Table of Contents Introduction....................................................................................................................................3 Task 1..............................................................................................................................................4 Management Accounting.............................................................................................................4 a. Differences between Management Accounting and Financial Accounting.............................6 b. Cost accounting systems (Direct Costs and Standard Costing)...............................................8 c. Inventory Management Systems..............................................................................................9 d. Job costing systems................................................................................................................10 e. Different types management accounting reports....................................................................11 f. The need for a sound accounting system and the importance of the department producing timely, accurate and relevant information..................................................................................13 Task 2............................................................................................................................................14 a. The number of tickets that must be sold to break even (i.e. the point at which there is neither profit nor loss)............................................................................................................................14 b. If we want to make a profit of £30,000.00, how many tickets should be sold?.....................15 c. What profit would result if 8,000 tickets were sold?.............................................................16 Task 3............................................................................................................................................17 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.................................................................................................................17 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...............................................................................................................19 Conclusion....................................................................................................................................22 References.....................................................................................................................................23 2
Introduction Management accounting is an integral part of the enterprises which helps them to achieve their goals and objectives in an effective and efficient manner. This report will be prepared to reflect and discuss the concept of managerial or management accounting and write a reference in the context for EVER JOY ENTERPRISES (UK) that operates its business operations in leisure and entertainment industry in the UK. This report defines the concept of job costing systems, cost accounting systems and inventory management systems and its usage in the enterprises. This report will also solve the given problems to assist the Ever Joy Enterprise reviewing its performance in Manchester region to determine its feasibility by using the break-event point formulae and which present the profits and BEP at which enterprises in the position of no profit and no loss. This report also gives suitable advice to Ever Joy Enterprises on utilizing the budgets as planning and problem-solving tools which solve the financial problems of the enterprises. 3
Task 1 Management Accounting Management Accountingis the accounting branch which basically deals with providing and presenting accounting information to the manager in such an organized manner so that it can do its managerial functions of planning, controlling and decision- making in an efficient and effective manner. Management accounting acts as a decision-making support system to the manager of an enterprises (Kaplan and Atkinson, 2015). AsperCertifiedInstituteofManagementAccountants(CIMA),UnitedKingdom, “Management Accounting is an essential part of the company’s management concerned with classifying, offering, and understanding information which is utilized for framing planning, strategy and monitoring and governing activities or events, decision- making, optimal usage of resources of an enterprise, disclosure to stakeholders and other external to the enterprises, disclosure to workers or employees and assets safeguarding. Objectives of Management Accounting Themainobjectiveofmanagementaccountingistoofferimportantinformationtothe management for an efficient and effective execution of managerial functions. Various objectives of management accounting are enumerated as follows: 1. Planning and policy- making:Management Accounting provides or offers important and accurate information to the management in the process of its policy- making and planning to attain goals and objectives. 2. Controlling: Management:Accounting applies various essential techniques or methods such as Budgetary control, Management Audit, Standard Costing, and Responsibility Accounting to ensure an effective management control over the resources use of the enterprise. 3. Communicating:Appropriate communication of the performance of many departments of an enterprise to different administration levels is necessary required for planning, decision- making and controlling. 4
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4. Analysis and interpretation of financial statements:Management Accounting gathers, analyses and understands the important data from the results shown by the cost and financial accounting system, and also offers important and appropriate information to the management in a useful and systematic manner. 5. Decision- making:Management accounting offers important and accurate information to the management in the process of its decision- making. The growth and success of management highly and mostly depends upon a perfect decision- making. 6. Tax planning:Management accounting assists to the management in the process of tax planning by availing various tax rebates and reliefs and, thus, minimizes the tax burden of the enterprise on the whole. Role and functions of Management Accounting 5 Communication Supplied of modified data Preparation of reports Performance evaluation Collection of data Ensuring Control Helping in decision- making Planning and forecasting Analysis and interpretation of data
a. Differences between Management Accounting and Financial Accounting Points of DifferenceFinancial AccountingManagement Accounting ObjectiveObjective is to account for the day-to-dayfinancial transactions,anddetermine thefinancialhealthofan enterprises (Maynard, 2017). Main objective is to report to the management information so that they can take proper decisions (Weygandt, et. al., 2015). PurposeBeneficial both for internally aswellasstakeholdersto assessthefinancial performance of the company. Beneficial mostly for internal managementformaking decisions,forinstance, budget, or spending plan etc. FrequencyGenerally, it is prepared as perstatutoryrequirements: yearlystatement,quarterly and half-yearly. Mostlypreparedasper managementrequirements. No fixed interval at which the management accounts should be prepared. ComplianceStatutorycompliance required. Statutory not required. FocusFinancial reports are prepared onthebasisofhistorical informationandreportsare Managementaccounting focusesmainlyonpresent dataandforecastingfuture 6
prepared for a fixed period of time. reports. UsersExternal and internal partiesOnly internal management Auditing and PublishingCompulsory to be published andauditedbystatutory auditors. Neither published nor audited by statutory auditors. ScopeThescopeoffinancial accounting is narrow. Thescopeofmanagement accounting is broad. 7
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b. Cost accounting systems (Direct Costs and Standard Costing) The cost accounting systems can assist the company in so many ways. It provides an exact product cost, delivers valuable operational and financial information, and also evaluates the performance. The cost accounting includes measuring, recording, and reporting of product costs. This system assists to the Ever Joy Enterprises to estimate the cost of their products for profitability analysis, valuation of inventory, and control the cost.The Ever Joy Enterprises can utilize this framework to assess the productivity in the procedures and this framework likewise helps in making the upgrades in the up and coming procedures of the enterprises. It will likewise help the enterprises in value obsession of the item and limits the wastages in the assembling procedure (DRURY, 2013). It additionally gives helpful data to the administration bookkeeper for the further arranging of the items. Types of costs Direct Costing:It is a type of costing method which uses only variable manufacturing costs are allocated to cost of goods sold and inventory. This method can be used internally and not for external purpose. While preparing the financial statements both fixed cost and variable cost are considered and assigned to the products (Weygandt, et. al., 2015). Standard Costing:In standard costing some standards are fixed by the manufacturer regarding product or service. The manufacturers identify the variances in between actual and standard costs. If the enterprises had incurred more than the standard costs, then the enterprises will not meet its projected or estimated net income (Maynard, 2017). 8
c. Inventory Management Systems The stock administration frameworks will allude to the way toward bookkeeping in which inventories including the completed merchandise and work in advancement will be overseen and revealedproperlyandconvenientformakingprogressinthecreationlimits.Thestock administration will be vital for the venture with the end goal to accomplish the ideal dimension of stock to be held in the organization which will result in opportune accessibility of stock and will likewise help with accomplishing least expense of stock held in the organization (Holm, 2018). The essential points of executing stock administration framework in the enterprise are: ï‚·Attaining an ideal stock level of stock that must be kept up in the enterprise with the goal that no requests are postponed and the expense of support is least for the enterprises. ï‚·Identifying the ideal level of placing the orders for buying of different materials and building the concept of just in time inventory. The inventory management system will use different kinds of methods which are summarized as below: ï‚·First in first out method ï‚·Last in first out method ï‚·Just in time method ï‚·Weighted average method 9
d. Job costing systems Job costing systems is a system for assigning the production or manufacturing costs to a specific batches or products. Basically, this costing system is utilized only when the products produced are different from each other. Job costing includes the accumulation materials, labor and overhead costs for a particular job. For instance, a job costing is useful in the designing a software program, manufacturing a small batch of products, constructing a custom machine (DRURY, 2013). In a job costing it includes the following activities which are listed below: ï‚·Materials ï‚·Labor ï‚·Overhead Job costing assists to the Ever Joy Enterprises by providing useful information regarding particular job in an accurate manner. The management easily accumulated the price of job and estimated how much cost involved in this job. The whole data are stored in the database of the company which provides relevant information to the management and its customers. 10
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e. Different types management accounting reports ReportsDescriptionUse in Ever Joy Enterprise Cost and revenue reportsThe cost and revenue reports give data with respect to cost engagedwithdifferent proceduresandincome createdtherefrom.It empowers the administration todissecttheoperational productivity of the business (DRURY, 2013). Itwillempowerthe administrationofEverJoy Enterprises(UK)toplan futurebusiness methodologiesand furthermore follow if there is any wasteful procedure. Performance reportsPerformancereportisan explanation that evaluates the resultofanactionovera predefined time allotment. It issetuptosurveythe execution(Kaplanand Atkinson, 2015). Performancereportcanbe instrumentalinEverJoy Enterprises (UK) to evaluate itsarrangementsdependent on their execution/result and itcanoutlinethefuture systems appropriately. Inventory reportsInventoryreportcondenses differentthingshavinga placewithabusiness, industry, association. It gives a record of inventory level in an organization including raw material, finished goods, etc. Inventoryreportscanbe utilizedinEverJoy Enterprises (UK) to monitor stock and different things. 11
(Holm, 2018). Budgetary reportsBudgetary report is a report thatempowersthe administrator to think about the projections made toward the start of the year with real execution.Itisintendedto decide concerning how close be the real execution with the planned execution (Maynard, 2017). EverJoyEnterprises(UK) can utilize Budgetary report to dissect the productivity of the business. In the event that thereisanydeviation betweenthegenuine executionandplanned execution it can discover the purposebehindasimilar whichwillempoweritto framebetterbusiness methodologies in future. 12
f. Theneed forasoundaccountingsystemandtheimportanceofthedepartment producing timely, accurate and relevant information. A sound accounting system is a precise method for gathering and recording of the monetary exchanges with the goal that it can empower every one of the partners to survey the execution of the enterprise. Bookkeeping should be possible either physically or through mechanized projects. However, a sound accounting system enhance the profits and efficiency of the enterprise and also enhances the goodwill or reputation of the enterprises (Vanderbeck, 2012). Following are benefits of a sound accounting system which are discussed as below: Assists in decision making:A sound bookkeeping framework helps the administration to settle on better choices for the business. Since the data given by the bookkeeping framework is precise so it empowers the administration to painstakingly evaluate and examine every single viewpoint and shape the future systems likewise. Compatibility:It gives a system to the business to effectively share money related information. Assume an organization buys another organization and the two are having a sound bookkeeping framework set up then it would be anything but difficult to coordinate the records and would spare part of time and exertion. Improves the proficiency of a business:A sound bookkeeping framework annihilates any odds of inconsistency and presents data convenient and precisely which thus builds the profitability of the business. Presently days with the appearance of electronic bookkeeping frameworks different reports can be produced with the dash of a catch which empowers the administration to take the choices opportune that helps in the development of the business. High level of accuracy:A sound bookkeeping gives a high level of precision in the introduction of the last records. It limits the odds of any theft and uncovered the shortcoming assuming any. Sound bookkeeping disposes of odds of blunders and introduces all the monetary information definitely and precisely. 13
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Task 2 a.The number of tickets that must be sold to break even (i.e. the point at which there is neither profit nor loss) Calculation of Contribution per ticket ParticularsAmount (£) Fixed Costs60,000 Proposed ticket price for the concert20 Variable Cost per ticket10 Contribution per ticket10 Calculation of Break Even Point (per ticket) Break Even Point= Fixed Cost/Contribution per ticket6000 14
Interpretation:By applying the break-even point formula which is stated above, Ever Joy Company will have to sell at least 6,000 tickets in order to cover its variable and fixed costs. It is the situation where the company faces no profit or no loss. b. If we want to make a profit of £30,000.00, how many tickets should be sold? Calculation of the ticket to be sold in order to achieve the desired profits ParticularsAmount (£) Desired Profits30,000 Fixed Costs60,000 Contribution per ticket10 Tickettobesoldinordertoachievethedesiredprofits (Fixed costs + Desired profits/Contribution per ticket) 9000 Interpretation:Above calculation shows that Ever Joy Company will have to sell 9,000 tickets orsales will be £ 1,80,000 (9,000 x £20)to meet the desired profit of £ 30,000. 15
c. What profit would result if 8,000 tickets were sold? Calculation of Profits ParticularsAmount (£) Sales of tickets8,000 Contribution10 Fixed Costs60,000 Profits = (Sales x Contribution per ticket) – Fixed Costs20,000 Interpretation:Above calculation shows that Ever Joy Company would achieve£ 20,000 as a profit while selling of 8,000 tickets. The break-even point is very essential method of management accounting which study the relationship between fixed costs and variable costs and revenue. The break- even point shows that at what moment the sales will commencing a positive return to the enterprises. It is a helpful apparatus to choose if the organization ought not or should begin creating and offering an item. It is otherwise called Critical Point. On the off chance that the deal at which the aggregate income is equivalent to the aggregate expenses, all things considered, the organization would be in the circumstance of no benefit and no loss. For another situation, if the deals are lower than the costs, it is a misfortune for the organization. Everything which is over the Break-Even Point can be reserved as benefits for the organization. The principle advantage of a break- even point is that it clarifies the connection between the costs, income, and production units (Sandalgaard and Nikolaj Bukh, 2014). 16
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Task 3 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. Budgeting Budgeting is the way toward making an arrangement to spend the cash in the most proper way. The spending plan is known as a financial plan. While making a spending plan it permits the managers of the enterprises to decide ahead of time whether the enterprises will have sufficient capital or cash to spend on the up and coming plans or not (Lavia López and Hiebl, 2014). The Ever Joy Enterprises can used budgeting as a planning and problem-solving tool in dealing with the financial problems. The budgets set the income and expenses that the enterprises have to be spend in the future projects. The budgets create a road map for the management and its departments for achieving their goals and objectives in an appropriate manner. The budget sets the target for the enterprises and leads to sustainable success to them. In budgets the targets are set in volume and in amount which shows overall income and expenses to the management of the enterprises. Types of budget Sales budget Production budget Cash budget Fixed or flexible budget Master budget 17
Benefits or advantages of budgeting: 1.Budgeting assists the Ever Joy Company in defining the weaknesses and strength on which the entity can concentrate. 2.Budgeting increases the possibility that the company objectives and goals will be achieved. 3.Withthehelpofbudgeting,thereiseffectivecoordinationofactivitiesineach department of the company. 4.Budgeting also helps the manager of the company to allocate the resources to each department. Disadvantages or limitations of budgeting: 1.Lack of coordination in between the functions or departments, which may result in operational plans of the company being in conflict. 2.Departments may be demotivated, if the targets set are too rigid or does not identify themselves with the assigned targets. 3.In a company, if a department does not fulfill its budgeted target or standards, the department manager may blame to other departments that provide services to it. 4.It mainly concerned with the distribution of cash or money to the activities which are estimated and expected outcome or results of the business transactions. Budgeting is not deal with the other issues like products quality or services provided to the customers. 18
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. Financial governance alludes to the manner in which an organization oversees, gathers, screens and controlsthe money related data. The budgetary administrationincorporateshow the organizationtracksitsmoneyrelatedexchanges,controlinformation;overseeexecution, activities, consistence, and exposures (Nitzl, 2018). The sound financial governance helps the enterprises to solve the financial problems for Ever Joy Enterprises in the following ways: ï‚·It enhances the reputations of the company in the competitive market. ï‚·It protects the enterprises from heavy penalties. ï‚·With the help of financial governance, the management can take proper decision regarding enterprises growth and success. ï‚·Goodgovernanceattractstheexternalstakeholderstotheenterpriseswhichassiststhe enterprises to enhance their capital and funds also. The accurate and correct information from the relevant reports helps the management to prepare the strategy for the future growth and development. With the help of financial governance, the management can prepare financial policies and procedures according to their needs. The strong and effective financial governance attracts the financial institutions how provides loans and other benefits to the enterprises when the shortage will be incurred. By conducting regular audits of accounts and reports the financial reports shows the transparency in each account which attracts more investors to invest in the enterprises. The management can easily assess the risk in the business operations with the help of financial governance (Griffin, 2017). 19
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There are various tools and techniques used by the Ever Joy Enterprises in order to reduce the financial problems and enhances the level of performance. Some of them are mentioned as below: Benchmarking:A measurement of the quality of an enterprises product, programs, strategies, policies, etc., and their comparison with standard measurements, or similar measurements of its peers (Mayne, 2017). The main objectives of benchmarking are: ï‚·To analyze how organizations, attain their high-performance levels ï‚·To determine what and where improvements are called for ï‚·To utilize this information to enhance or improve the performance Byusingbenchmarking,theEverJoyEnterprisescanchecktheirperformancelevelin competitive market and also check the quality of their products or services with the prescribed standards. Some of the useful financial benchmarks include: ï‚·Financial benchmarking ï‚·Benchmarking from an investor perspective ï‚·Performance benchmarking ï‚·Process benchmarking ï‚·Functional benchmarking ï‚·Product benchmarking ï‚·Strategic benchmarking Benchmarking does not provide a solution to all the problems rather it examines the situations and processes and assists in improving the performance of an enterprises. It is a continuous improvement process and it improve the overall performance of the departments or divisions in the enterprises. In this process, an enterprises major business operation is compared and measured with the competitors and acknowledged leaders of the industry (Maher, et. al., 2012). 20
Key performance indicators:A key performance indicator is computable value that shows how efficiently an enterprise is attaining key business objectives. The Ever Joy Enterprises use key performance indicators at multiple levels to assess their growth and success at reaching goals. It is a form of measurement performance and are commonly used in the organization (Rogulenko, et. al., 2016). The Ever Joy enterprises can use the KPIs to measure and evaluate the financial performance which is listed below: ï‚·Profitability ratio ï‚·Liquidity, debt and solvency ratio ï‚·Break- even analysis ï‚·Operating ratio ï‚·Turnover ratio ï‚·Other useful ratios (capital structure ratio) With the help of above ratios company can evaluate the performance level. The Ever Joy Enterprises can compare the past performance with present performance with the help of this above ratios. KPIs also assists the management to evaluate the performance of employees and how they achieve their targets in an effective and efficient manner. In other words, KPIs is kind of performance measurement that assists the enterprises to understand how the enterprises or divisions is performing. A good key performance indicator should act as a compass which assists the enterprises and its employees whether both are taking the right path towards strategic goals prepared by the managers (Di Vaio, et. al., 2018). 21
Conclusion This report is concluded that the management accounting tools and techniques helps the company to achieve their targets and goals in an effective and efficient manner. This report also shows that how different management accounting systems assists the Ever Joy Enterprises to enhance their productivity and its business operations. While using Break-even analysis, it shows the situation where the company in the position of no profit or no loss. This report also tells how budget can solve the financial problems of the company and act as an effective financial tool for the management of an enterprises. The good and strong financial governance assists to the company in solving the financial problems and attracts the investors to the enterprises. The Ever Joy Enterprises use various methods like KPIs and Benchmarking to check their performance level and other things in an accurate manner. 22
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