Management Accounting Report for Excite Entertainment Ltd: HND Unit 5

This report provides a comprehensive analysis of management accounting practices within Excite Entertainment Ltd, focusing on the application of various accounting systems and techniques. The introduction outlines the report's objective to evaluate the importance and utilization of management accounting in the context of Excite Entertainment Ltd, a company involved in promoting concerts and festivals. Section A delves into the differences between management and financial accounting, explores cost accounting systems (including direct and standard costing), inventory management systems (ABC analysis and Just-in-time), and job costing systems. The benefits of these management accounting systems are also highlighted. Section B examines different types of managerial accounting reports (budgetary, performance, and cost reports), discusses the accuracy and reliability of information provided to users, and addresses the integration of management accounting reporting and systems. The report further includes scenarios that discuss financial reporting under marginal and absorption costing, planning tools used in management accounting (operational, cash, and sales budgets), and the application of management accounting techniques for solving financial issues. The report concludes by summarizing the key findings and their implications for Excite Entertainment Ltd, emphasizing how management accounting tools can enhance financial performance and decision-making.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................1
Scenario 1 ........................................................................................................................................1
Section A .....................................................................................................................................1
a) Difference between management and Financial accounting ........................................1
b) Cost Accounting System ..............................................................................................1
c) Inventory Management System ....................................................................................2
d) Job Costing System ......................................................................................................2
e) Benefits of management accounting systems................................................................2
Section B......................................................................................................................................3
a) Types of managerial accounting reports........................................................................3
b) Accuracy and reliability of information provided to the users......................................3
c) Integration of management accounting reporting and management accounting systems.. 4
Scenario 2 ........................................................................................................................................4
Financial report under marginal and absorption costing. ............................................................4
Scenario 3 ........................................................................................................................................5
Planning tools used in management accounting. ........................................................................5
Scenario 4 ........................................................................................................................................6
Use of management accounting techniques for solving the financial issues...............................6
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting helps in preparation of different financial reports that help in
analysing the operation and performance of the business. Present report is based on Excite
Entertainment ltd. operating in entertainment and leisure industry. Company has main operations
of promoting festivals and concerts. The objective of this report is to provide understanding
about importance and use of management accounting in Excite ltd. This report will identify the
use of management accounting reports for ascertaining the financial performance and the
different types of management accounting systems that can be used (Endrikat, Hartmann and
Schreck, 2017). The report will also evaluate different budgetary options and conclude how the
management accounting tools can be used in an organization.
Scenario 1
Section A
a) Difference between management and Financial accounting
Management Accounting Financial Accounting
 It is the accounting system that
provides information relevant for
management in making plans, policies
and strategies essential for running
business.
 Management accounting provides
information for internal use for
executives and managers.
 Management accounting has the focus
over present and on forecasts of future.
 This system of accounting focuses over
preparation of the financial statements
of corporations for providing financial
information to interested parties.
 Information provided by the financial
accounting is mainly for external users.
 It focuses over historical reports, that
belong to the events and transactions
already occurred (Granlund and Lukka,
2017).
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b) Cost Accounting System
Cost accounting is referred as an accounting form aiming to improve the profitability of
company by controlling, managing & eliminating the expenses. It is used by management for
determining cost of product, project and process that shows company where it is losing and
earning money. It is used as an integral part of budgeting process of the Excite ltd that hepls in
arriving at accurate costs.
Direct Costing – It is used in cost analysis where only variable costs are considered for making
decisions. Fixed costs are considered to be associated with time periods.
Standard Costing – It is method used for comparing standard cost and revenues from product
with actual results for arriving at variances and informing management about deviations to take
corrective measures.
c) Inventory Management System
Inventory management refers to the management of inventory within organisation. This
ensures the availability of inventory for the production and keeps track record of all the finished
goods inventory (Konopczak and Welfe, 2017). Inventory management systems are installed in
the warehouse and production units of Excite Ltd which ensures that all the inventory is
available at time without affecting its operations.
ABC Analysis
Under this method Excite ltd. classifies inventory under three categories. A reflects the
most valuable inventory, B represents less valuable but generate profits and C reflects the least
valuable but have high sales.
Just-in-time
This approach ensures that Excite ltd is available with the materials required in
production as and when required without any delay. This approach do not focus over storing
materials which helps in reducing its carrying costs.
d) Job Costing System
System involves process of collecting information about all costs associated to
manufacturing or to service job. The information helps the company available with the cost
information related to particular job which is also sometime used for reimbursements. Job
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costing records the cost incurred for job instead of process (Latan and et.al., 2018). Excite ltd.
keeps track and record of costs related to each job. For example the it helps in identifying the
cost associated with product A and B separately.
e) Benefits of management accounting systems
Cost Accounting – Cost accounting systems helps the Excite ltd in identifying the cost of
product or services specifically considering both variable and fixed costs.
Inventory management – Inventory management helps in keeping proper track record of all the
information about the movement of inventory in the company. This also makes the inventory
available on time.
Job Costing System – It is very useful to Excite ltd in identifying the the cost of each job
separately so that the profitability from every job could be identified.
Section B
a) Types of managerial accounting reports.
Budgetary Reports
Budgetary report are prepared by the organisation to have a well structured spending
plan to be followed for the given period. Budgets are prepared by the management based on
previous budgets by making adjustments required for current period. This helps Excite in proper
allocation of resources and expenses under control (Lopez-Valeiras, Gomez-Conde and
Naranjo-Gil, 2015). Budgets are forecast about revenues and expenses based on previous
information. It is not possible to forecast accurately but it provides a direction to be followed.
Performance Reports
These are the report prepared by management for measuring the performance of business
operations. These helps the Excite ltd in knowing the level of success achieved using the existing
policies and procedures. It also on individual basis helps in rewarding the performance of
employees achieving the targets (Maas, Schaltegger and Crutzen, 2016). Thorough performance
reports it can identify the areas of improvements.
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Cost Reports
Cost reports are prepared by the organisation for identifying the cost of manufacturing a
product. It includes all costs that are related to the product like material, labour overheads and
other fixed costs. This helps Excite ltd in determining the profit margins for the product. These
reports are of great importance to the management for making comparisons between the
budgeted and actual outputs.
b) Accuracy and reliability of information provided to the users.
The information provided by the management accounting report must be accurate and
reliable as the decisions for organisation are framed on the information provided. Accurate and
reliable information will be steering the company towards right direction. Also relevance and
reliability are required to be complied as per the accounting standards and reporting frameworks.
Excite ltd uses these information critically in decisions for framing strategies and policies.
c) Integration of management accounting reporting and management accounting systems.
Excite ltd uses both management accounting systems for management of business
operation and transactions. At the same time management accounting reporting helps in
analysing the effectiveness of management systems (McLaren, Appleyard and Mitchell, 2016.).
Accounting systems and reporting are interrelated as Excite ltd uses information of accounting
systems for management reports. For example : Budgeted reports are prepared on the actual
information provided by the accounting systems like cost accounting, inventory management.
Scenario 2
Financial report under marginal and absorption costing.
Interpretation
The profits under absorption costing and marginal costing differ because the marginal
system do not consider the fixed costs in valuation of closing inventory. While in other case in
valuing closing inventory fixed costs are considered that increases the cost of closing inventory.
This results in higher profits under absorption costing and lower in marginal costing.
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Evaluation of management accounting techniques.
Marginal costing Absorption costing
Meaning Marginal costing is method in
which variable cost are considered
as cost of product and fixed cost is
considered as period cost.
Absorption costing considers both
variable and fixed cost incurred for
producing the item as product cost.
They are apportioned to the cost of
product on per unit basis.
Benefits  Fluctuations in variable costs
over times but remains
constant.
 Marginal costing is easy and
simple to understand as fixed
costs are not included.
 Contribution is used as
decision-making tool by
management (Burritt, 2017).
 The technique could be
combined with the standards
costing
 Absorption costing recognises
fixed costs incurred for
manufacturing a product.
 The costing techniques is
beneficial when company is not
having constant sales.
 Absorption costing is accepted for
reporting to external authorities.
 Absorption costing is in
compliance with matching and
accrual concepts used in
accounting
Limitations  Segregation of variable and
fixed cost is difficult.
 Fixed costs are not included
in cost of product that affects
reliability of decisions.
 It is not accepted for
reporting to tax authorities.
 It is very difficult to make
apportionment of overhead costs.
 It is not useful to management in
controlling cost and planning.
 The abortion costing shows
profits at inflated rates
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Scenario 3
Planning tools used in management accounting.
Planning tools are used by the organisation for planning the objectives and targets to be
achieved by the organisation. There are different types of planning tools that are used in
management accounting. These planning tool helps in effective planning and making the
required accurate decisions. Excite ltd. in its management accounting uses following planning
tools.
Operational Budget
Operational budgets are used as planning tool for making estimates of all the incomes
and expenses related to a given period. Operational budgets helps Excite to plan in advance
about the revenues and expenses by making detailed analysis of the previous budgets and trends.
The operational budgets are given as objectives to the departments for achieving in the given
period of time (Ameen, Ahmed and Hafez, 2018).
Advantages
This is used by Excite ltd in projecting the future incomes and expenses and planning its policies
and strategies accordingly.
Disadvantage
It is prepared considering all the budgets therefore the errors in one budget will be carried to this
budget also.
Cash Budgets
Cash budgets are prepared on estimates of cash inflow and outflow from different
activities and business operations. The cash budget enables the Excite ltd. to identify whether it
will be available with sufficient monetary funds for carrying out its business. It estimates
revenues from the sales and required expenses to be incurred for the business. This helps in
estimating the cash that will be available at the end of the period (Järvinen, 2016). On the basis
of estimates Excite ltd makes arrangement of required funds so that operations are not
interrupted due to insufficient funds.
Advantages
Cash budgets helps the management in identifying the availability of sufficient funds for
carrying out the operations.
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Disadvantage
Errors in estimates of cash budgets may affect the production as funds may not be available for
carrying out the operations.
Sales Budget
Sales budget is the estimate of sales that will be generated by the business during the
period. The sales estimates are to be made by management after incurring deep study of all the
factors that influence the sales. This gives the company further targets. Sales budget role in
decision making process of Excite as all the budgets and expenses revolve around the sales
estimation. All the budgets will be affected like, expenses, operational if proper estimates of
sales are not made. Sales budgets helps Excite ltd. in planning the incomes and expenses for the
business. This also helps in managing the cost of production.
Advantages
Sales budget helps in allocation of resources based on the revenues estimated in sales budget.
Disadvantage
It is not possible to make accurate forecasts which can affect the completes budget on wrong
forecasts.
Comparison and Contrast
All the above three planning tools are prepared by Excite ltd for having effective control
and management of the organisation. On comparison among all the three tools it was outlined
that cash budget are being used by the Excite for calculating the cash flow from all the three
activities that is operating, financing and investing activities. But in contrast to this the sales
budget is used by the company to maintain and monitor that whether the set target for sales will
be able to achieved with given resources. In the end of comparison it was outlined that operating
budget is used in order to plan for the future by estimating the income and the expenses which
may be accrued by the company (Latan and et.al., 2018). But all the three budgets need to be
prepared by the company because all the three budgets are different form one another and has
their own utility and importance in attaining the objectives of the business.
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Scenario 4
Use of management accounting techniques for solving the financial issues.
An organisation while operating any business has to face various problems which
influence its performance. The financial issues faced by the organisation are raising production
costs, variances between actual and budgeted costs, scarcity resources to achieve the goals and
many more. These are managed by using the tools such as ;
Variance analysis – Variance analysis helps Excite ltd in identifying the areas where the
deviations are occurring. Once the areas are identified, company focus over identifying the
reasons of variations. Company adopt new policies and procedures for reducing the variances.
Benchmarking – Benchmarking is the tool used for setting realistic and attainable targets. This
motivates employees to increase their efficiency for reaching the set targets (Konopczak and
Welfe, 2017). Benchmarking helps Excite ltd in identifying whether the targets are being
achieved with the available resources or further arrangements are required to be made.
Financial governance – Financial governance refers to the monitoring and controlling business
activities and operations. Excite ltd implement proper monitoring procedure keeps track over all
the costs and expenses. This helps in keeping the costs under control.
CONCLUSION
Management accounting plays a critical role in Excite ltd. A business cannot be run
successfully without using the management accounting tools and techniques. Management
accounting is different from that of financial accounting. Management accounting is useful for
internal management of organisation. Different management accounting systems like inventory
management, cost accounting and job costing helps it to properly record and track costs.
Planning tools used by Excite ltd helps in achieving the organisational goals and objectives
keeping the cost under control. The management accounting reports helps the management in
improving and enhancing the performance of company. Using the management accounting
Excite ltd can achieve a sustainable growth and success.
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REFERENCES
Books and Journals
Ameen, A.M., Ahmed, M.F. and Hafez, M.A.A., 2018. The Impact of Management Accounting
and How It Can Be Implemented into the Organizational Culture. Dutch Journal of
Finance and Management. 2(1).p.02.
Burritt, R.L., 2017. Cost Allocation: An Active Tool for Environmental Management
Accounting?. In The green bottom line (pp. 152-161). Routledge.
Endrikat, J., Hartmann, F. and Schreck, P., 2017. Social and ethical issues in management
accounting and control: an editorial.
Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms:
Reviving contextuality in contingency theory based management accounting
research. Critical Perspectives on Accounting. 45. pp.63-80.
Järvinen, J.T., 2016. Role of management accounting in applying new institutional
logics. Accounting, Auditing & Accountability Journal.
Konopczak, K. and Welfe, A., 2017. Convergence-driven inflation and the channels of its
absorption. Journal of Policy Modeling. 39(6). pp.1019-1034.
Latan, H. and et.al., 2018. Effects of environmental strategy, environmental uncertainty and top
management's commitment on corporate environmental performance: The role of
environmental management accounting. Journal of cleaner production. 180. pp.297-306.
Lopez-Valeiras, E., Gomez-Conde, J. and Naranjo-Gil, D., 2015. Sustainable innovation,
management accounting and control systems, and international performance.
Sustainability. 7(3). pp.3479-3492.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
McLaren, J., Appleyard, T. and Mitchell, F., 2016. The rise and fall of management accounting
systems: A case study investigation of EVA™. The British Accounting
Review. 48(3).pp.341-358.
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