Management Accounting - Excite Entertainment Ltd.

This report highlights management accounting and the differences of the same with financial accounting. After which the report highlights a different type of accounting system and the benefits brought by them in the organization. After that, the report highlights the importance of presenting accurate data and different type of management accounting reports. The report then goes on to highlight the calculation of cost with the help of marginal and absorption costs. The report also highlights a different type of budgetary planning tool and the pros and cons of the same. In the end, the report highlights the different types of Accounting measurement systems and different ways different organizations used to adopt the same. Also calculation of the breakeven point for the cited organization.

SCENARIO 1

Understanding of management accounting systems

Management accounting is the process of analysing different type of business cost and internal report of an organization to be used by manager of an organization for making different decision in an organization.

Difference between Management and Financial Accounting

Management accounting is the form of the accounting which looks at providing good source of internal information about the business to manager in the organization, so that manager can take different decision in an organization (Schaltegger and Burritt, 2017).

Financial accounting whereas is a specialized branch of accounting which used to keeps track on different financial transaction of an organization. :

Accounting System and their benefit

Accounting system is the tool which is generally adopted in an organization to organize different financial information in organization. This system generally keeps track on different expenses, income and activities (Management accounting system, 2016). Some of Accounting System are as follows:

Cost Accounting System: Cost Accounting system is a system which is generally used by an organization to known the cost incurred by an organization to carry out different operation of business. Cost Accounting system used to look at both type of cost i.e. Direct cost and Standard cost (Ax and Greve, 2017). Direct cost is price which is directly tied to production and Standard cost is different estimation which are made regarding cost of process, resource and item used in manufacturing enterprises. This system is required in Excite Entertainment to have idea of real time situation of organizational cost.

Benefit

Cost Accounting system provide crucial support to Excite Entertainment is improving the efficiency of a business. As this system provided information to organization, which looks to reduce different cost of a company, in long run of business. Also, it helps business in optimum usage of resources.

Inventory Management System: Inventory management system is the process or system usage to see the monitoring and maintenance of different sort of stocked products in an organization. Inventory management system is required in Excite entertainment to track progress level of different services of the organization.

Benefit

Inventory management system in the organization helps the organization in minimizing the inventory cost of company, which eventually help the company in maximizing sales and profit of an organization. Also, it helps organization in managing variety of Inventory management task in Excite entertainment.

Job costing system: Job costing system is the process of gathering or collecting different information related to different type of cost which is associated with a specific production or service job. This is required in Excite Entertainment to track variety of cost of materials used during different carrying out different job (Nørreklit, ed., 2017).

Benefit

Job costing system help the organization in planning about future and making different plan in the organization. As with the help of information provided by job costing system organization is able to ascertain need of specific job in the future as well.

Methods used for Management Accounting Reporting

Managerial accounting reports can be defined as different resources or internal resources which are taken as a basis for the purpose of planning, regulating, decision-making and measuring the different performance of an organization. This reports are continuously generated by the management of organization throughout the year. Some managerial accounting report are as follows:

Budget Report: This report is used by internal management of Excite Entertainment to compare the actual performance of the company with the pre-described budget of an organization. The reason behind the same is to have idea about is to find out the deviation in an organization. This report in organization used to be developed in the organization departmental wise, which helps company in getting separate information about the performance of all department.

This report generally helps the managerial accountant in planning the different future activity in the organization. As with the help of Budget report manager used to make different decision in the company to reduce the gap between the actual performance and anticipated budget. This report also helps the company in ascertaining which expenditure level is high or low in the organization.

Account Receivable: Account Receivable report is the report which used to showcase all the invoices which are unpaid and also shows the duration for which they have been outstanding for the business (Lachmann, Trapp and Trapp, 2017). This report is used by Excite entertainment in identifying the average age of receivable and potential loses for client.

This report helps company in estimating the future situation of the organization, as it helps organization in estimating the bad debts expenses to the business. Also, Account receivable report help organization in identifying and touching all the slow payer client on time. This report also help manager in knowing the payment of client for specific period. This helps company in finding out the different issue related to collection process of Excite Entertainment Ltd.

Performance Report: Performance report used to show the performance of every employee in the end of every term. It used to define the activity or task perform by an employee or organization in certain period of time.

Performance report generally help the organization in focusing on the overall and big objective of an organization. This report eventually helps the manager at Excite Entertainment in focusing on building a good workforce in the company. As it helps of Performance report organization is able to measure, control and monitor workforce in the organization. Also it helps the manager at Excite entertainment in planning different recruitment activity for the future.

Cost Report: Cost report is financial report which used to defines the different type of cost which has been incurred to produce goods or services in an organization. This report shows all the type of the cost which has been incurred such as direct cost, indirect cost, standard cost etc.

This report used to work as a basis of management accountant in Excite entertainment in making different decision in the organization to reduce the amount of the cost incurred by organization in production process of an organization. This report also works as a basis for manager to plan future production activity of an organization.

Information presented should be accurate, relevant to the user, reliable

It is very important for all the organization to have an accurate and reliable information to carry out management accounting functions in the organization. The reason behind the same is that accurate data help organization in getting good base to make different decision in the organization. Non accuracy of data may laid to delay in decision-making in the organization or false decision-making in the organization. Another reason for having relevant data, is that it gets difficult for manger in the organization in deciding which data is good for the organization to make decision on the basis of the same. Also, not having good sort of accurate and relevant data may impact the efficiency of decision-making in the organization, as quality of decision-making in the organization used to fall in the organization.

Integration

Management accounting system is interlinked with the different accounting reports of Excite Entertainment Ltd. as management accounting report used to provide quantitative and qualitative information and as management accounting managerial accounting system encompasses the processes companies install to control and plan operations combination of both of this help Excite entertainment in making variety of different decision in the organization.

SCENARIO 2

Calculation as Per Marginal and Absorption Costing

Absorption Costing

Absorption costing system which generally used to calculate the cost incurred in producing product of organization, by considering all indirect and direct cost in accounts. In this type of costing system cost of finished good includes direct materials, direct labour, variable etc.

Marginal Costing

Marginal accounting system which used to consider variable cost are charged against the cost unit. It eventually means that attainable marginal cost effect the profit at the time of changes in the volume of output produced (Hiebl and Richter, 2018). This is the concept of marginal costing which is mainly based on the behaviour of the cost which varies with the volume of production. 

After going through the calculation with the help of both marginal and absorption cost, it has been interpreted that the profit ascertain with the help of absorption cost is £35000 and with the help of the marginal costing is £29000. This helps in understanding that absorption costing is much better form of ascertaining the cost as compare to the marginal costing. Looking at product cost per unit, it has been derived 6 with the help of marginal costing and 10 as per absorption costing.

Using Absorption costing will help organization in identify importance of fixed cost as well in the production of product in the organization, which will help company in getting more relevant solution. As this system shows low level of fluctuation in net profit. On the same note, organizational may also choose to have marginal costing in an organization, as it will help company in saving time to prepare accounts as it used to save the time of organization, as it is less complicated technique and will also help the company in fixing the selling price in an organization.

SCENARIO 3

Part A: Planning tools used in management accounting

Budgetary Control is a system in the organization which looks at ensuring that organizational actual revenues and expenditure adhere with the financial plan in the organization. In simple words, it can be said that budgetary control is the process which looks at finding out the result of budgeted figure within the actual performance. There are many different type of planning tool which is used by Excite Entertainment Ltd. In the process of budgetary control in an organization. Some of the planning tool are as follows:

Zero Based Budgeting: This is the type of budgeting tool in which organization used to start preparing budget by taking zero as a basis and every function in the organization are analysed on the basis of the need and cost in the organization (Azudin and Mansor, 2018). In this budget nothing is carried forward by the organization from the previous year budget.

This budget planning tool will be effective for Excite Entertainment as this planning tool used to justify all the expenses for each new period, this helps company in focusing on the current function of an organization.

Advantages

Zero based budgeting helps organization in efficient allocation of resources in the organization, the reason behind the same is that organization is having better idea about resources availability. As this planning tool is based upon the needs and benefits. This approach also helps the organization in improving the level of communication and coordination between variety of the department in the organization. Also help in eliminating wastage of resources and up-to data operations in the organization.

Disadvantages

Zero based budgeting is time-consuming process, as it does not carry forward any of the expenses it gets difficult for manager in the organization in defining the necessary expenditure in the organization. Also, this budgeting tool requires a good amount of human power as well as knowledge for manager to adopt zero based budgeting in the organization.

Cash Flow Budgeting: It is the type of budget planning tool which used to estimate all cash receipt and expenditure which may occur in the organization during a prescribed period. This planning tool generally help the organization in assessing the availability of cash resources in an organization (Leotta, Rizza and Ruggeri, 2017). This planning tool is based on some sort of assumption about future expenditure and sales & Future forecast of accounts receivable collection.

This planning tool will not be that effective for Excite Entertainment as this planning tool is based on variety of the assumption for future, any wrong assumption may create different challenge in the organization.

Advantages

Cash flow budgeting help organization in forecasting the better future budget of an organization. As manager in the organization is having better idea about cash availability in the organization. On the basis of the same manager in the organization used to plan different activity in the organization. Also cash Flow budgeting help organization help manager in straying in touch with reality in the organization. As cash flow budget help organization in having better idea about the situation through which organization is going from.

Disadvantages

Biggest drawback of drawing cash flow budgeting is that it used to create a danger of theft in an organization. As any leakage of information regarding cash resources of organization to any interested party, may increases the chances of theft in the organization. It also reduces the spending power of the organization, there are many transactions in the business life cycle which cannot be completed in the cash form.

Production Budget: Production budget is another planning tool, this planning tool used to calculate the amount of the product which need to be produce by the organization in coming period. This number is certainly derived from combination of sales forecast and planned amount of finished good requires in the organization. This planning tool is generally presented on quarterly basis, big organization also used to prepare production budget on monthly basis as well.

This planning tool will be effective in the organization as with the help of production budget, organization will find it easy to manage different resources in the organization efficiently.

Advantages

Production budget help organization in maintaining optimum level of balance between the sales and inventory position of the company, this eventually help the organization in getting good guideline to perform different activity in the organization, as production budget used to bring good sort of clarity in the organization. Also, production plan help organization in optimum utilization of the resources, as manager is having better idea about number of product need to produce in the organization and used to invest resources accordingly for the same.

Disadvantages

Production plan used to consume good amount of time resource of company, as it requires lots of efforts from the management of the company. As before deciding the amount of product to be produce in the organization. Manager in the organization has to go through variety of forecast and reports of management (Schaltegger, 2018). Also, as production budget in the organization is prepared on the basis of different type of estimation, it eventually increases the chances of impacting the quality of decision-making in the organization.

Operating Budget: Operating budget is the planning tool which used to forecast revenue and expenditure for one or more future periods. This budget used to separate the different expenditure or revenue into variety of different categories.

This planning tool will be effective in Excite Entertainment, at the same time it is somewhat risky in nature as well. Reason behind the same is that this tool also used to forecast future activity in an organization.

Advantages

Operating budget help organization in managing the current expenses in the organization, as it brings good sort of clarity among the manager about different expenses and revenue of the business, this eventually help company in projecting future expenses as well in the organization. Also, operating budget help organization in increasing level of accountability in the organization as well.

Disadvantages

Operating budget in the organization used to enhance the cost of organization, as manager has to coordinate with many other departments in the organization before coming on any of the decision in the organization (Soderstrom, Soderstrom and Stewart, 2017).

Compare and contrast three planning tool

In the Zero based budgeting all the expenses and justified for every new period in the organization, all the expenses in the organization used to start with zero. At the same time Cash flow budget used to take previous year data as a basis to forecast different outcome of future. Production budget at the same time used to make different estimation about future. Zero based and cash flow budget in the organization used to be developed once or twice in the year at the same time production plan in the organization are developed monthly or quarterly basis.

There are some similarities also in all the planning tools, the biggest similarity is that it helps organization in providing a base of the information about the future on the basis of which different sort of decision being taken in an organization.

Part B: Comparison of adopting management accounting system to respond to financial problems.

There are various financial issues and problem face by company within the company environment. Those financial issues are lack of funds, increasing cost and unmanaged quality of product. In which company have need to resolve those problems for managing their growth at market place and protect their business from negative impact of those problems. In respect of that here is adopted management accounting system which help to respond those financial problems are as follows:

Balanced scored card:

This is used for measures and provide feedback to organization. This help to manager for make better allocation and priority of decision-making which is enabling them to see exactly which initiatives are more important for meeting organizational goals. With the help of company Excite Entertainment company is identify those issues which are related to financial issues. This help to make proper balance between quality of products and services (Jermias, Gani and Juliana, 2018). This is effective for solving financial problem which are generated to lacking of funds viewing all the major perspective of business.

Variance analysis:

This analysis is used for maintain control over businesses. This is important to assists with managing budgets by controlling budgeted versus actual cost. This variance planning and actual cost which are leads to adjusting business goals, objectives and strategies in effective manner. This is the good and best tool for solving various financial problems because of the reason which will be outlining in different planned and actual thinks. This is the techniques of management accounting help to company for solve financial problems in respect of gap between actual cost and standard performance of business (Novas, Alves and Sousa, 2017).

Benchmarking: Benchmarking is the process of comparing actual performance result with a standardize performance of an organization. This is the process in which organization used to set different standard beforehand itself to be achieved by the organization. After that organization try to achieve the same by guiding the operation of work accordingly. This eventually help company in finding out variance in performance of an organization and on the basis of the same organization used to plan different future activity in the organization to achieve the organizational goal, successfully in the organization. Usually organization used to set budgetary and financial performance goal in the organization (Botes and Sharma, 2017). There are two different type of Benchmarking internal benchmarking. In which organization used to compare own performance in the organization. Another one is external benchmarking, in which organization used to compare the performance of business with any other competitor in the market.

Key Performance Indicator: Key performance indicator is the type of performance measurement tool. In this organization used to set the key performance indicator in the organization and try to follow the same to achieve the organizational goal of an organization. This eventually help an organization in focusing on the key performance area in the organization. Organization generally follows five step in an organization to implement KPI in the organization. KPI process starts with Establishing Goal and Objective, after that establishing Critical Success Factor (CSF) on the basis of Goal and Objective set at before stage. After that organization establish KPI on the basis of CSF in the organization. After that collecting different measure and calculating Metrics from different measure which has been collected in the organization (Cooper, Ezzamel and Qu, 2017).

Calculation of Break Even Point

Interpretation: After going through the above data it can be interpreted that, the company has to sell 4000 unit of product to cover-up all the expenses of the business and will come of position where there is no loss no profit. And if company is looking to make profit of 90000, then organization has to sell 7000 units of company’s product.

CONCLUSION

The report summarized that management accounting is the process through which management of organization used to take different decision in the organization. After that the report summarized that Cost accounting, Inventory management and job costing system are some of the example of management accounting system and used to bring variety of benefit for an organization. After that the report summarized that absorption costing method is better costing system for organization to ascertain the cost of the company as compare to marginal costing system. After that the report goes on to summarized that Zero Based Budgeting, Cash flow budgeting and Production budgeting are some of the example of different type of planning tool which is used to prepare budget in the organization, they used to provide good sort of benefit to the organization but at the same time there are good sort of disadvantage which is also brought by the same. In the end the report summarized that there are many different type of measurement accounting tool which is used by organization for the purpose of measuring performance in the organization and also analysed that 4000 unit of the product is breakeven point for organization. Are you worried about online assignment help in the UK? Our experts provide the best writing service at the best price.

Read Also: Accounting |Decision Making Techniques Sample

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