Management Accounting Report: Excite Entertainment Case Study Analysis

This report provides a detailed analysis of management accounting principles, focusing on the Excite Entertainment case study. It begins by differentiating between management and financial accounting, highlighting their distinct purposes and applications. The report then delves into various cost accounting systems, including direct costing and standard costing, and explores inventory management. Furthermore, it examines different methods of management accounting reporting, such as budget reports, accounts receivable aging reports, job cost reports, and inventory/manufacturing reports. The report also covers scenario-based analyses, including marginal and absorption costing methods, budgetary control tools, cost-volume-profit analysis, and the application of performance indicators to solve financial problems within an organization. The report aims to provide a comprehensive understanding of management accounting practices and their practical applications in business decision-making.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
SCENARIO 1...................................................................................................................................1
a. Difference between Management and Financial accounting...................................................1
b. Cost accounting systems.........................................................................................................3
c. Different methods of management accounting reporting........................................................4
d. Evaluation of management accounting system along with integration of management
accounting system and reporting system in the organisation......................................................5
SCENARIO 2...................................................................................................................................7
1.Calculation of the cost and preparation of the income statement by using the marginal and
the absorption costing method....................................................................................................7
SCENARIO 3...................................................................................................................................9
1. Explaining the advantages and disadvantages of several planning tools of the budgetary
control.........................................................................................................................................9
2. Analysing the uses and application of the planning tools for framing and forecasting the
budget........................................................................................................................................13
SCENARIO 4.................................................................................................................................13
1. Cost, Volume, Profit analysis................................................................................................13
2. Performance indicators to solve financial problems in organisation....................................14
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting is the process of framing the reports of the management and the
accounts that facilitate accurate statistical and financial data timely. It is also called as
the cost accounting. It helps in analysing the cost of operations and the business for
preparing the financial reports internally, records and helps managers in making
effective decisions for achievement of the organizational goals.
In relation to short term decision making such reports play a vital role and helps in
gaining competitive edge over others. In the recent times, every organization
prepares both financial and management accounting reports which increases their
efficiency of work. Many organisations started adopting management accounting
system, and management accounting reporting which increased working efficiency
as well as reduced burden of the company. The report consists of details about
definition of management accounting and how it differs from financial accounting.
It describes various management accounting systems that are used by companies
and various reporting system which saves time and cost of company. It shows how
these both systems are integrated in the company named Excite Entertainment
limited that deals in leisure and the entertainment industry in UK. It consists of
absorption and marginal costing method with the solution and comparison of
various planning tools used by company in making budget. It contains analysis of
volume, cost and profit and shows different performance indicators that can help in
solving financial problems.
SCENARIO 1
Section-A
a. Difference between Management and Financial accounting
Management accounting:
The management accounting aims at assisting the management of an
organization with both qualitative and quantitative information to manager in decision
making process in order to maximize the profits.
Financial accounting:

Financial accounting is process of classifying, recording, summarizing the
monetary transactions of an organization. It is used by the entities to keep a track of the
financial transactions of the organizations.
Particular Management accounting Financial Accounting
Definition This branch of the accounting
is related with providing
relevant information to the
mangers to assist them in
decision making process
related with formulation of
policies, plans and strategies to
run the business (Otley, 2016).
This branch of accounting
system is dedicated towards
preparation of the financial
statement of a business to
evaluate the financial
performance of the
organization and present the
same information to the
stakeholders.
Provision of
following the
accounting system
This is not a compulsory
system of accounting that an
organisation is required to
follow. Its adaptation in
business is voluntary.
To prepare the financial
accounts and statements is
compulsory for all the business
organisation. No business can
avoid the adoption of financial
accounting in the course of its
business operations.
Time frame of
preparation of the
reports
The reports under this system
are prepared as when needed.
The report generation is on the
requirement of the
organisation.
The financial reports are
prepared on the fixed time
basis (Theriou, 2015). This
means the reports are prepared
at the end of each accounting
year containing all the
information related with
monetary transactions of the
business.
Formate of the The reports prepared are The reports prepared under

reports presented in the summarized
from which depicts the
financial position of the firm.
this accounting branch are
complete and detailed which
containing all the information
related about various aspects
of the business.
Data publication
and auditing
The reports are presented to
the internal stakeholders
including the investors,
shareholders, directors and
other members of the business.
In order to assist them in
making an informed
investment decision over the
business.
The financial statements
prepared including profit and
loss account, balance sheet,
statement of cash flows and
shareholder's equity are
published and presented to the
members including both
internal and external
stakeholders. This reports are
also audited by statutory
stakeholder on yearly basis for
each financial year.
Following the
accounting
standards
There is no particular specified
format for making the reports
and no statutory legal
requirement is there to prepare
them.
The financial accounting
statement must be made with
abidance with IFRS,
accounting standers, GAAP
and rules of book keeping (Li
and Yang, 2015).
Assumptions For preparing the report under
this accounting no assumptions
are there it is purely on the
discretions of the company as
in which manner it wants to
execute a report.
This accounting is based on
various assumptions,
principles and conventions. All
the financial reports are
prepared on the basis of the
guidelines provided by the
relevant statute law.

b. Cost accounting systems-
Cost accounting is one of the branch of accounting, which measures, records and reports
information regarding the cost of the business. The foremost objective of the cost
accounting is ascertainment of the cost and using it in making decision and evaluation of
the performance.
Direct costs:
Direct cost can be defined as a cost with an objective that can be completely
attributed to the production of specific goods and services. The direct cost of Excite
Entertainment Ltd includes those expenses which can be imposed directly to the
particular department, section, job or batch under the organization. The cost is directly
linked to the specific location where it is actually incurred. The direct cost can be fixed
or variable. Its nature is not fixed nor variable. Generally, the direct cost in Excite
Entertainment Ltd is determined for the production to identify the actual cost producing
the finished good (Andersen, 2018). Due to its nature of directly tracing to a particular
predict or department, there is no requirement of allocation this cost to a product or
department or other cost objective. The direct cost of Excite Entertainment Ltd is related
with labour, material fuel, power consumption, commission, piece rate wages and
manufacturing supplies. Direct cost is assist in determining the final sales price of
product as it allocate direct expended incurred on a product.
Standard costing:
Standard costing for Excite Entertainment Ltd can be defined as that system
which is used by the manufactures to identify the difference or the variance between the
actual cost incurred on production of goods and services and the cost which should
actually be incurred as per the budgets or pre determined figures. The actual cost which
should have occurred is termed as standard cost which is integrated with the master
budget and profit plans (McVay, Kennedy and Fullerton, 2016). The actual cost is
compared with standard cost to determine the variances which can be investigated. The
standard costing indirectly assists the management in achieving its profits gaols by
controlling the variances determined under standard costing and take corrective
measures as when required. The variance analysis directs the attention of the

management to the inefficiencies in the production or higher cost of inputs as assist
them in taking actions to correct the issuers and seek higher profitability.
c. Inventory management system
It is the software that is used by the enterprise for tracing or tracking the levels of the
inventory, sales, orders and the deliveries. This system is used specifically in
manufacturing industry for creating the work orders, production documents and bill of
the materials.
d. Job costing system
In this system, accumulation and the assigning of the cost of manufacturing for an
individual output unit. It is used by the enterprise when several items are produced. Ecah
item is different and contains significant cost.
Section-B1. Different methods of management accounting reporting
Management accounting reports are the most important part of company as it
makes sure that manager of the company have complete information of how the business
is performing, utilising its resources, its policies etc. A report need to contain all the
relevant information and need to be pre-prepared and presented on every quarter and
year. This document contains information that helps business in making strategic
decisions. There are different types of reports prepared by business which have different
purposes. These reports are as follows -
Budget report – Budget report plays a very important role in the management
accounting. It helps company's owners to understand cost and control it across the
company in its various departments. It helps in evaluating expenses and estimates
budget for the year to cut cost and to achieve efficiency in use of finances. It helps
company in achieving its goals within the limit of the budget. It is the source to find out
company's earnings and expenditure. It guides the manager of company to give
incentives to the employees, cut costs and negotiation with suppliers and vendors (Nitzl,
2016).
Account receivable ageing report – When company gives goods on credit and
that period gets extended, then company needs to maintain account receivable ageing
report. It breaks down credit of the customers or creditors into specific time periods of

30 days, 60 days, 90 days etc. it allows company to identify the defaulters and also helps
in finding out the issues behind collection process. It manages the separate columns for
invoices and if there are significant number of customers who are unable to pay their
remaining amount then the company can find ways to strengthen its credit policy which
can make the management of the company more efficient.
Job cost report – This report helps company in finding out cost associated with
specific project. The management estimates the revenue of that particular project and
then compare it with its actual cost and evaluate the performance and profitability of that
particular project. This helps the company in identifying it higher earning areas whereas
finds out low earning areas and this helps company to focus additional efforts on higher
earning areas rather than wasting resources, time and efforts of the company. It also
helps in analysing expenses while the project is in progress so that correct measures can
be taken by the company and can reduce the waste and can achieve cost optimisation
(Quattrone, 2016).
Inventory and manufacturing report – Companies need to make this report who
produce physical products. This report centralize data on cost of inventory, labour and
other indirect and overhead expenses that are involved in process of production and
provides raw data for the purpose of machining. These reports also include inventory
waste and helps in comparing different assembly lines which highlight the best
performing departments and helps company to allow bonuses to employees related to
that department (Nitzl, 2016).
d. Evaluation of management accounting system along with integration of management
accounting system and reporting system in the organisation
Management accounting system and their evaluation
Management accounting system takes information for internal users and develop
reports for the purpose of decision making. Management accounting system includes
different systems that are required to carry operations in the organisation. These are -
Inventory management system – It deals with stock of the business and build a
network to take care of goods that are stocked in the company. The manufactures with
the help of inventory management system can specify shape and location of the goods
that will be placed in the company.

Pro Con
It increased efficiency and speed of the
company and give timely information on
business inventory.
It is complex and expensive system and
need high maintenance.
Cost accounting system- It is used to record production activity through
inventory system and helps in tracking the flow of inventory. It records various stages of
production. It helps the company in determination of profit and losses and to find tout
the cause of decrease in profit and increase in losses. It helps the manufacturer in doing
correct valuation of inventory and give assistance regarding the decision of
manufacturing the stock or need to purchase from outside (Otley, 2016).
Pro Con
It helps the company in estimating cost of
various stages of production.
It is a complex system which requires a lot
of work and improvement.
Job costing system- It helps in assigning cost to various projects to estimate its
standard expenses with actual performance. It helps the managers to calculate the profit
of individual job and help them in keeping track of individual performances.
Pro Con
Helps in determining profit contributed
from specific projects.
Its cost can be misinterpreted by some
users.
Price optimization system- It helps the managers in finding out the price which
customer will pay willingly for their product. The company through this system make
sure that they sell their products at optimise profit and get decent profit.
Pro Con
It increases profit of the company. The market is highly competitive and
lowering the price will not create much
difference.

Integration of management accounting system and management accounting
reporting in excite entertainment limited has given a lot of benefits to the company. The
company deals in leisure and entertainment industry and majorly operates in concert
promotion and festivals in UK. The firm for better practices and maintaining accounts
has used management accounting as well as reporting system which will increase
efficiency of company's operations. Although the installation cost is high and it will
need time and resources but after installing it, it will provide benefits to the company. It
requires huge investment and also need to give training to the employees which involves
high cost and time too (McVay, 2016).
After integrating Management accounting system and management accounting
reporting system the operations of the company started to work smoothly and efficiently
as it compiles complex data of the company into the simplest form which helps the
manager in understanding all the relevant and important information related to decisions
regarding production, inventory, sales, promotion of the product.
Inventory management system helps the company and its mangers in analysing
inventory reports and help them to decide which inventory method to use for
maximising profit. Job costing management system is costly but it defines the job
according to their profit and helps manger understand their sick unit and profitable unit
and present job costing report which gain helps the company in increasing their sales
and profit. These different management accounting systems breaks the work in the
simplest form and reduce the burden of employees as well as manager.
The job costing system provide accurate information in timely manager to the
managers about particular project which helps the company in knowing their profitable
department and hence the Excite entertainment limited has updated its technology in that
particular profitable department which increased its sales and increases customer base as
well as profitability (Hiebl, 2018).
SCENARIO 2 (LO2)
1.Calculation of the cost and preparation of the income statement by using the marginal
and the absorption costing method.
Selling price per Unit £15

Prime Cost per unit £4
Variable Production costs per unit £2 3
Budgeted fixed production overheads per month £40,000
Budgeted production per month 10,000 units
Budgeted Sales per month 8,000 units
Opening inventory for May 500 units
Income statement for the month may under marginal costing
Particulars Amount Total
Sales 8000*15 120000
Less: opening inventory 500*4 2000
Less: Prime cost 10000*4 40000
Less: variable production
overhead 10000*2 20000
Contribution 58000
less: fixed overhead cost 40000
profit 18000
Income statement for the month may under absorption costing
Particulars Amount Total
Sales 8000*15 120000
Less: opening inventory 500*4 2000
Less: Prime cost 10000*4 40000
Less: variable production
overhead 10000*2 20000
Contribution 58000
less: fixed overhead cost 40000
profit 18000
Interpretation- From the above analysis it is interpreted that Profit ascertained by both
the methods are same that is equals to £18000. Absorption costing is said to be more

effective method for the evaluation of the income of the enterprise as it provides realistic
figures of the profits gained by the Excise entertainment. Realistic calculations in the
sense that it includes both variable and the fixed cost of the product which leads to
accurate results of the profits. On the other hand marginal costing involves only the
variable cost of the product and not the fixed cost. Under marginal costing profit is
computed by the profit volume ratio while in the absorption costing because of the
inclusion of the fixed cost, profits get highly affected. Marginal cost approach act as the
decision making approach in ascertaining the total production cost whereas absorption
costing technique helps in apportioning the cost towards the cost center for identifying
the total production cost.
SCENARIO 3
1. Explaining the advantages and disadvantages of several planning tools of the
budgetary control
Incremental budgeting- this budget is framed by using the past year's budget or the
actual performances with the incremental amounts for the new budget. It is majorly
concerned with the added amounts in the revenues and the cost that will occur in the
future periods. It is common approach which the management uses in the business as
very little time is needed for framing this budget (Otley, 2016). It does not involve any
re-evaluation or re-examination of the activities of the business.
Advantages Disadvantages
Simple- the primary benefit of this
budgeting is based on the previous years’
financial results so it can be simply and
easily verified.
Stability of the funding- Incremental
budgeting ensures flowing of the funds in
the program for fulfilling the requirement of
the management in the business.
Stability in operations- It helps in ensuring
Incremental nature- It estimates only the
minor changes that need to be made from
the past period but for getting accurate and
correct evaluation major changes are
required to be made. Continuous changes
are resulted in the structure and the
environment need to be seen carefully
which cannot be possible by framing this
budget.