

REFERENCE

  • Biemans, W., 2018. Managing innovation within networks. Routledge.
  • Brunswicker, S. and Vanhaverbeke, W., 2015. Open innovation in small and medium‐sized enterprises (SMEs): External knowledge sourcing strategies and internal organizational facilitators. Journal of Small Business Management. 53(4). pp.1241-1263.
  • Carayannis, E. G., Sindakis, S. and Walter, C., 2015. Business model innovation as lever of organizational sustainability. The Journal of Technology Transfer. 40(1). pp.85-104.
  • Lager, T., 2016. Managing innovation & technology in the process industries: current practices and future perspectives. Procedia Engineering. 138(1). pp.459-471.
  • Möller, K. and Halinen, A., 2017. Managing business and innovation networks—From strategic nets to business fields and ecosystems. Industrial Marketing Management. 67. pp.5-22.
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