Management Accounting Report: Excite Entertainment Financial Analysis

This report examines management accounting practices within Excite Entertainment, a UK-based leisure and entertainment company. It begins by differentiating management accounting from financial accounting, outlining essential requirements like cost accounting and inventory management systems. The report explores various management accounting reporting methods, including budget reports, accounts receivable reports, cost accounting reports, and performance reports. It evaluates the benefits and applications of cost accounting, inventory management, and job costing systems. Furthermore, the report delves into marginal and absorption costing calculations and examines budgetary control planning tools, including their advantages and disadvantages. Finally, the report addresses the adaptation of management accounting systems to solve financial problems and achieve organizational success, including a cost-profit-volume analysis.

Management Accounting
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Table of Contents
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
P1. Explaining management accounting and essential requirements of the various
management accounting systems. ..............................................................................................4
P2. Explaining several methods used for management accounting reporting. ..........................6
M1 & D1. Evaluating the benefits and the application of management accounting systems
within the organization................................................................................................................7
LO2..................................................................................................................................................9
P3 Calculation of marginal absorption costing...........................................................................9
LO 3...............................................................................................................................................11
P4. Budgetary control planning tools with advantages and disadvantages...............................11
M3. Application of different planning tools..............................................................................13
LO 4...............................................................................................................................................14
Part A.........................................................................................................................................14
P5 & M4 Adaption of management accounting system for solving financial problems to
achieve organisational success..................................................................................................14
Part B ........................................................................................................................................16
Cost profit volume analysis.......................................................................................................16
CONCLUSION .............................................................................................................................17
REFERENCES..............................................................................................................................18
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INTRODUCTION
Management accounting means the methods and the concepts that are necessary for
making effective planning, for selecting the best course of action among various alternatives and
for controlling by the interpretation of the performances. The present study is based on Excite
Entertainment, Operates in the business of leisure and the entertainment industry in the UK. The
main activities of the firm include the promotion of the concerts and the festivals at several
locations throughout UK. Furthermore, the report describes the difference between management
accounting and financial accounting with the essential requirements of the systems of
management accounting. The report also includes the different methods that are used by the firm
and the calculation of the profits by applying marginal and absorption costing. Moreover, the
study explains about different planning tools of budgetary control and the technique used for
resolving the financial problems in the organization.
MAIN BODY
LO 1
P1. Explaining management accounting and essential requirements of the various management
accounting systems.
Management accounting is the branch of accounting that facilitates the information to the people
that are present in Excite entertainment. However, financial accounting is majorly evaluated for
communicating both internal and the external users that is the stakeholders. Management
accounting aims for providing the quantitative as well as the qualitative information to managers
which enables them in making decisions so that profits could be maximized. Financial
accounting focuses on providing the true and the fair view of the financial performance and the
position of Excite entertainment to several parties (Messner, 2016). Management accounting is
not compulsory as per the laws for the enterprise while financial accounting is compulsory in
accordance with the laws for each and every firm. Management accounting includes both type of
information monetary and non-monetary whereas financial accounting includes only the
monetary information.
Essential requirements of the management accounting systems-
Cost accounting systems- It is the framework that is required by Excite entertainment for
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estimating the cost in terms of their products for analyzing the profitability, valuing the inventory
and for cost control (Gaynor and et.al., 2016). Anticipating the cost of the products is crucial for
the making the operations profitable as it enables the firm in knowing the products that are
profitable and unprofitable or irrelevant. This can only be ascertained by estimating the correct
and the true cost of product. The two major cost accounting systems includes the job order
costing and the process costing.
Job costing- It is the system that assigns and accumulates the manufacturing costs for
each of the job. It is the most suitable approach for Excite entertainment as it deals in event
management.
Process costing- the system of cost accounting that accumulates the manufacturing cost
for each of the process within the firm (Francis and et.al., 2015). It is appropriate in for the
enterprise in evaluating the cost involved in different departments and the flow of the cost from
one division to the another.
 Direct costing- This method is the specialized form that analyzes the cost using only the
variable costs for making the decisions. It never considers the fixed costs that are
assumed to be attached with the time in which they had been incurred. Such cost
disappears when the production line is been shut down. Standard costing- It is the accounting system that is used by Excite entertainment in
identifying the variances between the actual and the budgeted figures (Drake, Roulstone
and Thornock, 2016). It evaluates the difference between the actual cost of the product
that were to be produced and the cost that could have occurred for actual production of
the goods.
Inventory management system- This system of management accounting is adopted by Excite
entertainment for supervising its non-capitalized assets and the stock items. An element of the
supply chain management, this system supervises the flowing of the goods from the
manufacturer to the warehouses and this leads to point of the scale. It is very important for the
firm as it enables them in tracking the level of the inventory, sales, orders etc (Usenko and et.al.,
2018). For maintaining the optimum inventory in the organization so that it can meet its needs
and could remove the over and the under inventory which can affect the financial figures.
Job costing systems- It includes the process of accumulating the information relating to the cost
attached with particular job or production unit. This information is required by the firm for
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submitting the information in context of the cost to the customer under the contract where the
reimbursement of costs takes place. Information provided by this system is said to be most useful
in developing the accuracy in the entity's estimation system, which helps in quoting the prices
that results in reasonable profits. This information is also used for assigning the inventoriable
cost to the manufactured goods.
P2. Explaining several methods used for management accounting reporting.
There are various methods that Excite entertainment adopted for reporting the management
related information such as inventory, cost and receivable etc.
Budget report- This managerial reports means the report that creates the overall budget
for understanding the major scheme of the business of Excite entertainment. It is essential for the
firm in measuring its performance and in building the estimations on the basis of the experiences.
A budget is said to be effective when it caters for the unforeseen situations that may arise. The
budget lists all the sources of the earnings and the expenditures (Nishimura, 2019). Excite
entertainment strives for achievement of its goals and the mission by performing a per the budget
report with the budgeted amount. It helps in guiding the managers in offering the better
incentives, cutting cost and renegotiating terms with the vendors and the suppliers. Thus, a
budget report is very critical to every business.
Account receivable report- This report refers to the management accounting report that
includes the information regarding the receivables of the business. It is very vital to Excite
entertainment as it breaks down the remaining balances of the company's client into the
particular time periods that allows the managers in identifying the defaulters and in founding the
issues in the collection process of the company. It the defaulters are more, the enterprise requires
the complete transformation towards tightening the credit policies as flow of cash is critical to
operation of any kind of the business. Some bad debts are always there in the business which has
to be write off, this report helps the firm in knowing the information in relation to the probable
receipts and the bad debts.
Cost accounting report- This management accounting reporting includes the cost of the
articles that are incurred in the manufacturing the product. All the cost such as raw material,
labor, added cost and overhead are considered under the cost accounting report. It assists the
managers of Excite entertainment in realizing the prices of the items against its selling price.
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Information relating to the profit margins are anticipated and monitored with the use of this
report as it gives a clear picture of all the costs that occurred in the procurement and production
of articles. It provides an understanding of all expenses which is important for attaining
optimization of the resources among different departments. The report facilitates the information
that is accurate, reliable and relevant to the user.
Performance report- It means the report that is prepared for reviewing the performance
of Excite entertainment and for each its employees at the period end (Drake, Roulstone and
Thornock, 2016). Mangers of an entity uses this report for making the strategic decisions for
gaining growing success in the future. The employees who have worked beyond the targets are
been awarded for their excellence. Performance report also reflects the information regarding the
under performers so that corrective measures can be taken towards them.
Other managerial reports- It involves the other reports such as project report,
information report and competitors analysis report. Such reports are formulated either internally
or been outsourced through the professionals.
M1 & D1. Evaluating the benefits and the application of management accounting systems within
the organization.
Management accounting
systems
Benefits Application
Cost accounting system This system ascertains and
classifies the cost for
facilitating the information to
the management of Excite
entertainment which in turn
leads to control over the cost.
Cost accounting system is used
and applied by the
management for creating an
effective plan for the
production in accordance to
the availability of the materials
in time.
Inventory management
system
This system of management
accounting achieves efficiency
in the operations as it keeps
the inventory tie up with the
Application and the use of this
system by Excite
entertainment facilitates a
balance in between the high
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money (Usenko and et.al.,
2018).
Inventory management system
helps provides for automation
in the manual task as it
includes the working on the
software.
This software integrates the
entire business of Excite
entertainment as it makes the
way from the sales to the
fulfillment.
and the low level of inventory.
It helps in tracing the
inventory during its
transportation between the
locations.
Job costing system Job costing involves
assessment of direct cost,
overhead charges and the labor
cost.
It acts as the gauge in
identifying the profitability of
job.
Job costing system helps for
future customers in deciding
whether to choose the job or
not.
It is used for ensuring that the
price of the product covers the
actual cost and the adequate
profit margins.
Thus, these above benefits and the application of the system leads to the effective or
better preparation of the report which in turn reflects the integration between the systems and the
reporting of management accounting. These systems facilitate the formulation of the report with
full accuracy, reliability and relevant for the users.
LO2
P3 Calculation of marginal absorption costing
Absorption costing
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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
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production 10000 6 60000
Closing stock 2500 6 15000
48000
Contribution
(Sales – variable cost) 72000
Less: fixed production overhead 40000
Net profit 32000
Marginal costing is a technique of costing that only takes variable cost into consideration
and charged as per unit of cost while the fixed cost for the period is completely written off
against the contribution. It implies additional cost that is involved in producing an extra unit of
output which can be calculated by considering total variable cost assigned to one unit. It is used
by the manager for the purpose of decision making as it provides a basis for understanding cost
data so that it can capture and know then profitability of various products, processes and cost
centres. It assists the manager in taking various business decisions such as replacement of
machines, discount offers for particular product or services etc. it helps the management of the
company in ascertaining appropriate level of activity through break even analysis which reflect
impact of production level on the overall level of company's profit. In short, marginal cost are
based on expense of production which are available on direct labour, material, and equipment
and does not consider fixed into weather the production is increased or decreased (Gean, 2015).
Absorption costing on the other hand indicates all the manufacturing cost that has been
assigned when the product was being produced. The cost of finished product will include direct
materials, direct labour, variable manufacturing overhead, fixed manufacturing overhead. The
company used absorption costing for financial reporting to the external parties and for income
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tax reporting. It gives more detailed, comprehensive and clear view on how much it will cost to
produce inventory as it includes both fixed and variable cost. It helps the management in
identifying the important fixed costs involved in the production. It is used by company to prepare
financial statements. It helps the managers in being more responsible for the cost and services
provided to their departments due to allocation of factory overheads that are fixed.
Interpretation – From the above calculation from both the methods it is concluded that
when profit is calculated by absorption costing method it gives net profit of 40000 by including
both fixed and variable cost. On the other hand when the profit is calculated by marginal costing
it gives the net profit of 32000 and included only variable cost which was used to produce
product.
The Excite limited will use absorption costing method to evaluate the profits of the
company as it includes both the cost that is fixed and variable cost as product cost which helps
the company in making accurate financial statement and tax assessment (Berger, 2016). Also, it
considers and show cost of each unit that has been incurred in manufacturing of the product. It
helps the company in finding accurate and fair treatment of product cost.
LO 3
P4. Budgetary control planning tools with advantages and disadvantages.
Cash Budget – Cash Budget is one of the budgetary control tool which helps the
company in making financial plans related to the utilisation of cash and funds. A cash budget is
defined as making estimation of cash inflows and outflows for a relevant and specified period of
time. With the help of a cash budget, Excite Limited can make proper projections of amount of
revenue to be earned and amount of expenditure to be incurred for earning such revenue.
Advantage Disadvantage
 With the help of cash budget, Excite
Limited can determine the liquidity
position and can also assess whether
the entity has sufficient cash amount
available with itself for conducting of
business operations (George, 2016).
 The main disadvantage of Cash Budget
is that it uses cash flow of one year for
allocating cash for the next year
without any guarantee that level of
revenue or expenditure will remain
same.
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 It also assists company in maintaining
the minimum cash balance requirement
as laid down by bank or any laws or
regulation pertaining to company.
 It can identify requirement of cash
amount for fulfilling the immediate
short term obligation needs without
using lines of credit or overdraft
facility.
 Sometime, Cash Budget can lower the
overall morale and productivity of
Excite Limited and its employees as a
whole if set defined targets are not
achieved or realistic in nature.
Flexible Budget – The term flexible budget is defined as a budgeting plan or tool which
helps the company in making adjustment by incorporating changes in the level of volume or
business activities. This type of budget is flexible in nature because it can easily be adjusted to
changes in the actual revenue levels. Flexible budget consist mainly of the variable costs.
Advantage Disadvantage
 Flexible Budget helps Excite Limited
as they are more responsive and react
quickly against adverse conditions.
 All the revenue and expenditure
amount are constantly adjusted with the
help of Flexible Budget for all the
current operating business conditions
(Vesty and Brooks, 2016).
 It also helps the management of Excite
Limited in making update or changes in
projections and cost controls strategies
with the available business and market
information.
 Although it is tending to maintain the
same level of fixed cost at different
level of sales or output, it is very often
that fixed cost are remaining actually
fixed only for a relevant output level.
 This type of budget also lays focus by
relying on the assumption of continuity
of workflow when cost is behaving
actually in a discontinues manner.
 Excite Limited can develop flexible
budget only when cost is behaving in
the manner prediction are made.
Zero Based Budget - In zero based budgeting, budget is prepared by the company by
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taking base as a zero or start from the scratch every year. This budgeting tool helps the company
in laying emphasis on formulation of new economic proposal by evaluating all business
activities, operations and thus budget is set by starting from the scratch.
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