Management Accounting Report for HND Business Students: Excite Ltd

This report analyzes management accounting principles and their application within Excite Entertainment Ltd, a UK-based company in the entertainment and leisure industry. The introduction defines management accounting and its role in decision-making, followed by a breakdown of Scenario 1, covering the differences between management and financial accounting, various costing systems (cost, inventory, job), and the benefits of management accounting systems. Section B explores management accounting reports, information relevance, and system integration. Scenario 2 delves into marginal and absorption costing techniques, highlighting their benefits and limitations. Scenario 3 examines planning tools like cash budgets, operational budgets, and flexible budgets. Finally, Scenario 4 addresses the use of management accounting in dealing with financial issues. The report concludes with a summary of key findings and references.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SCENARIO 1 ..................................................................................................................................1
Section A .....................................................................................................................................1
a) Difference between management and financial accounting .........................................1
b) Cost accounting system ................................................................................................2
c) Inventory management systems ....................................................................................2
d) Job Costing System ......................................................................................................3
e) Benefits of management accounting systems................................................................3
Section B .....................................................................................................................................3
a) Management accounting reports....................................................................................3
b) Relevance and reliability of information presented.....................................................4
c) Integrating management accounting systems and reporting .........................................4
SCENARIO 2 ..................................................................................................................................4
Marginal and Absorption costing techniques..............................................................................4
SCENARIO 3 ..................................................................................................................................6
Planning tools used by Excite ltd.................................................................................................6
SCENARIO 4 ..................................................................................................................................7
Management accounting in dealing with the financial issues. ....................................................7
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting is specialised branch of accounting which is concerned with
identifying, measuring, analysing and interpreting the accounting information. This helps the
management in making decisions for efficient management and operation of company. Report is
about the understanding of management accounting systems and the financial accounting system.
This research will also cover management accounting reports and the importance of reliable and
accurate information. It will also be cover different costing techniques including their benefits
and limitations (Shea and et.al., 2018). Management accounting also include the planning tools
for ensuring the financial stability and performance improvements. Management accounting also
helps in addressing the financial problems & preventing them using different methods. Present
report is based on the activities and operation of Excite ltd which operates in entertainment and
leisure industry in United Kingdom. Its main activities are promoting concerts & festivals in
Locations throughout UK.
SCENARIO 1
Section A
a) Difference between management and financial accounting
Financial accounting is defined as collection of the accounting information for preparing
financial statements. Management accounting is used for recording the business transactions so
that the accounting informations could be used for preparing cost records and other reports for
keeping costs under control. Financial accounting is intended to disclose right and correct
information to its stakeholders, so that reliable information could be made by them. Financial
statements are prepared mainly for the external users. Management accounting is more
confidential and is limited only to management of company. Management accounting is used for
bringing effectiveness and efficiency in the working of organisation. Management accounting is
concerned over the present and future forecasts where the financial accounting is concerned with
events that have taken place.
Though management and financial accounting are used synonymously but have
difference. Functions of management and financial accounting are different even when they are
inter related (Abu, Nor and Rahman, 2018). Management accountants uses data of financial
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accounting other than the economic and financial principles. Financial accounting is representing
the performance of company and management accounting is concerned with improving the
performance of company.
b) Cost accounting system
Cost accounting is a framework used by companies for estimating product's cost for
inventory valuation, cost control and profitability. It is used by business for keeping tab over
production activities with the use of perpetual inventory systems. Cost accounting helps in
identifying the cost incurred for manufacturing products. Direct costing :- In direct costing only variable costs associated with manufacturing are
assigned to COGS and inventory. Fixed costs are considered as expense of period in
which it incurred.
 Standard costing :- It is used by company for comparing the revenues and standards
costs with actual results for measuring the deviations. This helps management to take
corrective steps.
c) Inventory management systems
Inventory management is process involving ordering, storage and using the inventory of
company. Inventory management includes management of the raw material, components and the
finished products including warehousing & processing. Excite ltd for managing the
manufacturing processes and supply chains for balancing the risk of inventory shortages. Excite
ltd uses Just-in-time and material requirement planning methods of inventory management in
different activities (Geiszler, Baker and Lippitt, 2017). Just-in-time – Under this method Excite ltd makes the inventory available on demand.
This ensures that company do not stock items that are perishable in prior or become
outdated within short span of time. This also saves the carrying costs of organisation
related to inventory.
 Materials requirement planning – This is used by Excite ltd for products that are
required on regular basis. This method involves keeping stocks on the forecasts made on
the basis of previous trends. This avoids interruption in the ongoing processes due to
inventory.
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d) Job Costing System
System involves process of collecting information about all costs associated to
manufacturing or to service job. The information helps the company available with the cost
information related to particular job which is also sometime used for reimbursements. Job
costing records the cost incurred for job instead of process . Excite ltd keeps track and record of
costs related to each job (Chouhan, Soral and Chandra, 2017). This is used by company for
dealing with the production of specific items.
e) Benefits of management accounting systems
Management accounting costing systems are used for providing critical informations to
the management which is used in decision-making process. These systems help Excite ltd in
costing as well as management of the operational processes. Company is effectively keeping
track of all the information related to the production processes and effective management which
improves the profitability of company.
Section B
a) Management accounting reports
Excite ltd uses different types of management accounting reports.
Performance report
Performance reports are prepared for analysing the performance of activities and
operations. For improving the performance and increasing the productivity company uses
different policies and strategies. Success of these strategies is judged by preparing the
performance reports that evaluates the areas where company has improved and areas that require
special attention. Excite ltd using the performance reports identifies the areas that are productive
and take corrective measures for low performing areas.
Cost reports
Cost reports are prepared for computing costs of the articles which are manufactured.
Cost reports are used as summary of all the costs. These report provide the management of
Excite about the information related with the cost of product or service. This helps in more
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effective management of the operations of company. This reports enable the management to
decide the profits margins related with the particular product or service.
Budget reports
These reports are used by the management for forecasting about the future volume and
prices. Budgets reports are prepared for keeping the cost under control. This is used by the
management for allocation of resources to different departments and operations. These budget
reports are prepared by Excite ltd on the basis of previous budget reports (Aleem, Khan and
Hamad, 2016). This enables the company to compare the actual and budgeted outcomes and
taking measures to reduce the variances.
b) Relevance and reliability of information presented.
All the information used by the management of Excite ltd should be accurate, relevant
and reliable. These accounting information plays an important role in the decision-making
process of company. Decisions related to the future projections control and management all are
taken on the information. It is essential to ensure that the accounting information used by
management is accurate and do not contain material error or misstatements.
c) Integrating management accounting systems and reporting
The reporting and accounting systems are used by management for enhancing the
efficiency and improving the quality. These are also important for achieving or maintaining the
profit levels of company. Management reports provide information for improving the operations
by analysing the facts and figures and accounting systems helps in management of the operations
of company.
SCENARIO 2
Marginal and Absorption costing techniques.
Marginal Costing
Marginal cost refers to cost of every single additional output in units. Marginal costing
can be defined as costing technique where marginal costs are charged against the units costs and
the fixed costs are written off completely against contribution (Labro, 2019). It is helpful in
making decision for carrying on any product or service further and to ascertain adequate level of
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activities by break even analysis. Profitability of product is determined by Excite on the basis of
contribution margin.
Absorption Costing
Absorption costing is also known as full costing. In this costing method all production
costs , including fixed and variable are considered as product cost. Fixed costs in production are
not considered as period costs in this costing method. Period costs in this method include selling,
distribution, administration and general cost that are not added to cost of product but is expensed
at period incurred. This costing method is accepted by the accounting standard (Agrawal, 2018).
It is helps Excite in estimating job costs and profits over job by absorbing the overhead into
product costs.
Benefits and limitations
Marginal costing
Benefits
 Marginal costing is an easy and understandable method.
 Marginal costing helps in determining profitability of product line. It reduces under and over recovery of overheads by separating the variable and fixed
costs
Limitations
 It is very difficult to analyse the overheads in marginal costing.
 Fixed costs are not added to cost of product as it is considered period cost.
Absorption Costing
Benefits
 The fixed costs involved in production are recognised in this costing.
 Less fluctuations are seen in net profits in constant productions and fluctuating sales. This method is used in preparation of financial statements (Geiszler, Baker and Lippitt,
2017).
Limitation
 This method do not allow comparison of two product line for identifying the profitability.
 Emphasis is over total costs, which ignores relationship of cost volume profit.
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Interpretation – The profits under both the techniques is different as both the methods value
closing inventory. In marginal costing fixed costs are not included in valuing closing inventory
that decreases the profits. In absorption costing both variable and fixed costs are used in
inventory valuation that raises the value of closing inventory thereby raising the profits that are
higher than marginal costing.
SCENARIO 3
Planning tools used by Excite ltd.
Cash Budgets
Cash budgets are the estimates about the cash inflow and outflow from the organisation.
The cash budgets helps the company in making the adequate funds available to all departments
for carrying out different process and operations. This enable Excite ltd to identify whether
company will be available with the sufficient funds for operating the business. These cash
budgets are made on the projections of revenues from sales and estimated expenses that are
incurred during the period (Brierley, 2017). Excite ltd make adequate funds available for smooth
flow of business operations. This budget is part of operational budget
Operational budgets
Operational budgets are ones that include the all the budgets of business. It is prepared
after all the other budgets are prepared. This budget is also based over the estimated of incomes
and expenditures of company. Excite ltd prepares operational budgets on the basis of previous
budgets and trends. It makes further adjustments to the current budget of inflations, and other
factors influencing the budgets. This is used for structuring all the activities and operation with
defined resources.
Flexible Budget
Flexible budget is prepared by the organisation for flexing and adjusting with the activity
or volumes. It is most useful budget to Excite ltd than the static budgets. Flexible budgets allow
company to make changes in the estimates of activities (Altawati and et.al., 2018). There is space
left in these budgets so that changes can be accounted and addressed adequately by the
management without affecting the whole budget.
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SCENARIO 4
Management accounting in dealing with the financial issues.
Each company operates in a contemporary business environment that is dynamic. An
organisation is prone to various issues that affects the performance of company and affects its
operational efficiency. Scarcity of funds, inadequate supply chains, deviations between the actual
& standard outcomes and many more that are resolved using management accounting methods.
Benchmarking – It is used by management for setting goals and objectives for every department.
Excite ltd encourages the employees by motivating them through rewards and providing them
with training with the specialised skills for carrying out operations.
Key Performance Indicators – KPI helps Excite ltd in measuring its performance with the
available and given resources (Santos and et.al., 2020). This helps company in improving its
performance by taking corrective steps or moulding the financial strategies existing within the
company.
Financial Governance – It is very effective tool that helps organisation in monitoring the
activities and processes. This helps in avoiding the wastages by keeping control over the
utilisation of resources.
CONCLUSION
The above report concludes that the management accounting is used by company for
managing its operations. Management accounting helps company in having proper record of the
financial transactions. Systems of Management accounting helps company in maintaining all the
operation related to inventory management, cost accounting and job costings. This gives all the
costs related with product. The accounting reports of Excite ltd help in improving its
performance. Management accounting is helping the organisation to achieve its objectives with
the cost reduction.
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REFERENCES
Books and Journals
Shea, V.J. and et.al., 2018. ERROR RATE IMPACTS ON DECISION EFFICACY:
ACTIVITY-BASED COSTING SYSTEMS IN SMALL BUSINESS. QRBD. p.59.
Abu, M.Y., Nor, E.M. and Rahman, M.A., 2018, April. Costing improvement of
remanufacturing crankshaft by integrating Mahalanobis-Taguchi system and activity
based costing. In IOP Conference Series: Materials Science and Engineering (Vol. 342,
No. 1, p. 012006). IOP Publishing.
Geiszler, M., Baker, K. and Lippitt, J., 2017. Variable Activity‐Based Costing and Decision
Making. Journal of Corporate Accounting & Finance.28(5). pp.45-52.
Chouhan, V., Soral, G. and Chandra, B., 2017. Activity based costing model for inventory
valuation. Management Science Letters. 7(3). pp.135-144.
Aleem, M., Khan, A.H. and Hamad, W., 2016. A comparative study of the different costing
techniques and their application in the pharmaceutical companies. The Audit Financiar
journal.12(143). pp.1253-1253.
Labro, E., 2019. Costing systems. Foundations and Trends® in Accounting.13(3-4). pp.267-404.
Agrawal, R.K., 2018. Principle of Management Accounting. Educreation Publishing.
Brierley, J.A., 2017. The domination of financial accounting over product costing. Cost
Management, pp.32-40.
Geiszler, M., Baker, K. and Lippitt, J., 2017. Variable Activity‐Based Costing and Decision
Making. Journal of Corporate Accounting & Finance.28(5). pp.45-52.
Altawati, N.O.M.T. and et.al., 2018. A Review of Traditional Cost System versus Activity Based
Costing Approaches. Advanced science letters.24(6). pp.4688-4694.
Santos, N.T. and et.al., 2020. A System Dynamics Model for Sales and Operations Planning: An
Integrated Analysis for the Lime Industry. International Journal of System Dynamics
Applications (IJSDA).9(1).pp.1-17.
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