Management Accounting and Financial Planning Tools

The provided project report focuses on management accounting as a process of planning, controlling, and monitoring management information to aid internal stakeholders in making informed decisions. The report highlights how management accounting can help organizations perform their activities effectively and efficiently, ultimately leading to the attainment of their goals. It also emphasizes the use of planning tools to resolve financial problems and forecast budgets, thereby reducing overspending of funds.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting system and its types.......................................................................1
P2 Methods used for management accounting reporting............................................................3
M1 Benefits of management accounting systems.......................................................................4
D1 Management accounting system and its reporting is related to organisational process........4
TASK 2............................................................................................................................................5
P3 Calculation of cost using appropriate techniques..................................................................5
M2 Application of management accounting techniques.............................................................6
D2 Data interpretation.................................................................................................................7
TASK 3............................................................................................................................................7
P4 Advantages and disadvantages of different planning tools used for budgetary control........7
M3 Use of planning tools in preparing and forecasting budgets................................................8
P5 Adopting of management accounting system to respond financial problems.......................9
M4 Use of management accounting system to deal financial problems...................................10
D3 Application of planning tools to deal financial problems...................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is a techniques which is used by manages of an organisation to
gather and formulate accounting information in an appropriate manner so that internal
stakeholders may analyse actual situation of business (Management accounting, 2018). This may
also guide managers, owner and other concerned persons of company to make strategic
decisions. In management accounting various reports are generated in order to keep track record
of each activity of enterprise. Company taken in this report is Ever Joy Enterprises (UK) which
is a client of an accountancy firm.
This report consists various informations regarding management accounting system,
methods of its reporting and benefits, application of costing techniques and advantages and
disadvantages of different planning tools that are used in budgetary control. The way in which
organisations are adapting management accounting system to respond financial problems in also
discussed under this report.
TASK 1
P1 Management accounting system and its types
Management accounting: It is process of monitoring and controlling managerial
informations of business so that all the operations can be controlled by managers. In Ever Joy
Enterprises (UK) management accounting is used to analyse business performance in order to
make strategic decisions.
Difference between management and financial accounting:
Basis Management accounting Financial accounting
Stakeholders Reports generated under
management accounting are
presented to internal
stakeholders only.
All the statements generated
under financial accounting are
presented to external
stakeholders.
Compulsion It is not compulsory for
companies to conduct
management accounting.
It is essential for the
organisations to conduct
financial accounting every.
Monetary or non monetary All the monetary and non Only monetary informations
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informations monetary informations are
recorded in the reports of
management accounting.
are recorded in the financial
statements.
Legal requirement According to the law
management accounting is not
require for the company.
It is required for the company
because it helps to identify that
organisation is performing
well or not.
Time period It is based on existent and
progressive looking period.
Financial accounting is based
historical records.
Management accounting system: It is a system which is used by organisations in order
to record and analyse all the valuable information to analyse organisational performance. In Ever
Joy Enterprises (UK) different management accounting systems are followed (Banerjee, 2012).
These systems are explained below:
Cost accounting systems: This system is mainly used by manufacturing companies to
record all the costs involved in the production activities. In Ever Joy Enterprises (UK) this
system is used by the managers to record cost of their activities that are performed by their
employees. It is also used to analyse cost of equipments, labour and other overheads. This system
is very important for company as it can help to determine actual costs. It is mainly used to
determine direct costs and standards costing is an example of cost accounting system. Both of
them are explained below:
 Direct cost: Such type of cost is directly related to the product or service provided by
organisation. In Ever Joy Enterprises (UK) various direct costs are recorded by managers
these costs are labour, commissions, rendering expenses etc.
 Standard costing: It is a costing method which is used to analyse the variances between
actual and budgeted costs. In Ever Joy Enterprises (UK) this method is used to analyse
differences between standard and real cost which has been bear by the organisation.
For example, if Ever Joy Enterprises (UK) want to analyse cost of service which is
provided t each employee than cost accounting system is very beneficial for the same purpose
because it helps to analyse exact cost.
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Inventory management system: It is used by various companies in order to keep a
record of stock which is used to perform all the operational activities (Bodnar and Hopwood,
2012). In Ever Joy this system in implemented to analyse that what resources and equipments are
used to execute operations. This system is very beneficial for the organisation because this can
provide exact information of inventory and for Ever Joy inventory is its employees and
equipments that are used to provide services.
For example, if Ever Joy Enterprises (UK) want to analyse status of those equipments
that are used to provide services to the employees than this system may help to assess their status
in the organisation.
Job costing system: While organisations are willing to analyse the cost involved in the
different jobs than this system can help to determine the same. In Ever Joy job costing system is
implemented to examine the expenses and costs of each activity which has been performed
according to the specification of customers. It is advantageous for the business enterprise as this
can provide idea of costs separately and specificity according to their nature.
For example, employees in Ever Joy Enterprises (UK) perform different activities that are
according to the specification of customers. If managers want to analyse cost of every job than
job costing system may help for the same.
P2 Methods used for management accounting reporting
Management accounting reporting: It is a process of recoding managerial information
to different reports that are provided to internal stakeholder so that they may analyse
performance and position of a company (Fullerton, Kennedy and Widener, 2014). In Ever Joy
various reports are generated to figure out that organisation is able to attain its predetermined
objectives or not. Such types of reports guide the managers to to make strategic decisions that
may help the business to become successful. All management accounting reports are defined
below:
 Performance report: Such type of reports are generated by the organisations to analyse
individuals as well as organisational performance. In Ever Joy managers use these reports
to make strategic decisions that are related to the future events to enhance the
performance. It also guides the executives of companies to provide incentives to their
employees according to their work so that they may get motivated. This report is very
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important for the organisation as it may help to record accurate measure of the
presentation.
 Budget report: An organisation who is willing to manage all its spendings than it is
essential for the company to prepare budget reports as this may help to reduce and control
the expenses and other costs. In Ever Joy such type of report is generated with the help of
estimation which is based on prior years. In budget report all the information of sources
of earnings and expenditures are mentioned. This report is very advantageous for Ever
Joy because it can help to achieve objectives by limiting and reducing over spendings.
 Inventory management report: These reports are majorly used by manufacturing
companies in order to record all the information related stocks that are used in production
activities (Herzig and et. al., 2012). It is created in Ever Joy Enterprises (UK) by the
managers to keep a track record of all the stock related information like equipments that
are used to provide services and employees who are providing services. This reports is
very beneficial for the company as it can help to record exact business information.
 Account receivable reports: Such reports are generated by the companies who are
providing credit to the customers. In Ever Joy Enterprises (UK) account receivable
reports are created to get the exact owed amount by customers so that all the outstanding
can be collected to increase funds that can be used to perform operations more
effectively. This report is very beneficial for the business enterprise as it can help to
strengthen or tighter the credit policies for customers.
All the above mentioned reports are generated by Ever Joy because these reports can
provide exact and accurate information to the internal stakeholders so that they may analyse
position and performance of the company (Hilton and Platt, 2013). All of them are also very
helpful while making strategic decisions as valuable data can be gathered from such reports.
M1 Benefits of management accounting systems
Management accounting
system
Benefits
Cost accounting system  It can help to compare costs of services with other
companies.
 With the help of cost accounting system company
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may formulate effective strategies for employees. For
example suitable plan for incentives, wages and
rewards.
Inventory management system  It can help to save time which is very beneficial to
enhance employee efficiency.
 When managers will have accurate information of
inventory than this may help them to plan accurately.
Job costing system  It may guide the managers to assign to each task
which is going to performed by the organisation.
 It is very flexible as all the overheads and direct costs
are calculated with the help of this system.
D1 Management accounting system and its reporting is related to organisational process
Management accounting system and its reports are very beneficial for the organisations
as this my facilitate the managers while making strategic decisions. In Ever Joy both of them can
help the organisation to attain its predetermined goals and objectives. Cost accounting system is
followed by managers to get the information of cost which is involved in different activities.
Account receivable reports that are generated by Ever Joy helps to tighten the credit policies so
that all the owed amount can be collected on time. Performance reports are created to analyse
performance of individuals and whole organisation so that it can be assessed that activities are
performed effectively or not.
TASK 2
P3 Calculation of cost using appropriate techniques
Cost: It is a monetary value of labour and overheads that are spent by the company to
supply a service. In Ever Joy the cost is set by the managers for every service according to its
nature. It is essential for a company to set appropriate cost so that it can attract more and more
customers (Kaplan and Atkinson, 2015). There are different types of costs that are faced by
organisation while supplying the services:
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 Fixed cost: This cost is totally fixed and do not vary with the nature of service and
always remain constant for every services. It is paid by the company to its employees
and it includes salaries, rent and wages.
 Variable cost: It is a type of cost that increases or decreases while service is changed by
the company. It depends upon the nature of service or proportion of output.
 Semi variable cost: Such type of costs are partly variable and partly fixed. Semi
variable costs remain fixed for a certain level and than get changed with the proportion
of output of services.
Break even point: It is a point when company reaches to the situation where company is
not having any profits and not facing any type of loss but all the costs get recovered form the
revenues (Kotas, 2014). In Ever Joy it is calculated to analyse that what amount of services
company needs to supply to cover all the costs that are spent upon them.
A. Number of tickets that must be sold to attain break even
Particular Amount
Selling price (U) 20
variable cost (U) 10
Contribution 10
Fixed cost 60000
PVR: Contribution/ sales *100
: 10/20*100= 50%
BEP: Fixed cost / contribution per unit
: 60000/10= 6000
B. Tickets needs to be sold to attain profit of 30000
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
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In units= sales/ per unit cost
180000/20
=9000
C. Profit when company is selling 8000 tickets
Particular Amount
Sales 8000*20 = 160000
Contribution Sales * PVR =
160000/50% = 80000
Fixed cost 60000
Desired profit 20000
Desire Profit: Contribution – fixed cost
Profit: 80000 - 60000 = 20000
Break even analysis is based on following assumptions:
 Cost and revenue functions remain constant for a specific period of time.
 Price of a product is taken to be invariant.
 It is assumed while calculating BEP that constant rate of variable cost will get increased
in coming period.
M2 Application of management accounting techniques
In Ever Joy different management accounting techniques can be used by the managers so
that they may get the exact information of business so that it may reach to the predetermined
goals. These techniques are explained below:
Historical costing: It is a techniques which is used in accounting to record exact amount
or value of an asset when it was acquired by the company. In Ever Joy this method can be used
by managers to record all the assets and liabilities of original cost.
Standard costing: It is a method which is used in cost accounting system that may help
to analyse the difference between actual and budgeted costs, so that organisation can plan for
future events more effectively.
D2 Data interpretation
From the above questions it has been analysed that company can reach to the level of
break even when it sells 6000 tickets so that it can recover all its costs. When fixed cost for the
company is 60000 and contribution is 10 then BEP is ascertained as 6000 units. If Ever Joy
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Enterprises (UK) is willing to attain a profit of 30000 than it is essential for the organisation to
sale 9000 tickets. If 8000 tickets are sold by the company than it may attain profit of 20000.
TASK 3
P4 Advantages and disadvantages of different planning tools used for budgetary control
Budget: It is tool which is used to estimate all the possible expenses and revenues over a
specific period of time. It is plan of action that carry all the information of a business's future
activities. In Ever Joy Enterprises budgets are generated by the managers to reduce the extra
expenses that may take place in future (Otley and Emmanuel, 2013). Budgetary control is also
very important for the companies who are willing to reduce their actual costs that are spent upon
operational activities. It helps to set financial and performance goals for the organisation so that
success can be attained in short time. Main objective of budgetary control is to compare actual
performance with the budgeted and take immediate actions in unfavourable situations. Following
budgets are prepared by the organisation:
 Master budget: It is the aggregation of all the budgets that are produced by an
organisation's different departments. It includes forecasted cash, financial plan and
budgeted financial statements. In Ever Joy master budget is used by the management to
record all the direct activities of the organisation. When an organisation is formulating
proper budgets than this may help to forecast and control spendings of the organisation
and this may help to reduce the possibility of financial problems. It is an expensive
budget but provides favourable results to the managers of the company.
 Flexible budget: This budget is generated by those organisations that are changing their
activities continuously. It is more sophisticated and useful as compare to other budgets.
It is generated by Ever Joy to estimate revenues and expenses for upcoming period. This
can help to predict best and worst situation that may take place in future. If an
organisation is conducting flexible budget than it may help to ignore negative events that
can affects operational activities.
Following planning tools are used by the Ever Joy in budgetary control:
Forecasting tools: These tools are mainly used to forecast possible future situations that may
take place and affect the efficiency of the organisation. In Ever Joy these tools are implemented
by the managers to evaluate the possibility of uncertainties (Otley, 2016). The estimation under
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these tools are based on past data and current market trends so that risk and negative events can
be reduced. Advantages and disadvantages of theses tools are explained below:
Advantages Disadvantages
It may help to provide the information of
possible outcome of an action which has been
taken by the managers.
There is no guarantee of accuracy as it is not
possible to forecast future accurately.
It provides valuable information to the
business that may help in strategic decisions.
Decisions that are made on bad or wrong
forecasts may affect the business's operations.
Contingency tools: Such types of tools are mainly used to predict negative or unfavourable
events that may occur in future. In Ever Joy these tools utilised to analyse such factors who that
can result adversely (Wickramasinghe and Alawattage, 2012). Following are the advantages and
disadvantages of these tools:
Advantages Disadvantages
Help the mangers to be aware of possible risk
or uncertainty.
Cost of implementing these tools is very high
and out of budget.
Guides the organisations to make appropriate
strategies to deal consequences.
These tools take high time to result
appropriately and accurately.
M3 Use of planning tools in preparing and forecasting budgets
In Ever Joy Enterprises (UK) two planning tools are used by the managers these tools are
forecasting and contingency. If organisation is willing to reduce the possibility of risks and
uncertainties than these tools can help to forecast them in advance and make effective plans to
deal with the same. In an organisation it is very important to plan effectively to reduce
unfavourable events to enhance the capability of performing activities. Planning tools can
predict possible issues that can leave adverse effect on the efficiency of the business enterprise.
P5 Adopting of management accounting system to respond financial problems
Financial problems are related to the deficiency of monetary resources that are used to
run all the operational activities of an organisation (Parker, 2012S). If a firm is not having
sufficient funds to execute its business than it may reduce its profitability and performance level.
Ever Joy is a company who is rendering services to local community and the company is also
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facing various financial problems. These type of issues can reduce effectiveness and efficiency
of performing activities. All the financial problems are explained below that Ever Joy Enterprises
(UK) is facing:
 Ineffective money management system: This problem occurs when organisation is not
following right accounting principles to record all the finance related information. If the
information is not recorded properly than this may result in improper management of
funds and can create a financial problem. In Ever Joy managers are not able to follow the
appropriate rules and regulations that are set by the government in order to maintain
funds for the organisation. It has resulted in financial problem for the company.
 Late payments by clients: When company's credit policy is not effective than the clients
will not pay their owed amount on time and this creates a deficiency of monetary
resources within the organisation (chaltegger, Gibassier and Zvezdov, 2013). As Ever Joy
is providing services on credit to its customers and they are not able to pay the
outstanding amount on time hence it has resulted in a financial issues that company is
facing.
 Sudden expenses: These are the expenses that are not planned and happen suddenly and
managers do not have reserved funds to deal with the same. In this situation they have to
use money to resolve that creates a financial problem in future. Ever Joy Enterprises
(UK) is also facing this problem as some expenses cannot be planned in advance.
Following techniques are used by Ever Joy to identify above mentioned problems:
KPI: It is Key Performance Indicator that are used to analyse that organisation is
effectively performing or not so that all the objectives can be attained. There are two different
types of KPIs both are explained below:
 Financial KPI: It is a measure value which is used by companies to determine that plan
are executed properly to generate profits and revenues. In Ever Joy Enterprises (UK) it is
used to identify problem of sudden expenses and in effective money management system
as it is focused with all the financial activities of the organisation (Soin and Collier,
2013).
 Non financial KPI: This KPI is a tool which is used to determine organisational
processes that may result in success and achievement of goals.
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Benchmarking: It is a technique which is used to compare one business's processes to
another. In Ever Joy Enterprises (UK) it is implemented to identify financial problem of late
payments by clients because it can help to compare all credit policies with other businesses and
result in the identification of weak credit policies (Ward, 2012).
In Ever Joy Enterprises (UK) financial governance is used to resolve all the identifies
financial problems. It is a technique that directs companies to record, monitors, collect and
control financial informations. In Ever Joy Enterprises (UK) It is used to Ever Joy Enterprises
(UK) resolve issues of sudden expenses, late payments and improper money management system
by guiding the company to record accurate and exact information, set appropriate credit policies
and providing a frame work which is very important to be followed at the time of reporting.
Ever Joy Enterprises (UK) Sollatek UK
Cost accounting system is used by managers to
analyse costs of each activity
JIT (Just in time) is used to reduce time
involved in manufacturing process.
Inventory management system to record every
activity related to the inventories that are
equipments and employees of the company.
Price optimisation system is implemented to
set appropriate price for the products.
Job order costing system is used to analyse
cost of each job performed by the company.
JIT is used to meet the demand of customers.
M4 Use of management accounting system to deal financial problems
Different management accounting system can guide the organisation to deal financial
problems as all the accurate information is recorded in the reports of accounting. All these
problems can be resolved with the helps of financial governance as it is mainly designed by the
government to set accounting guidelines for the organisations that are required to be followed at
the time of reporting.
D3 Application of planning tools to deal financial problems
Contingency and forecasting planning tools are used by Ever Joy Enterprises (UK) in
budgetary control these tools can also help to resolve all the financial problems as it can help to
predict all the problems in advance. Such type of tools can guide managers while they are
planning to resolve business problems like financial and other.
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CONCLUSION
From the above project report it has been concluded that, management accounting is a
process of planning, controlling and monitoring management information so that internal
stakeholders may get the exact information of the business. Its system and reports can help the
companies to perform their activities effectively and efficiently so that all the goals can be
attained. Every organisation is facing problems that are mainly related to finance all these issues
can be resolved with the help of planning tools. These tools may also help to forecast and control
budgets so that overspending of funds can be reduced.
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