Management Accounting Report: Strategies for Excite Entertainment

This report provides a comprehensive analysis of management accounting principles, focusing on their application within Excite Entertainment, a UK-based leisure and entertainment company. It begins by differentiating between management and financial accounting, highlighting the essential requirements of various management accounting systems such as cost accounting (job order and process costing) and inventory management (LIFO and FIFO). The report then delves into different management accounting reporting methods, including budget reports, account receivable aging reports, job cost reports, and performance reports, emphasizing their role in planning, decision-making, and performance measurement. Furthermore, it explores the benefits of management accounting systems, such as cost reduction and improved decision-making, and their practical application within the organization. The report includes calculations of marginal and absorption costing, compares different planning tools, and analyzes their use in forecasting budgets. It concludes by examining the advantages and disadvantages of planning tools and the importance of adapting management accounting systems to resolve financial problems and achieve organizational success. The report emphasizes the importance of accurate, relevant, and timely information for effective decision-making and organizational performance.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................2
SCENARIO 1...................................................................................................................................3
Management accounting and essential requirements of different management accounting
systems...................................................................................................................................3
Different methods used for management accounting reporting.............................................5
Benefits of management accounting system and their application in the organization.........6
SCENARIO 2...................................................................................................................................9
Calculation of marginal and absorption costing....................................................................9
Management accounting techniques and financial reporting documents............................11
SCENARIO 3.................................................................................................................................12
Advantages and disadvantages of different planning tools..................................................12
Advantages.............................................................................................................14
Disadvantages.........................................................................................................14
SCENERIO 4.................................................................................................................................14
Analysing the uses and application of the various planning tools for forecasting the budget.14
Fixed budget- .......................................................................................................................14
.Explaining and comparing the adaptation of the management accounting systems for......16
resolving the financial problems which leads to organisation success................................16
Cost profit volume analysis..................................................................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19
INTRODUCTION
Management accounting is the application of knowledge, techniques applied by
professionals in order to prepare accounting information which helps the company in formulating
policies and procedures and controlling business operations. It helps the company in making

decisions based on accounting information provided by the management accounting. For better
understanding of the report, it will take Excite Entertainment limited, a leisure and an
entertainment industry in the UK, which is one of the client of the accounting firm of UK and
deals in promoting concerts and festivals at different locations throughout UK. The report will
consist of difference between management and financial accounting along with different
management accounting systems and management reports. It will show calculation of absorption
and marginal costing and will calculate profit from both the methods. Later, it will depict different
planning tools along with performance indicators which can help the company in measuring
performances. At last it will show the importance of planning tools in achieving success for the
organization. SCENARIO 1
Section A
Management accounting and essential requirements of different management accounting systems
Management accounting is the branch of accounting and application of knowledge,
techniques and concept used by professionals. It is used in for preparation of accounting
information in a way that it helps the management of the company in formulating policies and
plans, controlling business operations. It also facilitates decisions making and utilization of
resources along with safeguarding assets of the company.
Difference between management accounting and financial accounting-
Management accounting Financial accounting
Management accounting helps management in
taking various decisions and assess for all types
of transactions.
Management accounting measures both
qualitative and quantitative value ((Difference
between management accounting and financial
accounting, 2019)).
Management accounting is optional and has not
fixed set of rules.
Financial accounting records financial
transactions of the company.
Financial accounting measures quantitative
values.
It is mandatory to do financial accounting for
the company according to rules and regulations.
Essential requirements of different accounting systems used in Excite limited are:

Cost accounting system – It is used by the company to record activities related to
production using continuous inventory system. It is a system of management accounting system
which is used to estimate cost of the products for profit analysis, cost controlling and valuation of
inventory. The Excite limited company use this system to know the products that are profitable for
the company and non profitable product of the company (Maas, 2016). It also helps excite limited
to estimate the closing value of work in progress, inventory materials and finished goods which
help the company in preparation of financial statement. There are two cost accounting system:
Job order costing – This cost accounting system accumulates manufacturing cost of each
project of Excite limited separately (Management accounting, 2018). As excite limited company
offers different types of product and services to its customers therefore this system helps the
company in finding out the most profitable service or product and also inefficient product of the
company.
Process costing – This system accumulates manufacturing cost separately for each
process. It is appropriate for products whose production process involves various departments.
Mostly used by chemical producers and oil refineries etc.
Inventory management system – This system helps in tracking goods through entire
supply chain. It covers all the aspect of business from production, warehousing, shipping etc. it
allows business to see moving parts of its operations, allow business to take better decisions and
investments. It helps Excite limited company in inventory forecasting, bar coding, inventory alerts
etc. to help the company in making smooth decisions (Chenhall, 2015). There are two types of
inventory management system:
LIFO: This method means last in first out in which the inventory that is received in last
will be sell by the company at first. This method is required for Excite entertainment in managing
its inventory to the optimum level.
FIFO: This method means first in first out in which the inventory that is received at first
will sale at first too by the company. This method is needed for Excite entertainment for keeping
the track on the inventory that comes first to be sold first so that outdated stock can be eliminated.
Job costing system- This system helps the company in collecting information about the costs
associated with specific production (Warren and et.al, 2015). This information is important for
determining the accuracy of estimating system of company which can help in quoting prices that
allow making reasonable profit. This system helps Excite limited in finding out three types of

information related to direct materials, direct labor and overhead costs such as depreciation. It is
used by the company when various items are produced which are different from each other and
has significant cost.
Section BDifferent methods used for management accounting reporting
Management accounting reports are used for planning, regulating, decision making and
measuring performance of the company and its product and services. These reports are generated
continuously throughout the accounting period according the requirements of the company a
many decisions are based on authenticity of these reports. These reports need to be prepared
carefully by experts who have expertise in book keeping (Navaneetha and et.al, 2017). Managers
of the company analyze these reports to highlight certain patterns and convert them into useful
information for the company. The reports are:
Budget reports : These reports are very critical in measuring performance for all type of
organizations. Excite limited company creates an overall budget of the company to understand
scheme of the business. Budget is prepared by the company on previous year experiences.
Although, it is highly uncertain. Company's budget list all the income and expenditures and tries
to achieve its objectives like increase in sales, profit etc by staying in the budget. It is the most
fundamental report in management accounting. It helps Excite limited in controlling cost across
business as well as various departments (Collis, 2017). It also helps manager of the company in
offering better incentives to its employees, cut cost and renegotiate terms with vendors and
suppliers.
Account Receivable Aging Reports – As Excite limited company relies on extending
credit to its customers and suppliers therefore preparing account receivable aging report is
important for the company. These reports break down reaming balances of the clients on specific
time period say, 30 days, 60 days and so on which allow manager to find out the defaulters
(Labro, 2019). These report helps the company in tightening its credit policies as maintaining cash
flow is important operation of any business. These reports also help in adjusting credit policies to
align them with customers’ repayment capabilities.
Job cost report – These reports provide systematic view of the total cost incurred in a
single project of the company with the comparison to the expected revenue by the project. It helps
manager of the company to evaluate profitability of specific types of jobs and optimize and shift

their focus on the jobs that are most profitable. It also helps the company in taking out the
investment from non profitable project which helps in saving cost of the company.
Performance report – These reports are created to review the performance of the
company as whole as well as of the employees at the end of the year. Managers use these reports
to make strategic decisions about company's future. These reports help the company in working
towards the mission of the company by showing specific strategy (Boyabatlı, 2015). These helps
the manager in deciding which employee perform the best throughout the year and help in taking
decisions related to providing benefits, incentives etc. to the best candidate.
The information presented in these reports need to be accurate as many decisions of
manger 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, borrowing 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 because it helps the users
in making effective decisions.
Integration of management accounting system and management accounting report in
Excite limited can be done as management accounting system contribute to continuous
improvement in the company through the development and integration of cost accounting system
which generates cost report and can help the company in controlling cost of their product and can
increase the production of the company (Isaac, 2015). Also, instead of budgeting and controlling
individually at departmental level, the company can do so at activity level such as inventory
purchasing with the help of inventory and manufacturing report. These accounting system can
measure and evaluated effectiveness of all major activities which can enhance the performances
of the company by providing various report like budget reports, cost reports which help the angers
in taking various decisions.Benefits of management accounting system and their application in the
organization
Benefits of management accounting system:

Accounting System Benefits Application
Cost accounting system Cost accounting system
eliminates wastes, losses and
inefficiencies by fixing
standard for everything.
Under cost accounting system
new and improved methods of
production are used which
leads to reduction in cost of the
company.
An efficient cost accounting
system highlights the reason
for increasing and decreasing
profit and can help
management in taking
appropriate decisions to
maintain profitability
(Parmenter, 2015).
It provides base for budgets to
be prepared and to fixed
standards. The actual
performance is compared to
standard performance and it
helps in controlling the cost.
The cost accountant system
help Excite limited in making
decisions related to purchasing
raw materials, to retain or
replace existing machines, to
expand or not, how much
reduction need to made in
selling price in situation of
depression. It helps the
company in fixing selling price
by providing it detailed
information of cost.
Inventory management system This system improves accuracy
of management orders by
preventing product shortage.
It helps the management in
achieving efficiency and
productivity in business
Inventory management system
can be applied to Excite limited
by doing manufacturing
inventory management in
which it will help the company
in tracking material, automatic

operations by keeping
inventory reports which helps
the management to see which
of its product is selling fast
(Loughran, 2016.).
It helps the management in
keeping its customers happy as
with this system the fast selling
products in the stock reach to
the customers immediately.
It minimizes cost and
maximize profit and sales of
the company. As keeping stock
in the warehouse is expensive,
it provides a way to keep the
stock and minimize the holding
cost of inventory.
This system helps in
integrating the entire business
as it helps accountant of the
company in filter sales ordered
by their shipment status (Hald,
2016).
An efficient inventory
management system helps the
company in doing accurate
planning so that right amount
of products can be kept by the
company in hand to keep the
customers happy.
It helps business in repeating
reordering etc. it also includes
warehouse inventory
management which will help
excite limited to know multiple
location support, bin tracking
systems etc.

its customers as when their
needs are fulfilled on time,
customers are retained.
Job costing system Job costing system offers
detailed analysis of the cost of
material labor and overheads in
the company depending upon
their nature.
It helps the company in apprise
profitability of the particular
project.
It offers company to estimate
the cost of particular job.
It makes it easy for the
company to identify spoilage
and defects to take corrective
actions (Appelbaum and et.al,
2017).
This system helps the company
in evaluating efficiency of
different projects with cost
records by sing statistical
techniques.
It is applied in Excite
entertainment limited as it
helps the company in
producing receipt of customer
order according to customer
specifications in separate
batches which segregate
materials and labor assigned on
each specification and helps the
company in determining cost
and profit.
SCENARIO 2 Calculation of 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
Interpretation- From the above analysis it is interpreted that Absorption costing is the
better technique for evaluating the net profit as it provides true evaluation of the profits because it
accounts for both variable and fixed production cost. On the other hand marginal costing does not
consider fixed overhead production cost so it provides for inaccurate profit results. In the above
table net profit resulted by applying marginal costing resulted as 40000 and from marginal costing
method it resulted as 32000 which is less than the absorption profits. Excite limited company will
use marginal method of costing as it is the best method for cost accounting and decision making
when used for internal reporting as only marginal costs are charged to cost units and fixed cost are
treated as lump sum. It is also known as variable costing. The company only take variable costs to
make decisions and does not consider fixed cost as it is assumed to be associated both the time
periods in which they incurred.
Marginal cost calculation include the cost that was incurred while manufacturing the
product. The incremental increase in costs when you ramp up production. It also includes the cost
that disappear when company shut down a production line and also when company shut down
entire subsidiary (Labro, 2019). It helps the management in understanding the effect of profit
change due to volume of output. It is the best method to make short term decisions.
Benefits
Marginal costing is easier to determine and helps the company in controlling cost of production. It
is easy to understand and operate and can be combined with standard or budgeting costing without
any difficulty. It is the best method for the company when it has to make short term planning and
can easily be demonstrated with charts and tables.

On the other hand, absorption costing accounts for all the production cost and not just
direct costs (Robinson, 2016). It includes fixed costs such as salaries, rent etc. and picture of cost
per unit which helps the management of the company in evaluating profitability and deciding
price of products. It tracks profits more accurately and anticipate sales for the future. The other
benefit is that is GAAP compliant and need to report to Internal revenue service.
Management accounting techniques and financial reporting documents
Management accounting techniques that can be used by Excite limited are:
Standard costing – It is the method in which standard cost is established under most
efficient operating conditions and helps Excite limited company in comparing actual cost with
standard cost and analysis of variances which help in knowing the reasons and responsibility to
take effective actions so that inefficiency does not occur again. It helps the company in controlling
cost.
Marginal costing – The Excite limited can use marginal costing to control cost of the
company, to make decisions and to maximize their profits. It provides maximum return to the
business. It helps in short term profit planning and is demonstrated with break even charts which
can be easily assessed by the company.
Budgetary control - This tool helps the company for planning and controlling of various
activities of the business (Isaac, 2015). It is important techniques which can direct business
operations of the company in a desired direction and can help in achieving satisfactory return on
investment.
Financial reporting documents
Income statement – It presents all the revenues, expenses and profit and loses generated
by excite limited during the reporting period. It is the most important document as it presents the
operating results of an entity.
Balance sheet – It presents all the assets, liabilities and equity of the company as on the
reporting date. The information presented by balance sheet is as on specific point in time. The
format of balance sheet is structured so that all the assets can be equal to all the liabilities. The
balance sheet of Excite limited provided information to its external as well as internal users about
liquidity and capitalization of the company.