Management Accounting Report For Excite Entertainment

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.