Preparation of financial report for Excite Entertainment Ltd

Management Accounting report for Excite Entertainment Ltd INTRODUCTION 3 LO 1 3 P1 Management accounting and types of management accounting system 3 P2 Different methods used for management accounting reporting 5 M1 & D1 Integration of management accounting system and management accounting reporting6 LO 2 7 P3 Calculation to prepare income statement using marginal and absorption costing 7 M2 & D2 Application of management techniques in preparation of financial reporting documents 9 LO 3 10 P4. Analysing the applications and uses of several planning tools

Management Accounting
report for Excite
Entertainment Ltd

Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
P1 Management accounting and types of management accounting system................................3
P2 Different methods used for management accounting reporting.............................................5
M1 & D1 Integration of management accounting system and management accounting
reporting......................................................................................................................................6
LO 2 ................................................................................................................................................7
P3 Calculation to prepare income statement using marginal and absorption costing.................7
M2 & D2 Application of management techniques in preparation of financial reporting
documents...................................................................................................................................9
LO 3...............................................................................................................................................10
P4. Explaining the benefits and the limitations of various planning tools that are used for the
budgetary control......................................................................................................................10
M3. Analysing the applications and uses of several planning tools in formulating and
forecasting the budget. .............................................................................................................12
LO 4...............................................................................................................................................13
P5 & M4 Adaptation of management accounting systems to solve financial problems in
different organisations...............................................................................................................13
CVP analysis.............................................................................................................................15

INTRODUCTION
Managerial accounting is that branch of accounting which helps the managers of the
company in taking various decisions like preparation of budgets, making policies, changing
procedures etc. of the company to maintain its profitability and sustainability. The report will
talk about difference between financial and management accounting along with describing
different management accounting systems. With systems the report depicts various types of
management accounting reporting along with its application in Excite limited. This company
deals in event planning of various functions including providing different kind of props and
decoration. Moreover, the report will analyse the advantages and disadvantages of different
planning tools which are used to control the budget of the company. At last the report will show
various performance indicators which will help the company in solving its financial problems.
LO 1
P1 Management accounting and types of management accounting system
The combination of two words which is management and accounting means study of
accounting with the perspective of managers. It helps the management of the company in
formulating policies, appreciating effectiveness, and making decisions for the betterment of the
organization. It helps the management to coordinate and control the operations of the business by
making budgets for the company. The tools of management accounting like standard costing and
budgetary tool helps in controlling performance (Hopper, 2016).
Management accounting is different from financial accounting in many ways as financial
accounting records and summarize financial transactions of the company whereas management
accounting helps in taking effective decisions of the company. Financial accounting shows
accurate and fair picture of financial transactions whereas management accounting helps in
taking steps and strategize. Financial accounting deals with quantitative aspect whereas the other
one deal with both the aspects, qualitative and quantitative aspect. It is compulsory to do
financial accounting whereas management accounting has no such requirement (Zhang and et.al,
2019). Financial accounting prepares financial statement that are for stakeholders and investors
of the company whereas management accounting is only for management.
The different types of management accounting systems are:
Inventory management system – Inventory management system helps the company in
tracking entire supply chain of the business or the part of the business in which it operates. The

inventory management system covers everything from production to retail, warehousing to
shipping and all the movement of stock. It helps Excite limited in recording each new and
returned product as it leaves and enters in the warehouse. It uses variety of data to keep the track
of the goods as they move through process, lot numbers, cost of goods and the dates when they
move through the process which maintains the inventory in Excite limited (Panchenko, 2018).
The system uses different types of methodologies like Just in time, ABC analysis and stock
review which focuses on minimizing cost of inventory along with the ability to provide to
customer the products in timely manner. It consists of two methods which are:
FIFO – First in and first out assumes that good purchased at first will be sold at first too
LIFO – Last in first out assumes that goods purchase at last are the first goods sold.
Cost accounting system – Cost accounting system is the framework used by firms which
helps the company in estimating the cost of the products for analysis of profitability, valuation of
inventory and controlling cost. It estimates accurate cost of products which is important for
profitable operations in Excite limited. This helps the company in knowing its profitable and non
profitable products (Drake, 2016). The product costing system helps in estimating closing value
of inventory materials, work in progress and inventory of finished goods which helps in making
financial statements of the company. The cost accounting system consists of direct and indirect
costing
Direct costing – A direct cost can be assigned to specific cost objects which can be
product or a service. Direct cost included cost of labor, materials, wages etc. direct cost varies
and hence tend to be variable cost.
Indirect costing – This cost are assigned to do cost analysis. These costs are part of
corporate overhead which exist even when the specific product or service is not created. These
are more likely to be fixed cost which includes salaries, quality control etc.
Job order costing system – It is a system that assign and collect manufacturing cost of
an individual unit of output. This method is used by Excite limited as items and services
produced by the company are different from each other and have different cost. The jobs costing
system needs information on the direct materials, labor and overheads. Once the job has been
completed by the company, the job costing system may close down. Job costing system contains
many specialized rules but are not applicable to all the jobs. The job order costing system
consists of Job order costing and process costing.

Job order costing – It gathers all the cost related to manufacturing for each job
separately. The firms that are engaged in production of products that are unique or provide
special services like Excite limited which organize events opt for job costing system as it tells the
company about which area of its is more profitable.
Process costing – It collects manufacturing cost for each process. It is suitable for the
product whose process of production consists of different departments and the cost flow between
them.
There are some situations where company uses both types of costing which is called
hybrid cost accounting system
P2 Different methods used for management accounting reporting
Different methods of management accounting reporting used in the company are:
Budget report – Budget reports help excite limited in estimating the cost and revenues of
an operating period of the company. It shows a way to achieve objectives of the company. The
business owner use budget reports to create financial plans and projects of the company. The
budget report of the company also helps external users of the company in knowing how the
business is operating and is it financially stable or not. The budget report helps Excite limited
knowing its level of expenditure and in case it’s too high it helps it in bringing it down. This
report is used by a company the most to maintain control over the financial result of the business.
Performance report – These reports are helpful in addressing the outcome of an activity
or individual's work. The report compares the actual figures with the set standards. The
performance report also sends all the necessary relevant information to the stakeholders of the
company. The employees of Excite limited also get performance reports on the basis of their
work comparing their actual activities with original action plan and then decides the appraisal
and bonuses that will be given to the best employee. The performance report has many types in
which progress report describes total work established, variance report compares actual to
baseline performance etc.
Account receivable report – These reports are used when the company relies mostly on
extending credit. This reports break down the balances of the customers into specific time
periods so that the managers of the company can clearly identify the defaulters of the company.
The time period can be segregated for like 30 days, 60 days and so on, and according to this

separation the management of Excite limited can take the decision of tighten its credit policies so
that the cash flow of the company do not get affected and liquidity of the company can be
maintained.
Job costing report – Job cost reports are important for Excite limited as it tracks the
ongoing cost of the project. It also adds up the cost after the job is done which helps the company
in identifying issues to avoid when starting new job. It helps the company in knowing low profit
month was the result of which job and can identify the project that continuously performs above
or below budget. Proper job costing report and can be made by using good software and it takes
persistence to make such reports.
The information presented in these reports need to be accurate as many decisions of
mangers depends on the authentication of these reports. The information presented in these
reports need to be relevant to the users as all internal as well as external users uses these reports
for investment decisions, lending decisions etc. therefore relevant information need to be
provided by such reports in concise manner. These reports also need to be updated in timely
manner so that the business does not suffer and manager can take important decision based on
these reports. These reports need to be concise, systematic with adequate and relevant
information and easy to understand to internal as well as external users.
M1 & D1 Integration of management accounting system and management accounting reporting
The management accounting system and reporting are both integrated in Excite limited to
improve the performance and efficiency of the company. The cost accounting system contributes
to continuous improvement by taking care of budget estimation and inventory flow in the
company which is done with the help of budget reports and inventory reports. The accounting
system also measures the performance of the company and its employees and on the basis of that
performance reports are formed and decision regarding bonuses and incentives are taken by the
company. The benefit and application of different management accounting system are:
Management system Benefits Application
Inventory management system It helps the company in
achieving efficiency and
productivity.
It integrates the entire business
It helps Excite limited in
tracking the levels and orders
of inventory and helps the
company in organizing the
data of inventory in

It maintains customer
satisfaction by providing
inventory on time.
spreadsheet.
Job order costing system It helps the company in
knowing expenses before
manufacturing the product.
It helps in finding profit of
each job separately.
It also helps in estimating the
cost of similar job by
providing details of past cost.
It helps Excite limited in
evaluating performance,
efficiency and profitability of
different events separately
which helps the management
of the company in knowing the
profitable and non profitable
area of the business.
Cost accounting system It helps in disclosure of
profitable and unprofitable
activities.
It gives guidance for future
production policies.
This system helps Excite
limited in making various
budgets which shows the cost,
profit, production and also
efficiency of workers. It helps
in keeping a positive check on
misleading activities in the
business.
LO 2
P3 Calculation to prepare income statement using marginal and absorption costing
Absorption costing
Particulars Amount (in
£)
Per unit cost (in
£)
Net figure
(in £)
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
Marginal costing
Particulars Amount (in
£)
Per unit cost (in
£)
Net figure
(in £)
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
Meaning – Marginal costing takes variable costing into consideration, as cost of product
and take fixed cost as cost of the period whereas absorption costing considers both variable and
fixed costing as the cost of product. Under marginal costing the profit is calculated using profit
volume ratio whereas it reduced under absorption costing as it considers the fixed cost in product
cost only. Marginal cost shows contribution per unit whereas absorption costing shows net profit
per unit.
Benefits of both costing methods – Marginal costing is simple to understand and easier in
determining the cost of production. It helps the management in short term planning of profit and
makes sure that decisions taken by this approach gives maximum benefits to the business.
Absorption costing is backed which GAAP regulations which makes it more evident and
efficient. It takes all the cost of accounts into consideration which is another advantage of this
costing and it tracks profit more accurately.
Interpretation – From the above calculation, the results can be drawn out in the favour of
absorption costing (Mirzaey, 2017). The company will use absorption method to calculate profit
as it takes both fixed and variable cost into consideration as well it shows net profit per unit and
on the contrary marginal cost do no take fixed cost into consideration and calculates contribution
per unit. Also Excite limited has constant demand for products which makes the calculation of
costing easy and quick. It also helps in preparation of financial statements as it is accepted under
GAAP.
M2 & D2 Application of management techniques in preparation of financial reporting documents
Financial reporting documents which can be prepared with the help management
techniques in the organization are -

Income statement – The income statement of the company helps in improving
profitability of the business by showing gross profit, operating profit and net profit and helps the
company in finding reasons in case of unsatisfactory results.
Balance sheet – This financial statement help Excite limited in knowing the financial
condition of the company. Under this the assets and liabilities of the company are seperated and
then the company know its net worth.
Fund flow analysis – It helps Excite limited in knowing finding sources and application
of the business which will indicate from where does the funds come from in the company and
where they were used.
Cash flow analysis – Cash flow is the movement of cash and bank balances in the
company (McWatters, 2015). Under this, the movement of cash is tracked under Excite limited
which helps the company knowing its cash position weather deficit or surplus.
These documents help Excite limited company in figuring out their financial position and
where they stand in the market in terms of profit and sales with their competition. Good balance
sheet and income statement shows good reputation of the company and attract customers and
shareholders for investment which lead to competitive advantage for the firm.
LO 3
P4. Explaining the benefits and the limitations of various planning tools that are used for the
budgetary control.
Zero based budget- It is an approach that refers to the preparation and the planning of the
budget from scratch or zero base. Under this budgeting, all the expenses are justified before
adding into the actual budget (Hazır, 2015). The foremost objective of this budgeting is reducing
the unnecessary cost by assessing the areas where the cost could be cut down.
Advantages Disadvantages
Efficiency- Excite entertainment by using this
approach could allocate its resources
efficiently as it does not contain any previous
budget allocations.
Accuracy- Zero based budget enables the
department in re-looking towards each item of
High Manpower- Zero based budget facilitates
the framing of the budget from zero which
needs involvement of the larger workforce.
Most of the departments might not have the
adequate workforce and the time for same.
Time consuming- This technique consumes a

cash flow and evaluate the operation cost
(Arkorful and Abaidoo, 2015). This leads to
accuracy in the budget.
Budget inflation- As every expenses are
justified in the zero based budget which results
in overcoming the weakness that is present in
the incremental budget relating to the budget
inflation.
Reduction in irrelevant activities- Zero based
budget is an approach that provides in
determining the optimum opportunities and the
ways of operating the work in a cost effective
method. It eliminates the unproductive
activities from the business.
lot of time as each and every expenses has to
be identified every year from scratch.
Expensive tool- An explanation has to be given
for each line of the item and for all the cost
under this tool which is counted as the
problematic task and needs training for
mangers.
Incremental budget- It is the planning tool under which the budget is formulated on the basis of
the prior period budget with the incremental amounts entered in the new budget.
Advantages Disadvantages
Simplicity- Incremental budgeting is the
simplest method to understand. In comparison,
with the other methods of the budgeting, it is
the easiest method for putting it in the practice.
Gradual change- With this budgeting excite
entertainment can produce a stable budget
from one period to the other (Allegrini, and
et.al., 2015). This results in allowing the
gradual change within organization.
Avoid conflict- The companies that works
under several departments, chances of conflict
No incentives- Such the easiest method does
not facilitate the employees with any reason of
the creativity. They get no room for gaining the
incentives in respect of the innovation or with
any new idea.
Not adjust changes- Incremental budgeting is
based on an idea that the expenses will be
incurred same as they were occurring before in
the previous budget. Thus, they do not look for
changes.
Using or losing it- Most of the employees

between the different departments increases
due to the several budgets. By adopting this
budgeting method, it becomes easy for the
managers in keeping all the departments at the
same page which in avoid conflict between the
departments.
consider it as the use it or losing it system as
they know that the coming year budget will be
incremented on the basis of this year (Zhang
and et.al., 2019). Therefore, if the employees
do not spend for everything which has been
allocated them, they will not be having
sufficient money for working in the next year.
This encourages wastage in the environment.
Flexible budget- It is also known as the variable budget, it is the financial plan that is made for
anticipating the revenues and the expenses on the basis of the actual amount of the output.
Advantages Disadvantages
Range of the activity- Flexible budget is
framed for wide range of the activities such as
sales, cash, production and the cost.
Facilitates easy comparison- It helps in
comparing the actual output, performance and
the cost with the standard output, performance
and the cost.
Control cost- It is the most effective tool in
controlling the cost as it reacts to the adverse
situation.
Knowledge based- All the assumptions made
under this budget based on the principles and
the knowledge.
Flexibility- It provides flexibility as any
modifications and the changes are adjusted in
accordance with the market situation.
Performance management- It helps Excite
entertainment in measuring the operational as
Difficult to forecast- Under this budget, the
manager faces difficulty in forecasting the
flexible expenses which undermines the
flexible budget value.
Based on assumption- Flexible budget
assumes the linearity in the cost and does not
account for any discount received income.

well as the managerial performance.
M3. Analysing the applications and uses of several planning tools in formulating and forecasting
the budget.
Zero based budget-
Uses Application
Zero based budget is used by Excite
entertainment for re-evaluating each line of the
item of the cash flow so that every function
could be analyzed in respect of its needs and
the cost.
This budget is applied by the firm in
summarizing the spending and the saving that
have been taken place over the years (Hazır,
2015). It is the best method as it ensures that
every amount of money earned by the
company is assigned to the particular purpose.
Incremental budget-
Uses Application
This method is used for assessing the previous
allocations and the changes occurred in them
can be compared and evaluated.
Incremental budget is applied in those firms
where the activities of its business does not
change and are continued with the past
allocations.
Flexible budget-
Uses Application
Flexible budget is used by Excite
entertainment for determining the changes
occurred in each month (Arkorful and
Abaidoo, 2015). It allows for adapting the
changes like unexpected expenses and the
changes in income.
This budget is applied by the enterprise where
the people works on the commission basis and
whose expenses varies on a frequent period or
at regular intervals.

LO 4
P5 & M4 Adaptation of management accounting systems to solve financial problems in different
organisations
Different performance indicators that can be used to solve the problem of organization
are
Key performance indicator- It is an indicator which shows how effectively the company
in achieving its business objectives. These are used at multiple levels to analyses and evaluate
success at reaching targets. They are critical indicators of progress which provides focus for
strategic improvement and create a base for Excite limited for the purpose of decision making.
Managing KPI included setting targets and then tracking its progress (Lindberg, and et.al., 2015).
KPIs are of two types which includes high level which focuses on the overall performance of the
business and low level focuses on particular departments like marketing, HR, sales etc. it is
quantifiable measure that is used to evaluate the success of the organization, employees etc. it
helps star limited in analyzing multiple departments of the company to see if they are working
properly or not.
Balanced scorecard – It is a technique to measure performance in the company which
helps in identifying and improving different internal functions of the organization which results
in external results. It helps in providing feedback to the company, which helps Excite limited in
making efficient decisions. It can be used in Excite limited to enforce good behavior in the
organization and it is segregated into 4 different areas which are known as legs. The legs involve
customers, process of business, finances and learning and growth. It can provide information
about the company and can help in attaining objectives, initiatives and goals which will result
from all the 4 functions of the business. It can also help in developing strategic initiatives and
objectives. In start limited it can be used to analyze the standard performance and to make
important decisions regarding finances of the coampany.
Bench marking – It is the method of comparing performance of own and related
companies. It is measuring internal processes of organization along with performance data of
related and comparable companies. It is concerned with quality, time and cost of the company
that are of same size. It can be used in excite limited within the organization's management.
With the help of this approach, company will acquire better understanding of how to tackle and
handle developments and improvements in the best way possible (Cai, and et.al., 2017). It is a

technique through which Star company can know its weak points and can improve continuously
and can maintain its competitive edge. It also helps in finding out features of other companies in
a better, faster and cheaper way.
Variance analysis – It is investigation between actual and estimated behavior in
quantitative means. It is used to exercise control over the business. It is effective when company
review on trend line which make changes appear from month to month. It involves investigation
of these differences and state an interpretation of why these variances occurred. It helps Excite
limited in knowing why the trend and fluctuation occur in the business and what can be done to
change the situation. The various types of variance are labor rate variances, fixed overhead
spending variance selling price variance etc. in star limited it can be used to calculate the labour
turnover of the company from month to month which helps it in planning for inviting new
candidates, their training and development etc.
Financial governance – It helps the company in collecting and controlling information
related to the finances of the company. It shows how company tracks financial transactions,
manage performances and handle complaints (Financial governance, 2018). If financial
governance is not efficient it may lead to poor decision making, fraud, regulatory penalties etc.
These are simply the policies and procedure which is used by companies to manage data and to
endure that the data it is using s correct. It includes preparing financial policies for Excite limited
and maintain flow of work of the company. It helps the company in tracking the data and
validating it along with data security. In star limited it can be used to see if the policies and
procedures of the company are according to regulatory authorities or not.
It is important for the business as it includes ability to stay on top when talking about regulatory
requirements. It is a single system for all financial processes starts from close to disclosure. It is
also a single data hub that depends upon real time and historical information.
Excite entertainment uses the financial governance technique for communicating the
financial information to the internal as well the external users. The financial governance systems
help the firm in developing reliable and validated data in preparing the financial statements
which resolves the financial problems like unsound financial position or poor profitability or
unlawful techniques etc. By this technique Excite entertainment could be able to known its
capability to meet its obligations and in maintaining the sound position in the market (Martello,
2016).

On the other hand, Star Limited adopts bench-marking which allows the company in
reaching the competitive edge against its competitor as it allows the company in getting
information regarding the strategies and the products of the other entity. This technique helps in
resolving the financial problem relating to the cost of the production, switching cost of the
customers and setting up of the reasonable prices. This assist the firm in gaining the large
customer base with loyalty.
CVP analysis
Cost profit volume analysis
Cost volume profit analysis
Particulars Amount Total
Selling price of unit 40
less: variable cost of unit 10
Contribution per unit 40-10 30
fixed cost 120000
contribution per unit 30
Cost Volume Analysis 120000/30 4000
CVP analysis helps in determining different sales, volume and cost structure that helps
the managers in taking short term decisions. This analysis work on certain assumptions like
It takes sales price, fixed and variable cost as constant (Cost profit volume analyse, 2018). This
analysis is only suitable when the costs are fixed within specified production level. The other
assumption of the analysis is that changes in expenditure occurs due to changes in activity level.
It is useful for the company as it provided insight to the management into the effect and
interrelation of factors. The relationship between cost profit and volume makes proper profit
structure of the company and helps it in finding most profitable combination of cost and volume.
CONCLUSION
From the above report it is concluded that management accounting is one of the most
important function for Excite entertainment as it helps in reducing the gap between finance
function and the other sectors of business. It ensures in achieving the growing success in long

run with stability and sustainability. It is very essential for the company to allocate the
management accounting systems within the organization as it helps in evaluating the information
regarding their performance, cost and inventory which leads to smooth functioning of the
organization. The company with the use of various tools can maintain the budgets of the
company and various performance indicators are essential to solve financial problems of the
company.

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