Management Accounting report for

Excite Entertainment Ltd

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Table of Contents
Introduction...................................................................................................................3

LO1...............................................................................................................................3

P1 Understanding Management Accounting Systems.............................................3

Management accounting.......................................................................................3

Financial and management accounting................................................................3

Cost accounting.....................................................................................................4

Inventory management system.............................................................................4

Job costing system................................................................................................4

Business context benefit analysis.........................................................................5

P2 Methods used for Management Accounting Reporting.......................................5

Different managerial accounting report types...........................................................5

Budget reporting and performance report.............................................................5

Account receivable aging report............................................................................6

Job costing report..................................................................................................6

Inventory and manufacturing report......................................................................6

Information presentation requirements.....................................................................6

Integration approaches of the management accounting reporting and systems......7

Budgeting and performance report.......................................................................7

Inventory and manufacturing report......................................................................7

LO2...............................................................................................................................7

Income statement using marginal costs...................................................................7

Income statement using absorption costs................................................................8

Application of management accounting techniques for financial reporting..............9

(LO3)...........................................................................................................................10

Three types of planning tools employed in management accounting....................10

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 Effectiveness of types of planning tools..................................................................11

Advantages and disadvantages of various kinds of planning tools employed for

budgetary control....................................................................................................11

Analysis of the usage of various planning tools......................................................12

Application of various planning tools for organizing and forecasting budgets........13

LO4.............................................................................................................................13

P5 Financial problem and the management accounting process adaptation.........13

Conclusion..................................................................................................................14

References.................................................................................................................15

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Introduction
Management accounting process is a useful decision making and business internal
management tool. In this report the organisational context of Excite Entertainment
Ltd has been taken to understand the different aspect of management accounting.
This report would first show the management accounting understandings. Then the
accounting technique application, planning tool assessment and the financial
problem related management accounting responses would be discussed in this
report.

LO1

P1 Understanding Management Accounting Systems

Excite Entertainment Ltd is a business operating in the entertainment and leisure
industry of UK. in this report the following explanation would be thus be written
considering the context of this organisation.

Management accounting
Management accounting is the processed financial report that are produced after the
assessment if the operational and cost related information to aid the manager in their
business strategic, operational or tactical decision making process (Otley and
Emmanuel, 2013). in this process the business goals are given prime importance to
assessment the business external and internal environmental information. Internal
financial information like receivable, payable, liquidity and debt position, revenue and
inventory position and so on are collected in the form of raw data (Blocher et al.,
2010). At the next level those data are processed and analysed combining with the
business external data like the competitors position, market situation both macro and
micro ones. This final produce is a compact knowledge base which would be useful
for the informed choice making process of the business managers.

Financial and management accounting

Management accounting process provides the information and knowledge for the
business internal use and decision making process (Otley and Emmanuel, 2013). in
case of the financial accounting the final report are used by the external stakeholder

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like the shareholders, creditors, government and others. Management accounting is
not compulsory but useful for the better decision making process whereas the
financial accounting is legally bounding for a structured business (Ward, 2012).
Another important difference is the frequency of development. Management
accounting does not have a well defined publishing period and is done as per the
management need whereas the financial accounting is more produced after the end
of any accounting period.

Cost accounting
In the cost accounting process the business determines the project, process or
product cost. This process helps the management in analysis of profitability, cost
control and inventory management. This cost process is managed through standard
and direct costing process assessment. In the standard costing process the overall
or few cost based on the activities in the business are processed. This process helps
in the business cases where the calculations are time consuming for the actual cost
collection (Kotas, 2014). In those cases the standard costing is the preferred
approach. In large organisations this approach is rarely used for the end inventory
calculation but this approach is useful for the budgeting, inventory costing, overhead
cost calculation and price formulation like activities within the organisation.

On the other hand the direct costing process is used to calculate cost based on the
variable cost of the business. This elimination of the fixed cost at the time of cost
calculation make this approach useful for the shorter term based decision making
process. Thus the incremental nature of cost calculation from the previous year is
the essential nature of this approach as the fixed cost is eliminated (Blocher et al.,
2010). This kind of cost is generated at the time of product manufacturing and with
the increase level of production the cost increased incrementally.

Inventory management system

In this system the main goal is to optimise the inventory use as that would positively
impact the profitability. Different business processes like the turnover and
warehousing, tacking and shipping, recording and receiving of materials are used for
the calculation.

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Job costing system
The revenue and cost is understood in this system from the perspective of jobs in the
operation and thus the standardised reporting approach would be appropriate. This
process of accounting is more suitable for the manufacturing jobs and not the
processes (Garrison et al., 2010). The material, overhead and labour cost are
calculated in this system. Outsourcing or working as out sourcing agency has better
use of this system.

Business context benefit analysis

In Excite Entertainment Ltd management accounting process is followed for the
development of better decisions. One of their important activities is the festivals and
concerts promotion across the UK. the business environment of UK is not stable
because of the political turmoil and businesses are closely watching the situation
before taking any important decision (Colantone and Stanig, 2018). In that context
Excite Entertainment Ltd is using the management accounting process to gather the
data from the business to understand the change in the situation. These business
internal data would be then compared and contracted with the business external
environmental situation to deliver effective knowledge to the managers for their
decision making. The direct cost based approach of costing process is looking to be
more suitable as the current political turmoil based external market environment is
expected to be resolved within short time. The inventory management system would
be an important tool under this uncertain business environment to optimise the profit
(Kotas, 2014). Number of event needs to be assessed effectively for the planning the
promotion and subsequent inventory activities. Excite Entertainment Ltd’s business
is not manufacturing rather a service oriented business. Thus the job costing system
would have limited use.

P2 Methods used for Management Accounting Reporting

Different managerial accounting report types

The management accountings are reported through different reporting formats and
those are as follows.

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Budget reporting and performance report
The budget report is developed as a planning tool of expenses in an operation. this
assessment and reports are prepared by each department of Excite Entertainment
Ltd and then those are summed up in the master budget. The projected and actual
expenses then are assessed through the variance analysis in performance report.
Excess expenses are then managed through effecting managerial actions (Garrison
et al., 2010). This performance report when prepared in a periodic manner helps the
managers in managing the business as an interim manner.

Account receivable aging report

This report is for the management of debtor and cash flow in the business. Excite
Entertainment Ltd promotes the festivals and concerts of others. Thus those
businesses are liable to pay against this service (Otley and Emmanuel, 2013). This
report helps the managers to asses this position, credit policy against the cash flow
in the business and so on. Appropriate decisions are taken based on this report to
improve liquidity into the system.

Job costing report

This report is developed based on different manufacturing job done in the operation
to help the management choose the most cost efficiency and profitable jobs
(Macintosh and Quattrone, 2010). Excite Entertainment Ltd is in the service industry
and not in the manufacturing industry. Thus they have limited use of this report.

Inventory and manufacturing report

This report is helpful for the manufacturing and inventory management process
efficiency improvement. The inventory, labour and other indirect cost are assessed in
this report. Excite Entertainment Ltd uses the inventory report for their efficiency
inventory management considering the current market demand.

Information presentation requirements

In the management accounting and reporting the information needs to be presented
in a accurate manner and those must also be relevant. In absence of that the cost or
profitability calculation would be false. This would impact the effective decision
making. on the other hand the information must be reported in a timely manner with
higher level of reliability (Otley and Emmanuel, 2013). This aspect would help the

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accounts personnel to prepared report using current data with higher level of
confidence in their recommendations.

Integration approaches of the management accounting reporting and

systems

Budgeting and performance report

In case of Excite Entertainment Ltd these two reports would be useful to be
produced differently. The budget would be prepared for the year ahead. On the other
hand the performance report would be produced quarterly to assess the situation
and do the controlling activity (Macintosh and Quattrone, 2010). this would show that
better compliance with the budget expenses at the yearend final performance report

Account receivable aging report

This report would be better prepared when timely and reliable data is collected from
the internal process. This to help in the faster decision making process and would
lead to effective outcomes.

Job costing report

Excite Entertainment Ltd would use the job cost report when some of the service
would be outsourced and delivered. This would help them better manage cost in this
structure (Ward, 2012).

Inventory and manufacturing report

The inventory requirement as per the project events would be followed to prepare
the inventory report and in absence of manufacturing process now such report would
be produced.

LO2

Income statement using marginal costs

Income statement as per Marginal costing , Excite Entertainment Ltd
  £ £
Sales 120000
   
Less variable cost  

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 of goods sold:
   
opening inventory 1000  
Add variable cost of 20000  
goods
manufactured
cost of goods 21000  
available for sales
less closing 4000 17000
inventory
   
   
Contribution 103000
margin(£)
   
Less indirect fixed 40000
overhead cost
   
Direct fixed cost 20000
   
   
Net profit(£)     43000

The sales for Excite Entertainment Ltd are found to be £ 120000. The cost of goods
available for sales for the company is estimated to be £ 21000. The variable
overhead costs incurred in the company are found to be £ 20000. On this basis, the
contribution margin for the company is calculated as £ 103000. However, in the
given case, it is mentioned that the amount of £ 16000 and £ 40000is incurred by the
company as the direct and indirect fixed cost. Therefore, the net profit for the
company, using marginal costing method, is calculated as £ 47000.

Income statement using absorption costs

Income statement as per Absorption costing , Excite
Entertainment Ltd
  £ £
Sales 12000
0
   
Less cost of goods sold:  
   
opening inventory 2000  
Add variable cost of goods manufactured 4000  
0

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 cost of goods available for sales 4200  
0
less closing inventory 8000 34,000
   
gross profit(£) 86,000
   
  0
   
Less fixed cost 40000
   
   
Net profit(£)     46,000

In the given income statement, it is found that cost of goods available for sales for
the company is estimated to £ 42000. On this basis, the gross profit for the company
is determined to be £ 86,000. However, the variable cost of goods incurred in the
company are found to be £ 40000. The fixed cost incurred in the company is found to
be £ 40000. Therefore, the net profit earned by Excite Entertainment Ltd is
determined as £ 46000.

Application of management accounting techniques for financial

reporting
There are various techniques of management accounting that are used for financial
reporting. Some of the techniques are mentioned below:

 Financial Statements with the help of Ratio Analysis

 Analysis of Cost Variances
 Standard Costing

With the help of ratio analysis, the validation for decisions made in respect of
financing, investment and operating activities are analysed. In this manner, it helps in
preparing cash flow statement for the company, which is considered as a part for
financial reporting (Henttu-Aho, T., 2016). Due to this reason, the technique of ratio
analysis is used for the development of financial reporting.

With the implication of Analysis of Cost Variances, the variances present at different
levels are detected. On this basis, the existing variation is informed to the
management. This helps the accounting manager in taking the required decisions

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regarding preparing the financial report for the company. With the application of the
technique of standard costing, the GAAP requirements formulated by the authorised
institutions are met by the company (Ibrahim, 2018). In this manner, the preparation
of financial reporting is being done in an appropriate manner. It is observed that with
the help of standard costing, a company is able to decide a cost for manufacturing a
product. This assists in determining the requirement of various aspects such as
manufacturing overhead, material and labour. It helps in making the required
decisions in respect of costs for direct labour, manufacturing overhead and direct
material. On this basis, the incurring amounts of these costs are controlled by the
accounting manager for the company (Stea and Andresen, 2017).

(LO3)

Three types of planning tools employed in management accounting

Three types of planning tools that are used in the management accounting are
mentioned below:

 Marginal costing
 Financial Statement Analysis
 Standard Costing

Marginal costing is considered as an accounting system that includes variable cost

along with fixed costs incurred during a particular period. In this tool, the fixed costs
are written off towards the combined contribution incurred during the particular
period. Financial Statement Analysis includes the accumulation of understanding the
financial condition of a company. This is done with the help of analysis of financial
reports for the company. Standard Costing is regarded as the costing tool that helps
in making comparison between the standard costs as well as revenues and the
actual results (Stea and Andresen, 2017). This is being done for obtaining the
variances existing in the accounting system of a company. From the above
discussion, it can be said that Marginal costing, Financial Statement Analysis and
Standard Costing include different components for the development of planning. The
use of each tool is different for the purpose of management accounting.

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Effectiveness of types of planning tools
With the use standard costing, the variances involved in the accounting system are
identified. On this basis, the manufacturing cost of a company is determined. With
the determination of variances, standard costing assists the accounting managers in
making comparison between actual costs and profit margins. With the application of
marginal costing, fixed and variable costs are divided. This helps the accounting
manager in controlling the cost incurred in the operation system of a company. The
use of marginal costing leads to the valuation of work-in-progress with higher degree
of reliability (Mirgorodskaya et al., 2017). This is considered to be most effective for
the introduction of a new line of product.

The utilization of financial statement analysis, the accounting managers of a

company is able to take appropriate decisions in respect of accounting system. The
financial position of a company is evaluated in a detailed manner with the help of
financial statement analysis. The operational metrics used in the accounting system
are identified. On this basis, the changes required in the operational metrics are
identified and imposed in the accounting system of the company.

Advantages and disadvantages of various kinds of planning tools

employed for budgetary control
There are three types of tools used in budgetary control, which is mentioned below:

 Budget
 Cost volume profit analysis
 Pricing Strategy

With the use of budget, the statement for expected financial results of a company is
prepared. This helps in the estimation of expected revenues and expenditures to be
incurred in an organization for a particular period of time. With the help of budgets,
activities performed in different departments are coordinated. However, the
application of budget is a rigid process (Mohamed et al., 2016). Therefore, the
changes in business environment become an issue for the budget tool.

It is seen that the use of Cost volume profit analysis require certain calculations. The
calculations included in Cost volume profit analysis are easier in comparison to the
other calculations. This is considered as one of the major advantage regarding the

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Cost volume profit analysis (Budugan and Georgescu, 2008). However, an
assumption is made for the application of this tool. According to Cost volume profit
analysis, sales for an organization remain constant with the change in demand.
However, this is not valid in the real business surrounding. Therefore, this
assumption is regarded as its disadvantage (Yuan, 2009).

With the help of pricing strategy, the gross margin and cost for a particular period is
determined. In this manner, the prices are optimised in the best possible way. This is
considered as an advantage of the pricing strategy. However, with the use pricings
strategy, some companies apply penetration pricing which might not lead to
profitability in all business scenarios (Jiang and Shen, 2017).

Analysis of the usage of various planning tools

There are various uses of budget in management accounting. Budget is used as a
tool for making various decisions in accounting terms. The use of budget leads to the
development of a financial framework. The framework assists in the analysis of
various financial aspects. On such basis, the required financial decisions are made
in an organization. It is seen that one of the main purpose of budgeting is measuring
the actual performance of a business against the expected business performance.
On this basis, the difference between budgeted expenditure and actual expenditure
is identified by the accounting manager (Utami and Harahap, 2017). This helps in
reducing the expenditure incurred in the operational process of a company.

It is observed that the Cost volume profit is used for the estimation of business
environment. This is done for the management of the future operations that would
take place in the company. In this manner, the operations taking place in an
organization is controlled by the accounting manager. The pricing strategies are
used in an organization for achieving profitability within a less span of time
(Abubakar and Stephen, 2018). With the help of pricing strategy, the company is
able to quote the price of a product in a competitive manner. This assists the
company in gaining competitive advantages over the rivalries existing in the market.

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Application of various planning tools for organizing and forecasting
budgets
One of the primary objectives of budget is forecasting the income and expenditure of
a company. The income and expenditure is considered as main components for
development and forecast of budgets of a company. On this basis, it can be said that
budgeting is one of the tools used for preparing and forecasting budget. It is found
that Cost volume profit analysis is one of the useful tools for forecasting. The
process of Cost volume profit analysis includes the procedures for profit forecasting
(Karpenko et al., 2017). Due to this reason, the tool of Cost volume profit analysis is
used for organizing and forecasting budgets of a company.

LO4

P5 Financial problem and the management accounting process

adaptation
Sales Variable Total Total Fixed Total cost ( Total
of cost(£’00 revenu contributio cost(£) £) profit
units 0) e n (£)
(£’000) contributio
n
2000 20000 80000 60000 1,20,000 140000 -60000
2600 26000 104000 78000 1,20,000 146000 -42000
3380 33800 135200 101400 1,20,000 153800 -18600
4000 40000 160000 120000 1,20,000 160000 0
5200 52000 208000 156000 1,20,000 172000 36000
7000 70000 280000 210000 1,20,000 190000 90000

The above calculation shows that the fixed cost, variable cost and selling proposed
price would be need around 4000 unit sales to reach the breakeven. Continuing this
trend £90000 profit level would be reached by selling around 7000 units of products.
This higher sales volume would be difficult to reach for the £90000. The marketing
department needs to formulate better marketing promotional plan to increase
demand in the market. On the other hand the finance manages has been able to see
that the profit margin is not suitable for the long term goal of the business. Thus in
consultation with the marketing management the proposed selling price for every
unit. This would increase the margin of profit but this decision must met the

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consumer expectation or else the sales would fall and the potential revenue at the
same time (Kaplan and Atkinson, 2015).

The financial problem of this nature can be directly dealt with the financial indicators
like the return of investment, cash flow management process, profitability ratio
management process and so on. These tools would help in understanding other
approaches like reducing cost in doing business (Ward, 2012). Higher level of
efficiency thus would reduce the cost and improve the margin. This process would
help in reaching the targeted profit level at lower sales volume.

The non financial indicators would also be useful in this management process. The
competitors position, market situation information would help in understanding
market demand and thus would impact the pricing or other decisions. Variance
analysis is a statistical method that would help in understanding the further scope of
effective planning and reducing cost in the operation to meet the long term business
profitability goal (Kaplan and Atkinson, 2015).

Conclusion
It can be concluded that various planning tools are used for management accounting
of a company. This helps in development of budget for the company for a particular
period of time. Various decisions are made with the application of tools and
techniques of management accounting. All these aspects have been discussed in
the paper in a detailed manner.

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