Management Accounting Report: Financial Analysis of Entertainment Firm

This report provides a detailed analysis of management accounting principles and their application within Excite Entertainment Ltd. It begins by differentiating between management and financial accounting, outlining the key features and purposes of each. The report then explores various management accounting systems, including cost accounting, inventory management, and job costing, highlighting their benefits and practical applications. Furthermore, it examines different methods of management accounting reporting, such as budget reports, cost managerial accounting reports, and performance reports, emphasizing their role in organizational decision-making. The report also presents a comparative analysis of absorption and marginal costing methods, illustrated with income statements for Excite Entertainment Ltd. Finally, it discusses the integration of management accounting systems and reporting within the organizational process, emphasizing their importance in providing timely and relevant financial data for effective management. The report draws on credible sources to support its findings and offers a practical perspective on management accounting in the context of a real-world entertainment company.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Section (A). Understanding of management accounting systems...............................................1
Section (B). Methods used for management accounting reporting............................................4
TASK 2............................................................................................................................................6
Calculation of absorption and marginal costing from credible sources......................................6
TASK 3............................................................................................................................................8
Explanation of the advantages and disadvantages of different types planning tools..................8
TASK 4 .........................................................................................................................................10
Compare how organisations and adapting management accounting systems to respond the
financial issues..........................................................................................................................10
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting refers to a process of designing management accounts and
reports that help in providing correct and timely financial and statistical data to the mangers of
the company so that they can take day to day and short term decisions. It can be a type of
accounting which help in offering financial and non financial data to the managers so that they
can help in the organisational development by taking suitable decision in context of the company
(Bobryshev and et. al., 2015). Management accounting play an essential role in the inner or
internal management of a firm. This assignment is based on Excite Entertainment Ltd company
which is a client of a leading accountancy organisation. This firm operating its business in
promotion of concerts, festivals at various locations of UK. In this report will be discussed about
different methods that can be used by the company for management accounting reporting.
Further will be defined about the planning tools that can be used in management accounting for
budgetary control. Apart for it, financial problems will also be explained and income statement
of Excite Entertainment Ltd will be defined.
TASK 1
Section (A). Understanding of management accounting systems
(a) Difference between management accounting and financial accounting
Management accounting system- It can be explained as process of monitoring, dividing
and analysing the monetary and non monetary data and information to maintain and manage the
organisation's functions.
Financial accounting system- It refers to a type of accounting system that help in
determining the financial information of the organisation so that the management of the company
can design the financial statements for its internal and external functions (Gunarathne and Lee,
2015).
Comparison between management accounting and financial accounting system
Basis Management Accounting Financial Accounting
Legal requirement This accounting system is not
mandatory to design. There are
not any essential or legal need
In each organisation, it is
required and compulsory to
design it and it has a legal
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of this accounting system. requirement for the firm.
Types of data used This accounting system use
both type of data such as
monetary of non monetary
(Hopper and Bui, 2016).
Financial accounting system
use only financial information
to develop and design different
kind of documents.
Format of demonstration Management accounting does
not include any specific format
to display the reports.
Financial accounting system
needs to implement a specific
format to provide information
of financial statements.
Domain of reporting within
the firm
This accounting system
monitor all the field of internal
management of the
organisation.
This accounting system
determine both internal and
external area of the firm.
(a)Cost accounting system- It is a type of accounting system which is affiliated with the
approximation of the entire cost that generates during the process of products and services
offering. It includes various cost like process cost, direct cost, standard cost and others. In Excite
Entertainment Ltd., this accounting system can be helpful for calculating the overall cost in the
publicity of various types of occasions. The examples of cost accounting systems are as
following:
Direct cost- It refers to those cost which can be instantly derived to a particular cost
centre such as department, process, goods and others.
Standard cost- It indicates to a type of cost accounting system which help in the
determination of variances among actual and estimated costs. With the help of this accounting
system organisations can monitor the level of difference among standard cost and actual cost.
This accounting method help the firm in maintaining awareness about the difference of cost.
(b)Inventory management system- It is a part of accounting system which consists following
of levels of inventory, sales, deliveries, orders and others. In Excite Entertainment Ltd., the
management of the company follow this accounting system so that they can negotiate their
various media assets and can monitor the demands of buying new appliances regarding events
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and festivals (Kaplan and Atkinson, 2015). The concept of this management system can be
analysed by FIFO and LIFO methods. FIFO explains that stock which comes first in the store
and sold out first. On the other hand, LIFO indicates those stock and inventory which comes in
last but sold out first. This method of management accounting system divides the cost of goods
which are accessible for sale in form of number of units available for sale.
(C) Job costing systems- It refers to the process of gathering the data about the cost which is
connected with a particular job (Klychova and et. al., 2015). In Excite Entertainments Ltd., the
management of the company can use this method for monitoring the cost which is calculating by
the cost of every job which is allotted in various forms and activities.
Benefits of management accounting systems
There are various management accounting systems and they al, are beneficial and
important for the organisations. Some of them are as following which are essential for Excite
Entertainment Ltd.:
Accounting Systems Benefits
Inventory management system It is an important effective management system
for the company to monitor the available stock
in the warehouse. It is beneficial because it
helps in saving the time and minimizing the
cost of the firm. In Excite Entertainment Ltd.
The management of the company can manage
their media appliances with the help of
inventory management system. This
management system helps in checking that
how many appliances are in process of use at
various locations and how many are stored in
the stock.
Cost Accounting system It is an important and essential accounting
system which help in calculating entire cost
(Nielsen, Mitchell and Nørreklit, 2015). In
Excite Entertainment Ltd., the management of
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the company can gain various advantages and
benefits from this accounting system in
analysing the overall cost of their promotion
and performing in several festivals and events.
This accounting system consist various costing
system such as standard cost and direct cost
etc. standard cost is important for the company
because it help in monitoring the variance in
actual and standard cost. Whereas direct cost is
beneficial because it helps the management to
derived a specific field (Nitzl, 2016). For
instance, in Excite Entertainment Ltd., the
management of the company calculates the
cost of £40000 for an event but the actual cost
generates of £50000. In this situation, the
standard cost help in analysing the variances of
£10000 between the actual and estimated cost.
Job costing system This system is beneficial for calculation of job
which is allotted for a specific activity. In
Excite Entertainment Ltd., the management of
the organisation can get benefits form this
accounting system through scheming cost of
each job connected in any event or festival. Job
costing system is beneficial for manufacturing
sector.
Section (B). Methods used for management accounting reporting
Management accounting reports- These accounting reports refers to those reports that are
designed by the management of a company with the help of financial and non financial data to
take the internal decisions for the company (Otley, 2016). In Excite Entertainment Ltd., the
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management of the company can use these kind of reports to create and design various types of
management accounting reports which are as following:
Budget reports- These are those reports that include information about the actual income,
impairment & approximated income, financial loss etc. These kind of reports are important and
essential to measure the actual execution with the comparison of actual income or financial loss
with the budgeted targets. In Excite Entertainment Ltd., the management prepare these kind of
reports to analyse their potential performance.
Cost managerial accounting reports- These are those reports which include data and
information in context of various costs which generate cause of different activities (Quattrone,
2016). In Excite Entertainment Ltd., these kind of reports are essential and beneficial because it
helps in providing elaborated information related to cost and how the cost can be control. The
management of this company can use these kind of reports to monitor entire cost composing of
any event and festival.
Performance reports- These reports indicates to those reports that consist data in context
of various performance activities of the company. In Excite Entertainment Ltd., these reports are
useful for measuring the actual performance of the firm so that they can take suitable decisions
for future. In this organisation the managers of the company can use these kinds of reports to
measure and motioner the performance of the employees in each situation.
Thus, these kind of reports can be designed by Excite Entertainment Ltd. For the proper
running of the company in an effective and efficient manner. It is necessary that these report
must be prepared by the management of the company in an essential and accurate format with
correct information. Because these reports are beneficial for internal as well as external functions
of the company such as stakeholder, employees, shareholders etc. With the help of these reports
external functions can have information about the performance of the company.
Management accounting system and management accounting reporting are integrated
within the organisational process
Management accounting system and reporting are integrated with in the process of the
company. It is because there are various kind of management accounting systems and they are
used by the management of the company for finding out the required data for designing the
management accounting reports which help in deriving the accounting systems (Renz, 2016). In
Excite Entertainment Ltd. there are various accounting systems such as cost accounting,
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inventory management and job costing system etc. for getting the proper information about the
organisation's performance.
TASK 2
Calculation of absorption and marginal costing from credible sources
Marginal costing: This method is used to determine marginal cost of the company.
While using this method only variable costs are considered and fixed costs are ignored
(Schaltegger and Burritt, 2017).
Income statement of Excite Entertainment Ltd for month of may according to marginal costing
method is as following:
Particular Amount(in £ )
Sales
Less- Variable cost
Contribution
Less- Selling and manufacturing expenditures
Net profit
120000
51000
69000
-
69000
Working note
Calculation of sales- 8000*15= 120000
Calculation of variable cost- (Operating stock- Production overhead- Closing stock)
(500*6+10000*6-2000*6)= 510000
Absorption costing: It is used to analyze absorption costs for the organization. All the variable
and fixed costs are taken in to consideration while calculating profits by this method.
Income statements of Excite Entertainment Ltd. For month of may according to
Absorption costing method is as following:
Particular Amount(in £)
Sales
Less- Cost of good sold
120000
85000
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Gross profit
Less- Selling and manufacturing expenditures
Net profit
35000
-
35000
Working Note
Calculation of sales-8000*15= 120000
Calculation of cost of good sold- (Operating sock-+Production overhead-closing stock)
(500*10+10000*10-2000*10= 85000)
Management accounting techniques and financial reports
Management accounting techniques are beneficial for the framing of financial reports.
The report of income statement of Excite Entertainment Ltd is deigned for month of may. Both
methods like marginal costing methods and absorption costing methods are beneficial and useful
for the preparation and creation of income statement. These both methods of income statement
helpful in presenting and defining net profits (Shields, 2015). In both methods sales amount is
similar which is £120000. In marginal costing method, the net profit is £69000 but in absorption
costing method, the net profit is £35000. The difference between net profit because in the
marginal costing method, variable cost is of £51000 whereas in the absorption method cost of
good sold is of £85000. Cause of it the net profit is different and rate is also. In the marginal
costing method the multiplying rate is of £6(4+2) and in the absorption costing method rate is
£10 (40000/10000).
Financial reports that correctly apply and interpret the data for various business activities
The management of Excite Entertainment Ltd deigns financial reports with the help of
marginal and apportion methods of cost accounting. Both the methods have create positive and
negative impact. The marginal costing method id beneficial because it has the feature of
controlling the cost by dividing the cost into fixed and variable costs. This method of costing
create negative impact because it becomes unrealistic in the case of high fluctuation of
production. The absorption costing is important for the preparation of income statements because
it include both the cost and the unit cost. This method is beneficial for the smaller organisations
so those firm which has lower capital they can also use this method. Rather than it, the
disadvantage of this method is that it make hard the calculation cost volume profit analysis.
The Excite Entertainment Ltd., the management of the company can use the absorption
costing method because it is beneficial and suitable for this organisation so that they can easily
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monitor the cost and the unit cost (Tappura and et. al., 2015). This method is also beneficial for
small organisation so they can also implement it for preparing income statement.
TASK 3
Explanation of the advantages and disadvantages of different types planning tools
Budget
It refers to a financial plan for a specific time period such as one year. It also consist
planned sales volumes and revenues, resources quantities, costs and expenses, assets, liabilities
and cash flows etc. according to K. Amjaroen, Budget refers to a predetermined statements of
managerial policy during the given period which offers a standard comparison with the outputs
actually achieved (van Helden and Uddin, 2016). In Excite Entertainment Ltd., the management
of the company create and develop budget to determine the financial performance of a company
in a predetermined period of time like one year. There are different types of budget that can be
used by the management department of this company. They are as following:
Sales budget- It indicates to a system which help in standard of goods and services that a
firm need to mercantilism in particular sector in particular time period and evaluate to gain cost
and fund from them in from of profit margins. In Excite Entertainment, this budget consists the
sales in terms of units and the calculated income from these sales. Without the help of sales
budget, this organisation cannot monitor process and will not make improvement in the process.
Sales budget can be an idea and system that help the organisation in the production of the goods
and trading of them in a particular time period.
Advantages- Sales budgets are important and essential for the allocation and distribution
of resources to various products, sales territories so that they can concreting the prediction sales.
It is useful for framing sales systems so the organisation can achieve its sales target. It helps in
managing expenses and making them in under control so that the aims of net profit can be
achieved by the firm.
Disadvantages- Sales budgets cannot efficiently articulation the future ways of events. It
is time consuming process and not easily adopted by the employees of the company.
Production budget- It refers to a budget which compute the number of units of products that are
produced and traced from a collection of the sales prediction. In Excite Entertainment Ltd.,
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production budget indicates to a financial plan that consist various units which are manufacture
in a specific time period (Bobryshev and et. al., 2015). In this organisation, it is armoured by the
senior so that they can analyse that how much units must be produced according to the future
requirement. With th help of this financial plan, the management can gather information about
the manufacturing units and producing units which are needed to fulfil the consumers desires and
demands.
Advantages- It is beneficial for minimizing manufacturing cost fro managing production
units to monitor inventory. This budget is useful for devising act of raw material, finished good
stock and work in progress.
Disadvantages- In production budget, there are lack of flexibility when the management
of the company organise production process then there are numerous covariants that are changed
rapidly (Gunarathne and Lee, 2015). It is a decomposable process because in Excite
Entertainment Ltd., when the mangers participated in it then they analyse several manufacturing
units.
Cash Flow budget- It indicates to the calculation of all cash and fund expenditures that are
expected to generate during a specific time period. This approximation can be made monthly,
quarterly, annually and others or can consist nonfarm income, financial loss and farm items.
Advantages- This budget is beneficial for the firm and help in determining the cash
weather it is maintained and where it used in numerous activities.
Disadvantages- It is a time taking process and there are lack of flexibility because this
process consist commercial the budget digits and dispense it to the organisation's management
department.
Budget variances- It refers to the deviation between the monetary fund and baseline amount of
disbursement or revenue and the actual amount. In Excite Entertainment Ltd., it indicates to the
to a standard that is applied by the management to specify the variance between assuming and
actual figures for a particular accounting class. Within organisations, these kind of variances
generates cause of forecasters because they are incapable to monitor the upcoming costs and
revenue with entire accuracy.
Importance of Budget variance- Budget variance is important because it help in managing
budgets by controlling budgeted and actual costs. In Excite Entertainment Ltd., it is beneficial
because if the material are analysed an monitored than they are essential for identifying to
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determine the reason (Hopper and Bui, 2016). With the help of it, financial mangers can asked to
program mangers in context of explaining substantial variances and provide solutions.
Use of various planning tools and their application to design and forecast budgets
Budget control is useful because it help in providing a actual condition of an
organisation. In Excite Entertainment Ltd. It help in designing and formulating future financial
performance and objectives which are analysed through past budgets (Kaplan and Atkinson,
2015). This type of control help the firm in analysing the result and financial place for same
future fundamental measure. In this organisation, sales budget can be used by the management to
hold and determine the sales units of the products and services which are developed by the firm.
Production budget is useful for the company because it help the production department to
produce required goods and services in a particular time. These all planning tools are essential
for the organisation because they are important for generating profit and help in maintaining a
monetary position in combative environment.
Evaluation of planning tools for accounting respond in context of solving financial issues
Planning is beneficial for formulating action plan for the future to support good textured
running of the operations of the organisation. In Excite Entertainment Ltd., the firm faced several
issues due to different unexpected situations. In this organisation, the management of the
company can applied various planning tools like sales budget, cash flow and production budget
etc. to overcome different awaited problems in context of improving and increasing the
profitability and productivity by solving and reducing conflicts.
TASK 4
Compare how organisations and adapting management accounting systems to respond the
financial issues
The management accounting system is beneficial and useful fro solving the various kind
of problems and issues related to finance and fund. In Excite Entertainment Ltd., the
management of the company can use accounting system according to the issues and problem
(Klychova and et. al., 2015). The project report of financial conflicts of Excite Entertainment
Ltd. is minimized and resolved which is defined as following:
Calculation of contribution per unit
Selling price per unit 40
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