Management Accounting Report for Excite Entertainment Ltd. Analysis

This report provides a comprehensive analysis of management accounting principles and their practical application within Excite Entertainment Ltd. It begins with an introduction to management accounting, differentiating it from financial accounting, and highlighting its importance in internal decision-making. The report then delves into various management accounting systems, including cost accounting, inventory management, and job costing, emphasizing their roles in cost control, inventory optimization, and project-specific financial analysis. Furthermore, the report explores different management accounting reporting methods, including the preparation of income statements using both absorption and marginal costing techniques. It also discusses the advantages and disadvantages of planning tools and concludes by elaborating on how management accounting systems can be adapted to resolve financial problems within the company. Overall, the report offers valuable insights into the strategic use of management accounting to enhance the financial performance of Excite Entertainment Ltd.

MANAGEMENT
ACCOUNTING
REPORT FOR EXCITE
ENTERTAINMENT
LTD

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P1 Understanding of Management Accounting Systems.............................................................1
P2 Different Methods for management accounting reporting....................................................5
LO 2.................................................................................................................................................7
P3 Preparation of Income Statement using Absorption & Marginal Costing..............................7
LO 3.................................................................................................................................................9
P4 Advantage & Disadvantage of Planning Tools......................................................................9
LO 4...............................................................................................................................................11
P5 Adaption of management accounting system to resolve financial problems.......................11
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management Accounting is a process of accounting through which internal management
of company makes various decisions and plan different strategies with which managers can
improve financial position of company. Further, managers of business firm also able to deal with
problems faced by company related to finance and operations.
Excite Limited is a company under entertainment Sector it is offering services of event
management and organises concerts. The below report explain meaning of management
accounting and different types of systems used in management accounting. Further, this report
includes different types of managerial accounting reports and their importance. Furthermore, this
report prepares statement of profit and loss by using techniques cost accounting such as Marginal
Costing and Absorption Costing. Moreover, different planning tools are discussed in the below
report. At last, this report elaborate adaption of management accounting systems to resolve
problems that affects financial position of a business venture.
LO 1
P1 Understanding of Management Accounting Systems
Two methods of accounting are used in a business organisation with the purpose of
managing, presenting, analysing and evaluating financial information of a company. Excite
limited also uses both accounting methods Management Accounting and Financial Accounting
with in its business. Further, with these method accountant of company is able to analyse
feasibility of companies’ financial position. Excite Limited does business of event management
in many cities of United Kingdom..
Management Accounting
Management Accounting is a method of accounting through which financial information
of company is disclosed to its internal management so that they can make important decision
related to production and services offered with the motive of profit maximisation and
enhancement in brand image of Excite Limited. Further, this accounting method also helps
managers in finding solution of different financial problems (Ax and Greve, 2017).
Financial Accounting
It is an accounting method through which managers are able to track financial position
and accuracy of financial transaction of a company by preparing financial statements such as
Balance Sheet, Income Statement and Cash flow Statement. Excite Limited record, monitor and
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control its financial transaction with the help of this accounting method. Further, this accounting
method helps company in disclosing its financial information to its stakeholders.
Difference between Management Accounting and Financial Accounting:
Basis Management Accounting Financial Accounting
Legal Requirements No statutory requirements
are required to be followed in
management accounting.
Managers of Excite Limited
can use and present financial
information in way they think
appropriate and which is easy
for them in making decisions.
Thus, there is no standard
format to present and disclose
financial information
(Accounting V Financial
Management. 2019).
As per provisions of law it is
compulsory for each and every
organisation to use financial
accounting method in their
organisation as with this
statements companies are able
to assess their taxable income.
Further, this method also
provides feasibility and
solvency of excite limited.
Excite Limited is also required
to prepare its financial
statements as per Accounting
Principles.
Format of Presentation This method of accounting
does not use a standard format
of presenting financial
information.
E.g Budget of Excite Limited
can be made in any format
which is clearly classifying
income and expenses.
Financial Accounting
statements are required to be
prepared by adapting
provisions of GAAP and IFRS.
E.g. It is required by Excite
Limited to prepare its balance
sheet in a format prescribed by
accounting principles which
classify all the current and non
current assets & liabilities in
different headings.
Coverage Area Coverage of Management This method is used in area
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Accounting with in
organisation is very wide as it
is used by all the departments
of company. Excite Limited
disclose its financial
information to all its
departments and employees.
where required. For Example-
Directors of Excite Limited
wants to declare dividend they
wants to use data related to
companies financials
(Boučková, 2015).
Types of Data Used Information gathered in
management accounting is
used by manager of company
for decision making. Data
related to income, expenditure,
cost and revenue of different
business activity of Excite
Limited used. For Example-
Managers of production
departments wants to reduce
cost of production than for
making this decision necessary
financial information related to
production is required.
Data related to assets,
liabilities, operating & non
operating income and
expenses, investing &
financing activities are use in
financial accounting. For
Example- A detailed
information of sales, cost and
non operating expenses are
used in statement of profit &
loss (Bromwich and Scapens,
2016).
Further, business organisations also use different types of Management Accounting
Systems with in its organisation with the purpose of running its business in an effective and
efficient manner. These systems are used by managers to enhance companies manufacturing
process by minimising cost and managing inventory level so that a firm can achieve mare profits.
Cost Accounting System
It is the most widely used management accounting system because with the help of this
system, managers of a business organisation are able to minimise cost of products and services
offered by them. By using this system, managers of Excite Limited are able to evaluate and
analyse cost of each of services provided by its business. Further, different types of cost included
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in manufacturing of a product such as direct cost, indirect cost, operating costs and non operating
cost are evaluated with the help of cost accounting system(Carlsson-Wall, Kraus and Lind,
2015).
If there is any change in profits of company due to change in cost than that can be
controlled by managers through cost accounting systems as this system helps managers in
monitoring cost of services time to time. As cost accounting system also enable managers in
analysing level of inventory and cash inflow & outflows of company. Various decisions such as
investment decision, increment in output and improvement in quality can be easily taken through
this accounting system. This system is most important as with this Excite Limited can increase
its profits and market shares. Management of cost also benefits managers in preparation of future
budget. Thus, Cost Accounting System is an essential requirement of Management Accounting.
Direct Cost- Cost which are directly related to manufacturing of products and services
are known as direct cost. This cost varies with the change in output level and sales volume. Cost
of raw material, direct labour, direct overheads and consumption of power & fuel are considered
as Direct Cost.
Standard Cost- Cost which is determined before the manufacturing process as an
estimation are known as standard cost. This cost is very useful as with this a business can
compare difference between actual and standard cost of production. If actual cost of production
is less than standard cost than that shows that performance of a firm is improving whereas in
standard is less than actual cost than managers of Excite Limited are required to make decision
with which cost can be reduced. Standard Costing System is used to compare reasons for
difference between actual & standard cost.
Cost accounting Techniques- Different business activities in organisation operates in
different departments and different companies use various cost accounting techniques according
to their products and service offerings. Techniques like Standard Costing, Job Costing, Services
Costing, Contract Costing and Marginal Costing are implemented within a business organisation
to assess and monitor cost of different departments. Like Contract Costing Techniques is
beneficial for Excite Limited as company is offering services of event management as with this
cost of different event contracts can be analysed (Chenhall and Moers, 2015).
Inventory Management System
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A management accounting system which is used for managing inventory level of
company and used by managers are able to track cost of available inventory. This, system is also
essentially required in management accounting. Supply Chain of business firm runs on the basis
of requirement of inventory as inventory management system produce a report which shows how
much raw material is required and how much is available, On that basis order to suppliers of raw
material is given. Further, production process is also dependent on availability of Inventory
(Hald and Thrane, 2016).
This system is requirement of management accounting as with this managers of company
take decisions related to purchase of raw material and can prepare a production budget. Various
software's are used by companies to manage their inventory level so that managers can make
plan of optimum utilisation of available resources or inventory. If managers of Excite Limited
are thinking to make investment in resources which are used in decoration than that can be done
by checking availability of existing resources with the help of this system.
Further, various techniques for use of inventory are used such as LIFO and FIFO are used
by business ventures. LIFO is Last in Last Out according to this technique material or goods
which accounted in warehouse earlier are used or sold at first. This technique reduces wastage
as there is no risk of damage of goods. FIFO is First in First Out with this method, goods which
are oldest are sold or used in production process at first.
Job Costing System
For improving production process of a company its managers are required to abstract
detailed information of cost incurred in manufacturing of each of its products and services. Cost
of each job of a business is analysed with the help of job costing system. With this, managers are
able to make decision related to cost minimisation and can classify income & expenses of each
job clearly. Thus, this system is also required to use by management accounting.
As Excite Limited organises one or more events at a time and to evaluate and control cost
incurred in conducting each event & concert is determined with the help of this system. Further,
managers can eliminate cost which is common in all jobs provided by company which in turn
enhances profit margin and customer base of business firm (Honggowati and et.al., 2017).
Importance of Management Accounting Systems
Profitability and performance of a company get enhanced with the help of management
accounting as managers make various decisions which are in interest of company. Further, these
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systems helps managers in deciding optimum prices of products and services as all the financial
information related to cost of manufacturing, impact of factors on profitability and inventory is
given to internal managers of company (Jansen, 2018).
Waste Management, Inventory Management, Elimination of Unnecessary Cost and
preparation of future financial plan is the most is the most important benefits provided by
management accounting systems. Because, Inventory Management System provide techniques of
managing inventory of Excite Limited and it also reduces wastage of resources. All this benefits
leads to an increase in market share, sales volume and brand image of Excite Limited.
P2 Different Methods for management accounting reporting
Management Accounting Reports are prepared with the purpose of making various plans
to improve current operations of company and to develop future financials and objectives of a
business firm. Different types of management reports are prepared by companies to evaluate
their financial position and resolving financial & operational problems. Types of management
accounting reports are discussed below-
Budget- Budget is prepared by business organisations for allocating financial resources
for future operating future business operations. Budget Report is prepared by managers of Excite
Limited gives information of income and expenses with which managers can evaluate financial
position of company by comparing actual performance with budget (Kaplan and Atkinson,
2015).
Further, advantage of this report is that company can control cost and make decisions
which can improve performance. Price Optimisation is also an advantage of this report as with
this, managers can reduce cost and offer products and affordable prices which also enhance
customers base and market share of company. Various decisions related to determination of
salary, incentives and negotiation with supplier of raw material are taken on the basis of Budget
Reports.
Performance Report- Performance reports show overall operational & financial
performance of a company. This report also compares actual position of a company with
budgeted performance. Further, companies can make performance of each department which in
turn helps managers in making decisions through which difference between actual & budgeted
performance can be minimised. Thus, Advantage of this report is it shows flaws in performance
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of Excite Limited and that flaws can be removed with the help of management accounting
systems and techniques.
Cost Analysis Report- This report shows detailed information of all type of cost incurred
during manufacturing process of products and services. Cost of raw material, labours, overheads
and other not operating cost such as interest rate and tax rate are given in this report. By
analysing information included in this report managers make decisions related to investment and
determination which further helps managers in setting higher profit margin by minimising cost.
More advantage of this report is with this production manager of Excite Limited can provide
efficient utilisation of available resources and are able to resolve problems of wastage. This
report also important in evaluating impact of cost on profit of company and managers monitor
and revise cost according to change in profit (Maas, Schaltegger and Crutzen, 2016).
It is necessary to ensure that all the information presented & disclosed in management
accounting reports are accurate, reliable and relevant so that internal management of
company can make important decisions and that decisions are not give negative result. If
information is accurate than only an organisation can grow. Managers of Excite Limited
formulate various strategies related to price optimisation, profit maximisation and elimination of
unnecessary cost. For successful formation of these strategies it is essential for company to
prepare and present managerial reports on time to resolve various financial problem occurring in
business firm.
Further, accurate and reliable information helps managers in developing powerful and
strong strategies which in turn attracts customers. Directors of Excite Limited also required to
make decisions related to dividend distribution and for which accurate data related to
performance report are required to disclose in report time to time.
Thus, it is evaluated that both management accounting systems and reports are inter
connected as reports can not be maintained and prepared without management accounting
system.
LO 2
P3 Preparation of Income Statement using Absorption & Marginal Costing
Marginal Costing
A costing used in determining additional cost incurred during manufacturing process due
to an additional made in sales units or production output. Marginal Cost is a cost of extra units. A
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company which is adapting this technique has to monitor and control cost on a daily basis as this
cost vary with change customers demand and sales output. This technique also has a direct
impact on profit (Malina, 2018).
Advantage
 This method control cost of manufacturing on a daily basis which in turn gives adequate
amount of income generated by Excite Limited.
 This technique is very easy and less time consuming. Further, this is the best method for
formulation of short term strategies.
Disadvantage
 Marginal Costing does not consider all type of cost thus, this method gives inappropriate
details of profit sometimes.
 This cost is determined on the basis of historical data thus, it enhances cots of
manufacturing of products and services (Cost Accounting Systems. 2019).
Income Statement (Marginal Costing)
as on 30th May 2019
Particulars Amount
Sales 8000 units @ £15 120000
Less- Marginal Cost of Sales
Opening Stock -2000
Variable Cost (8000
units @ £2)
-16000
Contribution 102000
Less- Fixed Cost -40000
Profit 62000
Absorption Costing
Absorption Costing technique is a process which determine cost of production after
considering all types of cost either direct or indirect related to manufacturing & selling of
products and services. Further, this technique helps Excite Limited in preparation of statement of
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profit and loss as profit calculated in this method are used in assessment of amount of income tax
(Messner, 2016).
Advantage
 All cost such as direct, indirect, operating and non operating thus this method gives actual
amount of profit earned by business organisation.
 This costing techniques is used in reporting to Internal Revenue Services as it is regulated
by GAAP.
 This technique is essential in preparation of financial statements as it gives net profit after
deducting interest and taxes.
Disadvantage
 This method deducts whole amount of fixed expenses from sales revenue which reduces
profits and due to this company may suffer from losses.
 This technique does not focuses on improving performance of company as managers of
business firm does not monitor cost under this method on a daily basis (Nitzl, 2016).
Income Statement (Absorption Costing)
as on 30th May 2019
Particulars Amount
Sales 8000 units @ £15 120000
Less- Marginal Cost of Sales
Opening Stock -2000
Variable Cost of
Production 10000 units @ £2
-20000
Gross Profit 98000
Less- Fixed Production
Overhead
-40000
Net Profit 58000
After analysing and evaluating income statement prepared by Marginal Costing and
Absorption Costing it is interpreted that Excite Limited is earning more profits in Marginal
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Costing Technique as this method is calculating variable cost by multiplying sales units with per
unit variable cost whereas absorption cost is considering directs cost as well. Thus, Marginal
Costing Technique is most appropriate for firm.
LO 3
P4 Advantage & Disadvantage of Planning Tools
Budget – A plan that is finance based for future activities. It helps to decide the
management activities to be undertaken by them and the use of resources of company (Otley,
2016).
Different types of budget
Sales budget – It is an estimate of sale for an accounting period of future. The
components Excite Entertainment Ltd use for estimation of sales budget are sales, price per unit,
discount, etc. Excite entertainment uses budget of sales for department goals, forecast
requirements and sales estimate.
Advantages
 The sales budget helps company Excite Entertainment for identification of weak areas as
these areas hinder them in attaining set budget for sales.
 It helps the company in allocation of resources of different departments within Excite
Entertainment which is mainly based on sales forecast, plan and other factors.
Disadvantages
 This sales budget is usually not correct because of uncertain future outcomes which can
affect functioning of the company Excite Entertainment.
 It is very time consuming for managers who prepares sales budget in Excite
Entertainment Ltd (Qian, Hörisch and Schaltegger, 2018).
Production budget – It is a plan that is used by producers or manufacturers for
estimation of manufacturing cost. Production budget is always in written form and no
modification need to be done in this by change in different factors. It is fully depended on
product cycle of businesses like Excite Entertainment Ltd.
Advantages
 By production budget, Excite Entertainment is able to meet their demand in market.
 The labours and resources in this company is also utilized at greater extent which means
the company is able to access full utilization of available resources.
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