Management Accounting Report For Excite Entertainment

This report provides an overview of management accounting and its importance in decision-making and performance management. It also discusses the difference between management and financial accounting, tools and techniques used in management accounting, and various management accounting reporting methods. The report includes a calculation of costs and preparation of an income statement using marginal and absorption costing methods.

Management Accounting Report For Excite
Entertainment.

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Scenario 1.........................................................................................................................................3
SECTION A: Understanding the management accounting system.................................................3
Difference between management and financial accounting system............................................3
Methods used for management accounting reporting..................................................................6
SCENARIO 2...................................................................................................................................8
Calculation of costs and preparation of income statement using marginal and absorption
costing..........................................................................................................................................8
As per Absorption Costing: ........................................................................................................8
SCENARIO 3.................................................................................................................................10
PART A.........................................................................................................................................10
PART B..........................................................................................................................................11
Comparison of organizations adapting to management accounting systems.............................11
CONCLUSION..............................................................................................................................14
REFERENCES..........................................................................................................................14

INTRODUCTION
According to Institute of Management Accountants (IMA), Management Accounting is
concerned with a profession that helps an organization in decision-making, performance
management and also provides expertise preparing financial reports and to monitor and control
the operations of company. The management accounting uses a set of tools and techniques to
achieve the organizational goals and objectives effectively and efficiently. Main objective of the
present research study is to highlight the major difference between management and financial
accounting, tools and techniques of management accounting and comparison between different
planning tools and how they help in solving financial problems. Other main objective of the
present research study is to develop broad understanding about varied management accounting
reporting methods. Furthermore, an income statement has also been formulated by using
marginal and absorption costing methods and advantages versus disadvantages of budgetary
control planning tools in this report.
MAIN BODY
Scenario 1
SECTION A: Understanding the management accounting system
Difference between management and financial accounting system
Management accounting involves preparing and providing timely financial and statistical
information to the management in order to make appropriate business decisions timely. It is
imperative for every organization to use management accounting as it provides the financial
situation of the business and how it can be improved through planning, directing, motivating and
controlling the performance of the company (Klychova, And et.al., 2015).
On the other hand, Financial accounting is also a branch of accounting that keeps a record
of company's financial performance by classifying, analysing, summarizing and recording
financial transactions and preparing financial statements like income statement, balance sheet
and cash flow statement. The major difference between management and financial accounting is:
 Management accounting provides information to the management about their
performance and how it can be improved whereas financial accounting provides
information to stakeholders like shareholders, investors, creditors and government,

 It is mandatory for every organization whether big or small to prepare financial
statements by using financial accounting as per the International Accounting Standard in
Europe, whereas management accounting is not compulsory and it is used by a company
to analyse its financial performance and take corrective actions accordingly.
 The financial accounts are prepared at a fixed of time which means at the end of every
financial year whereas management accounting reports are prepared at different period as
per the needs and wants of a business.
 The nature of information in financial accounting is usually based on past facts whereas
management accounting is concerned with future events that includes improvement in
business performance, increasing the productivity of employees and ways to achieve
organizational goals and objectives more effectively and efficiently.
Some major management accounting tools used by Ernst & Young to improve the business
activities of Excite Entertainment are:
Cost accounting system: Cost accounting system is a framework used by manufacturing and
service providing organizations to determine the overall cost of their products and services. Cost
accounting helps in determining the per unit cost of a product or service through which the
business adds a percentage of profit to it and then determines the price of product. There are
various types of cost associated with cost accounting like fixed cost, variable cost, direct cost and
indirect cost. The two major costing system that can assist Excite entertainment are direct costing
and standard costing. Direct cost are mainly related to producing a product or service which
means that it takes only variable costs into consideration. It includes material and labour related
costs so that the management can take various decisions related to controlling or reducing these
costs so that the business can maximize its profits effectively and efficiently. Also, the standard
costing is concerned with the practice of recording an estimated or expected cost in place of the
actual cost in the records. Further, variances are recorded to identify the difference between an
actual and expected cost. It is a pre determined cost for producing a product or service and is
used as a target cost which further helps in determining the deviations and then help in taking
corrective actions accordingly. Standard costing are extremely beneficial as it helps a business in
proper inventory management, cost controlling and better decision-making. All these factors
further contribute towards minimizing the production cost and maximization of profits
adequately thus leading towards sustainable growth of an organization. Excite entertainment

make use of cost accounting system and under this inventory valuation is done time to time.
Cash flows are estimated or forecasted. According to forecasted statement expenditures are made
in the business which lead to effective cost control in the business.
Benefits of cost accounting system for Excite Entertainment is that it will help the business in
identifying the unnecessary expenditure and further reducing it to maximize their profits. Also
costing will help Excite Entertainment in making future estimates and budgets that will act as a
roadmap for the business and help them in achieving competitive advantage.
Inventory management system: Inventory management system help a business in managing its
inventory and stock items by keeping a track of requirement of Assets in different areas of
organization. Inventory management is important for manufacturing, trading and service sectors
and it also helps in increasing the overall productivity of all the resource employed which further
leads to increasing profits effectively and efficiently. There are various methods like FIFO (First
in First Out) and LIFO (Last in first out) to keep a record of inventory level into the business.
FIFO method works on the assumption that the oldest stock in company's inventory needs to be
sold first, and the LIFO method involves utilization of the latest goods first and then taking the
older ones into consideration. Also, it is the duty of a company to forecast the future demand for
its goods and services accurately and then allocating the resources adequately. The future
demand can be predicted through analysing the latest market trends, identifying previous year's
sales, growth rate and other factors like seasonality and promotions as it also has a strong impact
on the demand and profitability of an organization. However, in the view point of (Pavlatos, and
Kostakis, 2015). EOQ (Economic order quantity) is considered to be the best technique for
managing inventory as it involves maintaining the lowest amount of inventory to meet the
consumer demands without going out of stock. It is useful in keeping the cost of inventory as low
as possible so that the operational cost can be minimized and profits can be increased
significantly. It helps in reducing the carrying cost like warehousing and transportation cost of
goods and services.
Table 1EOQ calculation
Ordered cost 50
Annual quantity demand 5000
Holding cost 30
Annual quantity demand*Ordered
cost 500000

EOQ 129.0994
Figure 1EOQ graph
EOQ quantity refers to the number of units that must be produced where holding cost and order
cost are equal to and total cost is at lowest level.
Benefits of inventory management to Excite Entertainment is that it helps in reducing the
carrying and ordering cost of business and thus contributes towards increased revenue. Also,
through proper inventory management the company can identify the future needs and wants of
the customers and then develop a product or service through proper market research.
Job costing system: The job costing system is concerned with process of accumulating various
information about the costs associated with a specific production or service job. The job costing
system is used in those areas where the cost incurred in the manufacturing goods and services
and the entire manufacturing process is significantly different from each other. Example: Excite
entertainment for multiple product line do separate costing and individually take decision for
each product line. Thus, job costing system assist manager in making better decisions.
Benefits of job costing system will help Excite Entertainment in identifying which department is
incurring more expense than the other one and also to check whether the returns generated are
more than the expenses made.

Methods used for management accounting reporting
Reporting of management accounting is concerned with preparation of various financial
and management reports by the management in order to analyse the performance of the business
and also to identify various short comings so that the corrective actions can be taken and the
goals and objectives can be achieved effectively and efficiently. Also, it helps the top level
management in taking important business related decisions and also keeps a close check on
performance of employees and how it can be improved adequately. Various types of managerial
accounting reports are: Budget reports: Budget reports are very important for a business as it helps in the
preparation and distribution of budgets to different departments of an organization like
marketing, sales, operations, research & development and human resource. The budget
estimate is usually based on past experiences and it always counts for additional funds
that can be required in case of unforeseen circumstances. The budgeting reports also help
in comparing the actual expenditure with standard cost and helps in identifying the
deviations and then with the help of various cost controlling techniques corrective actions
are taken. Excite Entertainment is an event company and it is very important for them to
prepare budgets related to catering, logistics and lighting so that it can act as a roadmap
for the company to follow and further helps in measuring the performance of the
business. It is imperative for a company to follow the budget if it wants to earn profits
and achieve competitive edge over other players in the industry. Performance reports: Performance reports are prepared to measure and review the
performance of the company. It also includes reviewing the performance of the top-level
management, managers and other employees in the organization. It is imperative for a
business to make these reports if they wish to achieve success and growth in the long run.
Excite Entertainment can use performance reports to compare the profits of the current
year with the previous year and analyse the shortcomings or areas of improvement. The
company also provides rewards and incentives to its employees for their good
performance and in case of poor performance, proper training and development is done
so that the employee productivity increases. The managers also use these reports to
makes strategic business decisions that prove to be worthwhile in the long run as it
ensures smooth working of the business operations. Furthermore, performance reports

also help in setting benchmarks which increases the motivation of workforce and also
provides necessary information to the stakeholders of business like investors, creditors,
shareholders and government (Wynne, and et.al., 2016). Cost managerial accounting reports: Cost management accounting includes the cost of
all the products and services that are manufactured. It includes all the raw materials,
overheads, labour and any other costs. The total cost is divided with the number of
articles produced to calculate the cost per unit of a product. Further, it also helps in
deciding the profit percentage that must be required for the sustainable growth of the
organization. Cost managerial reports further help in reducing inventory waste, labour
and overhead costs and optimum utilization of resources in all departments. It is very
beneficial for Excite entertainment as they can determine the cost per product or service
and can earn fixed amount of profits in the long run. It also helps in cost management
which means adequate supply of right source at right cost at right time and at right place. Account Receivable Aging Reports: It is necessary for every business to take and give
credit in order to run their business and survive in the market for a long period.
Businesses take credit in order to diversify its operations or to increase its production
capacity whereas it also lends money to other players in order to earn interest and thus
increase their revenue. Therefore, it is very important to use Account Receivable Aging
Report as it breaks down the due amount from debtors into specific time period and
allows managers to identify the defaulters as well as find problems in the organization's
funds collection process (Kannaiah, 2015). The accounting reports also help in
formulation of strict policies regarding repayment of funds by debtors as every company
needs cash flow to operate their business smoothly. It also helps in detecting customers
and debtors that repay the amount slowly and take strict actions against them or tighten
their policy of repayment. Excite Entertainment UK also lends money to other event
companies in the market and uses Account receivable Aging reports identifying the
possible collection issues and how it can be resolved. The major objective of this report is
that it helps a company in keeping a record of its debtors and the amount of interest to be
charged from them over a fixed period.
 Other Management accounting reports: Other management accounting reports include
project management reports, supplier's reports. Competitors analysis reports and other

similar reports that are important for the success and growth of the business. An
organization must hire professionals to prepare these reports as they can help in
preparation of authentic and reliable reports which can act as a stepping stone for the
business to make strategic and appropriate business decisions. Excite entertainment must
use these management reports in order to achieve competitive advantage and also
increase their profitability effectively and efficiently. Moreover, these reports can provide
a detailed information about the internal affairs of the business and how it can be
improved smoothly.
SCENARIO 2
Calculation of costs and preparation of income statement using marginal and absorption costing.
As per Absorption Costing:
Particulars Amount Cost per unit Net amount
Sales 8000 15 120000
Opening Stock 500 10 5000
Production 10000 10 100000
Closing Stock 2500 10 25000
Cost of goods
sold
(opening stock+
purchase- closing
stock)
80000
Net Profit 40000
As per marginal costing:
Particulars Amount Cost per unit Net figure
Sales 8000 15 120000
Opening Stock 500 6 3000
Production 10000 6 60000

Closing Stock 2500 6 15000
48000
Contribution
(Sales- Variable
cost)
72000
Less: Fixed
production
overhead
40000
Net Profit 32000
Interpretation: From the above calculations, it can be interpreted that Excite Entertainment
company must use absorption costing as their standard method for preparation of income
statements because the net profit shown under absorption costing is 40,000 whereas under
marginal costing its just 32,000 which means that absorption costing shows more profit
comparatively. Thus, it is profitable to use absorption costing as a method for preparing income
statements.
Marginal costing: Marginal costing is a technique of cost accounting where the variable cost is
charged to the units of cost and the fixed cost for the concerned period is completely written off
against the contribution. It basically means the additional cost involves in producing an extra unit
of output. It can be computed by adding direct material with direct labour, direct expenses and
variable overheads. The marginal costing does not take into account fixed costs thus it provides
unreliable and inaccurate profit levels but it is recommended for Excite Entertainment company
to use marginal costing as it is easy to calculate profits and revenue when compared to
absorption costing. It also includes the additional factors that can increase or decrease the cost of
product or service which can be a major problem for the organization in the long run because it
will provide a false picture of the business and can hamper their brand image in the long run. The
GAAP (Generally Accepted Accounting Principles) also prohibit the use of marginal costing at
international levels because it does not account fixed costs into consideration and has strict
policies about inclusion of fixed costing as well. In order to prepare external financial reports,
consideration of fixed cost is mandatory as per GAAP.

Absorption costing: On the other hand, absorption costing takes into consideration both direct
and indirect expenses and thus provide an accurate image about the organization's profits and
overall growth prospects. It is also beneficial for the stakeholders of the company like investors,
creditors, shareholders, employees and government as it makes it easy for them to understand the
financial position of the company and its future scenario. However, there exists a problem as
absorption costing keeps on changing continuously which creates problem for the management
and also it is of no use when it comes to making comparison between different product lines.
Also, the absorption costing fails to improve the operational efficiency of the business in
comparison to marginal costing because it does not analyse the difference between variable costs
which further restricts it from analysing the problems and taking corrective actions. However,
the advantages outweigh the disadvantages because it includes all production costs and further
records cost and track profits more accurately. Also, its is compulsory by GAAP and IRS
(Internal revenue service) to use absorption costing thus Excite Entertainment must use
absorption costing in comparison to marginal costing.
SCENARIO 3
PART A
Benefits and disadvantages of various planning tools use in management accounting
In management accounting, planning tools play vital role is helps to improve financial as
well as overall performance of business. These tools is used by many companies to manage its
private account effectively and improve business performance ability by adapting different plans
or strategies to control elements which rise to keep sustainability in firm. With the help of
effective planning tools company can take their decision in appropriate manner and achieve
goals of organization. There are different types of planning tools mention below help used in
management accounting-
Budget is the statement depicting future estimated cash inflows and outflows assist in monitoring
of company health so that correction action can be taken to curb cost in business.
Zero based budgeting-
It is one of the best method of budgeting in which all business expenses justifies for each
new work. The procedure of this tool start from zero base and each activity within company is
analysed for their costs and needs. The main objective of this method is to reduce of unessential
and unnecessary cost by focusing at where costs can be deduct (Jarzabkowski, and Kaplan,

2015) Advantage- when company apply his planning tool it outcomes in more modifications to
workers and its high authority to communicate with each other easily. It helps of allocate
resources effectively and efficiently as it based on benefits and needs. This tool drive manager in
company to find cost effective terms to improve activities. It helps to detect inflated budgets
which is beneficial for business. Disadvantage- it is time consuming tool which takes a lot of
time for budgeting when there large number of workers.
Production budgets-
It helps to calculates number of products units that is manufactured by company.
Production budgets is derived from combination of planned amount of final products inventory
and sales forecast to have on hand. This budgets is typically designed by firm to measure records
of number of units manufactured by workers working in workplace. Stability is identified after
analysing the final sales occurred in firm. Different factors is included in this methods regarding
labour, raw material, equipments used in project and other procedure that is use for examining
actual cost. Advantages- when company sales in higher production budgets play essential role in
increasing productivity of business, it also help workers to get more opportunity to stable their
lifestyles by earning more money. Disadvantage- when the sales is less it provide negative
results as less employee retention (Fisher, and Krumwiede, 2015).
Table 2Production budget
January February March April May
Sales in units 50000 55000 60500 66550 73205
Add: Closing stock per month 5000 6000 7200 8640 10368
Total finished goods 55000 61000 67700 75190 83573
Units to be produced 55000 61000 67700 75190 83573
Actual 50000 65000 70000 50000 65000
Difference -5000 4000 2300 -25190 -18573
There is huge importance of the budget for the business firm because it reflects extent to
which firm perform good or bad on specific front. It can be seen from table given above that
most of time variance is negative which means that production is less then determined standard.
Hence, firm need to identify areas where extra time is taken to perform any activity.
Cash flow budgets-

This is the estimate of all cash receipts in company and report of cash expenditure in
business that is expected to occur while certain period of time. It is very important planning tool
for organization, permit them to established amount of credit that is extend to consumers without
having issues with liKannaiah, D., 2015.quidity. It is commonly prepared by firm to analyse
actual cash find by estimating inflow of cash as well as outflow from daily activities.
Advantage- when organization have excess cash by managing and maintaining their accounting
they can purchase valuable resources to increase its stability within marketplace effectively.
Disadvantage- on the other side, chance is fraud in business is higher with cost flow budgets
(Dierynck, and Labro, 2018).
Table 3Cash budget
January February March April May
Sales revenue 1500000 1650000 1815000 1996500 2196150
Expenses
Administration 300000 330000 363000 399300 439230
HR 450000 495000 544500 598950 658845
Other 525000 577500 635250 698775 768652.5
Total 1275000 1402500 1542750 1697025 1866728
Profit 225000 247500 272250 299475 329423
Actual profit 200000 250000 280000 300000 330000
Difference -25000 2500 7750 525 577.5
Variance reflect that actual cash receipt is less than standard value in only first month. In
other months consistently, there is surplus amount. Hence, it can be said that firm on this front
perform better.
Table 4Sales budget
January February March April May
Sales in
units 50000 55000 60500 66550 73205
Price 30 30 30 30 30

Sales price 1500000 1650000 1815000 1996500 2196150
Actual 1600000 1760000 1936000 2129600 2342560
Actual-
sales 100000 110000 121000 133100 146410
Higher amount of sales is made in the business as price per unit is raised by the business
firm. Hence, there is surplus in sales in the business.
PART B
Comparison of organizations adapting to management accounting systems
Cost volume profit analysis
Particulars Amount Total
Selling price per unit 40
Variable cost per unit 10
Contribution per unit 40-10 30
Fixed cost 120000
Contribution per unit 30
Cost volume analysis 120000/30 4000
From the above table it can be concluded that contribution per unit is just 30 and if the finance
manager needs to increase its profits up to 90000 then he must increase the overall sales of the
organization.
Sales (in units) : Fixed Cost/ Contribution
= 120000/90 =1334 units
Thus, in order to increase the profit up to 90000 it is necessary to sell 1334 units. The number of
units are 1000 therefore the contribution per unit is 90000/1000= 90 per unit.
Benchmarking: Benchmarking is concerned with comparing the actual performance with a
standardized performance which is called a benchmark. It is very important for a business to set

benchmarks as it help in improving the overall performance of a company by identifying the
shortcomings and taking corrective actions effectively and efficiently. It is used by business for
setting budgetary and financial performance goals. Companies also use external benchmarking to
compare their overall performance with other players in the industry. Benchmarking is used in
cost accounting and budgeting with the main objective of minimizing additional cost and
increasing the profits (Christian, 2018). There are various types of benchmarking like internal
benchmarking which involves comparison of internal practices, external benchmarking that
involves comparison of internal cost and profits with other company's, competitive
benchmarking that includes direct comparison of product or service with that of competitor's and
functional benchmarking that is concerned with comparison to similar practices with similar
functions outside the industry.
Variance analysis: It involves comparison of current year performance with the past year
performance and then identifying the deviations. Further, these deviations are identified and then
corrective actions are taken accordingly which help in improving the overall performance of
business (Brewer, Garrison, and Noreen, 2015). The main objective of variance analysis is to
practice cost control and reduction. Variance analysis is used in budget reporting where the
actual expenditure is compared with the planned expenditure and then further the management
find appropriate reasons for it so that it can be avoided in the near future. It is also used to
maintain a control on the business.
Key Performance indicators: Key performance indicator can be defined as a value that identifies
how effectively a business can achieve its key goals and objectives. The key performance
indicators are used at various stages in order to evaluate the success of company. For instance,
the KPI for an organization be to increase the sales by 40% in 2019. The KPI must be directly
related to the organizational goals and objectives and also it must be specific, measurable,
achievable, reliable and time bound (SMART). Higher KPI indicates that there is an
improvement in the overall functioning of the organization whereas a lower KPI indicates that
the rate of improvement is high only in some specific departments and not in the organization as
a whole (Bahrom, And et.al., 2015).

CONCLUSION
Carrying out the above research conclusion can be framed that management accounting plays
very important role in managing the operation of company. It helps company to operate its
functions smoothly. Management accounting has facilitated the companies to carry out their
operations keeping track of the records of its activities undertaken. Companies in management
accounting are making budgets that gives them estimates for carrying out their operational
activities. It helps company to make expenditure within limits of the budget. Companies make
strategies for improving the performance where activities are going over budget. There are
various types management accounting systems for carrying out different activities. Techniques
like absorption and marginal costing can be preformed by organisations depending on the
industry type. The different types of management reports helps company to analyse its
performance. Analytical tools of the management accounting provides company to maintain its
record and enhance the activities of business. Hence, in present time it is very essential for
companies to adopt management accounting for properly managing its operations and related
activities.
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