Management Accounting and Its Applications

The given project report demonstrates that management accounting can be beneficial for managers in dealing with financial issues. It enables internal stakeholders to analyze a company's actual performance and operational activities. Planning tools help forecast and estimate budgets by analyzing possible future expenses. Various management accounting reports provide valuable insights into an organization.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
a) Differences between Management Accounting and Financial Accounting.......................1
b) Cost accounting system......................................................................................................2
c) Inventory management system...........................................................................................2
d) Job costing system..............................................................................................................3
e) Different types of Management Accounting Report..........................................................4
f) Importance of the department producing timely, accurate and relevant information.........5
LO 2.................................................................................................................................................5
a) Break even analysis............................................................................................................7
(b) Total number of ticket needed to be sold..........................................................................7
(c) Calculation for desire profit..............................................................................................7
LO 3 &4...........................................................................................................................................8
a) Planning tool and problem solving tools to lead the organisation to sustainable success..8
b) Financial governance to respond to financial problems.....................................................9
CONCLUSIONS............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Managerial or management accounting refers to the process of collecting, analysing,
assorting, identifying, posting of financial information in annual report that help them to make
effective strategies and achieve organisation goal. In general, it is also defining as the cost
accounting as it includes recording of each and every expenses and income for financial year.
Ever joy enterprises is one of leading company in UK that operate its business in leisure and
entertainment industry. As management accountant the overall aim of this unit is to introduce
the fundamentals of management accounting to this Ever Joy enterprises.
In this project report different management accounting system and report are discussed.
Various costing method are applied to to calculate net profit margin and importance of planning
tool that help in making budgets are shown. Different accounting approaches are discussed to
solve financial problem within company.
LO 1
a) Differences between Management Accounting and Financial Accounting
Management accounting is a process of evaluating different cost incurred in business and
operation activity to form internal financial annual report. Whereas financial accounting is
related to the process of planning, directing, monitoring, organizing and keeping fully control on
monetary and other resources of company. It is related to recording of useful financial data that
help manager to make decision related to operation and performance of employee so that
business goal could be achieved. There is various system of management accounting that help in
easy recording of cost, jobs, performance, price that have be involved in production process and
making company to work effectively. Management accounting system work at each level in
company that help managers to record every single transaction happened with organisation such
as non-financial information too (Mistry, Sharma and Low, 2014). There is different role of
management accounting such as to make sure about the security of financial data of company,
overview and pass opinion on all financial matter and helping manager to make strategies to
achieve company goal. Principle of management accounting are developed in the context to
provide help internal management and improve decision making process to support organisation
goal. These basic principle gives direction on identifying past, instant and coming information
that regard financial and non-financial data from internal and external origin.
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Difference between management and financial accounting:
Basis Management accounting Financial accounting
Objective
Role
This process is related to
developing report from financial
information that is helpful for
internal manager to make effective
decision and ascertain ways to run
company more efficiently.
It aims at providing both qualitative
and quantitative information to
manager.
This process is related to forming of
financial statements for external parties
which are shareholder, investors, public
regulator etc. with proper accepted
accounting principle.
It aims on providing true and fair value of
the financial position of company to
different parties.
There is various accounting system such as job costing, inventory system. In Ever Joy
enterprises management applies different management accounting system that help them in
proper working that have been discussed below:
b) Cost accounting system
Cost in management accounting means the process of reducing expenses from operation
and production process so that less expensive product is being offered to customer. This system
is related to estimating the faithful of cost of different product and services so that profitability of
company could be determined. In Ever Joy enterprises manager tries to control expenses and cost
involved on promotion activity and amount spent on improvement of entertainment services.
There are basically two type of cost direct and standard that are being formulate by manage of
company. Direct cost refers to that price that could be instantly attributed to the manufacture of
specific product for example deprecation and administrative expenses. Whereas standard cost
means estimated expense/cost that is going to be incurred on production of good and spend on
performance of services for example cost of labour, material and other overheads (Moser, 2012).
There are various types of costing techniques such as:
 Normal: These are direct cost that are assigned to jobs at the time they incurred.
Production overhead is being applied using pre-determine overhead rates.
 Actual: Under this cost production overhead is assigned when the actual value is taken
into account.
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 Standard: These are specifically related with the manufacturing overhead that is
applied by using predetermined overhead rates.
c) Inventory management system
Inventory management system: Inventory is a common word use for stock and goods
available for sale and remaining raw material which is stored to produce product. This system
helps an organisation to keep detail of moving parts and product into and out of location. Proper
management of inventory is an important factor to maximise profit as manager get the exact
information about finished goods, product that in transit and availability of raw material.
Manager of Ever Joy enterprise uses this system to record number of material required to provide
entertainment to customer. With the detail information of the stock manager can control cost on
production and increase faithful price of services so that profit of company could be maximising.
There is various method of this system such as FIFO, LIFO, JIT etc.
 FIFO: It is basically related with that kind of assumption that are often used to remove
all specific cost from the stock account in respect to an item in stock had been buy at
varying costs.
 LIFO: This seems to be used in place of an accounting value on stocks. This would be
operating under the assumption that last stock purchased is the firstly sold.
 AVCO: It is calculated by dividing the cost of goods sold in stock through the number
of products in inventory at any given point of time.
d) Job costing system
This system is related to calculate and measure cost involved on individual job that are
performed in an organisation to run different operation. Job costing system involves keeping an
account of each direct and indirect cost that are applied on job performed in company.
Management of Ever Joy enterprises apply job costing to analyse direct and indirect single job
cost that is obtain in providing services to customer. This system assists them to control cost
spend on individual if required and increase the efficiency of their business operation. For
example, company run project This system helps them to ascertain total cost incurred on
individual working on that project.
 Process costing: It is said to be one of the accounting method that can be traces direct
cost as well as indirect costs of production process.
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 Batch costing: It refers as that specific form order costing. It is more similar to job
costing. Each batch is having certain identical units but each unit must be different.
Costing Accounting System:
It helps in estimating the cost of upcoming budgets with the help of previous budgets.
With the help of this, Ever Joy Enterprise will get to know about the excess cost and they can
eliminate that cost. And by eliminating excess cost, the profit of enterprise will be increased.
Job Costing System:
Job costing system is helpful to assign the cost to each particular job which is performed
in an event. As with the help of this Ever Joy Enterprise can get to know about their profitable
and non-profitable jobs.
Inventory Management System:
This is helpful for maintaining the inventories of the firm. With the help of this system,
inventories can be maintained in effective and efficient way, which ultimately effect on the
profitability of the company (Ruiz-de-Arbulo-Lopez, Fortuny-Santos and Cuatrecasas-Arbós,
2013).
Price optimisation system:
The main benefits of this system is that it provides manager with useful information that
help them to set effective price of their services so that customer are attracted and their need
must be fulfilled. It is an important system for company Ever Joy as their manager are attempting
to expand their services.
e) Different types of Management Accounting Report.
Management Accounting reports, which are prepared by the companies, to know the
actual financial position of the company. These reports are very helpful for the management to
take the finance related decisions. The reports are prepared at the end of every quarter, which
helps the companies in decision making. In addition, it is recording of business data into reports
that are created by the director and conferred to internal investor to ascertain the presentation and
profitability of the company. There are various kind of report which are as follows;
Budget Report:
Budget reports helps the companies to know the actual expenses that an organisation
occurred. After the evaluation of prior year expenses, it becomes the helpful to anticipate the
budget for upcoming year. Ever Joy Enterprise can prepare this report by evaluating the
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expenditures occurred in the previous events, accordingly they can prepare a budget report the
for the future events. This also help them to examine the financial position and wealth of
company in an accounting year they also monitor revenues the help of budgets. For example, in a
particular month company spend more than there earning, so this report helps them to fix
problem of more earning.
Job Cost Report:
This provided the total expenditure incurred in the project in compare to the income
generated by that project. With the help of this report the management comes to know about the
total direct and indirect cost incurred on each individual. Manager of Ever Joy company maintain
these report to keep detail information about total expenditure on job of employee working to
provide satisfactory services to customer (Schaltegger and Csutora, 2012). For example,
company provide gaming services to its customer so this report helps their manager to record
total cost of individual job employed on those services.
Account receivable report:
Account receivable report are mainly generated by the companies who are providing
goods or products on credit to the customers and clients. It helps to get the exact outstanding
amount of debtors. Through this report Ever Joy Enterpriser is able to know the which invoices
are overdue for the payment procedure. Contact information for each customer is also provided
by this report. Management of Ever Joy Enterprise can know the effectiveness of credit and
collection function through this report. It also helps manager to determine problem in credit
policy and improve collection process.
Inventory management system: Through this report manager keep the detail
information about inventory and stock availability within an organisation. With the help of these
report supply chain of company is improved and different precaution could be made to to save
inventory and finished goods. This report help manager of Ever joy company to maintain total
availability of stock, goods in transit and keep track of total finished goods and services.
f) Importance of the department producing timely, accurate and relevant information
Different accounting report and system are useful to every organisation weather it is large
of small size that help them to grow and expand its business. Various accounting report record
different financial useful information such as budget report help in estimation of overall
expenses will be spend on different services, account receivable report keeps the list of those
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buyer which have not made payment till date. Whereas inventory management system keep
detail track of stock available in company and job costing report are help to manager as it
provide the record of total amount spend on individual job.
Advantage of sound accounting system:
Accuracy: It is essential for an organisation to make use of computerised accounting
system so that chances of errors should be avoided. All the data need to be record into their
respective format so that real data can be record into their respective statement.
Automation and productivity: A computerised accounting system has been eliminating
cumbersome as well as increase the overall productivity of an organisation.
Advantages of timely production of accounting information to both internal and
external stakeholders
The primary motive of this research is more usefulness of accounting information in order to
get effective business performance. Henceforth, it is crucial for internal as well external
stakeholders to make right decision at the right time. The impact of AIS on components of
organisation financial performance before making any kind of action for the motive of earning
maximum revenue during the time.
LO 2
Cost is the essential part of every project. It is pre decided before making the project
management plan. So It, should be minimum so that profit margin can be increase and try to
minimise the wastage in the project so that abnormal wastage can be avoided. There is different
type of cost such as fixed cost, variable and semi-variable cost, marginal cost, opportunity cost
and economic cost. In business, cost analysis is defining as the measure of cost spend on
production of good it means that ascertaining the value of inputs such as raw material which help
in deciding the optimal level of production.
Cost volume profit analysis is related to one of the important method of cost accounting
that focus to find out breakeven point for various sales volumes and cost structure that is further
useful for manager to make short-term economic decision. In company Ever joy manager analyse
cost volume profit to ascertain the efficient point where highest profit could be ascertaining by
including total cost incurred on that services. Flexible budgeting is the calculation of various
expenses done at every level for variable cost that depend on changes in actual revenues earned
by company. It is a financial plan that is created upon estimation of revenues and expenses based
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on the current amount output. Every Joy enterprise provide entertainment services so their
manager uses flexible budgets to estimate total amount spend on maintenance of these services
on the basis of amount spend in current period (Ward, 2012).
Cost variance is one of the important part of cost accounting as it calculates the
difference between the total cost and budgeted cost. For example, if Ever Joy had actual
expenses of $780 and their manager budget amount of $600 so the company has a variance or
$180.
Marginal costing: It is a coding system where variable cost is charged to cost units and
the fixed cost scene to the applicable period is carved off in full against the input for that period.
This costing is also known as variable costing also only variable cost are assembled as cost per
units is determined depending upon variable cost.
Absorption costing: This method helps to ascertain of total cost that is connected with
production of a particular product and commonly known as full costing method. Absorption
costing method includes everything which is a direct cost involved in producing a product as the
cost base.
Fixed cost does not change with the changes in production of good, variable cost is
totally depends on the output of product, semi variable cost changes with the changes in factor of
production. Normal costing is used to measure the value of manufacture products in reference to
the cost of material, direct labour costs and other manufacture overheads. Whereas, standard
costing is one of the important accounting techniques that are used by manufacture company to
ascertain the actual difference between the actual cost of good and cost received on sale of those
goods.
Activity based costing is referring to that method that determine and assigns costs to
overheads activities and then assign those total cost to products and services. It basically helpful
in setting price of goods and services as it ascertains the relation between cost, overhead activity
and other indirect cost related to those services and product (What is Activity based costing,
2017). In Ever Joy manager uses cost accounting system to determine cost of various services
provided by company.
Break-even analysis: It is an essential price level at which the overall market cost of a
security is equal to the real cost. Like options of trading, the breakeven point is the market price
that are considered under asset that must reach for an option for buyer to avoid a loss.
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Breakeven quantity: It is a kind of techniques that is widely used by production
management as well as accountant. Total variable and fixed cost are taken into account with
overall sales earning in respect to determine the level of sales volume, sales value of production
etc.
Ever Joy Enterprises (UK) is reviewing its concert event in Manchester region to
ascertain its viability which are given as under:
Particular Amount
Selling price (U) 20
variable cost (U) 10
Contribution 10
Fixed cost 60000
PVR: Contribution/ sales *100
: 10/20*100= 50%
a) Break even analysis
BEP: Fixed cost / contribution
: 60000/10= 6000
(b) Total number of ticket needed to be sold
Particular Amount
Selling price (U) 20
variable cost (U) 10
Contribution=profit + fixed cost 90000
Fixed cost 60000
Profit 30000
50%= Contribution/ sales
Sales= 90000/50%= 180000
(c) Calculation for desire profit
Particular Amount
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Sales 8000*20 =
160000
Less: Variable cost 8000*10 =
80000
Contribution 80000
Fixed cost 60000
Desired profit 20000
Desire Profit: Sales*variable cost
Profit: 8000*10= 80000.
Cost of inventory: It is the cost related to the goods lying in the warehouse of company
in common it is the cost related to keeping, portion, acquisition and management of stock. There
is different type of inventory cost such as ordering cost of inventory, carrying cost of inventory
and shortage or stock out cost. It is necessary to reduce cost of these inventory so that actual
price of goods and services remain faithful that will not affect customer. In Ever joy manager
tries to control (Wickramasinghe, and Alawattage, 2012).
Marginal cost – This technique helps in ascertaining the profit which is earned by the
company by ascertaining marginal or variable cost. Ever Joy enterprises uses this technique to
ascertain their variable cost and determine profit which does not absorbs incurred fixed cost.
Historical cost – According to this technique, financial statements such income
statement and balance sheet is prepared by using historical cost in order to ascertain correct
amount of depreciation.
In the above calculation it is observed that fixed cost is $60000 and company earned a
profit of $9000 when selling cost is $20 and variable cost is $10. Ever Joy enterprise earned
desired profit $80000.
LO 3 &4
a) Planning tool and problem solving tools to lead the organisation to sustainable success
Budgets estimates the financial gain and upcoming financial loss of the organisation and
also assists in distributing the monetary funds to the different departments to meet the essential
financial losses. Ever joy enterprise prepared so that it sustenance the company out of the debts
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and also to cut down the costs. Operating budgets anticipate and analysis the costs of the
operational state. It also helps them to know the high-fidelity expenditure and costs of the
company. Capital Budget is used to modulate the long term finances for investments of the Ever
Joy Enterprises by using IRR, NPV and payback period techniques.
Pricing strategy is technique of allocating prices to organisational products and services.
There are various types of pricing strategies such as premium pricing, penetration pricing, price
skimming and many more. These strategies help competitors to determine prices. The base of
allocated prices of competitors are market environment, demand and prices of other companies
dealing in same sector. While fixing the prices, the main elements which are required to be
considered are demand and supply as they have negative relationship. While setting prices for
products, costs are also analysed such as actual, normal and standard costs. Along with prices,
costs are evaluated using cost accounting systems such as job costing and process costing.
Balance scorecard of Ever Joy Limited:
Strategic
priorities
Objectives Measures Targets
Financial Financial
powers
Return on capital
employed, cash
flow and net
margin
Net margin and premium
margin
45.00%
Customer Satisfying
dealer
relationships
Dealer quality
score and inventory
level
Share of segment and dealer
growth
32.00%
Internal Increase
customer
value and
operational
excellence
Employee survey Yield gap and unplanned 2.20%
Learning and
Growth
Encouraged
workforce
Employee competency 58.00%
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Capital budget: this tool assesses the requirements of capital sources for a particular
duration and provide a forecasted information for future information.
Operating budget: This helps to determine the financial resources for operating the expenses
and revenues for a particular time duration. Users be able to consolidate the requirement of cash
for a particular time duration.
Sales budget: It is an estimation of the total sales in units as well as predication for any
upcoming business. This seems to be more crucial budget which records all sales data into their
respective format.
 Advantage: It is useful during farming total sales programming so as to attain overall
sales targets of the firm.
 Disadvantage: The biggest limitation of this budget is that it is entirely based on
assumption basis.
Production budget: It is computes the overall number of units of products that must be
produced and that derived from the overall combination of the sales estimated.
 Advantage: Production need to use with the help of raw material. An increase in the
price of raw material would increase the cost required to produce one units of product.
 Disadvantage: Lot of same thing can be made cheaply and clearly which can impact the
overall productivity of an organisation.
Cash budget: It refer as that budget which is related with only cash transaction during the
period. All specific information related cash inflows and outflow are recorded accordingly. It can
be collected from various activity such as operating, investing and financing.
 Advantage: Use of appropriation are done on cash basis which would define certain
limits for payment on annual basis commitment. Fits with the requirements for
compliance and expenses control.
 Disadvantage: It can help in reducing through an appropriate classification of the system
that can help in examine overall cash available to the business.
Budget variance: It is considered as difference among the budgeted amount of expenses or
earning with the actual amount. The budgeted variance is more favourable in case the actual
earning is higher than the budget. Those budget variances that are controllable are usually related
to the expenses that can be helpful for Ever joy company while taking production related
decision.
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b) Financial governance to respond to financial problems.
Financial governance: It refers as the ways a company is been collects, manages,
monitors and control all the financial information accordingly. It consists of the way companies
track financial transaction, manage performance and control data of an organisation.
In common term, compliance means conforming to rule like as specification, policy,
standard or law. All the regulatory compliance which would describes the goal that an
organisation make aspiration to attain in their efforts to ensure that they are more aware of taking
crucial steps to comply with relevant laws.
Benefits of compliance: Through proper measuring and control the operational benefits of
an overall integration method to governance, risk as well as compliance. Professionals can help
management in making overall critical link among outcome in areas as wide ranging of earning
enhancement.
Consequence of compliance: It is never being more crucial to maintain a secure,
compliant data environment. All of them can lead to data breaches which would exposing patient
information. The consequence of non-compliance can be more expensive as it depends on the
violation.
Monitoring systems put in place to track variances/deviations
In order to determine project variance, manager need to put a stake in overall ground as
their starting point. As it is considered as baseline. Manager tend to chasing and attempting to
control a moving targets. The two of the main baselines is essential before it can put variance
tracking and reporting of the data must be played according to the cost and schedule.
Financial problems are a problem were funds matters a lot for causing stress. It simply
means paying-off liabilities. Ever Joy Enterprises overlaying with this problem like shortage of
funds, poor money management, in ability to meet the financial obligation, insufficient profit. To
respond these financial problems, the Ever Joy Enterprises adapts the management accounting
system tools:
Benchmarking: Benchmarking is a procedure used by the company to compare its
services, practices and products with the other competitors in the market (Windolph and Moeller,
2012). This approach helps the to determine the financial problem related to more expense thank
earning. With the help of the benchmarking the Ever joy enterprises achieved the goals
efficiently at lower costs and also improve the company's cost competitiveness.
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Key Performance Indicators (KPI's): Key Performance Indicators is an important
value which shows that how company can achieve its objectives efficaciously. Financially, it
helps to evaluate the income statement, balance sheets of the company and also the make the
reports regarding the changes happen in the sales growth or in expenditures. Non- financially, it
measures the activities so that the company were moving ahead or not (Zainun Tuanmat and
Smith, 2011). with the help of this approach manager determine the issue of lack of money
management in Ever Joy.
Budgetary target: It is the target which calculates the sum of money for a particular
financial period. Budget targets were used by the Ever Joy Enterprises so that they can set their
fiscal goals for the effective budget plans. This system help them to identify financial issue
related to High level of debt within Ever Joy.
Financial governance: This technique assist the Ever Joy Enterprises to supervise,
collect, manage, and control the fiscal position of the firm. It also leads to control the data,
manage the performance of the employees. It also track the transactions which company does,
and the agreement, trading operations and disclosures of the firm. It includes various plans and
policies to manage the data and check that the data are tested and high-fidelity. One of the
important tool for company as it help to resolve each and every financial problem arises in
company that were determined through uses of bench marking, KPI, and budgetary target.
Comparison.
Ever Joy Enterprises Airdri
As Ever joy enterprises is a small scale
company its uses the benchmarking and KPI's
tools. Benchmarking helps the company to use
the inventory and credit policies in an efficient
manner. And to evaluate the balance sheet and
to measures the performance of the employees
the KPI's is used.
As Airdri is a large scale company so it mostly
exploit the financial governance and budgetary
targets tools. Financial governance helps them
to control the data and track the transactions to
maintain the financial stability. And
Budgetary targets, were used to calculates the
sum of money and also to set the financial
goals for the budget plans.
Management accounting is the process of preparing management report and accounts that
provides true and fair information of financial data which is required by the managers to take
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financial and management decision. Management accounting provides help regarding financial
problems because it gives effective solutions through which Ever joy Enterprise is able to solve
its financial problems. By applying management accounting Ever Joy Enterprise can achieve
sustainable success and growth (JOSHI and et. al., 2011).
Manager of ever joy use Balance scorecard for encouragement sales, tit help them to
make strategy to control cost and generate more revenue for the business. This also help them, to
resolved its financial issues with in company. Key performance Indicators helps to financial
issues related to financial statements of company. Manager of Ever Joy enterprise used
Benchmarking and to removes the high cost of production through setting up benchmarks.
CONCLUSIONS
From the above project report it has been concluded that management accounting can
help the managers while dealing with financial problems. It can help the internal stakeholder to
analyse actual performance of the company as well as the level of operational activities of a
company. Planning tools can help to forecast and estimate budgets by analysing possible future
expenses. Different management accounting reports can help to get then insider information of
an organisation.
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REFERENCES
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Schaltegger, S. and Csutora, M., 2012. Carbon accounting for sustainability and management.
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What is Activity based costing. 2017 [Online] Available Through:
<https://whatis.techtarget.com/definition/ABC-costing-activity-based-costing>
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