Analysis of Management Accounting Systems and Financial Problems

The assignment is based on the topic of management accounting systems and financial problems. It requires students to analyze different approaches and techniques used in managing financial information, including material flow cost accounting, design of experiments, and fundamental analysis research. The assignment also covers corporate social responsibility reporting, intellectual capital reporting, and the relationship between innovation capability and performance.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting system............................................................................................1
P2 Different types management accounting reports ..................................................................4
TASK 2............................................................................................................................................6
P3 Break even analysis ...............................................................................................................6
TASK 3............................................................................................................................................7
TASK 4............................................................................................................................................8
P4 Comparison of organization to adopting management accounting system to resolve
financial issues............................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting is a process of accounting that are helping to organisation to
giving financial and non financial information for growth of the business. On the basis of these
information business taking effective decisions. (Abdelhak, Grostick, and Hanken, 2014). It is
also known as cost accounting and managerial accounting. Periodic reports of the company
shows as a result of management accounting that will be using by managers and CEO. In this
report taking company ever joy enterprises that is UK based company, who operates in
entertainment and leisure industry in the UK is consulting with Boston consulting group on
writing a reference manual for their management accounting department.
In this report covers several tasks and that are related to management accounting system.
Task first related to definition of management accounting system and different methods of
management accounting reporting. In task two, calculate cost with the help of appropriate cost
techniques. In task three, identify different planning tools of budgetary control, and also identify
advantages and disadvantages. In task four, adopting management accounting syatem for solving
financial problems.
MAIN BODY
TASK 1
P1 Management accounting system
It is describe as process of the company for operating company costs and analysing to
provide accurate financial records, accounts and reports to aid manager decision making process
in achieving business objectives and goals. It is the act of making sense of costing and financial
data and translating that data into useful information for officers and managements within an
organizations (Baker, 2014).
Difference between management accounting and financial accounting
Basis Management accounting Financial accounting
Meaning It is the process of preparing and
providing management accounts
and reports to the management for
taking appropriate decision.
It is a branch of accounting that
keeps track of a company's
financial transaction, recorded and
presentation of financial
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statements.
Purpose It is related to internal purpose
because it is preparing for internal
system.
It is used for external reporting
mainly, although the management
also reviews it.
Objective It focus on preparing financial
report for managers and CEO and it
also provide financial information
to internal parties.
It focus on preparing information
for external parties, like as
lenders, stockholders and public
regulators.
Regulation It is not regulated by specific laws. It has to be presented as per
standards.
Audit It is not subject to audit Financial statements must be
audited.
Contents It is including monetary and non
monetary financial information.
Financial accounting only
including monetary information.
Users Users of management accounting is
internal management of the
organization.
Its users are regulators,
shareholders and investors.
Mandatory Preparation and presentation of
financial report is not mandatory.
There is mandatory of preparation
and presentation.
Frequency For preparing and presenting of
financial statement there is not
apply any frequency.
Financial statements must be
prepared for the financial year and
presented.
Cost Accounting System
It is a describe as a framework that are mostly used by firms to predict the cost of their
products for inventory valuation, profitability analysis and cost control. This syatem helping to
predict the accurate cost of products is critical for profitable operations. A firm need to know
which products are profitable and which ones are not and this can be discovered only when it has
estimated the correct cost of product (Belal, 2016). Advance, a product costing system helps in
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estimating the closing value of inventory materials, work in process and finished goods inventory
for the purpose of financial statement preparation. This system works by following raw materials
as they go through the production levels and slowly turn into finished goods in actual time. Its
approach is applicable to all kinds of business, whether it is trading and manufacturing products
or whether it is delivering services.
Inventory management systems
It is the combination of technology because for management of inventory management
system need to software and hardware (Berry, Broadbent, and Otley, 2016). Both technologies
are useful in the company to monitor of stock in the companies and these are dividing into raw
material, work in progress and finished goods. Practically, it means a business can see the small
moving parts of its operations, allowing it to make better investments and decisions. Different
inventory managers focus on different parts of the supply chain, though small businesses are
usually more interested in the ordering and sales end of the chain. With the help of inventory
management system identifying of all types inventories items like as assets, barcode and labels.
Job Costing System
A job costing system including of the process of collect information about the costs
connected with a particular service or production job. This contents may be needful in order to
state the cost data to a customer under a declaration where costs are return. The information is
also useful for determinant the accuracy of a company's calculating system, which should be able
to quote prices that allow for a sensible profit (Chompu-Inwai, Jaimjit and Premsuriyanunt,
2015). These informations are are using to recognise of cost of manufacturing goods. For proper
understand of job costing system using these information are following as-
Direct materials – The job costing system must be able to track the cost of materials that are
used or scrapped during the course of the job.
Direct labour – The job cost accounting system must track the cost of the labour used on a job.
If a job related to services, direct labour may comprise nearly all of the job cost.
Overhead – The job costing system assigns overhead costs to one or more cost pools. At the end
of each accounting period, the total amount in each cost pool is assigned to the several open jobs
based on some allocation methodology.
Price optimization system
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Price optimization system mention to a process of characteristic that level of price which
is optimal. In different words, it precise setting sensible level of amount that a customer is
willing and able to pay for goods as well as for services. Ingredient that impact price
optimization are degree of competition, market demand and manufacturing costs etc. ever joy
enterprises should not set prices of goods at too much higher level and neither at too much low
level. Because, if prices will be broad then no one will buy and if prices will be low then profit
margin would be low (De Silva, Stratford, and Clark, 2014). For this, price optimization model
has been developed which calculates fluctuation of demand in conformity with change in cost
levels.
P2 Different types management accounting reports
In order to arrange management accounting system, reports are necessarily need to be
prepared. These reports of accounting are used for planning, regulating, performance
measurement and decision making. Management accounting reports are a important part of
making sure that have a absolute picture of how business execute. A broad report of accounting
are produced to every situation of the company that are view of finance relating to company.
Many times it is difficult to maintain for small and medium size companies because they are not
properly apply strategies related to this reports. Management accounting reporting mainly done
to know about overall level of performance of ever joy enterprises. There is no demand of
writing management accounting reports in a specific similar format (Ge and Kim, 2014). These
reports related to different departments of organisation that are presented to situation of business,
they are as follows -
Budget Reports – Accounting reports are relating of budgets are important part of organisation
because it will using for measuring company performance and are make as a whole for small
businesses and department wise, for large organizations. However, each company creates an
overall budget to understand the grand scheme of their business. A budget estimate made based
on previous experiences, though a great budget always caters for unforeseen circumstances that
might arise.
Accounts receivable reports – Business relies heavily on extending credit, then account
receivable aging reports are essential to it. Breaking down the remaining balances of clients into
particular time periods allows managers to identify the defaulters as well as find issues in the
company collection process.
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Cost accounting reports – Managerial accounting calculate the costs of articles that are
produced. All overheads, raw material costs, labour and any added costs are taken into
accomplishment. A cost report providing a summary of all of this information. This report offers
managers the capability to realize the cost prices of items versus their selling prices. Profit
amount are approximation and monitored through these reports have a clear picture of all the
costs.
Performance reports – It created to appraisal the performance of a company as a whole as well
as for each employee at the ending of a period. Divisional execution reports are also create in
large organizations. Managers use these performance reports to prepare key strategic decisions
about the future of the organization. Individuals are frequently awarding for their loyalty to the
organization and under performing artist are laid off or dealt with as necessitate. Performance
affiliated to managerial accounting reports also offer heavy perception into the working of a
company (Growe and et. al., 2014).
Sales report - Sales reports are helpful for management accounting because they display the
sources of company's incomes, highlighting which approach are least and most successful. Sales
reports detail which of business state earn the most revenue, such as wholesale versus retail
sales, or sales at particular accounts or venues. They can also appearance which of sales people
are create the most and the least income, liberal the basis for awarding bonuses and adjusting
staffing.
Financial report - Financial reports are sometimes reasoned to be a different carnal from
managerial accounting, traditional financial reports also provide useful information to help to
interpret company operations. Profit and loss statement presents how much company has earned
and spent overall, Classifying these numbers for identify and summarizing how much profit
have earned. Balance sheet concise how much company owes and how much it earns. This
information is useful for managerial accounting because it shows how profits and losses have
displace over time, and how much of company's net worth takes the kind of liquid cash that's
acquirable for operations.
Sound accounting System
Building an accounting program that protects the financial unity of a business depends on
the request of a few key principles. These are known as internal controls. The term internal
control usually brings to mind control of fraud. However this is only one aspect of controls in
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accounting system. The others are efficient and effective operations, believable reporting,
compliance with applicable regulations and laws.
Need – Businesses are adopting sound accounting systems if their bookkeeping and accounting
systems are reliable, able to produce updated and accurate financial information. Sound
accounting helps in proper budgeting so that businesses can plan accordingly. This helps in the
growth of business and accounting was created in response to the development of commerce and
trade.
Importance of the department producing timely,accurate and relevant information –
Accurate, reliable and timely information is vital to effective decision making in almost every
aspect of human endeavour, whether it be undertaken by individuals, governments Businesses
and community organizations. It is an essential component of any effort to persuade
governments, individuals and businesses to make different decisions from the once which they
might make in the absence of particular pieces of information. And it is an integral part of any
attempt to hold those who make decisions accountable for they consequences of the decisions
which they make (Horngren, and Harrison, 2015).
TASK 2
P3 Break even analysis
A break even analysis is a financial tool which assist to regulate that what stage of the
company, or a new product or a new service, will be gainful. In different words, it's a financial
computation for deciding the number of products and services of ever joy enterprises should sell
to cover its costs related to particularly fixed costs. Break even is a situation where are neither
making money nor losing money, but all costs have been covered. It is helpful in studying the
relation between the fixed costs, revenue and variable costs. Generally, Ever joy enterprises with
low fixed costs will have a low break even point of sale (Kastberg, 2014).
A. calculate of Break even Analysis
Sales per unit 20
Variable costs 10
Contribution 10
fixed costs 60000
BEP in units 6000
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B. Calculation for getting desire profit 30,000
Profit 30000
fixed costs 60000
Add – Contribution 90000
Contribution per unit 10
Sales 9000
C. Calculation of profit on 8000 sales
Sales 160000
Variable costs 80000
Contribution 80000
Less – Fixed costs 60000
Profit 20000
TASK 3
Budget – A budget is a formal statement that are helping to estimate income and expenses of the
company. On the basis of this achieve goals and objectives for future time period. In different
words, a budget is a document that management makes to estimate the revenues and expenses for
an upcoming period based on their goals for the business. The important thing to remember is
these budgets are really just the management's future goals and plans for the business written
down in financial form.
Budgetary control – Budgetary control is the process of determining various actual results with
budgeted results for the enterprises to controlling costs which includes the preparation of
budgets, coordinating the departments and establishing responsibilities, comparing actual
performance with the budgeted and acting upon results to achieve maximum profitability.
Budgetary control as planning in advance of the various functions of a business so that the
business as a whole is controlled (Mio, 2016).
Forecasting tool
It is an important part for preparing plan of action for business and using as method for
approximation of future direction that are affected to Ever joy enterprises by analysis of active
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data. With the help of budgetary control, companies using this planning tool for deciding
expenses of each budget related to all departments. In the end of this forecasting tool, after data
determination and analysis of expectation (Muniesa, 2014). Now verify standard results and
actual results of the company.
Advantage – This tool helping to the company for collect financial information and on the basis
of this company taking effective decision.
Disadvantage – Mainly this tool provides qualitative estimation that are may be right or may be
wrong so it will be effect to company in future.
Scenario tool
Scenario tool using to help in budgetary control because it defines several find out of ever
joy enterprises. Purpose of this system is to put together number of applicant future results that
different from most usually recognized scenario. So Ever joy enterprises can evolve occurrence
plans to deal with different sets of future scenario.
Advantage - This planning tool helping to organizations for taking appropriate decisions, to save
time, to reduce risk and maximum profit. It also face several doubts that are included different
department that are using techniques for taking effective decision making regarding to future
time period.
Disadvantage – This tool exactly not define future situations of the company that will always
helping to future growth.
Contingency tool
This tool provide timely and accurately areas of ever joy enterprises. It will helping to
estimate market strategies that are any time effect to market (Romney and Steinbart, 2015). So
aware from these suddenly changes need to prepare another plan that are helping to over come
critical situations.
Advantage – This tool helping to assess all types situations related to business and market. It is
designed to advance predict situations are coming in future and may be effected to growth of the
business. With the help of this tool prepare effective strategies that are apply on Ever joy
enterprises in future. These strategies are helping to change management according to that and
integrate globalization.
Disadvantage – Contingency tool complex to apply in the management because it is easy to
estimate but according to that prepare strategies and applying in Ever joy enterprises is not easy.
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TASK 4
P4 Comparison of organization to adopting management accounting system to resolve financial
issues
Financial issues are related with organizations are defined as monetary issues that can
create stress. Management is always careful about these financial problems because it creates big
problems for the organisations (Saunila, Pekkola, and Ukko,2014). These problems effected like
that improper taxation strategies, inadequacy in working capital and insufficient collateral etc.
so, when ever joy enterprises adopting system of management accounting then it finds ways to
solve these above mentioned issues. Management accounting systems are as following-
KPI
The key performance indicators (KPIs) are one of the most over used and little
understood terms in business management and development. They are too often taken to mean
any metric or data used to measure business performance. It is used as business metrics by
managers and corporate executives to analyse and track factors deemed crucial to the success of
an organization. Effective KPIs focus on the business functions and processes that senior
management sees as most important for measuring progress toward meeting strategic goals and
performance targets (Zeff, 2016). There are two types, financial indicators and non financial
indicators. This tool aids in resolving financial issues like as inefficiency in identifying less and
more profitable areas in a way that it finds key points to organizational success. This can be done
through KPIs as it contributes in meeting performance objectives.
Financial Indicators – Financial KPIs are generally based on financial statement such as Balance
sheet components and income statement and may also report changes in sales growth by
customer segments, channel and product families or in expenses categories. For measure
performance variety of areas, from marketing to HR to finance. Financial performance is
essential to long term success that are including financial indicators such as gross profit margin,
net profit margin, net profit, current ratio, Aging accounts receivables (KPIs financial tools,
2018).
Non financial indicators – Non KPIs consider of measures indicators associate with customer
relationship, operations, cycle time, employees, quality and the organisation's supply chain or its
pipeline. Some people prefer to use the term of non financial performance rather than to extra
financial, suggesting that all measures that contribute to organisational success are ultimately
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financial. It is used to measure to assess the activities of an organization seems an important to
the achievement of its strategic objectives.
Benchmarking
It is a process using for measure the performance of a company's processes, services and
products against those of another business reasoned to be the best in the industry. The element of
benchmarking is to determine internal possibility for improvement. By studying companies with
superior performance, breaking down what makes such superior performance possible, and then
comparing those processes to how business function that can implement changes that will
product important improvements. It is also using as tool for strategic management to set goals of
the ever joy enterprises and measured productivity on the basis of the best industry practices
(Stead, and Stead, 2014).) . It is a practice in which quality level is used as a point of references
to evaluate things by making a comparison.
Comparison between organisation adopting management accounting system
Parkwood enterprises Ever joy enterprises
Parkwood enterprises belongs to entertainment
industry that is adopting KPI as a financial tool
for solving problems of management system.
Because it will improve efficiency in job and
projects to determine that performance
indicators are good or not. KPIs through
measure financial and non financial indicators
that are giving many benefits to company that
are identified easily problems.
This company belongs to leisure industry and
entertainment in UK with consulting group.
Thus it will be beneficial that adopting
management system of benchmarking for
solving financial issues. It is best practice to to
apply technologies used in this industry. This
tool through company compare performance
with other companies to bring effectiveness in
working.
Financial indicators of KPI are using to
measuring cost of the industry. On the basis of
this quantitative issues are easily solved and
manage serious issues. Because company have
limited resources for using so company using
alternative methods for proper management.
Issues are related to finance such as budgets of
the company can be solved by applying
system. It will activity problems of
organisations and according to that solves
problems because some problems solved
according to situations.
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CONCLUSION
From above the discussion, in this report concluded that management accounting
important part of ever joy enterprises for effective management and improve to their financial
conditions. Although, it is not necessarily to be adopted but internal stakeholders remains
satisfied as well as informed about overall performance of the organisation. Different types of
management accounting reports prepare by manger for solving problems and for support to
business operations. Break even analysis using for calculating profit and sales of the
organisation. Planning tools for budgetary control are evaluated to assist in process of forecasting
and preparation of budget. Therefore comparison between two organisation to understand utility
to adopting different management accounting systems and to solve financial problems.
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REFERENCES
Books and Journals
Abdelhak, M., Grostick, S. and Hanken, M. A., 2014. Health Information-E-Book: Management
of a Strategic Resource. Elsevier Health Sciences.
Baker, R., 2014. Qualitative research in accounting: the North American perspective. Qualitative
Research in Accounting & Management. 11(4). pp.278-285.
Belal, A. R., 2016. Corporate social responsibility reporting in developing countries: The case
of Bangladesh. Routledge.
Berry, A. J., Broadbent, J. and Otley, D. T. eds., 2016. Management control: theories, issues and
practices. Macmillan International Higher Education.
Chompu-Inwai, R., Jaimjit, B. and Premsuriyanunt, P., 2015. A combination of Material Flow
Cost Accounting and design of experiments techniques in an SME: the case of a wood
products manufacturing company in northern Thailand. Journal of Cleaner Production.
108. pp.1352-1364.
De Silva, T. A., Stratford, M. and Clark, M., 2014. Intellectual capital reporting: a longitudinal
study of New Zealand companies. Journal of Intellectual Capital. 15(1). pp.157-172.
Ge, W. and Kim, J. B., 2014. Real earnings management and the cost of new corporate bonds.
Journal of Business Research. 67(4). pp.641-647.
Growe, G. and et.al., 2014. The profitability and performance measurement of US regional banks
using the predictive focus of the “fundamental analysis research”. In Advances in
Management Accounting (pp. 189-237). Emerald Group Publishing Limited.
Horngren, C. and Harrison, W., 2015. ACCOUNTING: BSB110. Pearson Higher Education AU.
Kastberg, G., 2014. Framing shared services: Accounting, control and overflows. Critical
perspectives on accounting. 25(8). pp.743-756.
Mio, C. ed., 2016. Integrated reporting: A new accounting disclosure. Springer.
Muniesa, F., 2014. The provoked economy: Economic reality and the performative turn.
Routledge.
Romney, M. B. and Steinbart, P. J., 2015. Accounting information systems. Boston, MA:
Pearson.
Saunila, M., Pekkola, S. and Ukko, J., 2014. The relationship between innovation capability and
performance: The moderating effect of measurement. International Journal of
Productivity and Performance Management. 63(2). pp.234-249.
Stead, J. G. and Stead, W. E., 2014. Sustainable strategic management. Routledge.
Zeff, S. A., 2016. Forging accounting principles in five countries: A history and an analysis of
trends. Routledge.
Online
KPIs financial tools. 2018. [Online] Available through:
<https://www.cgma.org/resources/tools/essential-tools/kpis.html>
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