Excite Entertainment Ltd: Management Accounting Report Analysis

This report provides a comprehensive analysis of management accounting principles and their application within Excite Entertainment Ltd, a UK-based event management company. The report differentiates between management and financial accounting, emphasizing the importance of management accounting for informed decision-making, cost control, and profitability. It explores various management accounting systems such as job costing, cost accounting, and inventory management, along with their benefits. The report also examines different methods of management accounting reporting, including budget reports, cost accounting reports, and inventory management reports. Furthermore, it compares marginal and absorption costing methods, providing income statements for Excite Entertainment Ltd based on each method. The report also discusses the advantages and disadvantages of different planning tools, such as zero-based budgeting and master budgeting, highlighting their roles in financial planning and control.

Management Accounting report
for Excite Entertainment Ltd

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Management Accounting and its different type of systems:..................................................3
P2 Different methods for management accounting reporting......................................................5
M1................................................................................................................................................5
D1................................................................................................................................................6
TASK 2............................................................................................................................................6
P3 & M2 Costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs:...........................................................................................6
D2................................................................................................................................................8
TASK 3............................................................................................................................................8
M3..............................................................................................................................................10
TASK 4..........................................................................................................................................10
P5...............................................................................................................................................10
b) Organisations adapt management accounting systems.........................................................10
Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is considered as an important function which is mainly used to
analyse the company’s data, for maximising profitability of business operations. This would help
in preparing the management reports which can be used to make short-term to manage
operational activities efficiently (Lavia López and Hiebl, 2014). An assignment is made to
analyse the importance of management accounting system in a company, by differentiating this
concept with financial accounting. For this purpose, Excite Entertainment Ltd is chosen that
deals in event industry of UK. In order to carry out various operations like budget planning,
responding towards financial crises and more, how this company can use management
accounting system is being discussed under the present report. For this purpose, various types of
reporting, planning tools with benefits and limitation are also analysed by comparing the
business strategy of chosen company with one of its competitor.
TASK 1
P1 Management Accounting and its different type of systems:
Management accounting refers to a process of preparing reports to provide statistical
information to a company, in order to take appropriate decisions of business on regular basis. It
helps a firm in making future plans by preparing managerial information, which includes entire
company’s data related to financial and non-financial activities (Leitner, 2013). Excite
Entertainment Ltd. deals in event management business, whose major activities includes
promotion of concerts and festivals at particular locations, in creative manner. To apply the
concept of management accounting in increasing profitability ratio and estimating different costs
required for completing a project, it becomes highly essential for this company what is main
difference between financial and management accounting, as explained beneath :-
Difference between management and financial accounting
Basis of comparison Management accounting Financial accounting
Objectives Provide entire information
of company to set goals,
mission and plan activities.
Disclose the end result or
financial state of a company on
a particular date.
Audience It is used by managers and
other authorities to take
Financial information is mainly
used by stakeholders, investors

decisions for internal
activities of business
(Nielsen, Mitchell and
Nørreklit, 205).
and external parties of a firm.
Segment reporting Department wise Include overall information
Focus It concerns on estimating
future performance and
preparing records of
current data
In focuses on company’ past
records
Reporting, frequency and
distribution
Monthly, daily and weekly Yearly, semi-yearly and
quarterly
To increase the efficiencies of business operations, this company can utilise the concept of
management accounting system and its various applications in determining the number of human
resource needs for launching an event and planning other activities in desired way (Turban,
Volonino and Wood, 2015).
 Job costing system – This costing method system is used to formulate costs required at
each level of production to complete the entire project. By identifying each job
separately, managers of Excite Entertainment Ltd. can analyse cost as per job, so that
major expenses can be reduced.
 Cost accounting system – This system will help respective company in keeping an eye
over each transaction and cost required to complete each activity, for inventory valuation
and profitable analysis (Stein and et.al., 2015). It would also aid managers of Excite
Entertainment Ltd. to analyse which products or services prove profitable for business
and which are not, so that proper decisions can be made for improving the production. In
this regard, two main methods can be used as direct costing and standard costing. Hereby,
standard costing includes the comparison of efficient uses of resources to produce
services as per standard conditions. While direct costing helps in estimating the cost
which is attributed to production of certain services based on event formation for given
company. Both concepts will help in estimating the actual profitability of a specific
project, so that planning of event launch can be done in efficient way.

 Inventory management system – This system refers to be most effective in management
accounting that mainly focuses on managing inventories and making it available to cater
demand of customers within set period of time (Plumb and et.al., 2017). For tracking the
inventory orders, sales and deliverables, a number of method can be used, which includes
LIFO (Last in First out), FIFO (First in First out) and more, that may affect the bottom
lines of business in different manner. Hereby, respective company uses the concept of
ABC analysis for managing inventories.
P2 Different methods for management accounting reporting
For monitoring the current performance of business in order to improve the future state, a
company can use the concept of managerial accounting reports (Hilton and Platt, 2013). Through
analysing such performances of each department, decisions can be taken for improvement and
increase the same as well. In this regard, it is essential for managers of Excite Entertainment
Limited to concern on implementing following accounting reports –
Budget Report – To determine if current state of business is enough to meet present and
future requirement, budget report can be used by Excite Entertainment Ltd. This would also help
in estimating cost required to complete each phase of production, which further can be used to
prepare budget as well. It also gives support in analysing feasible ways for trimming costs.
Cost accounting reports: This report helps in estimating cost required for completing a
project and making budge plan accordingly. The given company can use this report to predict
how business expenses can be controlled by determining costs of products, process and more.
Inventory management report: To grow business successfully, it is essential for
preparing inventor report, by analysing different metrics (Senftlechner and Hiebl, 2015). It
includes item fill rate, inventory accuracy and stock turnover, analysing all these aspects,
managers of given company can make improvement plans, in order to increase the potential of
growth and success on business.
M1
Advantages of accounting system
Accounting management
system
Benefits of integrating this concept within Excite
Entertainment Ltd.
Inventory Management This technique helps respective company in increasing

System valuation of inventories and making plans to manage the
same as well.
Job Costing System
Predicting cost of each task for project completion helps in
analysing how cost of particular activity can be reduced.
Cost Accounting System
This system mostly helps in reducing the company’s
expenses for increasing profitability ratio.
D1
To increase the profitability and performance of business, it is essential for Excite
Entertainment Ltd. to integrate the concept of management accounting reports. This would help
in reducing any kind of wastage that affect budget of current year plans so that valuation of
business and its resources can be increased (Wickramasinghe and Alawattage, 2012). Hereby, by
evaluating the company’s data, inventory forecasting report can also be proposed to predict that
future state of business will be able to meet financial challenges.
TASK 2
P3 & M2 Costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs:
Marginal costing method: This concept is generally used for determining how much
cost is required if a company wants to increase additional quantities of products. This would also
help in analysing impact on increased unit or variable cost on business and total production
(Ward, 2012). In this regard, managers of Excite Entertainment Ltd. can use this costing method
to calculate cost required for producing a single unit of commodity to meet demand of
customers. For this purpose, marginal costing method calculate costs on the basis of changes in
variable costs.
Absorption costing method: This method considers both fixed and variable costs for
calculating the costs required to produce additional quantity of products. It also concerns on
calculating the direct material costs, labour price, variable and fixed overhead expenses, for the
same.

Income statements for the month of May for Excite entertainment company on the basis of
marginal costing :
Particular
Amount(in £ )
Sales 120000
Less-
Variable cost 51000
Contribution 69000
Less-
Selling and
manufacturing
expenditures
-
Net profit 69000
Working note:
 Calculation of sales- 8000 x 15= £120000
 Calculation of variable cost
= (Opening stock+ production overhead- closing stock)
= (500 x 6 + 10000 x 6 – 2000 x 6)
= £51000
Income statements of May month for Excite entertainment company by using Absorption
costing method :
Particular Amount(in £)
Sales 120000
Less-
Cost of good sold 85000

Gross profit 35000
Less-
Selling and
manufacturing
expenditures
-
Net profit 35000
Working note
Calculation of sales- 8000 x 15= 12000
Calculation of cost of good sold = (Opening stock + production overhead - closing stock)
= (500 x 10 + 10000 x 10 – 2000 x 10)
= £85000
D2
From the calculative data of income statements, it has been interpreted that using marginal
costing method, the cost required for producing addition single unit of service required £51k
while through absorption counting it will require £85k. So, in this regard, it is suggested to
Excite Entertainment Company to use absorption costing method because it focuses on every
expense that may affect by increasing single unit of production.
TASK 3
P4 Advantage and disadvantage of different types of planning tools
Budget can be defined as a plan under which a company estimate costs require for
completing each operation of business and some amount to meet future expenses (Hopper and
Bui, 2016). It can also be defined as a pre-determined statement of financial record of a
particular accounting period. In context with Excite Entertainment Ltd., its managers can
develop budget of every project related to launching an event so that wastages and other
expenses can be reduced. Budgetary control tools in this manner can help in making plans how
to cater future needs of business, in case of emergency (Maas, Schaltegger and Crutzen, 2016).
In this regard, different planning tools that help in formulating the specific budget plan are
described as below -
Zero based budget: It refers to an accounting practice that force management of a
company to analyse how to spent every single euro during a budgeting period. Zero-based
budget plan starts with initial stage where outstanding expenses usually avoided in current

accounting period (Lavia López and Hiebl, 2014). Therefore, by generating a zero based budget
plan, can execute any project more efficiently.
Advantages Disadvantages
Flexible budget, lower costs, focused
operations and disciplined execution is
considered as main advantage of zero-based
budget plan.
Possibility of intensiveness of resources is high
in zero budget plan, that shows its major
drawback point.
Master budget: This plan collect entire small budgets like customer services, marketing
activities, operational procedures and more, to compile the all within single overarching budget,
so that a holistic overview can be developed to keep financial record (Leitner, 2013).
Advantages Disadvantages
Summarising the data related to each smaller
budget help Excite Entertainment Ltd. in
getting knowledge of overall expenses and
income, to analyse whether current state of
business is financially standing or not.
Lack of specificity and shortage of updated
information reveals disadvantage of master
budget plan.
Planning tools for budgetary control:
Forecasting tool: This tool is used to meet future demands of business by anticipating the
different circumstances that may arise during a financial year. For this purpose, it helps in
estimating the outcomes and cautious planning based on past data just as circumstance within the
organisation (Nielsen, Mitchell and Nørreklit, 205). This also helps in analysing the future need
as well as necessity of business through breaking down the fiscal reports.
Advantages:
 This tool will help Excite Entertainment Ltd. in keeping its budget control and optimise
resources more effectively to anticipate future demand.
 Forecasting tool also helps in maximising the profit capability of organisation by defining
better management by thinking about the important financial data.
Disadvantage:
 It is difficult to exactly forecast the future demand of business under this planning tool.

 It may create issues to maintain performance and productivity of each department to
utilise resources for future demand.
Contingency tool: this tool refers to best planning technique in budgetary control that
helps in making back up plans to deal with uncertainties (Turban, Volonino and Wood, 2015).
By utilising contingency tool, Excite Entertainment Ltd. can make more effective plans for
keeping its business safe from vulnerable conditions, like natural calamities, project failure and
more.
Advantages
 Making powerful back up plans to deal with vulnerable conditions is the best advantage
factor of contingency tool.
 It provides remedial solutions to given company for facing the discrepancies.
Disadvantages:
 Reinforcement or back up plans may create conflicts between stakeholders of this
company in managing the vulnerable conditions.
 It requires lot of funds and resources to make such plans for anticipating the business
necessities.
M3
By integrating the forecasting and contingency type of planning tools, management of
Excite Entertainment Limited can develop more effective plans for budgetary control (Stein and
et.al., 2015). Hereby, by using master budget plan and forecasting tools, this company can also
streamline the entire aspects of business like sales and marketing, company’s assets, operating
expenses and more.
TASK 4
P5.
b) Organisations adapt management accounting systems
Calculation of contribution per unit-
Selling price per unit
Less- Variable cost per unit
40
10

Contribution 30
Interpretation: from given data, it has been interpreted that selling price of Excite
Entertainment Limited is 40 Euro.
Calculation of break-even point = Fixed cost / contribution per unit
= 120000/30
= 4000 (in units)
Calculation of cost volume profit analysis = (Fixed cost + desirable profit) / contribution
= (120000+60000)/ 30
= 6000 units.
Profit at the sales of 4000 units-
Sales (4000*40)
Less- Variable cost (4000*10)
Contribution
Less- Fixed cost
Profit/ loss
160000
40000
120000
120000
0
Profit at the sales of 6000 units-
Sales (6000*40)
Less- Variable cost (6000*10)
Contribution
Less- Fixed cost
Profit
240000
60000
180000
120000
60000
Advice: In order to sale near about 6000 units for getting desirable profitability, it is
recommended to Excite Entertainment Limited to integrate following plans –
 Problems of cash flow: Such kind of problems may generally arise in business when
there is a limited source of finance. Therefore, to resolve this issue, Excite Entertainment