Management Accounting Report: Analysis for Excite Entertainment Ltd.

This report offers a comprehensive analysis of management accounting principles and their application within Excite Entertainment Ltd. It begins by defining management accounting and differentiating it from financial accounting, emphasizing its role in internal decision-making, planning, and performance management. The report then explores various management accounting systems, including cost accounting, inventory management, and job costing, highlighting their benefits for operational efficiency and profitability. Furthermore, the report delves into management accounting reporting methods such as budgeting, cost reports, and performance reports, illustrating how these tools support financial planning and problem-solving. The report also covers the preparation of income statements using absorption and marginal costing, discusses the advantages and disadvantages of planning tools, and outlines strategies for adapting management accounting systems to address financial challenges. The report provides a detailed examination of the financial aspects of Excite Entertainment Ltd., making it a valuable resource for understanding management accounting in practice.

MANAGEMENT
ACCOUNTING
REPORT FOR EXCITE
ENTERTAINMENT
LTD

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P1 Management Accounting and its requirements......................................................................1
P2 Methods for management accounting reporting....................................................................5
LO 2.................................................................................................................................................7
P3 Preparation of Income Statement using Absorption & Marginal Costing..............................7
LO 3.................................................................................................................................................8
P4 Advantage & Disadvantage of Planning Tools......................................................................8
LO 4.................................................................................................................................................8
P5 Adaption of management accounting system to resolve financial problems.........................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management Accounting enable managers of organisations in evaluating its internal
information and making various important decisions so that company can achieve its objectives.
The below report elaborate meaning of management accounting and difference between financial
and management accounting. Further, this report explain different types of management
accounting system. Furthermore, this report include various methods of management accounting
reporting. Moreover, this prepare Income Statement by using Absorption and Marginal Costing.
After that, the below report gives advantage and disadvantage of planning tools. At alst this
report include various methods to resolve financial problems.
LO 1
P1 Management Accounting and its requirements
Financial Accounting and Management Accounting are two methods of accounting used
by business organizations to monitor and control their financial position. Excite Limited is an
UK based company offer services of event management and organises concerts at different
location in the country. As company is operating its business at a large scale it is required by the
accountant of company to manage its accounts and all the other financial transactions and it
becomes possible only when company uses an effective accounting system manage its business
transactions(Boučková, 2015).
Management Accounting
Management Accounting provides all the relevant information related to company to its
managers. Thus, Management Accounting is a process of accounting which is used by managers
of a business firm in decision making, planning and performance management. This accounting
method also enable managers resolving financial problems.
Financial Accounting
Financial Accounting is an activity through which a business firm can record, analyse and
interpret all its financial transactions. With this accounting method Excite Limited can use its
present its financial information in statements and disclose them to its Internal &External Users.
Difference between Management Accounting and Financial Accounting:
Factors Management Accounting Financial accounting
Format of Presentation This accounting method Financial statements are
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provides internal information
of business operations to its
managers such as information
related to Future Financial
Plan or Details of Cost.
E.g. Budget is presented in a
proper format by segregating
Income &
Expenditures(Bromwich and
Scapens, 2016).
prepared by using this
accounting methods such as
Balance Sheet, Income
Statement and Statement of
Cash Flow.
E.g. Balance Sheet is
presented in a prescribed
manner which gives detailed
information of all the assets
and liabilities.
Legal Requirements Not rules and guidelines are
set by government fro the
disclose and presentation of
information related to
management accounting.
Excite Limited can present its
internal information to its
managers in any format which
can be easily understand by the
managers.
All the financial statements
are mandatorily prepared and
presented in the prescribed
format. Excite Limited cannot
prepare its Balance Sheet in
any other format which is not
regulated by government of
UK. Further, it is essential for
the companies to disclose its
financial information to
general public(Carlsson-Wall,
Kraus and Lind, 2015).
Areas of Coverage within the
Organization
This Accounting method
manager all the operational
activities required in
production of companies
products & services. For
Example- Cost Minimization,
Preparation of Production
Budget or Sales Budget and
Financial Accounting control
and manage over all business
performance such as managing
and enhancing financial
performance by disclosing
factual data to investors and
creditors so that investors can
make investment decisions and
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Improvement in production
processes.
With this method customer
base of Excite Limited
increased as company is able
to offer services at an
affordable price by minimising
cost.
creditors can check reliability.
Through this accounting Excite
Limited can maximize its
market share and
Profitability(Chenhall and
Moers, 2015).
Types of Data Used Information or Data related to
cost, expenses and income is
used in this accounting. Like
Expenses incurred in
organizing an event and
Income earned from that event
by Excite Limited.
Information related to financial
matter such as investment in
capital or fixed assets and
Issues of share capital are
considered in this accounting.
e.g. Cash Flow Statement of
Excite Limited analyses gives
detailed information of cash
inflow and outflow.
Various management accounting systems are required to use by organisations to improve
efficiency of their business operations and to enhance their performance & profitability. All these
systems are discussed below-
Cost accounting System
A business organisation uses cost accounting system to analyse cost involved in
manufacturing and delivering its products and services so that company can achieve more profits
by eliminating unnecessary cost. This system also helps companies in valuation of inventory.
With this system Excite Limited can accumulate details of all types cost such as Labour Cost,
Direct Cost, Indirect Cost, Fixed Cost, Variable Cost and various other costs involved in its
operations. With this system a business venture is able to analyse per unit cost of its products and
services(Hald and Thrane, 2016).
Management of cost helps a business firm in its business expansion and provides long
term sustainable growth by retaining customers. Further, with this system company can manager
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its cash inflows and outflows so that it can make further investment decisions. With this system a
company can track its raw material, labour efficiency and inventory level.
Cost Accounting System is an essential requirement of Management Accounting as this
system helps managers in making decisions regarding allocation of cost to the different
departments and helps in planning of next years production budget and other types of budgets.
Direct Cost- Direct Cost is cost specifically incurred in manufacturing of products and
services such as cost of raw material, labour, power consumption and fuel. Direct cost is variable
in accordance with production quantity(Jansen, 2018.).
Standard Cost- Standard cost is an estimated cost that should be incurred in the process
of production. Standard Cost Accounting System is a system with which a company and its
production manager can compare actual cost and estimated cost of production. Further, it helps
company in identifying reason behind the actual and standard cost. E.g. Excite Limited standard
cost that should be involved in organising an event is 1000 Us Dollars and Actual Cost incurred
is 1020 US Dollar than this difference can be analysed with the help of Standard Costing
System(Standard Costing. 2019).
Various Cost Accounting Techniques such as Job Costing, Process Costing, Contract
Costing, Marginal Costing and Services Costing are used by companies to evaluate and measure
cost of different department and different operations. If a company is including variety of
products & services in its portfolio than this techniques benefits it in analysing cost. For
Example- Excite Entertainment Limited is offering event management services than company
can use Service Cost Technique to determine cost of services provided by it. Contract Costing is
also used in case of a big contract related to wedding or any popular event such as
Olympic(Kaplan and Atkinson, 2015).
Inventory Management System
Its is an another requirement of Management Accounting as it helps organisations in
managing their inventory level according to the production demand. Further, Inventory is an
important element with which a company can enhance its production capacity. Supply Chain of a
a company is dependent on the availability of inventory thus, it is necessary for companies to use
Inventory Management System.
With this system managers of company can make decision related to purchase of raw
material and plan production with the available stock. For Example- If managers of Excite
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Limited are able to manage its inventory than it can fulfil its customers demand easily which in
turn helps in increasing customer base of a company. Further, this system also helps in optimum
utilisation of available resources and it also enable manager in taking decision as to what type of
inventory is used at first.
This system also supports managers in making decision related to what type of inventory
is used like FIFO or LIFO which in turn enhances production efficiency and output of business
firm. For Example- A company is using FIFO method than goods or raw material which is
recently placed in warehouse are sold first whereas according to LIFO method last added
inventory is used first(Maas, Schaltegger and Crutzen, 2016).
Job Costing System
Job Costing System provides detail information related to cost involved in manufacturing
of each job separately. This system is most widely used by Event Management Companies and
Furniture Manufacturers. Thus, this system is appropriate for Excite Entertainment Limited and
with this this company can track cost of each of its events and concerts.
For Example- Excite Limited is organising three events in a day in different city than
with this system managers of company are able measure cost involved in each of its job offered
or events. Thus, this system is also required in management accounting(Cost Accounting
Systems. 2019).
Benefits of Management Accounting System
Management Accounting system provides stability and long term growth for the
company by minimising different types of risk as this method of accounting is having various
benefits. As with this accounting system Excite Limited can increase its profits by managing
cost and other operational activities. It enable business ventures in producing more products with
which company can get more customers(Malina, 2018).
Further, this system is also beneficial in reducing wastage as all the decisions are made
by the managers by evaluating all the resources and cost which provides optimum utilisation.
Further, it also benefits companies managing inventory by suggesting it an appropriate
inventory management method according to the business of company. Moreover, management
accounting system helps Excite Limited in scheduling all of its operating activities.
5

P2 Methods for management accounting reporting
Managers Accounting Reports are prepared by companies with the purpose of resolving
various organizational problems as with this reports managers make plans of improving their
production process and make decisions so that they can achieve more profits in future. Different
types of management accounting reports are discussed below-
Budget- Budget Report is prepared for projecting future expenses and income of a
company. This report includes details of future financial plan of company and it helps firm in
operating its business in accordance with the budget report so that it can achieve its future
objective. Thus, it benefits managers of business ventures in analysing their performance and
also support production department by controlling cost. Usually Budget Report is prepared by
business organisation on the basis of their past years budget which gives more accuracy and
profits. For Example- With the help of Budget managers of Excite Limited are able to decide
salary and incentives for its employees(Messner, 2016).
Cost Report- Cost Accounting Reports enable manufacturers in computing various types
of costs involved in production process. This report contains information related to cost which
helps managers in determining prices of products and services offered by company by deciding
profit margin. Further, managers also can revise price of products according to the change in
cost. This report also helps managers of Excite Limited in resolving problem of wastage by
providing optimum utilisation of resources.
Performance Report- This report is prepared to analyse performance of company with
which managers can formulate various strategies to achieve future goals. With this report
managers can analyse that companies operations are in accordance with the estimation made in
Budget Report or not and if company is not performing its business activities according to the
budget than managers make a revise budget. With this report HR managers of Excite Limited can
appreciate performance of its employees which also beneficial in retaining and acquiring talented
employees at work place(Tucker and Schaltegger, 2016).
All the information presented in managerial accounting reports should be accurate,
reliable and relevant the to user so that manager can make appropriate decisions and
stakeholders such as shareholders, government, suppliers and creditors so that share holder can
make investment decisions and creditors & government can provide loans to raise capital of
company. Because, if stakeholders of company shows interest in its business than directly
6

contributes in maximisation of market share and performance. Further, disclosing accurate
information helps managers in making future budget and plans which leads to long term success.
It is also advantageous as with this business can analyse its accurate position in the market. Thus,
it is also necessary fro Excite Limited to disclose all the internal information of company to its
directors, managers and employees if required.
LO 2
P3 Preparation of Income Statement using Absorption & Marginal Costing
Absorption Costing
Absorption Costing is a method of determining cost involved in manufacturing of
products and services by considering both direct as well as Indirect Cost. Direct cost includes
cost of labour, material and direct overheads whereas indirect cost includes cost of
administration, interest and other non operating expenses. This costing is beneficial in filling
income tax returns as it gives net profit after deduction of interest and tax(Management
Accounting – Meaning, Advantages and Limitation. 2019).
Advantage
 Most important advantage of absorption cost consider fixed of overhead involved in
manufacturing process.
 This method gives actual profits and which helps company in identifying its actual
growth and profitability. Absorption Costing benefits business firms in preparation of financial statements such as
Income Statement, Cash Flow Statement and Balance Sheet.
Disadvantage
 With absorption costing managers of business firm cannot monitor and control its
production process as it also includes non operating cost. This method is also not useful for managers in decision making process.
Marginal Costing
Marginal Cost includes cost of additional units manufactured of added thus, this cost is
vary according to change in number of sales units. Thus, Marginal Costing is method which
consider extra cost incurred in manufacturing of additional units and this method is having a
direct impact on profit(Smith and Driscoll, 2017).
Advantage
7

 This method is beneficial in short term decision making. With this method managers can control the cost and in this method it is necessary for the
managers to monitor the cost as it keeps changing with the output.
Disadvantage
 This method does not consider fixed overheads involved in manufacturing.
 This method uses past years data while making estimation related to output which does
not give appropriate results sometimes.
Income Statement (Marginal Costing)
as on 30th May 2019
Particulars Amount
Sales 8000 units @ £15 120000
Less- Opening Stock -2000
Less- Variable Cost (8000
units @ £2)
-16000
Contribution 102000
Less- Fixed Cost -40000
Profit 62000
Income Statement (Absorption Costing)
as on 30th May 2019
Particulars Amount
Sales 8000 units @ £15 120000
Less- Opening Stock -2000
Less- Variable Cost of
Production 10000 units @ £2
-20000
Contribution 98000
8

Less- Fixed Production
Overhead
-40000
Profit 58000
From the above Income Statement it is evaluated that Marginal Costing Method is giving
more profit as compare to adsorption costing.
LO 3
P4 Advantage & Disadvantage of Planning Tools
One of the major planning tool which is used by management is in terms of budgets.
Budgets are the major aspects which helps the companies to prepare their income and
expenditure within a specified periods. This helps the companies to make different strategy by
analysing the particular money left in the company and their technique regarding expansion and
future growth (What is Budget, 2019). Thus, budgets are the financial plan of the company and
usually they are prepared by the management team which is appointed to prepare the complete
budget which recognised their sales, production, actual cost and expenses and total cash flows in
each financial year, Companies uses various planning tool which is used in managing their
accounts are as follows:
 Sales Budget: Sales budget means such budget which determines the sales of the
company during the financial years. This budget is mainly prepared to estimated the
profits earned through sales and various other resources which are utilized in sales
activities. As the stability of the company depends upon the sales which they made
during the financial year (Ax and Greve, 2017). So that they can analyse the profits
earned and can prepared the internal team with different products for taking it into sales.
The advantages of Sales budgets are as follows:
 It helps the company to plan their activities to bring their products in the market.
 Through the sales budget, company know their internal management of the working and
their strategy to adopt the success through such sales process.
 By preparing sales budget, company can control their expenses which is incurred without
any providing useful meaning (Carlsson-Wall, Kraus and Lind, 2015).
The disadvantages of sales budget are as follows:
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1. There are the least chances of flexibility as if the company makes sales budgets which are
not appropriate to actual results then the company while planning is just a waste.
2. Company can't accurately trust on sales budget as they are more fluctuation in
comparison to recent data and previous data (Otley,2016).
In case of excite Entertainment Ltd., Sales budget is mainly prepared by the sales officer
of the company and before making this budget they have to take all the information from various
department such as production, marketing and financial department. After getting all the relevant
information, the sales budget are prepared and this implies the stability of the company to bring
their products in the market.
As under balance score card, it helps the companies to make a strategic management
techniques to identifies the overall activity of the company in internal matters (Qian, Hörisch and
Schaltegger, 2018). As the matters if are sorted with internal activity reflects the external
outcomes regarding the terms of financial matters. If the company finances are strong they can
stable their position in the market.
E.g. As the sales report of 2019, which represents the quarter report of sales relating
activities.
 Production Budget: In respect of this budget, companies prepare this budget to
represent the number of units and items which the company is preparing in the financial
year. This determine the working of the company whether it produces some goods or not
deal in any activity(Honggowati and et.al., 2017). This budget is mainly determined
through manufacturing activity and the resources which are utilized to produce a
particular product. The advantages of production budget are as follows:
1. With this budget it helps the companies to know the labour costs and other expense
incurred at the time of production.
10

2. It manges the stock and other resources of the company which is used at the time of
producing the goods and other products.
The disadvantages of the production budget are as follows:
1. It is the time consuming method as the rates of the resources are not accurate it changes
according to the changes in time (van Helden and Uddin, 2016).
2. It also results in wastages of products if the company didn't produce that products for
longer terms.
In case of Excite Entertainment Ltd, they prefer this planning tool to know their actual
budget which is required at the time of producing a product. As without establishing a product
the liability of the company can't be determined. As their main work is to manage all the
resources and also reuse their waste material to save the resource for future use (Tucker and
Schaltegger, 2016).
E.g. Production budgets report of the company regarding their units or dropouts which is
used to prepare the budgets.
Cash flow budget: This budget is mainly prepared by the companies to analyse the
estimated cash inflow and outflow during the specified time period. This budget is usually
adopted to examine the sufficient cash available with the company to plan for future actions
(Smith and Driscoll, 2017). It depends upon the companies how they manage their cash budget
as with accurate cash budget helps the companies to plan various activities which provide more
benefits to them. The advantages of cash budget are as follows:
1. With making a proper cash budget, it helps the companies to determine their capacity to
invest in some projects which provide more growth to their structure.
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2. If the stability of the companies is strong with the cash budget, they can easily borrow
loan to engage their activities or enhance their business structure in some different
countries (Boučková, 2015).
The disadvantage of the cash budget are as follows:
1. If the company has more cash, it reflects the nature of the employees working in the
organisation and there are more chances of theft and extortion which affect the image of
the company.
2. As if the company is strong regarding the cash, employees are more demanding regarding
to increase their pay scale or promoting them to the new post which reflect the other
employees working and had lot of criss occurs in the internal working of the company
which bring competition in the market (Carlsson-Wall, Kraus and Lind, 2015).
Excite Entertainment Ltd chooses this planning tool to build a strong competition in the
market and also plan various activities which helps the companies to grow for longer terms. As if
the company having surplus cash, they can easily enter into the market and can expand their
business activities.
E.g. This cash flow budget represents the total cash expenses and income generated during the
financial year.
LO 4
P5 Adaption of management accounting system to resolve financial problems
Break Even Analysis
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Break Even Analysis is a method which helps business organisation in determining a
point at which sales made by company is sufficient to cover all its overall cost. With this analysis
a company can find out at what units of sales it can earn profits, On the other hand, Break Event
Point is a point where company is not gaining any profit or not suffering from any
loss(Quattrone, 2016).
Particulars Amount
Budgeted Fixed Cost 120000
Variable Cost per Unit 10
Sales per Unit 40
Contribution Margin (Sales-
Variable Cost)
30
Break Even Point= (Fixed Cost/ Contribution per Unit)
BEP= (1,20,000/30)
=4000 units
From the above calculation it is evaluated that Excite Limited is in no profit or loss
situation when it sales 4000 units and company can earn profits if its sales volume
increases above 4000 units whereas, if firm is selling less than 4000 units than its business
is at loss(Renz, 2016).
Units Required to be Sold to earn Targeted Profit= (Total Fixed
Cost+Profit)/Contribution Margin
(120000+60000)/30= 180000/30
=6000 Units
Units TFC TVC TC SR Profit
1000 120000 10000 130000 40000 -90000
2000 120000 20000 140000 80000 -60000
3000 120000 30000 150000 120000 -30000
13

4000 120000 40000 160000 160000 0
5000 120000 50000 170000 200000 30000
6000 120000 60000 180000 240000 60000
7000 120000 70000 190000 280000 90000
8000 120000 80000 200000 320000 120000
9000 120000 90000 210000 360000 150000
10000 120000 100000 220000 400000 180000
By calculating Break Even Pint is evaluated than company is earning a profit of 60000 at
a sales of 6000 units.
Cost Volume Profit Analysis (CVP)
This analysis is used by business ventures for evaluating impact of change in cost & sales
volume on profits generated from operations. This analysis is used by business organisation to
determine a point where company is not at any profit or loss. Managers and accountants of
company use this cost accounting method by making various assumptions which are discussed
below-
 Sales Price, Variable Cost and Fixed Cost Remains Constant in this analysis.
 No Closing Stock is considered.
14

CVP Analysis is determined on the basis of contribution margin and contribution margin
ratio. Further, this analysis consider all types of cost incurred in selling such as production cost,
marketing cost, administration cost and distribution cost.
Particulars Amount (£)
Sales 120000
Less:prime cost 32000
Less:variable costs 16000
Contribution 72000
Fixed Cost 40000
Contribution Margin Ratio= (Contribution/Sales)*100
= (72000/120000)*100
=60%
Break Even Sales Volume= Fixed Cost/ Contribution Margin Ratio
=40000/60%
=66000.
From the above analysis it is evaluated that profit is changing only due to change in sale
volume all the other variables are constant. It is analysed that at the sales volume of 66000
company is able to cover all its cost.
15

Both the above analysis are used in resolving problem suffered by company during their
production process and it also helps company in maximising its profits and volume of sales
which in turn enhances profitability and market share(Nitzl, 2016).
CONCLUSION
The above report outlined difference between management and financial accounting.
Further, this report highlights different types of management accounting systems, Furthermore,
this report summarises methods used in management accounting reporting. After that, this report
concluded with presentation of Income Statement. Further, the above report outlines pros and
cons of planning tools. At last, this report concludes with management accounting methods
through which financial problems of an organisation can be resolved.
16

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