Management Accounting Report: Deloitte UK for Ever Joy Enterprise

This report provides a comprehensive overview of management accounting, focusing on its application within Ever Joy Enterprise, a leisure and entertainment company. It differentiates between management and financial accounting, highlighting the roles and importance of management accounting in decision-making, policy formulation, and routine tasks. The report details various management accounting systems, including cost accounting, inventory management, and job costing, and explains their benefits for the company. It also covers different types of management accounting reports, such as performance and inventory management reports, and discusses the need for a sound accounting system. Furthermore, the report explores planning tools, financial issues, and the application of management accounting in addressing financial problems, providing a valuable analysis for the company's financial strategy and operations.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
(a): Difference between management accounting and financial accounting:.........................1
(b): Cost accounting System...................................................................................................3
(c): Inventory management system........................................................................................4
(d): Job costing system...........................................................................................................4
(e): Different types of management accounting reports.........................................................5
(f): Need for a sound accounting system................................................................................6
TASK 2............................................................................................................................................6
Cost:.......................................................................................................................................6
(a):...........................................................................................................................................7
(b)...........................................................................................................................................8
(c):...........................................................................................................................................8
TASK 3............................................................................................................................................9
(a): Various types of planning tools.......................................................................................9
(b): Financial issues................................................................................................................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Management accounting is the analytical framework that involves determining,
analysing, interpreting and presenting of accounting information that is gathered with the help of
financial and cost accounting (Amidu, Effah and Abor, 2011). This information provided by
management accounting aids the management in the process of decision making, formulating
policy and routine tasks of a firm. The project is based on the case study of Ever Joy Enterprise
that deals in leisure and entertainment industry in UK. The firm has approached Deloitte UK
which is one of the leading professional services network providing financial advisory to prepare
a draft for their management accounting department. The report will present a deep
understanding of concept of management accounting system, its types and roles. Further a
detailed explanation about various management techniques will be provided along with
explanation of various planning tools and their use and advantages/disadvantages. Moreover, a
comparison of ways in which firm can apply management accounting in responding to its
financial problems will be discussed.
TASK 1
Management accounting: It is a function of monitoring and tracking internal expenses
of a business process that enables management to take reliable and relevant decisions regarding
production, operations and investment. According to ICMA, UK, management accounting could
be describing as the application of professional knowledge and skills for preparing accounting
information that assist organization in preparing policies, planning and managing the business
operations. It is making use of various methods, systems and techniques for effectively selecting
best course of action among various alternatives and to exert efficient control by evaluating and
interpreting performances (Booth, 2018). Management accounting is often mixed up with
financial accounting however both of them differs from each other.
(a): Difference between management accounting and financial accounting
Basis of
comparison
Management accounting Financial accounting
Meaning Management accounting analyse
firm's financial information for the
purpose of preparing reports, budgets
Financial management on other hand,
concentrates on developing information
for external parties such as stockholders
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etc. for internal and confidential use
by company's management in
decision making activity.
, government, investors etc.
Mandatory It is legally mandatory for a company
to follow.
It is compulsory for company to adopt
financial accounting.
Time frame Financial statements are used to
prepared at the closing of accounting
period which are mainly for one year.
The reports are made as per the
requirements of an organisation.
Publishing and
auditing
Neither published nor audited by any
legal bodies.
It must be needed to published and
audited by statutory auditors.
Objectives To help the management in planning
and effective decision making process
by providing detailed data on several
issues.
To deliver financial data to the external
parties.
Role of management accounting
 One of the major role of management accounting is to gather, record and report financial
data from various organisational departments, to formulate and analyse their budget and
provide recommendation related to funding and resource allocation ( Callahan, Stetz and
Brooks, 2011). Thus, management accounting helps managers to evaluate firm's
functioning capital and availability of total funds that aid them to take various decisions
related to investment, sources of funds, manufacturing of goods and so on.
 Another role of management accounting is that it helps in exerting effective control by
formulating performance reports and control reports that highlights gaps/deviation
between the actual and expected performance. These reports assist managers to take
corrective actions for eradicating the gaps and to efficiently handle operations.
Thus, it is significant for Ever Joy enterprise to implement and integrate management accounting
system within its business to ascertain efficacy of cost of their operations, budgets, performance
and then to allocate the limitedly available funds accordingly in manufacturing, sales and
investments. This will help firm to maintain strong financial base in competitive market
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dynamics by timely to identify performance deviation and to take appropriate corrective actions.
Further it involves taking into consideration basic principles of management accounting
including Principle of influence: This principles implies the need of mangers of Ever Joy
Enterprise to maintain proper communication at all phases of decision making. This
helps in developing insight to cut across silos and induces integrated thinking resulting in
maintaining better understanding and acceptance of actions between various department. Principle of relevance: It applies adoption of best course of actions by determining,
and gathering most authentic and relevant information for decision making. The mangers
of Ever Joy Enterprise are subject to understand the requirements of stakeholders and on
basis of it scans the best available resources for collecting most prominent information to
aid in taking appropriate business decisions. Principle of Value: This principle ascertain and analyse effect on value. By comparing
organization strategy with the business models firm seeks to gain understanding of
effectiveness of its decisions in light of its macro environment.
Principle of Trust: This principles implies manageable accounting professionals of Ever Joy
Enterprise to be ethical, accountable and trustable. This principle involves staff of financial
department to be knowledgable about firm's value, government legislations and their social
responsibilities as they are bestow with task of enhancing Ever Joy Enterprise's credibility and
legitimacy in the market (Morden, 2016).
Various management accounting systems:
Management accounting includes various internal systems that helps a company to
measure and evaluate is effectiveness of its different functions. Mentioned below are some
prominent management systems:
(b): Cost accounting System
It is also known as product costing system and contains a framework to estimate cost of
products for analysis of profitability, inventory valuation and managing cost. It is one of the most
significant accounting system to be adopted by Ever Joy Enterprise as it will aid company in
ascertaining its products that are generating profits and ones which are not. Further, it assist
managers in computation of closing value of raw material, work in progress and finished total
expense to be incurred in various business operations so as to prepare authentic financial
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statements (Johnson, 2013). As firm is associated with leisure and entertainment activities this
costing system could help company in tracking down the flow of its funds that are been invested
on various operations and to formulate budgets. The benefit associated with adopting this system
is tracking down trend line, taking decisions related to acquisition, project billing, inventory
valuation and so on. This will ultimately reduce down its cost of production and enhance its
profits. It involves mentioned below two costs:
Direct Cost: This cost is related to manufacturing and production of a particular product.
It involves expense related to labour hours, direct materials, freight out expenses, commissions
etc. Some more examples of this cost are manufacturing supplies, piece rate wages and so on.
Standard Cost: It includes substituting an expected cost for the actual expense in
accounts and then recording differences in between them. Standard cost involves making
estimates of expense for certain activities within a firm. It is used as a close approximation to
actual cost in order to reduce time and efforts to collect actual costs.
For example: Everjoy enterprises can use this system to ascertain their cost involvement in
certain organisational operations.
Some more example: the standard cost of leather shoes includes the materials cost and cost
of labor.
(c): Inventory management system
This management system includes combining technology with the processes that relates to
tracking down and handling of inventory stocks involves its raw materials, assets, supplies or
finished good. It includes two sub systems known as periodic system and perpetual system. Ever
Joy enterprise by utilizing this system could monitor its inventory on regular basis and can
ensure proper availability of requisite stocks by timely placing orders for re-order quantity and
also to effectively shipment customers’ orders. Everjoy enterprises can use this system to
manage their inventory affairs such as reorder inventory, marinating minimum level of stock and
many more.
(d): Job costing system
It is used to assigning the manufacturing cost for a particular product or group of products. When
manufacturing products are different from each other than job order costing system is used
(Klychova, Faskhutdinov and Sadrieva, 2014). This system create a record of job cost for each
and every product. Ever Joy Enterprise uses this system which regard the process of
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accumulating three types of substance: Direct labour, Direct material and overhead. It may
involve a large number of rules that not actually applicable to every jobs for compiling
information. Everjoy enterprises operates in entertainment industry due to which they can use
this system and can control all their jobs separately. Affairs of a certain job such as cost
ascertainment, cost control, management of inventory and others can be done using this system
(Schuster, 2015).
Thus for Ever Joy Enterprise it is critically important to integrate above mentioned
systems with its organization in order to gain various benefits such as making reliable and
authentic forecast related to sales, cash flows etc., to gain better understanding of firm's
performance variances, to ascertain rate of return of a particular project and to enhance its
decision making process on various matters related to product quality, quantity, price etc.
(e): Different types of management accounting reports
Management accounting is a process of statistical data and financial information which is
provided to the business managers for short-term decisions and day-to-day activity. Management
accounting is very important for growth of an organisation. This is also knows as cost or
managerial accounting and it is differ from financial system. This accounting making reports for
business's internal stakeholders. The results of this accounting is periodical for the managers of
company's department. In management accounting include modern generation of sales profit,
available cash, actual state of the company's accounts receivable and payable. “Ever joy
enterprise” deal in leisure and entertainment industry which is use different type of accounting
reports like performance report, inventory management report, batch costing report etc. for profit
maximisation, turnover and increase in demand. Performance report: Performance report is a process in which analyse the performance
of company's employees and compare their standards with actual results.
Ever joy enterprise use this method for evaluate work and performance of their
employees if any problems are raise among employee's work then they eliminate that
problems and motivate them. It is most suitable report which is used by this enterprise for
gain maximum output from its employees. In performance report include all activities of
an employee versus their primary action plan which is received by them annually. Inventory management report: In inventory management many useful reports are include
like sale report, purchase report, banking report, expenses report, stock summary report,
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total GST report, balance sheet report etc. This is a report in which contain the relevant
and accurate data about closing and opening stock of the company (Kuula, Kutkiranta
and Toivanen, 2012). Ever joy enterprise prepare inventory report in which all details are
mentioned about stock or materials. This company use some techniques of inventory
management like EOQ, just-in-time and turn- over ratio. Account receivable report: Account receivable are those receivable which are collect by
the company from its customers. This is also consider as business possession because
they have worth. Ever joy enterprise use account receivable report in which contains the
detailed subject matter about the unpaid consumer bills and inactive note that assist
management to recover the same within fixed period of time. This is start with an invoice
in which consist due amount and when amount is due then it is referring in terms of
payments. Sometime discount is offer to consumer who paid early.
Batch costing report: Batch costing refers as manufacturing of stocks and materials. Sometimes
orders are received for same products but from different customers then production are run in
batch system. In batch costing they produce in bulk system. Ever joy enterprise use batch costing
report for tracking and controlling the overall costing of production like labour cost, material
cost and production overheads. This method is used for calculating cost of each batch and also
identify the cost per unit. In this order batch costing report is prepared. Example of batch
Production – in hardware like- bolts, pins, nuts, screws etc. and in bakery products like- biscuits,
breads, cakes etc. In those types of production batch costing method are used (Storey, 2014).
(f): Need for a sound accounting system
This study was made to examine all the factors that is having proper accuracy of financial
reports that are prepared by the company during the time. businesses are said to be adopt sound
accounting system if their bookkeeping and accounting techniques are more reliable. These are
able to produce accurate and update financial data. With the sound accounting assist in proper
budgeting so that businesses can plan accordingly.
TASK 2
Cost:
Cost is an amount paid by an organisation to get raw material, resources, occurrence of
risk, consumption of time and utilities for production and delivery of goods and services. All
expenses are included in cost but all costs are not included in expenses. There may be two types
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of costs incurred in an organisation: Fixed cost and Variable cost. Fixed cost is always fix
whether firm produce goods or not like rent, electricity bill, salary of employees etc. Variable
cost is varying as per unit of production. Large unit of production indicates high variable cost
and vice versa. There are following two types of costing: - Marginal cost: - It is a type of variable cost which consist the cost of material and labour.
When company produces an extra unit of production then an additional cost is incurred is
called marginal cost. At the time of establishment of Ever Joy Enterprise marginal cost is
increases due to buy raw material, promotion of goods and services and selling
administration etc. After that cost is decline because of promotion cost is decreases. After
some time, cost is increases due to increase in production unit (Nixon and Burns, 2012).
Marginal cost is highly proportionate with total cost and there is a positive relation
between these two costs.
Marginal cost:
Sales- variable cost= contribution
Net profit= contribution – fixed cost. Absorption cost: - This cost includes all the manufacturing cost which is engrossed by
quantity produced. In other words, overall cost of finished goods is called absorption
costing. It includes, direct material and labour cost as well as fixed and variable cost.
When Ever Joy Enterprise recognise their financial account for all the expenses then they
have to use absorption costing method. This is a method of managerial accounting which
helps to know the full cost of production of manufacturing goods. There is negative
relation between net income and absorption cost. When absorption cost increases, net
income of Ever Joy Enterprise will decrease and vice versa.
Absorption cost:
Sales- variable cost= Gross profit
Net profit= Gross profit – fixed cost.
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
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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
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:
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It is a technique which assist to analyse the total net profit of Ever Joy Enterprises. This
tool is used to assess the manager of an organisation to determine the additional units of output
that should be produced as far as marginal benefits surpass the marginal cost. It also
distinguishes the fixed cost from variable cost and only variable cost is charge to quantity cost.
This type of costing system can be used to ascertain variable and fixed costs separately.
For example: A production line creates 1000 widgets at 30, 00 cost so average cost is $3
per unit. If the production line is 1001 units, total cost is $3002 then the marginal cost $ 2 only.
Historical cost:
It is a measurable value of an asset which is recorded in balance sheet on its original cost
when assets were acquired by Ever Joy Enterprises. This tool is helpful for an accountant to keep
the record of earning, expenditure and other disposal value of an assets at historical cost.
This type of costing system is used identify historical cost of an assets which means that it
can help in ascertaining cost of an assets when it was acquired by a business organisation.
For example: If the building purchased 6 years ago at $ 150000 is to be reported in the
company balance sheet $ at 150000.
TASK 3
(a): Various types of planning tools
Budget:
It is a concept of microeconomics in which a company estimate its income and
expenditure on particular upcoming time period. A surplus in budget shows expected profit,
deficiency in budget indicates anticipated loss and balanced budget indicates that expected
income is equal to expenditure.
Budgetary control:
It refers to the proper utilisation of budget by manager of Ever Joy Enterprises by
controlling of cost of production and other expenses incurred in a firm. It is useful for an
organisation to predict future goals and analyse the performance to achieve those goals.
Manager of every business associate uses planning tools for budgetary control such as
forecasting, contingency and scenario tool. It is a comparison between actual performance with
budgeted planning. If actual performance is less than budgeted planning then immediate action
should be taken by the manager (Quinn, 2011).
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Budget predicts the future expenditure of the company and helps in assigning the funds to
the various departments of the organisation to meet the requisite expenditure. So, the Ever Joy
Enterprises (UK) prepare the budgets and also they use different types of budget as mentioned
below:
 Operating budget: an operating budget predict and analysis the costs of the operational
activities which is performed by the company. The manager of Ever Joy Enterprises
prepares this budget to know the accurate costs and expenses of the firm. It can be
prepared weekly, monthly or yearly basis and also the manger compare the monthly
report to know about the company's over expenditure.
 Capital budget: Capital budget is used to regulate the long- term funds for investment
in firm. While preparing the capital budget the Ever Joy Enterprises use the techniques
like internal rate of return(IRR), net present value(NPV), and payback period.
The Ever Joy Enterprises have some behavioural implications while preparing the
budget:
 As Control is applied in every stages of the budgets by the various people of the Ever
Joy Enterprise so it is important for the supervisor the supervisor of the firm always have
to control the reports weekly and determine to take control action.
 In a budget the entire goals of the companies should be stated.
Common costing systems: Actual costing, normal costing and standard costing systems:
Actual costing: Actual costing is the method in which actual cost, direct cost rates and
actual qualities were exploit in production to ascertain the cost of specific products. Manager of
Ever Joy Enterprises calculates the actual costing by using the formulas:
Actual direct costs = (Actual Cost Rates * Actual Quantities Used)
Actual indirect costs = (Allocated Indirect Cost Rates * Actual Quantities Of The Cost
Allocation Bases).
Normal costing: Normal is the method were costs are allocated to assign the products
cost based on the company’s labour, overhead and material which were used by the firm to
produce the products.
`Standard costing: Standard costing is the system which invented to control the cost. It
also prepares and use the standard costs and compare it with the actual cost.
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