Management Accounting Report: System and Reporting Analysis

This report analyzes management accounting systems and their application to Excite Entertainment Limited, a company involved in promoting concerts and festivals. It differentiates between management and financial accounting, exploring various management accounting systems like cost accounting, inventory management, and job costing systems, highlighting their benefits. The report emphasizes the integration of these systems with management accounting reporting, explaining different reporting methods such as budget reports, accounts receivable aging reports, performance reports, and cost managerial accounting reports. It also examines the advantages and disadvantages of planning tools used for budgetary control and compares how organizations use management accounting systems to address financial problems. The report underscores how these systems can be used to make effective decisions, improve operational efficiency, and enhance overall business performance. It provides insights into cost control, inventory management, job profitability, and forecasting, making it a comprehensive guide for understanding and applying management accounting principles.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
SCENARIO 1 ..................................................................................................................................3
Management accounting system .................................................................................................3
Integration of management account systems and management accounting reporting ................5
Explaining different methods of the management accounting reporting.....................................6
SCENARIO 2 ..................................................................................................................................8
Income statement as per marginal costing and absorption costing..............................................8
SCENARIO 3.................................................................................................................................11
Advantage & Disadvantage of Planning Tools used for Budgetary Control.............................11
SCENARIO 4.................................................................................................................................12
Comparing how organisation adopts management accounting systems in responding to
financing problems.....................................................................................................................12
CONCLUSION .............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting assist in preparation of the internal report on the basis of which
organisation is able to determine their performance and the profit margin and is able to make
forecast for the future. In this assignment Excite Entertainment limited will be considered which
is involved in the promotion of concerts and festivals. This assignment will provide information
regarding different management accounting system. It will include the information the
management accounting reporting which helps in making effective decision for the firm.
Moreover, the report will provide understanding about the benefits of using the management
accounting systems. It will also assist in identifying the different planning tools used in
budgetary control. Also, the report will helps in determining the cost using different techniques.
Furthermore, it will contain the information regarding the management accounting system used
by organisation in order to respond to the various financial problems. This study will also include
the discussion regarding the integration of management accounting systems and management
accounting reports.
MAIN BODY
SCENARIO 1
Management accounting system
Difference between management accounting and financial accounting
Point of difference Financial accounting Management accounting

Meaning It is process of preparing the
financial statement for
identifying the profitability and
performance of the organisation
and to provide the financial
information to the firm (Hopper
and Bui, 2016).
Management accounting is the
system the provide information
to the managers in order to
formulate strategies and make
plans for running the operations
of the business in the effective
and efficient manner.
Compulsion Yes it is compulsory to prepare
the financial reporting
No, it is not compulsory to
prepare the managerial reports
Goal To provide financial
information to the outsiders
To provide management
regarding the information for
planning in order to make the
effective decision for the
organisation (Chenhall and
Moers, 2015).
Users Internal and external Internal
Management accounting systems
The management accounting systems assist in achieving the goals and objective so the
organisation in the effective and efficient manner. There are various management accounting
systems which are implemented by the firm for performing their operation properly and to have
the string internal controls.
Cost accounting systems : It is the systems which is implemented in the organisation in
order to allocate the cost to the products and services. This system of management accounting
assist in controlling the cost which helps in increasing the profitability of the firm and also the
performance of the organisation is improved to a great extent. The cost accounting system helps
in providing the cost information to the management of organisation on the basis of which the
managers are able to make the effective decision regarding the organisation (Quattrone, 2016). It
assist in estimating the cost of product for analysis of the profitability and cost analysis in order
to control the cost. It consist of direct costing and standard costing. direct costing is related to

the direct cost associated with the product manufacturing. standard costing uses the ratios in
order to compare the efficient use of labour and materials in order to produce the goods and
services. It is associated with the manufacturing cost of direct material, labour and overhead
expenses (Dekker, 2016). If the actual cost of manufacturing is less or more than standards than
the variance is identified.
Benefits of cost accounting system
 It helps in controlling the cost of organisation which assist in increasing the profitability
level of firm.
 It provide cost information to the management which is helpful in making effective
decision.
Inventory management systems : It assist in minimizing the wastage of inventory and
helps in controlling the flow of inventory as per the demand in the market. With the
implementation of inventory management system the firm is able to reduce their cost of
maintaining inventory and increases their profitability level (Maas, Schaltegger and Crutzen,
2016). The inventory management system in beneficial and helps in reducing the closing stock
which is left at the end of the period as the firm is able to manage the inventory in the effective
and efficient way by maintaining the level of inventory as pert he demand of customers.
Benefits of inventory management system
 It assist in improving the accuracy of inventory in organisation.
 It helps in reducing the cost of maintaining inventory.
Job costing system : It helps in accumulating the information about the cost which is
related ton the specific job on the basis of which the organisation is able to identify the profit
associated with each job and determine the level of success and growth in the job it is involved
(Otley, 2016). The job costing system accumulate the cost related to direct material, direct
labour and overhead cost. This system of management accounting is effective because it helps in
providing the information to the management regarding the cost which is involved in completing
each job and profit which is derived by successful completion of the job (Malmi, 2016). The job
costing system is useful for the management as it helps in making the effective decision for the
organisation through which the firm is able to achieve their targeted goals and objectives in the
effective and efficient manner.
Benefits

 It assist in determining the cost associated with the specific job.
 It help in identifying the job which is most profitable for the business (Bromwich and
Scapens, 2016).
The management accounting system provide cost information to the management which
helps them in making the right decision for the future on the basis of which they are bale to
improve the operational efficiency of the firm.
Integration of management account systems and management accounting reporting
Management accounting reporting and management accounting systems are integrated
because without the help of management accounting systems the management accountants are
not able to prepare the reports for making the decisions (Renz, 2016). The job costing system
assist in preparing the job cot report as it helps in identifying the information related to the
specific job on the basis of which the firm is able to effective decision for the organisation. The
organisation through the help of management accounting system in able to identify the
information regarding organisation operations which are being included in the reports on the
basis of which the firm is able to make the effective decision for improving the future
performance and profitability of the organisation. The cost accounting system helps in
preparation of the reports.
With the help of management accounting system the managers of Excite limited is able
to prepare the management accounting reports which will be helpful for determining the profit
margin and other financial and non financial information regarding the organisation and it
activities which will assist in improving the future performance and profitability if the firm
(Kaplan and Atkinson, 2015). The cost accounting system the Excite entertainment limited is
able to prepare the cost report on the basis of which it is bale to make the forecast for the future
and can reduce the future cost of products and services which will assist in enhancing the
profitability of the firm. Organisation through the use of using the integrated management
accounting accounting system is able to improve the operational efficiency of the firm.
Explaining different methods of the management accounting reporting.
Management Accounting reporting is defined as a process of preparing of internal managerial
reports and accounts by including all the statistical as well as financial information of the
company for a specific period. With the help of this report, the management and its stakeholders

are able to make decision effectively. This report assist company in measuring the performance
level, formulating plans and business strategies for the betterment of organisation and its
employees as a whole.
Excite Entertainment Ltd with the help of different types of management accounting reports can
improves its performance and make more profit. Following are report types:
1. Budget Report – The term budget is also known as financial plan which assist every
business organization in measuring its performance level. Budgeting is a tool in which
estimates are made related to the amount of future business expenses and revenue from
carrying on business operations. With the help of budget, forecasting is done for a
specific period of time (Cardinaels, Dierynck and Zhang, 2018). With the help of Budget
report, Excite Entertainment Ltd can make estimates about its future business expenses to
be incurred for conducting of business operations or expenses associated with the new
business operations. This report also helps in evaluating the estimated amount of revenue
to be earned form a specific future business operations. With the budget report, Excite
Entertainment Ltd can make comparison between actual outcome and estimation made.
This report helps manager in determining the areas which is incurring more cost expenses
and controlling such cost expenses by eradicating unnecessary business operations.
2. Account Receivable Aging Report – This report is best suited for those business
organization which is relying heavily on the credit basis for conducting of their business
operations. Account Receivable Aging report helps the company in assessing the time
period in which the company will be able to complete its collection process. This report
helps in determining defaulters in case of cash flow process. With the help of this report,
Excite Entertainment Ltd. Can easily evaluate as well as identify the remaining balance
of its clients from whom the amount of money has been due. It also helps the managers in
identifying the issues as well problems faced by Excite Entertainment Ltd related to the
money and cash collection process. This report can provide a detail about defaulters who
are delaying the cash collection process of the company. It is required by Excite Ltd to
formulate a strict credit policies and norms so as to improve its cash flow process and
minimizes the bad debt chances.
3. Performance Report – One of the most important report for every business organization
is the performance report. With the help of this report, company can measure the

performance level of its business as well as of its employees as a whole. This report
provides full detail about the success journey of the business operations as undertaken by
Excite Entertainment Ltd. It helps company in reviewing the performance of the
company as well as of each employee for a particular period of time. This report provides
deep insight about the working of the business and provides measures for improving the
overall performance level of the company (Asay, Libby and Rennekamp, 2018). With
this report, managers of Excite Entertainment Ltd can formulate better and key strategic
plans, decision and strategies about future business operations of the company.
Performance report play important role in every company by keeping track of
performance measure related to all the strategies and plans formed and ensures that
whether these are working towards attainment of business goals or not.
4. Cost Managerial Accounting Report – This report of management accounting provides
details about cost factor associated with the business operations of the company. With the
help of this report, the overall expenses incurred for manufacturing and producing a
product can be ascertained. Cost incurred for undertaking production function is
disclosed in the Cost Managerial Accounting Report. This report provides detail
explanation about cost related to raw material, overhead, labor and other business
operations. In short this report is a summary of cost expenses related to undertaking of
production as well as manufacturing business operations of Excite Entertainment Ltd.
This reports help the manager in realizing the cost prices of units produced in comparison
with its selling prices and thus assist Excite Ltd in determining the profit margin. With
this report, excite can make estimates of all future business expenses and can make
proper allocation of business resources accordingly in a cost effective manner.
SCENARIO 2
Income statement as per marginal costing and absorption costing
Marginal Costing- Marginal cost refers to the increase and decrease in the total cost of
production by adding one more unit in the production. These are the variable costs that contains
labour and material cost which adds up to the total cost to produce one more unit. It is used to
find out the impact of variable cost on the total cost of of product. Marginal costing helps to

show the effect of net profit if there is classification of total cost in variable and fixed cost. The
following are some advantages and disadvantages of marginal costing-
Advantages-
 Marginal costing technique is simple to understand and operate as it does not include the
fixed costs in cost of production
 Cost comparisons become meaning full as the current year fixed costs are not carried
forwards to next year.
 It serves as reliable measure in managerial decision making.
 It shows the clear impact on profit due to sales fluctuations.
 It can be combined with standard costing.
Disadvantages
 It is difficult in marginal costing to determine the degree of variability. '
 It is based on the assumption that the fixed costs remain constant and the variable costs
changes as per the level of output but in reality fixed costs are not constant.
 It excludes fixed cost.
 Does not include variable overheads.
 Difficulty in taking quality decisions.
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
Contribution 102000

Less- Fixed Cost -40000
Profit 62000
Interpretation- From the above income statement it can be observed that the calculation of
contribution does not include the fixed cost of production and is deducted later from the
contribution as it is fixed and is not considered first.
Absorption Costing- Absorption costing is also known as “full costing” which covers all the
cost of operations consisting of both variable and fixed costs of production. IN absorption
costing the cost per unit changes as there is change in the level of output and remains same when
there is no change in the level of output. The following are the advantages and disadvantages of
absorption costing-
Advantages-
 It covers all the costs to fix the price.
 It interprets correct profit calculation.
 It fulfils the matching concept principle of accounting which include matching costs with
the revenue.
 It avoids separation of cost into fixed and variable elements.
 It helps to calculate the gross profit and the net profit separately in the income statement.
Disadvantages-
 Difficulty in comparison and cost control.
 Not useful in making managerial decisions.
 Not useful in preparation of flexible budgets.
Income Statement (Absorption Costing)
Particulars Amount
Sales 8000 units @ £15 120000
Less- Opening Stock -2000

Less- Variable Cost of
Production 10000 units @ £2
-20000
Less- Fixed Production
Overhead
-40000
Contribution 58000
Profit 58000
Interpretation- From the above income statement of absorption costing it can be observed that
in that the fixed cost of production is included and deducted from the total sales to calculate the
amount of contribution.
SCENARIO 3
Advantage & Disadvantage of Planning Tools used for Budgetary Control
Budget- Budget is a plan made by accountant & manager of a business organisation to
forecast its future financials. With the help of budget a company is able to assess its future
profitability & revenue. Different types of future financial plans are prepared by business to run
each of its business activity in an efficient manner.
Further, Budgetary Control is a technique through which internal managers of an
organisation are able to monitor actual business performance according to future plan and set
new goals accordingly. Managers also make decisions for performance improvement if there is a
difference between actual & budgeted performance. Thus, this play a significant role in
management decision making process.
Different types of budget
Sales Budget- An estimation related to futures sales volume of a company is made
marketing & sales manager of company is known as Sales Budget. With the help of this budget
managers of Excite Entertainment Ltd are able to make decision related to production and make
investment decisions. Further, this budget is prepared on the basis sales volume, price per unit
and discount. Objective behind formation of this Budget is Sales Maximisation which in turn

helps Excite Limited in increasing its Brand Image & Customer Base(van Helden and Uddin,
2016).
Advantages
 Excite Limited is able to allocate its resources and able to utilise its resources in an
effective way with the help of Sales Budget.
 All the business activities of company such as marketing, distribution and production can
be improved with the help of future sales estimation. Thus, Excite Limited is able to
achieve its financial target with this budget.
Disadvantages
 Sales Estimation is made on the basis of historical trend than sometimes this may give
inappropriate results. This method is costly and take much time.
Cash Flow Budget- A future plan which involve detailed information of future cash
outflow & inflow of a company. Thus, this planning tool benefits Excite Limited in managing its
cash.
Advantages
 Cash Budget benefits Excite Limited in determining its income & expenditures and on
that basis managers make decisions related to elimination of unnecessary cost.
 Company never face problem of shortage of funds if a appropriate future cash plan is
made.
Disadvantages Various economic factors such as Exchange Rate, Interest Rate and Tax Rate changes
according time to time and that negatively effect Cash Budget of business organisation.
Thus, managers of Excite Limited are required to monitor these economic factors.
Production Budget- Production Budget is prepared by production manager of company
in which estimation related to cost like cost of material, labour and overheads are determined so
manager can manufacture product at a lower cost.
Advantages
 Production Budget benefits managers in determining high profit margin by reducing
unnecessary cost involved in production process.

 With this budget managers of Excite Limited are able to fulfil demand of its customers by
providing them quality products at an affordable price.
Disadvantages
 Preparation of production budget is very time consuming process as production managers
is required to analyse innovation in production process and select the best production
technique(Tucker and Schaltegger, 2016).
SCENARIO 4
Comparing how organisation adopts management accounting systems in responding to financing
problems
The business organisations used different techniques and systems of management
accounting to reach a solution on the financial problem faced by the company. Excite limited is
also presented with two management accounting techniques to solve its financial issues and
attain long term sustainability and ensure growth and survival of business. The two options that
Excite limited must engage are presented below :
The cost, volume and profits analysis:
The cost volume and profit analysis is used by Excite limited fro determining the changes
in the cost and volumes and affecting the operating income and net earning of the company.
While carrying out this calculation there are certain assumptions which the organisation do
consider. The main assumption is related with certain factors or variable in the calculation
remain unchanged through the calculations. The constant variable in the cost volume and profit
analysis are sales price and variable cost per unit, total fixed cost, the whole units which are
produces gets sold and the only affected variable is the cost because of the change in the level
of activity.
With this analysis the organisation Excite limited gets effected through change in the
cost and sales volume as change in the profitability of the company. With this analysis the
company effectively solving the financial problems and increase the consumer base of the
company. With this analysis the manages of Excite limited will be able to evaluate the impact of
different cost and revise the cost which have direct effect on the profits of company (Kaplan
and Atkinson 2015). The profit of the company are indicting a fall due to rise in the variable cost
and the same is found out through the CVP analysis. This calculation is done by computing the

contribution margin and its ratio. In this ratio all cost are deducted to determine the reason for
changing in the level of profits.
Computation of contribution:
Particular Amount in £
Sales revenue 120000
Deduct variable cost 16000
Deduct prime cost 32000
Contribution 72000
Fixed cost 40000
The contribution imaginal ratio
(Contribution /sales)*100
= (72000/12000)*100
0.6
Break even sales volume
Fixed cost/ contribution margin ratio
40000/0.6
66000

From the above calculations it can be stated that the profits of the company Excite limited
changes due to variation in the sales volume and the variables cost where other cost remain
consent. The company can earn a profits and reach at a profitable situation by selling 66000 unit
in a year.
Break even analysis:
The break even analysis lets the Excite limited determine what it needs to sell in a month or year
to cover all its cost while carrying on business activities which is the break even pint of the
company after reaching that the company can enter to the profitable zone (Tappura and et.al.,
2015). For calculating the break even point the fixed and variable cost both are considered as
well as the revenues per unit of sales. The break even point defines the same unit which company
is required to sale in order to make profits and the managers of he company takes effective
measure to reach at the level of break even quantity.
Calculating of contribution margin per unit
Particular Amount in £
Sales prices per unit 40
Variable cost per unit 10
Contribution margin per unit 30
Budgeted Fixed Cost 120000
Calculating the break even quantity
Break Even point
Fixed cost / contribution margin per
BRQ= 120000/30
4000 units
Calculating the units sold to earn a profit of 60000:
Unites required to be sold to earn target profit
(Total Fixed cost+ profits) / contribution margin per

BRQ= (120000+6000)/30
180000/30
6000 units
Units Sales Revenue Total variable
cost
Total fixed cost Total cost Profit
1000 40000 10000 120000 130000 -90000
2000 80000 20000 120000 140000 -60000
3000 120000 30000 120000 150000 -30000
4000 160000 40000 120000 160000 0
5000 200000 50000 120000 170000 30000
6000 240000 60000 120000 180000 60000
7000 280000 70000 120000 190000 90000
8000 320000 80000 120000 200000 120000
9000 360000 90000 120000 210000 150000
10000 400000 100000 120000 220000 180000

From the above calculation it can be stated that to reach at the profits level the minimum
units required to be sold by Excite limited are 4000 units (Höglund and et.al., 2016). At this sales
level the company will be at no profit and no loss situation. To earn a profits of 60000 the
organisation is required to sale at excat 60000 units.
CONCLUSION
From the above assignment It has concluded about management accounting which is used
for internal purpose in order to make the decision and formulate strategies for the future in order
to improve the operational efficiency of the organisation. It has determined the different
management accounting system which provide different information to the management in order
to help them in making effective decision for improving the operational efficiency of the firm.
The management accounting systems consisted of inventory management system, cost
accounting systems and job costing system. It also provided information regarding the different
management reports which are used by managers for recording the information which consist
budget reports, performance report, account receivable ageing report etc. Moreover, It has
provided information regarding the absorption costing and marginal costing which assist in
preparing the income statement. It has also provided information regarding the planning tools
which are used in budgetary control that consist of cash flow budget, sales budget, production
budget etc. It has differentiated between the management accounting and financial accounting

which has provided information that financial accounting statement are being used by both
internal and external users whereas management accounting reports are being used by the
internal users of the organisation.

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