Management Accounting Report: Excite Entertainment Ltd Analysis

This report provides a comprehensive analysis of management accounting principles, focusing on their application within Excite Entertainment Ltd, a company operating in the entertainment and leisure industry. It begins by defining management accounting, differentiating it from financial accounting, and outlining the essential requirements of various management accounting systems, including cost accounting and inventory management systems. The report delves into different methods used for management accounting reporting, such as budget reports, accounts receivable aging reports, and performance reports. It then demonstrates the calculation of costs using techniques of cost analysis, specifically marginal and absorption costing, to prepare an income statement. The report also discusses the advantages and disadvantages of different planning tools used for budgetary control and concludes with a comparison of how Excite Entertainment Ltd adapts management accounting systems to respond to financial problems. The report aims to provide a practical understanding of management accounting and its role in business decision-making.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1 Management accounting and essential requirements of different types of management
accounting systems......................................................................................................................1
P2 Different methods used for management accounting reporting............................................4
LO2..................................................................................................................................................6
P3 Calculate costs using techniques of cost analysis to prepare an income statement using
marginal and absorption costs......................................................................................................6
LO3..................................................................................................................................................8
P4 The advantages and disadvantages of different types of planning tools used for budgetary
control..........................................................................................................................................8
LO4................................................................................................................................................11
P5 Excite Entertainment Ltd are adapting management accounting systems to respond to
financial problems......................................................................................................................11
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is a process which analyses cost of business and operations in
order to prepare internal financial report to help managers in decision making and to achieve
their goals of business (Firk, Schrapp, and Wolff, 2016). In this report Excite Entertainment Ltd.
Company is taken for better understanding. Excite Entertainment Ltd is a company which
operates in entertainment and leisure industry in the country UK. The activity of promotion of
concerts and festivals emphasis on Management accounting and financial accounting. The
difference between both accounting will also explain in this report. The report will also
discussing about different methods used for management accounting report. Also, a calculation
based on appropriate techniques of cost analysis in order to prepare an income statement by the
use of absorption and marginal costing will be highlighted in this report. The advantages and
disadvantages on different types of tools for planning which is used for budgetary control will be
discussed in this report. A comparison on adapting management accounting system by Excite
Entertainment Ltd to respond financial problems will be discussed in the report.
LO1
P1 Management accounting and essential requirements of different types of management
accounting systems.
Management accounting
“The management accounting includes the concept and methods which are necessary for
planning in effective manner and to choose the best alternative action of business and also
control by the interpretation and evaluation of performance.”
Financial accounting
“It is a that specialized accounting branch which keeps on track of financial transactions
of a company. The transactions are firstly recording then summarized and at last presented in
financial statement or report which are Balance sheet or income statement.”
Difference between management accounting and financial accounting
Basis MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING
Legal
requirement
The reports are used internally in
the organisation and they does not
need any legal requirement.
The rules which are in financial
accounting prescribed by
Generally accepted accounting
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principles and International
financial reporting standard
Standards. Legal requirement are
there in financial accounting for
the companies like company
Excite entertainment follows these
legal requirements.
Format of
presentation
The management accounting
does not follow any format for
presentation of management
information.
The financial accounting in Excite
entertainment Ltd follows a
specific format for recording and
presenting information.
Area of
coverage within
the
organisation
Management accounting is
concerned with specific area for
analysis. The area may vary from
geography, product line,
manufacturing unit, etc.
The financial accounting is
concerned with business as a
whole. Accounting standards
bound the organisations to
reporting in area in set formats.
Type of data
used
In management accounting
quantitative data as well as
qualitative data is used.
In financial accounting only
quantitative data of Excite
Entertainment Ltd is used.
Cost accounting systems – It is a framework which is used by different firms in order to estimate
cost of products for analysis of profitability, cost control and valuation of inventory. Cost
accounting system works through tracking of raw materials by going through stages of
production and turns slowly into finish goods (Janin, 2017). The accounting entry in Excite
Entertainment Ltd for whenever raw material put to production this system of cost accounting
records immediately use of materials through crediting raw material account and debit goods in
process account.
Direct cost is one of the type of cost which is related with production of goods and
services. It includes labour, distribution cost which is associated with product while production,
cost of materials used in production, direct expenses. This cost is easily traced by a project,
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department or a product. In addition to direct cost derive inventory value and is not allowed
under International financial reporting standard (IFRS) and Generally accepted accounting
principles (GAAP) so that it did not provide a view to which the cost are incurred while creating
of product or promoting activities of Excite Entertainment Ltd.
Accounting standard cost is a cost which is occurred by evaluating the difference
between actual cost and budgeted cost. This type of accounting executes comparison between
actual cost of goods that are used in production and cost that estimated for production of goods.
The inventory ledger accounts and cost of goods sold contains standard cost. The standard cost
and actual cost is considered as variances and accounting standard cost uses these variances for
their outcomes.
Different types of costing techniques for ascertaining costs are :
 Uniform costing – This technique of costing uses the same principles and practices of
costing by undertaking several times for comparison of costs or common control (Chen,
Delmas, and Lieberman, 2015).
 Marginal costing – This costing technique is ascertained by differentiating between
variable and fixed cost. This cost is useful to ascertain the changes effect in type of
volume of output basically on profit.
 Standard costing – This technique of costing is ascertained by comparing actual cost
with pre determined standard cost. The difference between them is their deviation and
also called variance. This enables the management to investigate reasons for variances
and to take corrective suitable action for them.
 Historical costing – This cost is ascertained after they have incurred. This technique of
costing aim at ascertaining cost which is actually incurred on work which is done in past.
 Direct costing – This technique of costing is charging all direct cost, fixed and variable
cost relating to process, operation and products which leave all other cost to be written
off against profit which they have arise. Absorption costing – This costing technique consists all cost which includes fixed and
variable costs to process and operate.
Inventory management systems – It track inventories through supply chain or the portion of
their business operates. Inventory management system includes retail to production, shipping to
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warehousing, etc. Inventory management is supervision of inventories and items of stocks
(Smith, 2017).
Different method of inventory management are FIFO, LIFO and Weighted average. The
FIFO (First in First out) is an accounting method which relies on assumption of cash flow which
removes cost from accounts of inventory from the time when it is purchased. Then comes LIFO
(Last in First out) is method which matches with most recent cost on income statement with
sales. Weighted Average cost is utilized to assign average cost of production of a product. This
method of inventory management assumes that a store sells all their inventories simultaneously.
Job costing systems – It involves the accumulation process of information which is associated
with cost along with specific job of production and service (Florio, and Leoni, 2017). There are
three kinds of information needed by job cost system, which is direct labour, overhead and direct
materials. This system is useful for determining accuracy of estimation of company's system.
P2 Different methods used for management accounting reporting.
Managerial reports are those reports which are generated by the managers in order to
produce such reports which help the company's internal users in aiding their decision making
(Liu, Wei, and Xie, 2016). These reports emphasizing the internal information which is received
through the financial accounting by the auditors , these reports are generally used by the
company for effective planning, organising, regulation, decision making and also helps in
measuring the performance of the internal staff of the company. it is the reports under the
managerial accounting which focusing on the providing information to the internal users.
There are different types of managerial reports prepared by the organisation and some of them
are :
Budget reports
These are the reports considered to be very critical in measuring the organisation
performance and budget reports general prepared on the basis of the different departments in
order to manage all the operational activities and functions of that particular department
effectively.
The budget reports helps the organisation in comparing their actual performance with the
projected so that they can take the corrective actions to eliminate the deviations in between the
both. All the income and expenses are managed according to the budgets and that what is
4

reports does by informing the internal users about the inflow and outflow of cash as well as the
deviations in their performance (Massaro, Dumay, and Garlatti, 2015).
Advantages:
 It is effective is measuring the performance
 It helps in taking the corrective measures
 It leads the organisation in ascertaining the most probable risk
 budget reports helps investors to decide for further investments based on their
performances.
Account receivables Ageing reports
It is the report made by the business if they are involved in the activity of the extending
credit (Holm, 2018). The amount which is being given as credit to the customers for the specific
time periods helps the mangers in identifying their defaulters who would not pay the money and
also helps in finding the issues in the complete process of collection by the company. The
reports helps the business s organisation to ascertain that if there are many numbers of defaulters
than they need to transfer to more tighter credit policies in the company . There is always bad
debts in the company's reports which they are need to write off .hence, the account retrievable
ageing reports helps in many ways to manager for altering and changing in their credit policies
and strategies.
Advantages:
 It helps the managers and top level management in deciding and restructuring the credit
policies (Ross, 2017)
 this will lead the organisation in ascertaining the collection period of the company
 internal users can make good and effective decisions regarding extending credit.
Performance Reports
These are the reports which are prepared for reviewing and analysing the performance
of the company of each staff members in order to take decisions regarding their appraisals, and
other organisation need (Lukka, and Modell, 2017).
Large organisation also prepare different number of performance report for each of the
department in order to analyse their performance towards the direction of the projected
performance and goal. This will help the organisation' in making the right decisions and taking
5

corrective measures for eliminating the difference between the actual and projected
performance .
Advantages
 It helps in making comparison between the actual and budgeted performance
 This guide the organisation for making decisions regarding termination or promotion of
the employee
 training and development programs are also implemented on the basis of analysing the
performances.
LO2
P3 Calculate costs using techniques of cost analysis to prepare an income statement using
marginal and absorption costs.
Marginal costing – It is defined as technique of costing which all marginal cost through variable
cost of business was charged against cost per unit and in fixed cost it will write off completely
against contribution factor (Samuelsson, and et.al., 2016). The additional cost which incurred
for carrying production function which is related to an additional unit of output which is
produced. This cost is determined by Direct labour, Variable overheads , Direct expenses and
Direct material. The company with the help of marginal costing can make shares valuation, level
of profitability and price which can be determined and helps in making difference between
variable and fixed cost.
Income Statement (Marginal Costing)
as on 30th May 2019
Particulars Amount
Sales 8000 units @ £15 120000
Less- Opening Stock -2000
Less- Variable Cost (8000
units @ £2)
-16000
6

Contribution 102000
Less- Fixed Cost -40000
Profit 62000
Absorption costing – An absorption costing is a kind of management accounting that provides
aid to company in ensuring every good or unit which has been produces to assign all cost which
incurred to carry on operation of production or function of manufacturing (Berglund, and
Strand, 2015). The cost of finish good produced is included with the cost that is associated with
variable manufacturing overhead, fixed manufacturing overhead, manufacturing overhead and
direct labour. This method of costing helps in preparation of financial report and income tax
reports.
Income Statement (Absorption Costing)
as on 30th May 2019
Particulars Amount
Sales 8000 units @ £15 120000
Less- Opening Stock -2000
Less- Variable Cost of
Production 10000 units @ £2
-20000
Contribution 98000
Less- Fixed Production -40000
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Overhead
Profit 58000
Interpretation – On the basis of analysis as per absorption costing, the company Excite
Entertainment Ltd attain profit of £58000 in the may month. While in marginal costing profit
earned by the company was £62000. This variation in between both the cost occurs because in
marginal costing fixed cost is not consider and selling price taken into consideration. On the
other hand, in absorption costing fixed cost is consider along with consideration of production
price. The purpose of profitability and cost in assessment of company should focuses on
adoption of marginal costing over absorption costing. By taking into consideration of marginal
costing in the company Excite Entertainment Ltd can assess to appropriate cost and profit and
also become able to execute proper financial planning.
LO3
P4 The advantages and disadvantages of different types of planning tools used for budgetary
control.
Budget is plan which is based on finance for conducting future activities. The budget
helps the management to decide which activities will undertake and how to use resources of
company (Li, 2018).
Types of budget and their advantages and disadvantages
Sales budget – This is an estimate sale for a accounting period of future. The sales budget are
divided among different quarter. The components company Excite Entertainment Ltd. used for
sales budget estimation are price per unit, sales, discount allowance, etc. The company use sales
budget in order to set goals of department, forecast requirements of production and estimate
earning from sale of Excite Entertainment.
Advantages
 The sales budget helps the company Excite Entertainment to conduct a proper planning
of organisational budget.
 It provide aid to the company in resource allocation of other department which is based
on sales plan, sales forecast and other factors.
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 The sales budget also aid the Excite Entertainment Ltd. To identify weak areas in their
company which hinder them in achieving their sales budget. The company takes
necessary actions to correct weak areas and strengthen them.
 This sales budget helps the company by giving proper guidance through out the year of
Excite Entertainment Ltd. And helps the management and employees on track.
Disadvantages
 The accuracy of sales budget prepared by department of Excite Entertainment Ltd is not
always accurate because of the unpredictable outcomes of future (Wnuk-Pel, 2016). Editing, preparing and modifying sales budget can be too time consuming for managers
of Excite Entertainment Ltd.
Production budget – It is a financial plan which is used through manufacturers in order to
estimate cost of manufacturing their product. This budget is prepared in written form and no
changes are done in production budget by change in various factors. It is calculated by number of
units of manufacturing product which must be manufacture. Production budget is depended on
cycle of product and operating environment of a business entity.
Advantages
 The machinery for promotion of festivals and concerts in all over UK can be executed
and full utilization of Excite Entertainment Ltd machines will be used.
 In accordance with production budget labours are also utilized to their greater extent by
the company Excite Entertainment Ltd.
 The production budget helps the company Excite Entertainment in reducing their
expenses of production as there is a uniform budget which needs to be followed all over
the company.
 The Excite Entertainment company knows the quantity of minimum stock which they
needs to maintain their business.
 This budget helps the company Excite Entertainment in meeting their sales demand.
Disadvantages
 The budget makers of Excite Entertainment Ltd spent huge time in preparing budget
which reduces their efficiency and interests.
 The production budget needs professional to prepare and hiring these professional
individuals are very expensive which increases the expenses of Excite Entertainment Ltd.
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 The process of budgeting only focuses on attention of management team and
implementation in actual is very difficult for the company Excite Entertainment Ltd.
Cash flow budget – It is an estimation of receipts of cash and expenditures which are expected
on a certain period of time. The estimates are made in this budget on the basis on bimonthly,
monthly and quarterly. The cash flow budget is useful to prepare for measuring performance of
businesses.
Advantages
 The cash flow budget helps to avoid cash shortage in which company Excite
Entertainment Ltd bears high expenses.
 The budget formulation is very easy and it helps the company Excite Entertainment Ltd
to attain success and growth in prevailing industry.
 By cash flow budget Excite Entertainment Ltd can predict inflow and outflow of cash
within their business (Agu, Nweze, and Enekwe, 2016).
 The need of cash identified by company Excite Entertainment Ltd which enables the
company to mange overall expenses and revenue they incur by the help of cash flow
budget.
Disadvantages
 The company observes that the value of cash is uncertain so the cash flow budget
prepared by managers can lead them away from the target. The cash flow budget is a full wastage of time because it is not possible to predict future
and this also increase the expenses of the company Excite Entertainment Ltd.
About budget variance and their significance to the Excite Entertainment Ltd.
The budget variance is a difference between baseline or budgeted amount of revenue or
expenses and the actual amount. It is favorable only when actual revenue is greater than
budgeted and when actual expenses are less than budgeted. The company Excite Entertainment
also uses this technique of budget variance in order to measure their performance which is in line
with prepared budget. Any variance measured by managers for Excite Entertainment lead to take
effective measures to overcome these variance in the company to attain budgeted performance.
Budget variance plays a significant role on Excite Entertainment. The company measures
their performance of sales, production and cash flow by the use of these budgets (Uyar,
Gungormus, and Kuzey, 2017). Also, it provides aid to company Excite Entertainment Ltd to
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measure future uncertainties and ways to overcome them within appropriate time. The company
can gain competitive advantage from the other rivalries after make their task completion in line
with budget. Therefore, the budget variance help the Excite Entertainment Ltd in attain success
and growth.
LO4
P5 Excite Entertainment Ltd are adapting management accounting systems to respond to
financial problems
Absorption costing
Profitability statement
Particulars Amount ( £) Per unit cost ( £)
Net Amount
( £)
Sales revenue 8000 15 120000
Cost of goods sold
80000
Gross profit/ Net profit 40000
Computation of per unit cost
Particulars Amount ( £)
Prime cost 4
Variable cost 2
Fixed cost 4
Total production cost 10
Computation of Cost of goods sold (COGS)
Particulars
Amount (
£)
Per unit cost
( £)
Figure
(£)
Net
Amount
( £)
Opening stock / stock at beginning of
period 500 10 5000
Production 10000 10 100000
Closing stock/ stock at end of period 2500 10 25000
COGS = (Opening stock + purchase 80000
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– closing stock)
Marginal costing
Income statement
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Particulars Amount ( £) Per unit cost (£) Net Amount(£)
Sales 8000 15 120000
Variable cost 48000
Contribution 72000
Less: fixed production
overhead cost 40000
Net profit 32000
Contribution is basically the amount which can be ascertained by deducting all the
variable expenses from the sales revenue in order to attain the contribution. The contribution
amount is further used for calculating the net profit which can arrived by deducting the fixed cost
from contribution . This helps the organisation in ascertaining the net profit of the company.
COGS assessment:
Particulars Amount ( £) Per unit cost ( £) Net Amount ( £)
Opening stock 500 6 3000
Add: production 10000 6 60000
Less: Closing stock 2500 6 15000
COGS 48000
Computation of per unit cost under marginal costing
Particulars Figures (in £)
Prime cost 4
Variable cost 2
Total production cost 6
Break-even analysis
Particulars Formula Figures
Selling price per unit
(SPU) £40
Variable cost per unit
(VCPU) £10
Fixed cost £1, 20, 000

Contribution per unit SPU - VCPU 30
Break-even point (in
units) Fixed cost / contribution per unit 4000
Break-even point (in £) Break-even point in units * SPU £160000
IF Organisation wants to
achieve the profit of 60000
Units need to sell for
earning profit of £60000
(Fixed cost + desired profit) /
(Selling price per unit – variable
cost per unit) 6000
BEQ is the amount or level which represent the amount of the sales in terms of quantity
which is considered to be sued as covering both the fixed and variable costs of the company. In
general this can e defined as the pint where firm is in the no profit no loss situations. From the
above table it depicts that BEQ is equals to 4000 units where the form is in no profit no loss
situation.
Cost volume profit is the technique which helps in identification of the effect of sales
volume and cost of the product on the profit of the company. This basically helps the managers
in identifying the relationship between the cost and revenue which is generated by the company
by selling goods .this ca be calculated as :
Cost volume profit= sales-fixed costs- variable costs:
sales 120000
fixed costs 40000
variable costs 48000
Cost volume profit 32000
Some factors which cause the profit volume to change
 Beyond a certain production of units, fixed cost considered to be constant which is not
general in practical life (Busco, and Quattrone, 2015).
 Segregating the fixed cost and variable cost is complicated task to perform.
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 Apart from the volume, other factors like inflation, capacity and technology also affects
the cost .
CONCLUSION
This report was all about management accounting where analysis of a company which
was Excite Entertainment Ltd was discussed in the report. In this report, the difference between
management accounting and financial accounting was explained. Also, the report was discussing
about different techniques of costing. Inventory management and job costing system was also
elaborated in this report. The report also emphasized on different methods which is used for
management accounting report. Then comes in the report consist a calculation which was based
on appropriate techniques of cost analysis in order to prepare an income statement by the use of
absorption and marginal costing. Also, the advantages and disadvantages on different types of
tools for planning used for budgetary control was discussed in this report. At last comparison of
adapting management accounting system in the company Excite Entertainment Ltd to respond on
financial problems were covered.
15

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