MANAGEMENT ACCOUNTING INTRODUCTION 1 TASK 11 P1 Management accounting system

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting system............................................................................................1
P2 Management accounting reports............................................................................................3
M1 Benefits of management accounting system .......................................................................4
D1 Different theories of leadership.............................................................................................5
TASK 2............................................................................................................................................6
P3 Calculation of costs and preparation of income statement using marginal and absorption
costs.............................................................................................................................................6
M2 Application of costing techniques........................................................................................7
D2 Financial report.....................................................................................................................7
TASK 3............................................................................................................................................8
P4: Different types of planning tools used for budgetary control and their advantages as well
as disadvantages..........................................................................................................................8
P5: Comparison between organizations adopting management accounting systems to solve
financial problem........................................................................................................................9
M3: Analysis and application of planning tools for budgetary control....................................11
M4: Explanation of management accounting in solving financial problems and ultimately lead
to organizational success...........................................................................................................12
D3: Evaluation of planning tools which solves financial problems and show the way to
sustainable success....................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is the process of analysing operations and business cost for
preparing management accounts and management reports that provide timely and accurate
financial and statically information to managers. It is helping to managers for taking short term
and day to day decision and also helping for achieving organization goals. In different words, it
is the act of creation logic of costing and financial data and interpreting that data into helpful
information for officers and management within an organization. Ever joy enterprises is working
for a leading accounting firm of Deloitte and KPMG. It operates in entertainment and leisure
industry in the UK is consulting with the management accounting firm.
This reports content several tasks and in task first describe management accounting,
compare with financial accounting, cost accounting systems, identify inventory management
systems, job costing systems, types of accounting report. In task two calculated break even
analysis, in task three applying budgeting planning for solving financial problems and also
financial governance.
TASK 1
P1 Management accounting system
An efficient management accounting system reaches into all departments of a company
such as IT, human resources, finance, sales and operations. In addition to using typical financial
data, managerial accounting can also include non financial information like as current sales
reports, order backlog, cash on hands, assign status of accounts payable and receivables, and
delivery deadlines details and current inventory levels of finished products and raw materials
(Chenhall and Smith, 2011).
Difference between management accounting and financial accounting
Management accounting Financial accounting
Management accounting is process of
providing and preparing accurately and timely
statistical and financial information to
company managers so that they can make
short term and day to day decisions.
Financial accounting is the procedure of
making of financial statements of the
companies to demonstrate their financial
position and performance to outside people of
an organization such as customers, suppliers,
investors and creditors.
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This accounting takes organizations financial
information and develops reports for
confidential and internal use by managers for
identifying ways to run the organization more
effectively with taking efficiently decisions.
This accounting focusing on preparing
information for outside parties like as lenders,
stockholders and public regulators according
to generally accepted accounting principles.
Management accounting deals with internal
system of an organization and evaluates and
measure its processes for the management of
the company.
Financial accounting deals with providing
information to those outside the company, like
as creditors and stockholders.
Cost accounting systems (Direct costs and standard costing)
Cost management is the procedure of preparation and controlling the monetary fund of a
business. It is a kind of management system that allows a business to anticipate impending
spending to help bring down the modification of going over budget. A cost accounting system is
used by producers for making activities using a inventory system. In different words it’s a
secretarial system intended for producers that follow the course of inventory repeatedly through
the several stages of production. An amount that have to give up and paid up in order to get
something. In business, cost is usually a monetary valuation of material, time and utilities
consumed resources, opportunity and effort in delivery and production of a goods or services.
Direct cost
An expenses that can be directly incurred to production or manufacturing process
department (Kihn and Ihantola, 2015). Direct cost including material, labour, fuel or power with
the rate of production but are consistent for each unit of construction and are frequently under the
liability and control of the section manager.
Standard costing
A Standard cost is an estimation of expenses that are normally happen during the
production of a performance of a service. Standard costing is a method of costing that is used to
evaluate the standard revenues and standard cost with the actual outcome, in order to enter at the
variances along with its reasons, to inform the management about the deviations and take
remedial measures, for its development.
Inventory management system
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Inventory is an accounting period that mention to goods that are in several stages of being
ready for sale including finished goods, work in progress and raw materials. Inventory
management system is the supervision of non capitalized inventory and stock. It is the
combination of software and hardware technology and producers and processes that oversee the
maintenance and monitoring of stock products, whether those products are company supplies,
raw material and assets or finished goods ready to be sent to vendors or end customers. Without
an inventory management system, the goods and products that flow through an organization shall
inevitably be in disarray. Managers maintain a centralized record of every assets and item in the
control of the organization, providing a single source of truth for the location of every item,
vendor and supplier information, specification and the total number of a particular item currently
in stock.
Job costing systems
A job costing system is accumulating process that connecting in sequence about the cost
related with a detailed production or service job. This information may be essential in sort to
offer the price information to a client below a contract where prices are reimbursed (Jansen,
2011). The information is also helpful for influential the correctness of a company’s estimating
method, which should be able to extract prices that allow for logical revenue. The information
can also be used to allocate inventory costs to manufactured goods. Job costing is accumulation
of the following three types of information: Direct materials, direct labour and overhead. Costs
of each job involved in product making or manufacturing which will assist in calculating
profitability of particular job. Product making process involves steps from procurement of raw
materials to supply of finished goods to consumer. For instance, construction of a building,
designing a software etc.
P2 Management accounting reports
Management accounting reports using for preparation, modifiable, executive and
measuring performance. These reports are constantly return during the bookkeeping and
accounting period, according to necessities. Because many serious decisions depended on the
legitimacy of this information, they should be cautiously crafted by experts who are skillful at
accounting. Managers then investigation these reports to show up certain convert and patterns
them into helpful information for an organization. There are several methods of management
accounting reports such as-
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Cash Flow
The amount of cash and cash equivalent which the company receives or gives out by the
way of payments to creditors is known as cash flow. Cash flow analysis is often used to analyse
how well the company manages its cash position.
As per above calculations shows that cash flow statement three activities include
operating, investing and financing after that net cash flow come 1,522,000.
Income Statements
Income statement is one of the major financial statements used by accountants and
business owners. It is important because it shows profitability of a company during the time
interval specified in its heading.
4

According to calculations in income statement expenses less from income and result
come in net profit.
Balance Sheets
The balance sheet is one of the three important financial statement and is central to both
accounting and financial modelling. The balance sheet shows the company's total assets, and
how these assets are supported through either debt and equity.
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As per above table in balance sheet current assets and current liabilities have equal
amount.
Budgets and budgets variance report
A budget is a primary tool of financial statement in business including planning, tracking
and controlling. Budget variance report presents the planned costs versus actual costs variance at
a given date, broke down by the staff members expenses and roles defined.
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Need for sound accounting system:
Sound accounting system is necessary for Ever Joy Enterprises . Accounting system will
only be said better if they produce reliable, accurate as well as updated information for business.
Benefits of accurate information is that it acts as backbone for growth, development and proper
budgeting. Disadvantages of not providing accurate information is that it can create obstacles to
success of business and negatively affects financial health of Ever Joy Enterprises.
M1 Benefits of management accounting system
Cost accounting system – It helps to the management of ever joy enterprises can arrange the
plan and implement on this system for successful action of business. In this system, several
functional budgeted costs are arranged and accounting information are rearranged in section
wise, department wise, product wise for proper planning.
Price optimization system – The actual performance of all business movement is compared and
measured with the help of price optimization system. If the deviations are establish that are
convenient, the management of ever joy enterprises can decide the guiding principle to exercise
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control. Both budgetary control system and standard costing are relating to price optimization
that highly help the management in this aspect.
Inventory Management system – The scope of responsibility and authority of key executives
are properly explained and detailed under ever joy management accounting system. It helps for
proper organizing the work in a company. This system helping for increasing efficiency by
various types defective, wastage and production work improved.
Job costing system – It is the procedure of integrating the several work performed in ever joy
enterprises to accomplish the objectives successfully. Thus perfect management system
necessary for among personnel, purchase, production, sales, finance and the like sections. This is
achieved through preparing reports and budget of performance regarding job costing system.
D1 Different theories of leadership
Trait theory –
The trait theory was the outcome of the first systematic effort of other researchers and
psychologists to understand leadership. This theory detained that leaders divide positive inborn
personality qualities.
Behavioral Theories
In this theory, identify important leadership and review major efforts to behaviors. This
research grew largely out of work at the University of Iowa (Fermanian and Vigneron, 2015).
Contingency theory
The use of the behavioral and trait approaches to leadership showed that effective
leadership depended on many variables, like as the nature of tasks and organizational culture.
Transformational leadership theory
It has been realized that managers are not essentially influential. Managers do effects
precise, but it takes leaders to innovate and do the rights things. Leaders bring about major
changes, and inspire followers to put in extraordinary levels of effort.
TASK 2
P3 Calculation of costs and preparation of income statement using marginal and absorption costs
Marginal costing: In this costing technique, fixed cost of relevant period is fully written
off against contribution while variable costs are charged to sales units. A marginal cost is
additional or extra cost involved in producing an additional unit of output.
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Absorption costing: This costing method is also known as full absorption method as in
this finished goods absorbs all manufacturing costs including direct labor, direct material, as well
as fixed and variable manufacturing overhead expenses. Benefit of this costing system is that not
all fixed expenses are included in cost of goods.
Break-Even analysis: Break even analysis is also known as cost volume profit analysis.
As the name suggests, it refers to study of relationship between costs, volume and profits and
changes in these with the change in production level. In simpler terms, at break even point, there
is no profit and no loss, or total cash inflow and total cash outflow are same. Thus, net cash flow
is zero at this point (Langevin and Mendoza, 2013). Important components in break even
analysis are fixed costs, variable costs, semi-variable costs and revenue. There are two methods
from which break-even point can be calculated, they are graphic method and algebraic method.
(a)Number of tickets sold at breakeven point:
Break-Even Point in units = Fixed cost per unit / selling price per unit-variable cost per
unit
Particulars
Amount (£)
Fixed cost 60000
Variable cost per unit 10
Selling price per unit 20
Break-Even point 6000 tickets
*Break-Even Point = (60000/20-10)
= 6000
Interpretation: As given in problem that estimated fixed cost is £60,000, variable
cost is £10 per unit and selling price is £20 per unit. Break-even point was need to be
calculated from given information.
(b)
Output
Variabl
e cost(£)
Total
variable
cost(£)
Fixed
cost(£)
Total
cost(£
)
Selling
price(£
)
Total
sales(£
)
Profit(£
)
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0 0 0 60000 60000 20 0 -60000
2000 10 20000 60000 80000 20 40000 -40000
4000 10 40000 60000
10000
0 20 80000 -20000
6000 10 60000 60000
12000
0 20 120000 0
8000 10 80000 60000
14000
0 20 160000 20000
8500 10 85000 60000
14500
0 20 170000 25000
9000 10 90000 60000
15000
0 20 180000 30000
10000 10 100000 60000
16000
0 20 200000 40000
As shown in above table, at a profit of £30000, 9000 tickets were sold.
Interpretation: According to given problem, it was asked to ascertain number of
units sold at at profit of £30000. For this, various level of output has been taken,
then total variable cost is identified with the help of output and variable cost per
unit. Fixed cost, selling price is already given. Total sales is derived from output and
selling price per unit. After that, profit is calculated by subtracting total cost from
total sales.
(c) If 8000 tickets were sold, then profit will be of worth £20000 according
to above calculation.
M2 Application of costing techniques
Marginal costing: it can be implemented by analysing the production requirements and
the nature of variable cost associated with manufacturing process.
Absorption costing: this costing technique can be implemented by evaluating the fixed
cost absorbed per unit by considering selling and distribution expenses.
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D2 Financial report
As per above calculations of profit and loss account by implementing marginal and
absorption costing profit is calculated as £40000 at 10000 units and the total fixed cost counted
as £160000.
TASK 3
P4: Different types of planning tools used for budgetary control and their advantages as well as
disadvantages
Budget – An estimation of resources, costs and revenues over a particular time period,
reflecting a interpretation of future financial goals and conditions.
Budgetary control – It is the process of determining budgeted results with actual results
for an organization for the standard set and future period. It helping for co-ordination and
planning.
Contingency: Contingency theory describes those situational factors on which
management accounting systems are contingent. These factors vary from organization to
organization, and it is not possible elaborate nature of management accounting. Also these
contingent factors are one of the reasons for non formation of management accounting systems
that can be universally accepted. Factors of this theory are broadly categorized as different areas
which are external environment, firm interdependence, innovation and technology, mission and
strategies etc.
Advantages: Contingency planning tool assesses in advance about unexpected changes in
market or business interruption that may harm Ever Joy Enterprises. Thus with the help of this
tool one can formulate strategies to overcome from difficulties that might happen in future.
Along with it Ever Joy can integrate globalization and change management into analysis of
strategies.
Disadvantages: Suggestion of contingency approach is quite simple but in practical it is
very complex to apply because manager needs to determine various situations as well as analysis
of variables are involved (Financial issues in Business, 2018). It is reactive in nature rather than
proactive.
Scenario: According to this planning tool of budgetary control, different situations in
distinct set of futures are examined in Ever Joy Enterprises. Intention of this system is to
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assemble a number of probable future results that differ from most commonly acknowledged
scenario. Thereafter, Ever Joy Enterprises can develop contingency plans to deal with different
sets of future scenario.
Advantages: Outcomes from scenario planning system may be utilized for budgeting
process or in risk management. Managers of Ever Joy Enterprises will be able to see early
warning signals allied with these future sets of scenario.
Disadvantages: It is very difficult to create matrix of future scenario as future is
uncertain. Also it is challenging for managers to change both implicit and generally held beliefs
as well as assumptions about directions of business strategies.
Forecasting: This technique is used in estimation of future trends, outcomes of Ever Joy
Enterprises by analysis of historical data. In context of budgetary control, organizations utilize
this planning tool in determining allotment of budgets for expected expenses of future. At the last
stage of forecasting, after data analysis and determination of assumptions, verification is done.
Verification between actual outcomes and forecasted results is done for more accuracy.
Advantages: Managers of Ever Joy Enterprises can use forecasting in financial
information and one can get instant action on forecasted data. Also this provides flexibility in a
way that it can be done for short-term or long-term as per requirement.
Disadvantages: They need to be updated regularly whenever there is some change occur
which consumes lot of time and resources as well (Forecasting, 2018). Sometimes assumptions
may be taken in consideration various circumstances that may change with time causes
inappropriate results.
P5: Comparison between organizations adopting management accounting systems to solve
financial problem
Financial problems in ever joy enterprises – The enterprises faces many problems
regarding to management accounting systems. It bearer critical situations to manage financial
resources in an enterprises. There are several types of financial issues are increase in cost,
customer satisfaction and decrease in revenue. These issues can be resolved by using following
tools such as :
KPI: KPI or key performance indicators are quantifiable value that determines
effectiveness in achieving objectives of Ever Joy Enterprises. In process of achieving goals, Ever
Joy Enterprises utilizes these indicators at different levels. There are two types of KPIs that are
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high level and low level. High level KPIs concentrates on performance of Ever Joy as a whole.
While low level KPIs considers individual personnel of various departments such as marketing,
promotion, human resource etc. KPI metrics are mainly used by management in analyzing
factors which are important from the point of view of success and growth of an organization.
These indicators are different for every organization (Hartmann and Maas, 2011). Also KPIs
may be different for people in same organization. Importance of key performance indicators in
Ever Joy Enterprises can be understood as such without them problem identification becomes
difficult. Also it is hard to maintain employees to focus on work and tasks which are crucial for
an organization because KPIs evaluates tasks on the basis of their importance. KPIs assist in
decision making. Some of examples of KPIs are material cost, labor cost, revenue, expenses, cost
of goods sold, gross profit, net profit etc.
Financial governance: Financial governance is a method of collecting, managing and
controlling information of financial transactions. With the help of financial governance, Ever Joy
Enterprises can easily solve financial issues relating to financial transactions such as timely
financial closure, compliance with standards, consolidation of accounts etc.
Financial issues or problems: Some of financial issues which are faced by almost every
organization are uncontrollable costs which lead to decrease in profitability, uneven cash inflows
and outflows, over expansion of credit to customers, debt issues, and complex tax procedure etc.
These can be resolved by KPIs through efficient management reporting, balance and
performance scorecards.
Financial issues can also be related to financial statements such as untimely preparation, lack of
accuracy, mismanagement of operating cycle which may be solved by financial indicators (Seal
and Ball, 2011).
Financial indicators: These are usually based on evaluation of financial statements
which include income statements, cash flow statements, statement of changes in equity, other
comprehensive income statements, balance sheet etc. Ratios are being calculated on the basis of
these statements. Various ratios are liquidity, solvency, profitability, and efficiency ratios.
Liquidity ratios are current and quick ratios which show short term liquidity position of Ever joy
Enterprises. Solvency ratios are debt equity, debt to asset ratios which indicates long term
financial stability of Ever Joy. Profitability ratios show ability of an enterprise to convert its sales
into profits; some of these ratios are operating margin, net profit margin, and gross profit margin.
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Efficiency ratios includes inventory turnover ratio, accounts receivable turnover ratio, and
accounts payable turnover ratio. Higher turnover ratio reflects that Ever Joy is efficient in
converting its inventory into sales.
Non-financial indicators: Ever Joy Enterprises cannot solely depend upon financial
indicators because they only indicate performance measures in monetary or numeric values.
These are quality based measurements of Ever Joy Enterprise’s performance. For example,
employee satisfaction, innovations, corporate citizenship, market share, better quality products,
safe working environment, good customer service and feedback etc. Non-financial indicators
help in solving financial problems related to management and business operations (Azan and
Bollecker, 2011).
Bench-marking: It is a tool to compare one company with another company for
identifying ways to gain competitive advantage. Key metrics of business operations of Ever Joy
Enterprises are compared with that of Parkwood Enterprises. Area of underperformance and over
performance can be identified with benchmarking. Various business models can be adopted to
upgrade and accelerate changes for positive growth. There are different types of benchmarking
adopted by organizations such as peer benchmarking, SWOT, best practices, and collaborative
benchmarking. Also a long process is involved while adopting this benchmarking tool.
Ever Joy Enterprises Parkwood Enterprises
This organization uses Job costing reporting
system as these reports are prepared for
keeping track record of costs involves in a
specific project or job. As this organization
involves in organizing concerts in different
countries so there is a need to ascertain costs
of each event. Job costing reports also assists
in comparing actual costs with budgeted
costs. Financial problems of uncontrollable
costs, improper allocation of costs can be
solved with job costing.
Parkwood Enterprises which is involved in
manufacturing of bath oils, shower gels,
creams and also cosmetic products uses
inventory management reporting system for
managing its production and manufacturing
processes. In this system various types of
reports have been prepared such as purchase
reports, sales reports, stock summary reports,
and expenses reports. These reports controls
inventory holding costs. Also optimum level
of inventory can be maintained by tracking
various items of inventory. With this,
Parkwood Enterprises can efficiently meet its
demand and supply.
M3: Analysis and application of planning tools for budgetary control
forecasting budgeting tool can be implemented to analysis future cost of business
operation and making the budget as per required areas in Ever Joy Enterprises. There are three
types of planning tool are there namely forecasting, scenario and contingency. All of three are
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applied in Ever Joy Enterprises for efficient decision making, resultant contributes in achieving
goals and objectives of organization. Analysis of these tools leads to enhancement in revenue
and answer to management whether organization is going in right direction or not. But all the
above budgetary control systems used to be studied in advance and this is also is a point of
similarity between all of them.
M4: Explanation of management accounting in solving financial problems and ultimately lead to
organizational success
Management accounting systems such as bench-marking for supporting system for
improvement, key performance indicators helping for growth with the help of financial
indicators and non-financial indicators and financial governance helping for understanding
problems to assists in resolving many financial problems of Ever Joy Enterprises. Financial
problems such as lack of profitability, cash flow, legal challenges, financial instability etc. can be
solved by management accounting in such a way that in this reports are prepared and these
reports provides timely as well as accurate information. Management accounting reports are job
costing reports, inventory management reports, accounts receivable reports, performance reports,
costing reports etc. which ultimately aids to success of Ever Joy Enterprises. This is because;
management accounting reports will improve overall performance of an organization.
D3: Evaluation of planning tools which solves financial problems and show the way to
sustainable success
Sustainable success can only be achieved when an organization make systems, rules,
adopt methods, models because future of every business is uncertain. To overcome from these,
planning tools of budgetary control have been used to get rid of future uncertainties and make it
secure by formulating strategies. Contingency, forecasting and scenario planning tools provides
solution through estimation that can challenge smooth working of an organization.
CONCLUSION
From the above discussion, it has been concluded that in overall success of business,
management accounting is having a major contribution. Various management accounting
systems and management accounting reporting proves useful as well as crucial for managers.
Planning tools such as contingency, forecasting and scenario contributes in making budgets.
Techniques of marginal, absorption and standard costing assists in calculation of costs and in
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preparation of income statements. Although there is no compulsion on companies to adhere with
preparation of management accounting reports but these helps in decision making. Also
performance of overall business can be analyzed and improved by identifying issues or
problems. Differentiation between profitable and non-profitable areas or departments becomes
simple. Hence, from organizational context there is an essential requirement of management
accounting systems and management reporting to achieve sustainable success.
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Online
Financial issues in Business, 2018. [Online] Available through,
<https://smallbusiness.chron.com/financial-issues-business-4069.html>.
Forecasting, 2018. [Online] Available through,
<https://www.investopedia.com/terms/f/forecasting.asp>.
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