Management Accounting for EverJoy Enterprises

Management Accounting report for EverJoy
Enterprises
1

Table of Contents
Introduction....................................................................................................................................2
Task – (LO1)..................................................................................................................................3
Management Accounting.............................................................................................................3
a. Differences between Management Accounting and Financial Accounting.............................5
b. Cost accounting systems (Direct Costs and Standard Costing)...............................................7
c. Inventory Management Systems............................................................................................10
d. Job Costing Systems..............................................................................................................12
e. Different types management accounting reports....................................................................14
f. The need for a sound accounting system and the importance of the department producing
timely, accurate and relevant information..................................................................................17
Task 2 – (LO2).............................................................................................................................19
a. The number of tickets that must be sold to break even (i.e. the point at which there is neither
profit nor loss)............................................................................................................................19
b. If we want to make a profit of £30,000.00, how many tickets should be sold?.....................20
c. What profit would result if 8,000 tickets were sold?.............................................................21
Task 3 – (LO3 & 4)......................................................................................................................22
a. You are to evaluate how budgeting can be used by Ever Joy Enterprises as a planning and
problem-solving tool in dealing with financial problems, but also for leading the organization
to sustainable success.................................................................................................................22
b. You are to also evaluate how strong financial governance can help to pre-empt or prevent
financial problems for Ever Joy Enterprises and the means by which management accounting
systems can contribute...............................................................................................................25
Conclusion....................................................................................................................................28
References.....................................................................................................................................29
Appendix.......................................................................................................................................31
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Introduction
This report will be prepared to discuss the concept of management accounting and write a
reference manual for Ever Joy Enterprises (UK) that operates in leisure and entertainment
industry in the UK. This report delineates the concept of cost accounting systems, job costing
systems, and Inventory Management systems; differentiate between management accounting and
financial accounting. This report will also solve a numerical problem to help Ever Joy
Enterprises (UK) reviewing its concert event in Manchester region to ascertain its viability by
calculating break-even point (i.e. the point at which there is neither profit nor loss) and other
profitability related requirement. This report will also advise Ever Joy Enterprises (UK) on using
budgeting as a pillar for planning purposes within the organization.
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Task – (LO1)
Management Accounting
Management accounting is the presentation of accounting information in such a way as to assist
management in the formulation of policy and the day-to-day operation of an enterprise. The
management accounting collected the accounting data with the help of financial accounting and
cost accounting for the purpose of policy planning, formulation, decision making and control for
the enterprises. Management accounting is the vital branch of accounting which assists to the
management in the preparation of various reports and strategies for their departments which
enhance their productivity and efficiency. Various management accounting tools and techniques
assist to the enterprises to achieve their goals and objectives on a systematic manner. In other
words, management accounting is an important decision-making tool and technique used
internally by the management. Tools and techniques like cost-volume-profit analysis, variance
analysis, budgeting, break even analysis are some of the prominent tools and techniques used in
the management accounting (Edmonds, et. al., 2016).
Objectives of management accounting
 Helps to the management of an enterprises in planning and formulation of policies for future
 Helps to the management in an interpretation of financial information
 Helps in coordinating operations
 Helps in evaluating the efficiency and effectiveness of policies
 Helps in controlling performance
Main tools and techniques used in management accounting are listed below:
 Cost accounting
 Absorption and marginal costing
 Fund flow analysis
 Cash flow analysis
 Standard costing
 Budgetary control
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Advantages Disadvantages
Increases efficiency of the enterprises Biased interpretation
Simplifies the decision making in
financial statements
Lack of knowledge
Cost transparency Impracticable in nature
Assist in goal completion Preferences depends upon experience and
intuition
Flexibility and freedom Lack of objectivity
Figure: Functions of management accounting
By Author, 2018
5
Functions of
management
accounting
Forecasting
and
planning
Organising
Coordinatin
g
Controlling
performanc
e
Financial
analysis
and
interpretati
on
Communic
ation

a. Differences between Management Accounting and Financial Accounting.
The management accounting and financial accounting both are important part of accounting
which assists the enterprise to achieve their targets on a time and also provides useful
information to their stakeholders. Some of the difference are summarized in the table which are
mentioned below:
Points of difference Management Accounting Financial Accounting
Definition Management accounting is
an accounting framework
that makes use of accounting
and cost data to enable the
management to make
effective business plans
(Weygandt, et. al., 2015).
Financial accounting is an
accounting framework
which records myriad of
business transactions and
then summarizes and
records the same in the
prescribed format.
Format of reporting There is no standardized
format prescribed by
regulatory bodies. Since, it
is internal use, the format
can be altered as per
modalities of the business
and other factors (Warren,
et. al., 2013).
While transaction is
accounted for on a daily
basis, there is a standardized
format that needs to be
followed prescribed as per
the relevant applicable act.
Report It includes summarized form
of non- monetary (various
reports and policies) and
It includes various final
accounts of the company
like trial balance, balance
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monetary (balance sheet,
profit and loss) transactions.
sheet, cash flow statement,
trading & profit and loss
account.
Statutory requirement It is the statutory
requirement to get the books
of accounts audited.
There is no such statutory
requirement as the
information is used by the
management.
Purpose The management accounting
is used for internal purpose.
The financial accounting is
used for external purpose.
The above points show some difference in between management accounting and financial
accounting. The management accounting assists to the management in preparation of financial
accounting for the enterprise in every financial year. The management accounting has a wider
scope than the financial accounting. It involves financial accounting and cost accounting which
assists to the management in preparation of plans and policies (Weygandt, et. al., 2015).
7

b. Cost accounting systems (Direct Costs and Standard Costing)
Cost accounting is an accounting mechanism in which all costs incurred are collected, classified
and recorded. Cost accounting helps in allocating cost incurred on producing various products by
segregating it into direct cost, indirect cost and fixed cost. Cost accounting computes the unit
cost of a product which enables to ascertain cost of stock at the end of the year and cost of goods
sold during the year. It analyses the cost structure of the business. Cost accounting helps the
management in determining where a business is gaining or losing money. Cost accounting helps
the management in determining how the business earns and make use of them. It can be used as a
tool to minimize the cost of production by eliminating any unnecessary expenses/losses incurred
while producing a product. It provides necessary cost information for planning, implementing
and controlling. It is instrumental in assessing the profitability of various products which can be
utilized by various banks and financial institutions to provide loans. Ever Joy Enterprises can
integrate the cost accounting system with their organizational processes to reduce the costs and
expenses and also eliminate the wastages in the manufacturing system of the enterprises
(Warren, et. al., 2013).
Figure: Types or Techniques of costing
By Author, 2018
8
Types or
Techniques
of costing
Uniform
costing
Marginal
costing
Standard
costing
Absorption
costing
Direct
costing
Historical
costing