Detailed Management Accounting Report for Ever Joy Enterprises

This report delves into the core principles of management accounting, offering a detailed analysis applicable to Ever Joy Enterprises, a UK-based leisure and entertainment company. The report begins by defining and differentiating between management and financial accounting, followed by an exploration of various cost accounting systems, inventory management, and job costing methodologies. It then examines the importance of management accounting reports, including inventory reports, budget reports, job costing reports, accounts receivable reports, and performance reports. Furthermore, the report applies these concepts to a case study involving a concert event, calculating the break-even point, analyzing profit levels at different ticket sales volumes, and illustrating the use of budgeting as a planning and problem-solving tool. Finally, the report evaluates financial governance and its role in preventing financial problems within the organization, providing a comprehensive overview of management accounting practices and their practical application.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
LO1 .................................................................................................................................................1
a. Definitions of management accounting and financial accounting .....................................1
b. Cost accounting systems.....................................................................................................2
c. Inventory management systems..........................................................................................3
d. Job Costing systems...........................................................................................................3
e. Different types of management accounting reports............................................................3
f. Need for sound accounting systems ...................................................................................4
LO2..................................................................................................................................................4
a. Number of tickets sold at break even point........................................................................5
b. Number of tickets sold at profit of £30000........................................................................5
c. Profit if 8000 tickets were sold...........................................................................................6
LO3 AND LO4...............................................................................................................................6
a. Use of budgeting as a planning and problem solving tool..................................................6
b. Evaluation of financial governance and its role in preventing financial problems of Ever
Joy Enterprises......................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES ...............................................................................................................................1

INTRODUCTION
Management accounting is a process of evaluation of various costs related to
business operations and preparing reports and then supporting in decision making
process for internal management. Mainly records of various costs and budgets of
business operations are being analysed for growth of organization (Dražić Lutilsky and
Dragija, 2012). This is often called as managerial accounting. For the purpose of
studying management accounting in an organization, Ever Joy Enterprises has been
taken which belong from leisure and entertainment industry of United kingdom. Ever Joy
Enterprises is a client of EY, a audit consulting firm and was asked to prepare report for
management accounting department.
This project report covers various aspects of management accounting systems
which consists of comparison between management and financial accounting, systems
of cost accounting, inventory management, and job costing. Relevance of accounting
reports along with its types. Importance of budgeting in solving financial problems and
facilitating planning process.
LO1
a. Definitions of management accounting and financial accounting
Management accounting refers to the act of deriving meaning from information
provided in management reports accurately for contributing to the organization's
success. Functions of these systems are performed by managers to take short-term
decisions.
Financial accounting is a method of summarizing, analysing and interpreting
financial reports to take financial decisions. Managers after analysing budgets and
costs, prepares performance reports and does future planning of expansion (Fisher and
Krumwiede, 2012).
Difference between management accounting and financial accounting:
Basis Management accounting Financial accounting
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Time period Reports can be made
monthly or weekly depends
upon the need of managers.
Annual reporting is done for
subsequent financial years.
Format of presentation This accounting system
handles various aspects of
accounting such as
inventory, capital budgeting,
raw materials, product
costing, cash management,
variance analysis etc.
Financial accounting
concentrates on preparing
and examination of financial
statements such as balance
sheet, cash flow statement,
income statement,
statement of changes in
equity.
Area of coverage It is done for use of internal
stakeholders such as
employees, investors, and
managers.
Financial accounting
system prepares reports for
mainly external
stakeholders. Auditing is
done for assurance
because these are used
externally
b. Cost accounting systems
Accounting system is defined as that system which is mainly used for
management of revenue, expenditures and all types of financial transactions. Cost
accounting systems is a structure used for the computation of production cost of goods
to find profit, cost controlling and inventory assessment. In cost accounting system,
different costing techniques are used. These are given below:
Direct costs : These costs are wholly attributed to the manufacturing cost of
goods. Decisions are taken only on the basis of variable costs (Johnson, 2013). Direct
costs helps in taking short-term decisions. Direct costs in Ever Joy Enterprises are
commissions, administration costs etc.
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Standard costing: In this system of costing, standard costs of production which
includes direct material, direct labour and overheads are assigned to goods or services.
These cost are analysed along with actual cost and comparison is done to find any
variances for improvement in Ever Joy Enterprises. Examples of such costs are
material, labour etc.
c. Inventory management systems
Inventory management systems is the process of recording raw materials, work
in progress and finished goods assets so that supply and demand can be maintained
(JOSHI and et. al., 2011). ABC approach of inventory management system is used in
Ever Joy Enterprises. Then degree of control is determined on each item for example,
on expensive goods degree of control will be more as compared to cheaper goods.
Examples are ABC system, EOQ, JIT etc.
d. Job Costing systems
Job costing system refers to system in which costs are accumulated on the basis
of costs incurred by a specific job. After segregating costs of various departments,
profitability is analysed of each job (Kapić, 2014). This system is applied in Ever Joy
Enterprises where allocation and tracking of expenses becomes easy. For instance,
direct material, direct labour, overheads etc.
e. Different types of management accounting reports
Management accounting report provides insights about information needed for
cost controlling, rewarding employees according to their performance, identifying more
and less profitable areas.
Types of management accounting reports are:
Inventory management reports: For Ever Joy Enterprises these inventory
management reports are of much relevance in the area of making production processes
more prompt. These methods of reporting assists in detailing of inventory waste,
carrying costs, labour costs etc (Kuula, Putkiranta and Toivanen, 2012).
Budget reports: Budget reports are prepared in Ever Joy Enterprises for
determining performance of different departments and and also for entire organisation.
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From the perspective of managers, employee's incentives and benefits are associated
with budgeted performance.
Job costing reports: These reports emphasizes on financing of expenses on
particular projects. Profitability evaluation can be done through matching expenses with
the revenues associated with that particular project (Mistry, Sharma and Low, 2014).
Job costing reports are important for Ever Joy Enterprises to accumulate costs
according to various departments and their respected jobs. It reduces wastes by
controlling costs and analysing expenses.
Accounts receivable reports: Ever Joy Enterprises extends credit on a huge
basis then accounts receivable reports are compulsorily to be provided. These reports
keeps records of defaulter customers and customers who delays in payment most of the
time. This is done to reduce bad debts of Ever Joy Enterprises which ultimately affects
on cash flow.
Performance reports: These reports are created for studying performance of
each individual employee and team in Ever Joy Enterprises (Monroy, Nasiri and Peláez,
2014). If performance of employees are better, then they are awarded with incentives or
bonus but in situation of underperformance, advice of taking corrective action are given
to them.
f. Need for sound accounting systems
If an organization adopts sound accounting system, then planning and budgeting
will become easy. It will also contribute in success and growth of Ever Joy Enterprises.
If internal and external stakeholders are provided financial information on time, then it
will definitely reduce their time for decision making and loyalty towards organisation will
improve.
LO2
Absorption Costing:
Absorption costing defines as a manufacturing cost which is absorbed by a units
produced. Externally costing required for reporting in financially or by income tax. Ever
joy enterprises uses finished unit in stock which includes direct material, labour, fixed
and variable manufacturing overhead (Moser, 2012).
Marginal Costing:
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Marginal costing play a vital role in economics to provide relevant measurement
of costs and benefits. Decisions are based on marginal evaluations in producing costs.
It refers to in the change in opportunity cost when quantity incremented by one unit. At
each level of production their marginal costs includes all costs that vary with level of
production (Ruiz-de-Arbulo-Lopez, Fortuny-Santos and Cuatrecasas-Arbós, 2013).
Break Even Analysis:
Break even analysis refers to volume that balancing from total costs and gains. It
is used to calculate the number of units of a product sold to cover costs. This
enterprises locate the sales volume for break even analysis in business to earn no
money, where the margin contribution is to pay for company's fixed costs (Ward, 2012).
Concert event which is being organised by Ever Joy Enterprises (UK) in Manchester to
develop its goodwill. Thus for this concert, cost calculation and income statement are
given below for the management of Ever Joy Enterprises:
a. Number of tickets sold at break even point
Break-even point: It is defined as a point at which expenses and revenues are
equal.
Break-even quantity: Break-even quantity refers to number of units that are
required to be produced to cover all the costs.
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
ticket 10
Selling price per
ticket 20
Break-Even point 6000 tickets
*Break-Even Point = (60000/20-10)
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= 6000
Interpretation: As given, fixed cost is £60,000, variable cost is £10 and selling
price is £20 per ticket. Break-even point is to be calculated from given
information and appropriate formula.
b. Number of tickets sold at profit of £30000
Output
Variable
cost(£)
Total
variable
cost(£)
Fixed
cost(£)
Total
cost(£)
Selling
price(£)
Total
sales(
£) Profit(£)
0 0 0 60000 60000 20 0 -60000
2000 10 20000 60000 80000 20 40000 -40000
4000 10 40000 60000 100000 20 80000 -20000
6000 10 60000 60000 120000 20 120000 0
8000 10 80000 60000 140000 20 160000 20000
8500 10 85000 60000 145000 20 170000 25000
9000 10 90000 60000 150000 20 180000 30000
10000 10 100000 60000 160000 20 200000 40000
According to above table, at a profit of £30000, 9000 tickets were sold.
Interpretation: According to given problem, it was asked to ascertain number
of tickets 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. Profit if 8000 tickets were sold
If 8000 tickets were sold, then profit will be of worth £20000 according
to above calculation. Output of 8000 tickets attracts variable cost
amounting £80000 and fixed cost worth £60000. Thus, total cost is then
subtracted from total sales to find out profit of £20000.
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LO3 AND LO4
a. Use of budgeting as a planning and problem solving tool
Budgetary control: It refers to the process of employing budgets in monitoring
business operations and cost controlling in a specific financial year. Main aim of
budgetary control in Ever Joy Enterprises is to set standards and criteria for budgets
and then comparing these with the actual budgets to identify variances. Remedial
measures are taken on time if any variances are found. It is end result of the budgeted
planning process (Wickramasinghe and Alawattage, 2012).
Budgets are simply financial plans prepared for a certain time duration generally
on quarterly or annual basis in which estimation of revenues and expenses are
mentioned. Estimations are based on past as well as future aspects. Internal and
external factors are also taken into account while preparing budgets. Budget variance is
known as variation between budgeted expenses, revenue and actual amount. It may be
favourable or unfavourable. Budget variance helps Ever Joy Enterprises for
improvement in performance. As compare to variable costing the production is done for
sales shows correct profit to ever job enterprises. These enterprises confirms with the
matching concepts that require matching costs with a revenue in a particular period.
They are always expressed in monetary terms.
There are different types of budgets which are mentioned below:
Functional budget: It is a type of budget which is prepared for each function of
Ever Joy Enterprises. Functions such as sales, marketing, capital expenditure,
promotion etc. These budgets are managed by functional manager. There are also
many kinds of functional budget which are sales budget, production budget, raw
material budget, purchase budget, administration budget, R&D budget, capital
expenditure budget, cash budget, selling and distribution cost budget etc. All these
functional budgets associated with the production process of products.
Master budget: Master budget refers to the summary of various functional
budgets. This summary is then used to prepare budgeted income statement and
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Balance sheet for the budgeted period. It includes elements of only those functional
budgets which are working, adopted and sanctioned.
Fixed budget: Fixed budget is when sales occur in some activities which
increases or decreases and budget does not change. It is also known as static budget.
It is basically a plan which may not change through a period. In this costs are mainly
fixed by which revenues got fluctuate and expenses do not change. In fixed budget the
company may accept the pricing when monopoly situation occurs.
Flexible budget: Flexible budget is a budget which flexes or adjusts for
changing in the volume of activity. It is mostly uses than the static or fixed budget. It
basically used an estimation in how revenues and expenses based on amount of
output.
Various types of planning tools used for budgetary control are as:
Contingency: This tool of budgetary control, minimize risks associated with
budgeting process to become ready for future uncertainties. Management brings this
tool in use to meet performance aims. In contingency method, some funds are reserved
for the future because future is unexpected and if some unfortunate event occurs then it
will help to handle them.
Advantages: Better risk management with help of contingency tool as if risks are
detected earlier then resources can be put aside to deal with them. Future risks can be
price fluctuation, mistakes in projection of cost structure, innovation of technology etc.
Preparing in advance for worst situations can occur in business environment of
Ever Joy Enterprises. Creating reserves will support the cases of emergency may
happen in future.
Disadvantages: It may create the problem of budgetary slack which means that Ever
Joy Enterprise will understating sales and overstating costs. It generally is difference
between projected budget and consideration of management about budget. It is reactive
in nature not proactive. As it says about what managers will do in a particular situation.
Testing of problems in becomes complex and difficult.
Forecasting: In forecasting method of budgetary control, forecasting of future
events is done in this tool (What is forecasting tool. 2017). Because this create impact
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on budgets. After estimation, forecasting ends. Forecasting utilizes qualitative data
which are based on opinions of professional experts.
Advantage: It helps to estimate possible future events that may take place and affect
operational activities positively and negatively. Forecasting helps in preparing for
expansion prospects and in starting of new product line.
Disadvantage: Budgeted performance would be enhanced in case performance
incentives are attached to budgeted goals. It will prove better as actual sales will be
easily higher to budgeted sales in case of comparison. It is impossible to estimate
accurate future performance because different individual interprets data in different
scenarios.
Scenario: This planning tool is determined in a way that situations are examined
according to different future sets. In this system, many possible outcomes are created
which are different from common scenarios (Windolph and Moeller, 2012). Purpose
behind scenario planning is
Advantage: It is used to determine various possible results of activities that are different
from each other.
Disadvantage: Cost involved in the implementation of scenario tools is high as
compared to other tools.
SCORO: This planning tool for budgetary control assists in joining various
features to provide an integral plan for different departments.
Advantages: planning and forecasting, team management, automation of professional
services, analysis of financial reports budgeted targets.
Disadvantages: Unable to provide accurate information and brings complexity in
analysis because of excess data collection.
Prophix: It provides software solution to manage budgetary control. This tool
involves different smaller tool for planning of budgets and to manage resources of Ever
joy enterprises. Advantages: Correct statutory management reporting and financial
reporting which makes better decision and helps in evaluating performance. Modeling
and optimization of profitability which aims for high sustainability.
Cash flow assists in planning which complete liquidity aspects of Ever joy enterprises.
Disadvantages: Lack of organizational hierarchies for forecasting and planning.
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This is tough to handle consulting for sales product and customer.
There are many types of financial issues such as increase in cost, reducing
customer satisfaction and decrease in revenue faced by ever joy enterprises. These
issues can be solved by following tools such as:
KPI
It is a measurable value that present how effectively an organization is reach key
business objectives. Companies use key performance indicators for reaching targets to
evaluate multiple levels of success. KPIs divided in two parts are high level and low
level. High level KPI using for focus on the whole performance of an organization. And
low level KPI using for focus on processes or employees in various departments like as
marketing, call center and sales. Financial issues faces relating operating cash flow,
working capital and current ratio. Ever joy enterprises are use this financial tool for high
level and low level performance and measuring or tracking progress of essential areas.
Financial indicators:
Mainly financial ratios of Ever joy Enterprises are described under these fact.
Ratios are divided in four main categories namely solvency, liquidity , revenue and
profitability (Zainun Tuanmat and Smith, 2011). Liquidity ratios shows short-term
liquidity position of Ever joy Enterprises for instance, quick ratio and current ratio. Types
of solvency ratios are working capital, accounts receivable, accounts payable, debt to
equity ratio. Revenue ratios includes and sales growth ratio and sales ratio. These
ratios helps in solving financial problems of Ever joy Enterprises which are rises in
organizations such as stock price issues, keeping track of all expenses, debts and
achieve best outcomes.
Non-financial indicators:
ROI and RI are non financial indicators are using for measuring performance of
Ever joy Enterprises. A non financial performance using for measure of express
performance other than money. Such measures are rarely used to activity the quantity
or quality and the time of business activity. Non financial issues of ever joy enterprises
are low quality goods, unskilled personnel and delays in feedback to customers. For
example – Air line using time performance, no of customers complaints and percent of
bags lost.
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Bench-marking:
Bench marking is the technique of measurement of quality of a company's
strategies, programs, policies and products. After that compare with similar
measurement and standard measurement of its peers. The objective of bench-marking
such as (1) determining where and what improvements are called for (2) use these
information for improving information and (3) Analyzing of high performance for
achieving company objectives. Ever joy enterprises see many financial issues relating
to productivity, cost per unit and defects per unit. They are also face measurement of
performance is compared with same industry of market. Bench marking through assess
a company's overall performance, competitiveness, productivity and efficiency. So
bench-marking helping to increase these areas and using quality, time and cost for
measurement. Bench-marking through business run more efficiently and become more
than cost effective.
Parkwood Enterprises Ever joy Enterprises
Parkwood Enterprises applied Job costing
system for solving financial problems
because it provides compile information
with specific job and production. This
information provided regarding customer
and also provided determinant quality of
company's approximate system. In this
system including direct material, direct
wages and overhead.
Ever joy enterprises applied Inventory
management system for solving financial
problems because it is combination of
procedures and process of monitoring and
maintenance of goods of products. In this
system covers warehouse to shipping,
production to retail, and all occurrence
parts.
Cost reporting related to management
accounting report that is apply by park
wood enterprises. In this profit ascertained
by comparing cost by selling price and
manufactured goods.
Performance reporting helping to maintain
to helping managers for analysis process.
These reports provides right direction to
employee for improving performance of
problems. After that coming outcomes in
favourable and unfavourable. That will be
according to appropriate action.
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KPI using for evaluate performance in high
level and low level. Both levels are playing
his role and that is giving benefit to this
company. It's using for overcome from
financial problems and measures
performance department wise, identifying
best ways to reduce costs.
Benchmarking using by Ever joy enterprise
for minimum expected result. When result
coming after that it will compare with actual
result to standard result.
b. Evaluation of financial governance and its role in preventing financial problems
of Ever Joy Enterprises
Financial governance is a manner in which an organisation accumulates,
manages, supervise and control financial information. In case of non-compliance of
financial governance, risk of fraud, misconduct, misappropriation, errors, regulative
penalties can be faced by Ever Joy Enterprises. Financial issues are prevented by it in a
way that it helps in producing regulatory reports according to compliance and
disclosures. Accurate budgets, plans as well as models are prepared with the help of
financial governance.
It provides a path and solution that how financial information should be use and
analyse for better financial control and management. Financial administration is a form
of managing the financial resources subject to utilisation at desired place. Budgetary
control, financial control, management of resources, financial administration mainly
remain associated with effective control. It incorporates the ways of tracking financial
exchanges and challenges, over vision and execution control and control information,
consistence, activities, and exposures.
Financial governance may help Ever joy enterprise to control internal
management activities and plans, forming of financial policies, audit of internal and
external audits, workflows, financial controls, tracking and validation of data, data
security standards. It is essential for better financial information collaboration and
decision making. Senior management of Ever joy enterprise would be able to correlate
the financial changes and variations according to financial resources.
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CONCLUSION
In this project report, it has been concluded that management accounting is
helpful for companies manager as it is a process of assembling and reporting of
important financial information during an accounting year. It help to show the actual
position and financial wealth in an accounting year. The main objective of this report is
to describe the value of management system and report. Manager applies different
techniques to ascertain net profit margin through marginal and absorption costing. They
applies different budgetary control tool such as flexible, master budgets etc. and various
approaches to overcome financial issue such as benchmarking, KPI etc.
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