Various Types of Management Accounting System of Excite Entertainment Ltd

TASK 1

P1 Management accounting and the requirement of various type of management accounting system

Management accounting: It refers to the effective technique that implement by company to analysis, control and monitor the overall effectiveness of operations. In context of Excite Entertainment Ltd., the main focus of manager is to manage entire financial activities because it supports in evaluating the actual efforts made by business in order to attain their set targets. Mainly, it helps company in making decision by gathering actual and relevant data towards the company performance (Alawattage, Wickramasinghe and Uddin, 2017). By this, firm can easily reduce the chances of arising financial errors.

Financial accounting: This type of accounting is one of the effective that mostly used by both big and small company to determine their actual performance at market place. The manager of Excite Entertainment Ltd., is focus on the evaluating entire financial statement that support them in analysing the profit and loss of company.

a) Difference between management and financial accounting:

b) Cost accounting systems:

It refers to an effective system which is used with at the aim of determining the actual cost of the company that faced by them at the time of executing as well as performing operational activities within the organisation. In this regards, manager of Excite Entertainment Ltd uses this system in order to finding the actual causes towards the expenses. With the help of this, manager of company can easily determine the factors that are resulting in high cost. Mainly, this system includes two type of costs such as:

• Direct cost: Under this, all the expenses are related with the business activities and occur when company promote their concerts and festivals in over the UK. In this costing different types of costs are included such as direct material, sakes commissions and many more. Herein, underneath a worked example of direct cost is mentioned in such manner:

• Standard costing: It is also considering as an effective costing techniques that used by company to collect information about the factors that are related in variation between actual cost and standard cost. This is used in order to make comparison between actual and estimated cost. It can be favourable or unfavourable like if actual cost is less than standard cost then this will be favourable, vice versa. Herein, underneath worked example of standard costing is mentioned in such manner:

c) Inventory management systems:

It is considering as an effective combination of technology such as hardware and software and procedures that used by company to monitor and maintain stocked products. It can be company assets, raw material and finished products that are read to deliver end customers (Anderson and Dekker, 2014). By using this system, Excite Entertainment Ltd can easily maintain the record of stock of company. As it includes different type of methods are as follows:

• Last in First Out (LIFO): It refers to the inventory evaluation method in which firm focus on the inventory that is bought in last and used first in manufacturing process. With the use of this type of system, Excite Entertainment can easily manage the stock and improve their production activities.
• AVCO: This type of method is also considering as an effective as it implements by company for set the product price on the basis of average cost. In context of Excite Entertainment, they use this technique with the aim of setting the product price as per average cost of production process in order to manage their stock. 
• First in First Out (FIFO): This type of method is also effective that refers to the first in first out in which company bought goods first and also used first in production process (Hertati and Sumantri, 2016). By implementing this method, Excite Entertainment can easily manage their stock and at the same time also improve their production process.

Furthermore, these are the effective methods for company to manage their stock but in context of Excite Entertainment Ltd use FIFO method as it helps in effectively utilise entire resources. This will aid in managing the overall stock of company in an effective manner.

• EOQ: It is considering ideal order quantity in which company needs to buy to minimise inventory cost like shortage costs, order cost and holding cost. In this, business organisation, optimal order quantity that help in reducing total cost related with receiving and ordering. With the help of this, company can easily identify the optimal number of products units that are required to order. It directly contributes in increasing profitability level of company. This is calculated by a particular formula that is as follows:

EOQ= √2 x D x O / C

Where,

D= Demand

O= Ordering cost

C= Carrying cost

Example:

There is a company whose annual demand is of 20000 units and ordering cost is of 400 pounds as well as carrying cost is of 10 pounds. Then their EOQ will be:

EOQ= √2*20000*400/10

= 1265 UNITS

• JIT (Just in time) system- This can be defined as a type of production management process which was developed in Toyota manufacturing plants with an objective of meeting customer demands. In other words, this is a method which is linked to minimising wastes and enhancing production efficiency. In the aspect of above company, this method can be applied in order to minimise deficiencies regards to production. This technique has below mentioned advantages and disadvantages such as:

Benefits-

• This helps in minimising wastages.
• It contributes in keeping cost of inventory at a minimum level.

Drawbacks-

• The success of this method depends on suppliers and in the absence of their contribution, it cannot be beneficial.
• Higher transaction cost is also a main issue of this technique.

Example-

In Dell company, this system has been applied in their manufacturing process. For this purpose, they provide flexibility to their suppliers. As a result, their efficiency to delivering goods to customers increased and wastages reduced.

d) Job costing systems:

This type of system is also play a crucial role in business organisation as it includes all the expenses that are related or resulting from certain jobs. In this, manager of Excite Entertainment focus on keeping record of each and every jobs which includes or perform within the company. With the help of this system, company can easily segregate expenses as per customers and improve the organisation performance. Mainly, it includes different range of costs such as:

• Service costing: Under this type of cost, business offer services as compare to products. As Excite Entertainment Ltd provide events services to its customers as per their needs and wants.
• Contract costing: This type of cost is related with a specific contract with customers that help in improving the overall performance of company.
• Batch costing: This type of cost assigned with each batch of units as it is quite similar towards the job costing. For example, in a company total production cost is of 6000 pounds in order to produce 200 units then batch cost will be as follows:

Cost per unit= Total cost/total units

= 6000/200

= 30 per unit.

e) Benefits of Management accounting system:

Management accounting system play a significant role in business organisation as it helps in managing the finance system of company in order to attain higher profitability level (Jinga and DUMITRU, 2015). There are a number of benefits of management accounting system which are as follows:

P2 Diverse methods of management reporting methods

a) Management accounting reporting.

It is the way toward formulation the executives report which is implemented by all the organizations so as to examine genuine execution of business (Nimtrakoon and Tayles, 2015). In this manager of Excite Entertainment Ltd., defining four various types of reports such as:

• Account receivable report: it considers as an important document that includes depth material dependent to the unpaid aspect which was not paid by customers while buying any kind of product and services from company. In context of this, manager of Excite Entertainment Ltd., are making this report with the aim to evaluate the amount of account receivable which is owed by clients. It is helpful for the company because assists in evaluating the total outstanding which will be get by the organization in future period of time.
• Inventory management report: The paper contains huge information of inventories that are utilized by organizations to play out all the execution and operational exercises. In Excite Entertainment Ltd manager are implementing the targets of business. In context of this, organization is having adequate stock to convey effective services to clients. It is profitable for the undertaking similarly as with its assistance stock could be evaluated by manager of company before the emergency and issues arise within the company.
• Performance report: Majority of business organization produced this type report with the aim of evaluating staff members and business performance. As manager of Excite Entertainment Ltd. are additionally defining it to follow that representatives are putting forth their best attempts to contribute in the accomplishment of set targets in stipulated time frame (Papazov and Mihaylova, 2015). It gives different advantages to business which consist rewards to representatives, planning choices for future and so on. All these are put positive impact on enhancing the overall performance of company.
• Budget report- It can be defined as a type of report that complies with finance and accounts department of a business entity. This report includes information about estimated amount of income and expenses as well as actual output. By help of this report, managers can find out variation between actual and estimated performance and can take suitable action accordingly. In the context of above chosen excite entertainment plc, their finance department use this report in order to evaluate financial performance by making variance analysis of both income and expenses for a particular accounting time period.
• Cost accounting report- In this report, information about cost is included for each aspects and functions which are performed in a business entity. This report is prepared with an integration of cost accounting system. In this report total amount of occurred cost in order to complete activities is included as well as on the basis of this information accounting department projects futuristic costs. In the aspect of above excite entertainment limited company, this report is produced by finance department in order to help their managers so that they can allocate funds in different activities as per the need. Eventually, this report is a key part for finance department of companies because on the basis of it cost can controlled.

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

It is important for business organisation to evaluate the information which should be relevant, accurate and reliable as well as it help in making each and every aspect more effective. As it includes different reasons such as:

• Accurate: It is crucial for company to includes accurate information as it support manager in taking right and accurate decision within the company (Revellino and Mouritsen, 201).
• Relevant: For improving the financial performance, accounting information needs to be relevant as it supports in reducing the chances of arising any kind of financial error within the financial transactions.
• Reliable: All the information of company is reliable in nature because it supports manager of company in making corrective action. By this, firm can enhance their positive performance.
• Timely: For attaining favourable outcomes, it is crucial to present all the accounting information on right time. It may assist business organisation in implementing effective plan and policies in order to attain competitive advantage from its competitors.

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

There is a critical integration between MAS and MA reporting. This is so because each department of company has a link with companies’ operations such as finance department of companies prepare their policies and strategies in accordance of cost accounting system. As well as production department of companies link to the inventory management system. Same as in the above company, their different departments are integrated to various types of accounting systems. Apart from it, MA reports are also integrated with business processes such as financing process is operated in accordance of information of cost report in the excite entertainment limited.

TASK 2

P3 Calculation of cost using marginal and absorption costing

Absorption costing: The system is utilized in cost representing with the motivation behind deciding the expense of absorption. In this manager of Excite Entertainment Ltd. use this method in order to determine the best strategy to shape the whole income statement with the goal that real data in regards to business could be assembled.

Definition:

According to ICMA, this can be defined as a type of costing technique which is related to considering both costs in a similar manner (Dale and Plunkett, 2017). Under this fixed cost and variable costs are considered as cost of unit.

• Limitation: The main weakness of this type of method is related to the complexity that is faced by manager at the time of comparing the results as compare to the expenses in order to effectively calculate the overall profits (Richardson, 2015).
• Advantages: One of the main benefit of this method is that it provides better guidance to manager by which they can easily formulate effective strategies that contributes in increasing the operating income for business organisation. 

Income statement as per absorption costing:

Interpretation- On the basis of above prepared income statement under absorption costing, this can be find out that there is net profit of 40000 pounds. In this method both fixed and variable costs are fully absorbed. As well as value of total absorption cost is of 80000 pounds which is deducted from total sales revenues in order to find out net profit.

Marginal costing: This system is utilized in management acounting to discover the cost which gets changes when the units in all out generation is adjusted by top directors. While utilizing this technique, manager of Excite Entertainment Ltd discount all the fixed expenses (Schaltegger, Burritt and Petersen, 2017).

Definition-

According to ICMA (Institute of cost and management accounts), the marginal costing can be defined as a type of technique in which fixed and variable costs are considered in a different manner. Under this, fixed cost is assigned as cost of period while variable cost is considered as cost of period (Rigterink, Collette and Singer, 2013).

• Benefits: It is one of the effective beacuse it help manager in understanding the stratgies that could be formulate within the company to attain sucess and higher growth level.
• Limitation: It consider higher level of difficulity that faced by manager of company in differentiate the cost that are variable in long term aspects.

Income statement as per marginal costing:

Interpretation- On the basis of above prepared income statement under marginal costing, this can be find out that net profit is of 32000 pounds. In addition, total marginal cost of sales is of 48000 pounds. In this method, both costs are considered into a different manner. The value of contribution is of 72000 pounds. Herein, this is important to know that in both methods information is same but value of profit is different.

Reconciliation statement:

Recommendation- On the basis of above prepared income statement of this company, this can be suggested that they should try to minimize their variable expenses so that their profitability may increase. As well as they must focus on those aspects which are leading to unwanted cost.

TASK 3

P4 Different planning tools using in budgetary control

Budget- The term budget can be defined as a process of estimating further timer period income and expenses so that effective financial strategies can be applied in business entities (Cooper, 2017). The budget is also known as financial plan. Herein, this important to know that budget is not only useful for companies but also used in day to day life also.

Budgetary Control: Budgets are representations containing estimates of expenditures or benefits that are delivered after the company's targets are evaluated. Budgetary control is based on approaches that are selected by an individual to manage financial performance by planning addition to enforcing separate budgets. In this, financial function of Excite Entertainment Ltd.’s plans different budgets and calculates outcomes by processes of budgetary control under which they equate actual performance with projections. Through this, they will detect anomalies and take remedial action at a given time period.

Planning tools:

Zero based budget: This is budgeting method under which all the expenses should be properly justified for new period. Excite Entertainment Ltd.'s budget manager uses budget by scraping all costs to zero each time to justify money spent according to business objectives (Seal and Mattimoe, 2014). Herein, below example of ZBB is mentioned:

Advantages: Its main benefit is effective resource allocation that based on requirements and advantages. It helps managers to search the cost effective ways to make improvement in activities.

Disadvantages: This takes more time to plan the budget to organization as the planning process consists the new aspects in each period that take longer to assess activities for calculation.

Cash budget: This is an estimation of cash flows for business over particular time period. It is mainly used to be assess entity that has the cash to be operate. Through this, managers of Excite Entertainment Ltd provide cash status information so that critical decisions are formulated prudently in the sense of generating reserves and uses. This type of planning tool is also effective which includes cash receipts that are crucial to implement or record in accounting period of time. In context of this, Excite Entertainment Ltd manager includes all the information of cash that may assist in taking critical decisions in order to improve the performance of company. Therefore, cash budget is also used when prioritizing payments and evaluating variances in cash inflows and outflows. 

Advantages: It permits Excite Entertainment Ltd. Company to establish credit amount that can extent to consumers without having the liquidity issue. The cash budget neglect shortage of the cash at the time of encounter more expenses.

Disadvantages: Its disadvantage is that No credit transaction is transcribed in cash budget which fails to deliver accurate company position. This also specifies the limits on spending areas which result in the prevention of opportunities for future company investments.

Master budget: It considers as an important and central planning tool that help in comprises financial programs that are interrelated. As it assists in accomplishing all the set strategic goals and objectives (Vasarhelyi, Kogan and Tuttle, 2015). Mainly, it is important documents that includes future expenses incurred, expected future sales, capital investments and many more. As it is crucial for Excite company to manager their budget so that they can easily attain their expectations.

In this this, the main advantage of this budget is to determine the problem by effectively reviewing all the other budget. On the other side, it takes more time in updating the financial activities and fail in attaining higher growth in market.

Production budget: It is mainly used by business entities for the purpose of keeping track record of all the units which are produced in a specific time period. With the help of it detailed information of finished goods could be gathered.

Sales budget: It is formulated by companies for the purpose of keeping record of all the units that are sold in an accounting year. It helps to determine actual sale of the year.

Flexible budget: It can be defined as a budget which could be modified with the changes in output. It is very complex to prepare therefore an experienced person is required to prepare it.

Importance of budget variance to management

A budget variance analysis is considering as a process by which company compare their budget to actual results in order to evaluate the reason for the variance. In this regards, the main purpose of this analysis is to improve as well as manage the financial activities that directly contributes in enhancing the possibilities of attaining positive outcomes. In addition of this, budget variance also assists in making more realistic picture and at the same time also make more accurate budget in upcoming year.

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TASK 4

P5 Compare how organisation are adopting management accounting systems to respond to financial problem

Calculation of contribution:

Contribution- sales-variable cost

Calculation of BEP:

BEP= Fixed cost / contribution per unit

Calculation of cost volume profit analysis:

BEP (In pounds) = Fixed cost / PV ratio

PV ratio= Contribution/sales*100

= 30/40*100

75%

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

Assumption of BEP:

• Fixed cost remain constant at all outputs.
• The value of cost and sales can be affected only by sales volume.
• All type of cost considers as cost of fixed and variable aspects.

Limitations of BEP:

• While calculating it, it is estimated that selling prices are constant at all the level of outputs.
• It assumes that sales and production are sale for whole year.

Financial issue: It refers to the major issue that is related with the different financial sources that faced by the company in completing the operational activities. Mainly, it is major issues faced by company due to absence of adequate financial resources that exist in competitive business environment. In this regards, there are some major financial issues faced by the company are as follows:

Reduce overall sales: It is one of the major issues that faced by number of business organisation due to ineffective financial management. Mainly, it directly affects in the competitive advantage of company as they fail in making their appropriate plans to accomplishing set goals.

Reduce profit and revenue of company: This type financial issues are increase due to ineffective and improper financial aspects. The main reason behind this is lack of liquidity that may reduce the profitability level of company. Along with this, it arises due to increase in expenses that negatively effects on the Excite company and its financial performance as well.

Financial governance: This system related about the checking methodology for organizations in the part of fathoming money related issues. It has been characterized as an effective technique which gathers and deal with all budgetary exchange of organizations in an appropriate way. In this regards, associations face money related issue as it is crucial to resolve the same in systematic manner.

Methods for reducing financial issues:

• Ratio analysis: It tends to be characterized as a sort of strategy which is connected with computation of various kinds of proportions that help in determining the money related issue. In context of this the Excite organization is utilizing this procedure to discover the reason for accurate monetary issue. They figure proportions like productivity proportion and by help of it careful issue can be easily discovered.
• KPI: It refers to the key performance indicator in which exercises are recognized on the basis of organizational cost and profitability level. It may include greater expense as contrast with standard expense are featured and named as reason for budgetary issue. With the assistance of this company can easily implement an effective planning and stratgies to accomplishing their goals and objectives.

Comparison of organisation:

CONCLUSION

As per above mentioned report it can be concluded that management accounting is one of the important aspect for business organisation as it helps in providing accurate financial information to top level management. By this they can easily take right decision and at the same time also may attain higher growth level. In addition of this, management accounting system is referring to the appropriate combination of various systems such as cost accounting, IMS, job costing system and many more. All these are may aid in improving the performance level of company by managing performance reports, inventory management report. Apart from this cost analysis is also an effective technique that consist marginal and absorption costing used sin developing a right financial statement as it shows the actual performance of company. Furthermore, company also use different planning tools such as cash, master and zero based budget that help in analysing the estimate future revenue along with entire expenses. As company face various financial issues that directly affect the overall sales and profitability of company. For resolving the same, organisation can have used best and suitable approaches of KPI and benchmarking that help them in reducing the possibilities of arising any kind of issues and also support in attaining competitive advantage from its competitors. 

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.
• Hertati, L. and Sumantri, R., 2016. Just In Time, Value Chain, Total Quality Management, Part Of Technical Strategic Management Accounting. International Journal of Scientific & Technology Research. 5(4). pp.180-191.
• Jinga, G. and DUMITRU, M., 2015. THE MANAGEMENT ACCOUNTING TOOLS AND THE INTEGRATED REPORTING. SEA: Practical Application of Science. 3(1).

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