Management Accounting Techniques for Sustainability

This assignment provides an in-depth analysis of management accounting techniques used by companies to achieve sustainability. It explores the use of benchmarking and key performance indicators (KPIs) in managing costs, improving performance, and achieving financial stability. The report compares the two organizations, Ever Joy Enterprise and Parkwood Enterprise, highlighting their approaches to using these techniques. By examining these methods, students can gain a deeper understanding of how management accounting contributes to sustainability within an organization.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Types of management accounting systems and its essential needs........................................1
P2: Types of management accounting reports and its importance to management.....................4
TASK 2............................................................................................................................................5
P3. Calculate costs by using appropriate techniques...................................................................5
TASK 3............................................................................................................................................7
P4 Advantages and disadvantages of different types of planning tools for budgetary control. . .7
P5. Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management Accounting is the term which is used by the organisations in order to make
the business more viable and effective so that the management could gain the pre-set targets in
the business. Now, this can be rightly said that the management accountant will make an
efficient strategy in order to implement various management accounting tools in the business. In
this report, ever Joy company has been taken which specially deals in entertainment sector.
Various management accounting techniques along with diverse reports are mentioned hereunder.
Moreover, net profits is calculated by using marginal and absorption costing techniques. Along
with this, various planning tools are used by Ever Joy for budgetary control (Windolph and
Moeller, 2012). Diverse techniques are used for resolving various financial issues which would
ultimately assist for gaining the sustainability.
TASK 1
P1 Types of management accounting systems and its essential needs
Definitions of management accounting
According to the institute of management accountants (IMA): It is a profession which
is created with decision making process, implementation of policies, preparation of accounting
reports etc. to achieve organisational goals and profitability to the firm.
Institute of certified management accountants (CMA) defines, Management
accounting with the help of differentiated skills and knowledge. It assists management to
creating financial reports which makes stability in the financial position for the firm at market
place.
Meaning: It refers to the management of financial data which help manager to bring
useful information for the purpose of formulating an effective plans and policies in order to
achieving competitive advantage in market.
Difference between management and financial accounting:
Basis Management accounting Financial accounting
Meaning It defines the preparation of
effective plans which will be helpful
in gaining growth and success for
the firm. It is a profession which is
It is based on financial reports of organisation.
In this method balance sheets, profit and loss,
cash flow statements are included. It gives the
actual report of firm's financial condition to
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more valuable for operating business
operations more successfully.
the shareholders.
Essential Not essential Essential
Information It gave both type of information they
are monetary and non-monetary
It gives only monetary type of information to
organisation.
Time frame These method are used for fulfil the
requirements of business
These are required to prepare on yearly basis
User These reports are prepared for
internal purpose only.
It gives the actual report of firm's financial
condition. which is used by internal and
external
Henceforth, management accounting is an internal part of an organisation which helps to
achieving competitive advantage for the firm through maintaining financial reports on yearly
basis.
It facilitates the management to adopt various accounting systems such as inventory
management system, job costing system etc. which facilitates ability in management to know
about current market conditions and current financial conditions of the firm. Ever joy enterprise
may able to achieve their desired goals in a given time period by making their financial reports
on yearly basis (Zimmerman and Yahya-Zadeh, 2011). For example, company identifies their
liability and assets by preparation of fund flow and balance sheets. It directs the management to
change in current policies if it may applicable in order to maintaining their current position in
competitive market. Various accounting systems are mandatory which is used by an organisation.
Here are some importance of these accounting systems which are as follows:
Increase in efficiency - It gave right direction to management for analysing current
market conditions and perception of targeted customers so that they can make decision
effectively. Which helps management to fulfil all needs and requirements of market place. For
example, price optimisation system facilitates management in making pricing policies which will
be made after analysing the market trends.
Measurement of performance – It helps the management in measurement of financial
conditions of the firm through creating financial accounts at the end of the year. This will enable
management to identify the department's performance. For example, management prepares
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budget for a period which is used for analysing the expenses and effectiveness of each
department.
Effective management control – The management team of Ever joy enterprise will be
able to analyse their different costs such as business and operation cost which facilitates them to
changing their current plans and policies in order to minimise the cost of operation. It will give
positive impact on the profitability of the organisation.
Different management accounting systems
Price optimisation system – these systems are more helpful for Ever joy enterprise in
order to identify the perception and taste of targeted customers and what they think about the
pricing policy charged by Ever joy enterprise for their products and services. It will be helpful
for management in setting pricing policies according to the demand of the customers. So that,
they maximise the satisfaction level of their customers (Tsai and et. al., 2013). For example,
charging high prices on concert events competed with their competitors may reduce their
customers. So, it will help management to making decisions regarding decreasing the cost after
analysing all factors of cost which are related with their services.
Inventory management system: It may be an effective system in accounting process,
because it facilitates organisation to identify the actual inventory level available with company.
So that, company will make decision regarding ordering inventory from suppliers. It will be
helpful for Ever joy enterprise in meet their customer needs and requirements on time due to
which the chances of capturing more customer's loyalty. For example, increase in the number of
viewers increases the spending amount on facilities due to which the management should
manage funds in advance to meet such requirements.
Cost accounting system: It refers to the accounting system which enables management
to identifying the total cost involved in the business activities of an organisation. Ever joy
enterprises may apply this system in order to determine expenses and costs which are invested
during an accounting period. Ever joy enterprises is engaged in providing concert event services
so, it is essential to determine overall cost involved in organising an event.
Job costing system: These accounting system is used to identify the cost involved in
producing the products so that an appropriate budget is prepared for consideration of all the
activities which are performed in manufacturing process. The manager of Ever joy enterprises
should identify the cost which are involved in organising an event. There are three methods
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which are used under the job costing system they are batch costing, process costing and contract
costing. Ever joy enterprises should use contract costing, because they are engaged in providing
concert event services.
P2: Types of management accounting reports and its importance to management
It is essential for management to manage and control all business function in an effective
and efficient manner so as to achieve better possible outcomes in near future. Therefore, it
requires to prepare financial reports and other documentation which help management in getting
sufficient valuable information so as to make an effective and profitable decision for the
betterment of an organisation. The main objective of reports is to provide accurate and reliable
information to the interested parties to an organisation such as investors, creditors etc.
Ever joy enterprise Deals in leisure and entertainment industry with an objective of
providing best services to their customers in concert event field thus requires to prepare
accounting reports such as inventory reports, account receivable report and many more. Such
reports facilitate management of company to make an effective decision, suitable planning,
assigning roles and responsibilities to employees (Schaltegger and Csutora, 2012). Preparation
such reports requires high knowledge and skilled due to which Ever joy enterprise Should
require to hire individuals which are more trained and experiences to prepare such reports. Such
reports include Profit & Loss a/c, income statement, cash flow statement etc. which are prepared
by company on annual basis in a financial year. Here are some managerial accounting reports
which are essential required to be prepared by Ever joy enterprise for the purpose of formulating
an effective plans and strategies in order to achieve desired goals and objectives:
Performance report: It is a physical document which contains the information regarding
the overall performance of an organisation. Therefore, it is essential for manager to prepare such
report in regular basis which includes income and expenditures affects the functioning of
business. Ever joy enterprise Prepares such report with an objective of attracting investors with
the hope of getting huge investment from them through showing them true and fair financial
position of company.
Account receivable report: Such report is a document contains all information related
with account receivables. It helps in getting sufficient information about what amount to be
recovered from their debtors on what date. This will direct management to make changes in their
credit policies so that the chances of facing losses due to default of debtors are minimised. Such
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report is known as primary tool which is more helpful in collection of amount. This will direct
the management not give credit to such person whose repayment are in doubt in future.
Job cost report: Such report is also required to be prepared by Ever joy enterprise in
order to get sufficient information about the effectiveness of particular activities and accordingly
allocated cost in the budget. The main aim of preparing such report is to identifying the cost
involved in different job orders (Quinn, 2011). Preparing such reports brings benefits to
company in terms of ascertaining profitability of various job separately.
Inventory management report: This is the report which communicates management in
identifying the actual inventory the company have at present time. On the basis of which, the
management are able to decide whether to place an order to inventory or not (Renz, 2016). It
helps company in minimising the storage cost through ordering stock from suppliers only when
the company feel shortage. Inventory includes raw material, stock of work in progress, finished
goods and warehoused stock. Ever joy enterprise should require to prepare such report by
recording continuous opening and closing stock. This will help in identifying the requirement of
inventory so as to meet market needs and requirements. EOQ, ABC costing technique and
inventory system are such methods and techniques with the help of which inventory reports are
prepared.
TASK 2
P3. Calculate costs by using appropriate techniques
There are so many ways by which Ever Joy could calculate its net profits in an effective manner.
Some of them are mentioned as under:
Marginal costing: This is the costing method under which all the variable cost is to be consider
while calculating the net profits. It is the cost which vary as per the per unit cost. At the time of
producing an additional cost is termed as the marginal costing. This is mostly proportionate
along with the total costs and there is a positive connection between these two costs. This is
calculated:
Marginal Cost: Sales- Variable Cost= Contribution
Net Profits= Contribution- fixed cost.
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Absorption costing: It is the costing tool which comprises all the fixed and variable costing
which are related to the manufacturing of goods. On the other hand, this can be rightly said that
the management of Ever Joy uses absorption costing technique for calculating the net profits.
Absorption cost:
Sales- variable cost= Gross profit
Net profit= Gross profit – fixed cost.
Management of the cited organization is reviewing its concert event in the Manchester region in
order to know its viability that are mentioned 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):
BEP in units: Fixed cost / contribution
: 60000/10= 6000
BEP in amount: Fixed cost / contribution margin
: 60000/50% = 120000
(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
Tickets to be sold = sales / selling price
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180000 / 20 = 9000
(c):
Calculation for desire profit
Particular Amount
Sales 8000*20= 160000
Variable cost 8000*10 = 80000
Contribution 80000
Less: Fixed cost 60000
Profit 20000
Desired profit is 20000.
Marginal costing tools: This is a tool which helps to assess the net profits. It is implemented to
analyse an extra unit which is required to be manufactured as far as marginal benefits crosses the
marginal costs. It differentiates the fixed cost from the variable costs.
Historical Cost: It is value of an assets that records on the balance sheets at its genuine cost at
the time of acquisition. It is a tool which is useful for management accountant to keep record of
earning, expenses and other disposal related values of an assets during historical assets.
TASK 3
P4 Advantages and disadvantages of different types of planning tools for budgetary control
Budget – It is a determination of income and expenditure for a limited period of time. It
consists revenues, resources and expenses liabilities of the firm. In other words, it is called as a
financial plan in the firm for a set period of time (Nixon and Burns, 2012). It is an estimation of
money which is used for a particular purpose of the firm. In addition to this, it is an internal tool
which is used by management in a firm for handling the future expenses.
Budgetary control- It is a set of activities which assists the management to predicting
actual results with the budgeted figures for the firm. In addition to this, it is a path for
management to analyse the actual performance of firm for achievement of profitability.
Furthermore, it is a system which includes planning and controlling of manufacturing and selling
goods or services.
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Planning – It is an important tool which assists management to achieve the efficiency
and effectiveness of the firm. It is used by firm for establishing goals and policies for completing
desired tasks. In addition to this, it is an important part which helps to organisation in
formulating strategies with optimum utilization of available resources for achieving desired goals
of the firm. There are various tools which can be used by ever joy company for getting growth of
their firm they are as follows:
Scenario planning – It is a system which assists management to deal with future issues.
It plays an important role in budgeting process for managing risk in the future period. It is a
planning which is used for getting effective outcomes (Kuula, Putkiranta, and Toivanen, 2012).
It is usually developed by senior staff members of an organisation for finding harmful factors for
the firm in the upcoming period. In other words, it is a contingency planning for handling risk in
the future time. In the context of ever joy their manager should develop high level plans for
managing risk of the firm due to this, organisation can get competitive advantage in the market
place.
Merits
 It brings effectiveness and cooperation in the staff members of the firm
 It increases discussion level for managing uncertainties in the future.
 It helps to managers for imagine outcomes of their planning.
 It assists to managers in creating scenario for identifying alternatives.
 It develops strategy for dealing with each conditions.
Demerits
 It is very time consuming. Because, this activity takes one day or half day practices by
managers for completing a scenario
 It could be difficult. It is not focusing on all aspects which are related with firms.
 It is good when all employees in the firm are following the guidelines as created.
 It may be ineffective if decision making process is not integrated in it.
Forecasting- It is an important part of budgetary control which is used by managers for
determination of future trends and gave direction to utilizing their revenues for upcoming
expenses. Organisation can use it for predicting future demands of their product or how they will
get profit by utilization of their resources. It helps to managers in analysing the past and present
market trends for making future plans to reducing uncertainties of future. Ever joy's management
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can use this technique for overcoming the uncertain factors which may be harmful for the
organisation in upcoming period of time.
Advantages
 It helps to management to creating decisions about the future of the organisation.
It assists the management in estimation of financial needs (Klychova, Faskhutdinova and
Sadrieva, 2014).
 By this, organisation may improve the quality of management by focusing on the future
trends and make a course of action for it.
 It is used for analysing weaknesses of the firm so that managers take action for
overcoming the factors.
 It provides necessary information about the future to the management.
Disadvantages
 It takes more time to build a strategy for overcoming the factors of uncertainties.
 It increases conflicts in the staff members because, one person who makes the final
decision of forecasting if it may wrong it affects the overall performance of the firm.
 Changes in market trends or perception of consumer may affect the whole prediction of
forecasting.
 It may not successful for a long period of time.
Contingency – it is a tool which is used by management for respond effectively on an
upcoming future event. In other words, it is an activity which is taken by workforce and
management in case of emergency. It ensures the management to adjust according the condition
and make prepared for it. It is not only analysed major uncertainties but also on a smaller level it
can be used. It compares all data with budgeted information to respond effectively on the
upcoming events. It facilitates the managers to discuss regarding the futuristic activities which
brings long term advantages to company. With the help of this, management can easily identify
the future errors which may affect negatively on the firm (Johnson, 2013). It may be helpful in
gathering all the information with making a strategic plan which assists in controlling cost of the
organisation. In the context of Ever joy, they can follow this plan for making profitable outcomes
in future period.
Positive aspect
 It brings flexibility in an organisation. With flexibility staff members can easily respond
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to a condition.
 It helps in maintaining better relation between leaders and workforce.
 With giving better opinion on the conditions, it gave opportunities to staff to become a
leader in the right situation.
 It improves the strength of employee so that, they may perform better on the critical
situation.
Negative aspects
 It depends only future conditions, which may be happened or not happened
 It gave the responsibilities to the managers to manage the environment of organisation for
upcoming situations.
 It may be complex because there are various factors which may be considered at the time
of planning.
 It gave direction to managers but by using it, managers cannot have satisfied their needs.
P5. Compare how organisations are adapting management accounting systems to respond to
financial problems.
Financial problems are the main hurdles which stops the organization for gaining the
sustainable development. Here are certain tools which could be used by the Ever Joy for
addressing the financial problems in making the business sustainable. These are mentioned as
under:
 Balanced scorecard: This approaches is performance metric which helps the company to
identify and modify the internal function of the company and also to know the outcomes.
It has four components that accounts manager used to modify and identify the internal
function and their outcomes, i.e. financial (knows about the company's revenue and
expenses); customer (manager have the ideas about the issues of the customers, customer
satisfaction, and delivery of product); process (it is related with the company's internal
processes such as IT); learning and growth (by reviewing this component, how much the
company's improved and learned).
 KPI’s (Key Performance Indicators): It is a measurable tool which shows how
effectively small battery company achieve their goals and objectives (Callahan, Stetz and
Brooks, 2011). Manager use KPI approach as it provides the outstanding information
about the company is moving forwards or backwards. It clarifies the performance
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expectations and business position also engaged the employees for the common goal and
objectives. While tracking the their KPI’s regularly were twice hit their targets.
 Financial governance: This approaches helps the small battery company to manage,
collect, control, and monitor the financial position of the company. Also useful for to
track the data control and performance management, financial transaction that company
does, operations of the company's, compliance and disclosures. To manage their data and
ensures that the data were reliable and accurate, this approaches includes the different
policies and procedures. With the help of this approaches the manager easily determines
the accurate and current financial position of the company’s, which is convenient for the
manager to take the further actions so that in the small battery company able to maintain
the financial stability in the competitive market.
 Benchmarking: It is a measurement tool which compares the company's internal process
and performance data with the other companies of same sector. Manger use this
approaches to get a better understanding to tackle the improvements and developments in
the effective way. It is a non-recurring event (Amidu, Effah and Abor, 2011). To improve
the performance of the company's increasingly used it as a continuous process. It helps
the managers to set the targets for the employees. Competitive benchmarking helps them
to identify the industry leadership performance target and strategic benchmarking is used
to identify and analyse the good performance also helps to monitor the competitor's
strategies and approaches. To manage the changes in this world the benchmarking helps
to view the external competitors in regards of motivation.
Comparison between the two organisations:
EVER JOY ENTERPRISE PARKWOOD ENTERPRISE
It is deals in leisure and entertainment industry.
It uses benchmarking in which they fix
standers and targets and compare them with
actual outcome.
It deals in leisure facility on behalf of local
agency. This organization established in 1995.
KPI determines the success and evaluate the
performance and targets. It uses following type
of KPI such as labour turnover, customer
satisfaction, revenue, stock turnover, capital
recovery, advertising, environment, health and
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safety etc.
Ever Joy also executes budgetary targets in
this. Management fixes plans and strategy for
attaining future goals and compare forecasted
cost and revenues along with the actual cost
and revenues.
This likewise implements benchmarking for
attaining set targets of an organisation. In
benchmarking, they adhere the process such as
determine data, gather data and information,
and assess these data for compare standards
with actual outcome.
CONCLUSION
From the above mentioned report, this is rightly said that the management accountant
uses diverse techniques in order to gain the sustainability within the workplace. Various
management reports are made on the basis of the systems. In this report, net profits are calculated
a per the marginal and absorption costing. Various Planning tools are used by the management
for controlling the budget. Along with it, financial issues are resolved by the management for
gaining the competitive advantages. Ever Joy uses these abovementioned techniques for attaining
the sustainable development. Although, company implements these tools for gaining the
sustainable development within the workplace.
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REFERENCES
Books and Journals:
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