Management Accounting Report

This report examines the role of management accounting in Everyjoy Ltd., a UK-based entertainment company. It analyzes various costing techniques, including absorption costing and marginal costing, and explores the benefits of different management accounting systems. The report also examines planning tools for budgetary control and compares Everyjoy's financial performance with another organization, Parkwood Enterprises.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management Accounting and its importance.......................................................................1
P2. Different methods used for management accounting reporting............................................4
M1: Some benefits of management accounting systems are as follows.....................................6
TASK 2............................................................................................................................................6
P3. Different kinds of costing techniques used for calculation of net profit ..............................6
(a): ..............................................................................................................................................8
(b) ...............................................................................................................................................8
(c): .............................................................................................................................................8
M2. Different types of accounting tools and techniques.............................................................8
D2. Analysation of data collected from consolidated income statements...................................9
TASK 3............................................................................................................................................9
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.........................................................................................................................................9
M3. Use of different planning tools and their applications for preparing and forecasting
budget........................................................................................................................................11
D3. Evaluate planning tools to solve financial problems..........................................................11
TASK 4..........................................................................................................................................11
P5: Comparison with other organisation to overcome financial issues....................................11
CONCLUSION..............................................................................................................................13

INTRODUCTION
Every organisation in present time need the management for the proper and effective
control over the business operation and management requires the accounting for the maintain the
proper record of business transactions and for it's ascertainment. Because of this the needs of
management accounting arises. For instance, the reason behind the utilisation of management
accounting is mainly concerned with systematic procedure which pertain recording, summarising
and communicating the managerial information in systematic analysation form to ascertain the
business transactions . It assists the organisations to manage their all business activities in most
effective way is helpful in ascertainment(Kaplan and Atkinson, 2015). The main objective of
using appropriate accounting system is to manage appropriately the activities of the business and
to achieve the desired goals.
This study pertain the knowledge about the management accounting and its purpose and
its advantages and disadvantages also it pertain the the managerial information of the
organisation Everyjoy Ltd. (U.K) which operates in entertainment industry which provides
leisure and entertainment services. Moreover, management accounting and its techniques or
methods used for calculation, different types of costing method use for calculating the net profit.
Not only this, advantages and disadvantages of different types of budgetary planning tools are
used in budgetary control process are consists in this study.
TASK 1
P1: Management Accounting and its importance
During Ancient times there were no need of special management work force for
managing the business operations and functions also there were no systematic format or
procedure of recording classifying, summarising and ascertaining the business transactions
which or business growth but now in present era as the need of management in an organisation
is essential for effective and efficient control over the organisational transactions. In order to
manager these all the role of manager is dominant role in management workings. So, the
manager engaged in managing the activities regarding the business operations and perform the
activities like analysing, summarising in a significant manner or in terms of money and interpret
the results there of(Ward, 2010). Management accounting is the appropriate systematic
procedure of presenting the of financial data in such an appropriate manner as it provides
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important directions and guidelines in order to achieve the desired goals in order to run their
business. Management use management accounting systems to present efficient policies which
are important in the daily business activities and operations. It pertain some accounting
techniques and methods which helps in identifying and analysation of managerial data. it is also
helpful in analysation of management activity. This will help them to ascertainment of profit by
effective and efficient utilisation of business resources(Hilton and Platt, 2013). The analysis of
all data prepared and maintain in a manner that it will be maintained under the systematic
framework which is helpful in deciding the future plans and operations. The accounting
information system is truly essential, as it is concerned with accounting terms and concepts, for
the process presentation and preparation of accounting statements that are essential in
identifying, measuring, evaluating and communicating the organisational economic data with
the managers of organisation the for enabling them in effective decision making.
Definition: Management accounting is termed as of the effective process of accounting
that comprises with preparing and providing specific business operational information or
managerial operations in most appropriate manner. It is beneficial for management in performing
their managerial tasks or operational activities like planning, organising and effective decision
making.
Financial accounting Management accounting
 It is a process of preparing financial
statements which depicts the financial
performance of the business.
 Financial accounting helps to
ascertain profitability of a business
organisation such as Everjoy.
 It is a process of preparing consolidate
cost and management accounting
statements which shows the
operational and managerial
performance.
 This type of accounting helps to
ascertain productivity and efficiency
of an organisation.
Importance of Management Accounting in organisation.
 Beneficial in planning preparation : Planning is the most important elements of
management operations. It is used to accomplish all desired goals of the organisation,
those are decided by company for the future period( Otley and Emmanuel, 2013).
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 Strategic decision making: The management accounting report is essential in order to
take operative decisions in positive manner to accomplish the organisational goals by
making business profitable decisions on correct time, that are necessary for an
organisation.
 Helpful in establishing and achieving future goals: It is termed as one of the crucial
base of managerial informational data which is helpful in examining the objectives or
targets and accomplish goals or to clarifies the valuable way of achievement.
Types of Management Accounting system:
 Cost accounting system: It comprises with the management branches which deals
with the activities like control and coordinate the costs as well as additional costs that
are incurred in the production process of the particular period of production. The
organisations requires to take into consideration of this system in summarising the costs
incurred in the production process. On the basis of cost effectiveness and ability of the
managerial cost department to record and summarise the relevant information related to
costs. There are several patterns of costing methods those are helpful for an organisation
such as normal, standard and actual costing(Renz, 2016).
1. Direct costing – This costing technique is the specialized form of cost analysis that uses
variable costs to make useful decisions it does not consider with the fixed costs which are
related to that particular time period in which they incurred.
2. Standard costing – This costing technique is associated with the manufacturing company
costs of direct material, direct labour and manufacturing overhead.
 Inventory Management system: It is the management system and is concerned with
the effective and efficient management of inventory stock held by the organisation. It is
the process in which a proper record of inflow and outflow of goods from warehouse by
the help of the several inventory management techniques like average value cost method
(AVCO), first in first out (FIFO) and last in first out (LIFO). the managing of inventory
stocks and It is mainly related with production sector in order to maintain effective work
order, billing of sold goods and invoices(Bodnar and Hopwood, 2012).
 Job Costing system: It is important system of management accounting as it is
concerned with the analysation of costs incurred in performing the particular job or in
order to generate revenues. The costing system is generally utilise by the organisations
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which engages in business activities like construction or manufacturing of industries.
Under the management accounting pertain several costing methods which are essential
for using while production process. For example, batch costing, products, standard and
process costing.
 Price Optimisation system: The price optimisation is generally use for pricing of
products which is crucial for providing the prices of products to consumers. It involves
numerical analysation of different costs incurred in production of products made by the
organisation, in order to decide the prices of different products and for determination the
responses and reviews of customers(Wickramasinghe and Alawattage, 2012)
P2. Different methods used for management accounting reporting
Management accounting report can be used by the management to analyse the managerial
reports. It involves collection and summarization of data which provides important and useful
information about the operations of its business. It helps to provide useful data of its business so
that company can know its financial position. EverJoy Enterprise can use management
accounting accounting report so that it can analyse its financial position and get to know that
what steps should needed to be taken so that its performance can be improves. There are various
types of management accounting reports which can apply by the organisation which are as
follows:
Financial reports:
Financial report is that report which can be used by the company to know about its
financial position. Through this report organisation can know about its profits and losses during a
financial year or quarter. It helps the company to analysing its spending and overall earning in a
year. EveryJoy Enterprise can use it so that it get to know about the financial position of its
company and according to it, organisation can take necessary steps to improves its performance
so that it can survive for a long time. Through it company can also know about that how much
cash it has posses in liquid form so that it can meet the day to day business operations(Fullerton,
Kennedy and Widener, 2014)
Budget report:
Budget report can be prepare by the management of the company so that it can evaluate
and analyse their department's performance and control the excess cost. Estimated budget related
to the specific period is usually based on the actual expenses from prior years. Budget is
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prepared on the basis of previous year information so its become possible to estimate the budget
for the current year and company can know that where it can cut the excess cost. It helps to
increase the profits also. EverJoy Enterprise can make this report by evaluation of previous year
budget and on the basis of it they can cut its additional cost in preparation of budget. It can help
the organisation to increase its profits in its business(Christ and Burritt, 2013).
Job cost report:
Job cost report can be used y the management of the company to analyse its expenses
which are arises from a single project compared to the expected revenue earn through the
project. Job cost report can help the management to analyse the profitability from the job.
EveryJoy Enterprise can know that which areas of business are earning more profits so it does
not waste its precious times and money on the job which is giving low or minimum profits to the
organisation. It helps to know in evaluation of the expenses from the project so that it can find
new areas through which it can maximise the profits by reducing the cost. Through it company
can know that which projects can be eliminate because of its decline profits.
Inventory and manufacturing report:
Inventory and manufacturing report is essential and useful for those organisations who
produces and manufacture the products especially for those who produce this with low fault
tolerance. This report can help the company to minimise its inventory cost and other expenses
such as overheads which are related to the manufacturing(.Soin and Collier, 2013)
Accounts receivable ageing report:
Accounts receivable aging report is used by the management of a company as a tool
which can be used by it to manage cash flow if organisation increase credit to consumers in its
business. This report includes different-different columns for invoices that are 90 days, 60 days
or 30 days late. Ever Joy Enterprise can use this report to analyse the issues and problems with
organisation collection process. Those consumers who's payment is delay than company can
tighten the credit policies so that it can receive collection early.
Performance report:
Performance report can be used by the management of the organisation to evaluate its
performance so that it can know in which area of business improvement is needed. Ever Joy
Enterprise can use it to evaluate its performance through data collection and analysis of financial
position of the company. It help the organisation to know that it is doing well or not and if its are
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not effective than how it can be improves and which steps are needed to be follow so that
performance can be enhanced(Atkinson, Kaplan, Matsumura and Young, 2012)
M1: Some benefits of management accounting systems are as follows
There are some important advantages of adopting and utilising different types of
accounting system as they are helpful in ascertainment of performance and accomplishment of
organisation goals and objectives. They all are truly beneficial for organisations in order to
manage the uses of useful resources at the same time.
Types of accounting system Benefits
Cost accounting system This helps in maintaining proper record for the ascertainment
of costs in different aspects and conditions by applying
certain tools and systems of costing.
Also helpful in determining selling prices in various aspects.
Inventory management
system
It is helpful in maintaining the proper record of the
organisation's finished product inventory or stock held with
the organisation in warehouses. It ensures effective and
efficient management of stock orders.
It used for more accuracy in recording in warehouses.
Price optimisation It is also used to analysing the overall responses of
customers about the pricing of products.
Provide more affordable and fair prices of products
according to its market demand.
Job costing system To create new customers or other investors for company and
make them, know more about company's financial position.
D1. evaluation of several reporting techniques and accounting system integration
It is determined that accounting system and its reporting used to attain valuable
information regarding the business performance of Everyjoy(U.K). It is inevitable for the
organisation to prepare proper informative document show details about both of them or its
integration. The criteria of these two aspects of accounting within an organisational system is
termed as integrated accounting system. It provides standardised system for recording several
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transactions and use of financial source is effective manner. some reporting methods such as
performance report which shows the information of present and previous year operational
performance of Everyjoy (UK).
TASK 2
P3. Different kinds of costing techniques used for calculation of net profit
Cost is considered as the most crucial element in generating the revenues and profit
calculation as it is generally incurred in performing activities of business operations as in case of
Everyjoy enterprise incurs cost in activities of business for generating the revenues for the
business. Therefore it is playing the great role in business and its management activities as all
economic activities (activities perform in order to generate profit or revenues) of business
involves costs incurs in performing the tasks of operation. For example, Everyjoy (U.K) perform
the activities related with entertainment industry and entertainment services as the company
incurs costs in performing the activities like costs of actors, shooting sets etc. therefore these
costs are incurred by the organisation in order to generates the revenues or profits for the
businesses. For this there are two costing techniques as the example, described. The costing
techniques are Absorption costing and Marginal costing(Caglio and Ditillo, 2012).
Absorption costing: Absorption costing means all costs incurred in manufacturing are
absorbed by the units produced. The cost of production includes the direct labour costs, raw
material costs and both fixed and variable manufacturing overheads. Absorption costing is
mainly related with the direct costing and absorption costing is required with the for external
financial reporting and for income tax reporting. Although, the absorption costing technique is
also known as the full costing and full absorption method. Moreover, it is the costing method for
expensing all costs incurred in manufacturing of a particular product and is basically required for
the Generally Accepted Accounting Principles(GAAP)external reporting. Absorption costing
includes all thing that is a direct cost in producing a good as the cost base.
Marginal costing: Marginal costing is that costing technique in which only the variable
costs is charged to units of cost. While the fixed cost for the period is fully charged from the
generated contribution. The marginal costs involves the additional costs involves additional costs
involves in the production of the additional units of output. Moreover, the marginal costing is the
technique in which the variable costs are charged to cost units and fixed costs are charged from
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the resulted contribution of that particular period. This technique is the ascertainment of the
marginal cost and effect on profit of variations in type and in volume of output by differently
presentation of variable costs and marginal costs. Therefore under this technique of costing costs
are classified into two types fixed and variable(ter Bogt and van Helden, 2012).
An illustrative example is given below to make understandings of these two costing
techniques.
Particular Amount
Selling price (U) 20
variable cost (U) 10
Contribution 10
Fixed cost 60000
PVR: Contribution/ sales *100
: 10/20*100= 50%
(a):
BEP in units: Fixed cost / contribution
: 60000/10= 6000
BEP in amount: Fixed cost / contribution margin
: 60000/50% = 120000
(b)
Total number of ticket needed to be sold
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
Tickets to be sold = sales / selling price
180000 / 20 = 9000
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(c):
Calculation for desire profit
Particular Amount
Sales 8000*20= 160000
Variable cost 8000*10 = 80000
Contribution 80000
Less: Fixed cost 60000
Profit 20000
M2. Different types of accounting tools and techniques
There are different types of accounting tools and techniques which are essential for the
management uses in effective decision making and in other activities of operations also.
Marginal costing tool: It is considered as the best costing tool comprises with the
evaluation of net profit or profitability of company. Under this variable costs are charged to cost
separately. It is beneficial for profit.
Historical costing tool: It is one of the main costing tool for the comparison and
ascertainment of business performance and its growth. It is also helpful in measuring the price of
assets on the balance sheet on their nominal cost instead of original cost.
D2. Analysation of data collected from consolidated income statements
The above part of report pertain the issues regarding activities of the organisation in
performing activities, also the costing techniques for the calculation of accurate net profit. It may
be the reliable aspect of the organisation as it is essential in removing the problem of delays in
decision making. In order to utilising the marginal cost technique for net profit calculation and
by using the absorption costing they get different amount of profit as due to fundamental
differences among these two techniques. All differences and changes are analyse and profit from
absorption costing is beneficial for external reporting while the profit from the marginal costing
is beneficial for organisational internal purpose.
TASK 3
P4. Advantages and disadvantages of different types of planning tools used for budgetary control
Budgetary control is a planning tool which is used to analyse the various actual results
with budgeted figures for the business of company. In this report company can set the particular
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standards and than compare the previous performance with actual performance. Through the
analysis of comparison company can get to know about the gaps from its overall results and the
performance. It is an continuous process which can help the organisation in the planning,
controlling and coordination. EveryJoy Enterprise can use this budgetary control process to
analyse the budgeted and actual aspects. It can help the company in effective planning so that it
can manage its operations in business effectively and efficiently. There are various tools which
can be used by the management which are such as follows:
Forecasting tool:
Forecasting tool can be used by the management of the organisation to forecast the future
events related to its business. It is done on the basis of past events so that company can analyse
its upcoming programmes. This technique can be used by the EverJoy Enterprise in the planning
so that they can make decisions according to it which can help the organisation in effective
management and control.
Advantage:
It help to the company by providing important and valuable information so that it can
make plans and take decision according to it.
Disadvantages:
The main disadvantages of this tool that its is based on the fast events so it is not
necessary that prediction of future events will be accurate and perfect because previous
information can be wrong.
Contingency tool:
Contingency tool is used by the management of the company to meet any uncertainties in
its business. Environment is dynamic and changes can occur anytime so it is important for the
organisation to make effectively analysis so that is does not get much affected from the
contingencies. Ever Joy Enterprise can use this tool to evaluates and measure the uncertainties so
that it can run its business effectively.
Advantages:
Effective plan which is developed by the management of organisation can able to address
the contingencies in its business so that company does not get influenced from it. Its helps the
organisation to survive for a long period of time.
Disadvantages:
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Lack of proper planning and analysis can influence the company because it does not able
to find out the contingencies in its business. So its business get affected from it and its can
reduce the profitability of the organisation.
Scenario tool:
This tool is used by the organisation to analyse its scenario and it is consider as one of the
effective structure way for the company to makes the plan for future. In EverJoy Enterprise, its
management team can build various types of scenario cases which help the organisation to
address the problems of its business .
Advantages:
In an organisation there are various departments and there are different types of
uncertainties can arises which can be solve by the management techniques.
Disadvantages:
Lack of decision making power can influence the growth and success of the company and
it affects the organisation because it can not able to earn profit. So Ever Joy Enterprise use this
budgetary tool so that it can effectively manage its business and its operation.
M3. Use of different planning tools and their applications for preparing and forecasting budget
Planning tools are very important tool for preparing the financial and managerial reports.
These tools are helpful for management in taking better decisions for organisations. As it helps
the management to set the standard cost for production and then compare these cost to actual cost
to know the variances in profits and costs of Everyjoy production. It includes cash flow which is
very helpful to know the regular cash flow of business. As main objective of every organisation
is to maximise the profits and minimize the cost of business. The planning tools are helpful in
financial planning of business and to set financial goals of business.
D3. Evaluate planning tools to solve financial problems
Planning tool assist an organisation to set the financial goals. It is helpful in preparing the
financial budget for business. At it allows a business to segregate the cost of business according
to their nature. To solve the financial problems of business, company can use planning tool. As
planning tools is helpful in to know the variance in cost of production so one can according to
decide the budget for production. And can reduce the adverse variance of business. The flow of
cash is very important in business if cash flow stops in business then it could create a huge
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financial problem for EveryJoy Enterprise. So with help of planning tool company can decide the
debtors days and creditor days for payments for smooth functioning of business operations.
TASK 4
P5: Comparison with other organisation to overcome financial issues
For the perfect analysation there is the comparison of two organisation is made for the
ascertainment of the operational performance and profitability of the Every joy(U.K). not only
this these comparisons with the following aspects will help the organisational in solving the
financial problems or issues of the organisation. The aspects are.
Rules and regulation aspect: this aspects states that the organisation must perform their
operation with the set of rules and regulations as same as the management of the organisation
should work according to the rules and regulations framed by the organisation as it leads to
financial as well as other issues.
Product and service quality issue: Quality of products and services must maintained by
the organisation as it effects the sales as well as revenues of the organisation, as no quality
standards are maintained by the organisation leads to declines in volume of sale and financial
issues.
For solving these financial issues, it is crucial to apply few techniques such as KPI and
Benchmarking. Key performing indicators(KPI) are of two types such as leading and lacking.
Leading KPI helps in avoiding unplanned expenses and Lagging. KPI helpful in identifying
whether planned activities results in successful execution or not. Benchmarking is a technique
which allows organisations like Everjoy(Merchant, 2012).
Comparison of two companies
Everjoy limited Parkwood enterprises
Everjoy (U.K) uses price optimizations system
in order to show company financial position
and operational performance. It maintain the
record of costs of production of organisation.
This system describes actual costs of items
because it shows accurate performance and
maintain reliability in data.
Parkwood enterprises which manufactures the
cosmetic products like bath oils, creams and
shower gels. It uses the inventory management
system for maintain the record of inventory
stock of manufactured products. For this
purpose company maintains types of books like
as purchase books, sales books, stock summary
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reports, sales return and purchase return. These
reports helps in maintaining record of inventory
and Controlled in systematic manner.
Everjoy limited uses job costing system for
tracking costs, as it is helpful in comparison of
actual and standard data of the company. It is
associated with service job and detailed
production to provide information to managers.
job order costing system there is involvement
of direct labour, direct cost and overhead is
essential for proper information(Lukka and
Vinnari, 2014)
Parkwood Ltd. costing system in order to
control monetary funds of company. This
system used by the organisation producer for
managing the activities of inventory in proper
manner. Costing is a monetary evaluation of
time, resources and products.
M4: Analysis of planning tools to deal with financial issues
Management accounting techniques involves the task of costing, by using various types of
costing techniques such as Absorption costing, marginal costing and Activity based costing that
are useful in minimising the costs and ascertainment of the profit of the organisation like Everjoy
(U.K) by using the financial and non financial resources in more effective and efficient manner
and with appropriate planning tools and budgets, all these tasks of management accounting are
helpful in solving the financial issues.
CONCLUSION
From the above report, it has been concluded that management accounting is a process
related to organising, analysing, reporting certain specific information that helps in better
productivity. System and report of management accounting are helpful in assembling and signal
useful financial data for an accounting year. Manger uses different cost accounting system to
determine the net income and BEP. All organisation aspect difficulty that are mainly attached to
business, all these issues can be solved 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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