Management Accounting Report: Ever Joy Enterprises (UK) - Finance

This report offers a comprehensive analysis of management accounting principles, specifically tailored for Ever Joy Enterprises (UK). It begins with an introduction to management accounting, differentiating it from financial accounting, and exploring various management accounting systems such as cost accounting, inventory management, and job costing. The report details different types of management accounting reports and their significance for the organization. Furthermore, it delves into break-even point calculations, providing insights into profitability and ticket sales. Budgeting is evaluated as a planning tool, along with the importance of strong financial governance in preventing financial issues and ensuring sustainable success. The report provides valuable insights into the application of management accounting within a leisure and entertainment context.

Management Accounting report for Ever
Joy Enterprises (UK)
1

Contents
Introduction................................................................................................................................4
Task 1.........................................................................................................................................5
Management Accounting.......................................................................................................5
a. Differences between management accounting and financial accounting...........................6
b. Cost Accounting system.....................................................................................................8
c. Inventory management systems.........................................................................................9
d. Job costing system............................................................................................................10
e. Different types of management accounting reports:........................................................11
f. The need for a sound accounting system and the importance of the department producing
timely, accurate and relevant information:...........................................................................13
Task 2:......................................................................................................................................14
Break-even point..................................................................................................................14
a. The number of tickets that must be sold to break even (i.e. the point at which there is
neither profit nor loss)..........................................................................................................15
b. If we want to make a profit of £30,000.00, how many tickets should be sold?...............16
c. What profit would result if 8,000 tickets were sold?.......................................................17
Task 3:......................................................................................................................................18
a. You are to evaluate how budgeting can be used by Ever Joy Enterprises as a planning
and problem solving tool in dealing with financial problems, but also for leading the
organisation to sustainable success......................................................................................18
b. You are to also evaluate how strong financial governance can help to pre-empt or
prevent financial problems for Ever Joy Enterprises and the means by which management
accounting systems can contribute.......................................................................................20
2

Conclusion................................................................................................................................22
References:...............................................................................................................................23
3

Introduction
The report will be prepared to understand the fundamentals associated with management
accounting and utilizing the concepts in an organisation operating in leisure and
entertainment industry and named as Ever Joy Enterprises (UK). The management
accounting definition will be demonstrated in this report along with the differences in
financial accounting and management accounting. The report will also help in explaining the
various management accounting systems along with the essential requirements of each of
these systems. The different types of management accounting reports will be explained and
the importance of these reports in organisational context will be given in the report. Further
the report will include the calculations relating to breakeven point and other profitability
factors associated with the company. The report will also include a section in which
budgetary control along with its advantages and disadvantages will be discussed and the
significance of financial governance in an organisation will be discussed appropriately. The
overall report will help the individual users in understanding the basic concept associated
with management accounting and its principles.
4

Task 1
Management Accounting
The management accounting cinders evolved as a concept of accounting which enables the
business managers in making significant and critical economic decisions of the company.
Traditionally the accounting system was restricted towards providing accounting information
to the business managers of company but now a days modern organisations are adopting
management accounting system as a system of control by which particular situation and
conditions can be analysed by the company and the decision can be accordingly by the
executive department (Warren, et. al., 2013). Thus, management accounting can be referred
to as the tool of decision making in which various reports are generated on a timely and
adequate manner so that important business decisions can be made.
Functions of management accounting which assists to the Ever Joy Enterprises:
Figure: Management Accounting Functions
By Author,2018.
5
Planning
Organising
Controlling
Decision-
making

a. Differences between management accounting and financial accounting
Points of difference Financial accounting Management Accounting
Aims The aim and objective of
financial accounting is
concerned with providing
relevant financial
information to the outside
users for making investment
decision in the company.
The outside parties
including creditors,
investors, government will
be able to make informed
decision with this type of
financial tool.
The aims and objective of
management accounting is
altogether different from
financial accounting where
the purpose is associated
with providing information
to managers for making
informed decisions
(Weygandt, et. al., 2015).
Governing principles The financial reports and
statement of the company
are prepared and presented
based on ‘Generally
Accepted Accounting
Principles (GAAP)’
It can be established that
there are no prescribed set of
standards described for
preparing management
accounting reports. The
reports are prepared and
presented based on the
requirements associated with
team of management.
Regulatory requirements The preparation of financial
reports and documents are
mandatory for the public
There are no prescribed or
mandatory requirements or
regulations determined but
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organisations in the industry
and they are governed and
regulated by company’s law
and government (Weygandt,
et. al., 2015).
there are some frameworks
issued in this respect
consisting of ICWAI, CIMA
etc.
Time horizons The preparation of financial
accounting reports are
generally based on past
records a past time period.
Basically it is based on one
accounting year.
The main focus is
concentrated on future and
there is no specific tie
horizon specified.
Outputs The financial statements and
reports issued in this from of
accounting consist of
balance sheet for the
company, profit and loss
account and cash flow
statement (Warren, et. al.,
2013).
The management accounting
reports consists of inventory
reports, budgetary reports
etc., which are generated
based on monthly or weekly
or annual results.
Beneficiaries of reporting The beneficiaries of
reporting in this branch
includes external parties
associated with the company
consisting of suppliers,
shareholders etc.
The management accounting
reports provides benefits to
the internal personnel of the
organisation consisting of
managers and employees.
7

b. Cost Accounting system
The cost accounting system of management accounting will be concerned with the system of
accounting in which costs associated with producing and selling a product will be determined
and classified according to its nature and occurrence and the decision regarding costing
strategies will be taken accordingly (Ahmetshina, et. al., 2018). The cost accounting helps
the company in segregating the cost structure associated with the company and its products
in a correct manner. The products specified in the company will be considered for identifying
the costs and the costs associated will be reported and presented appropriately in the reports.
There are various types of costs determined in respect of a company or a product line which
are described below:
Direct costs – The direct costs will represents the type of costs incurred which can be
directly attributed to the product or service for which it has been incurred. The direct costs
are easy to get allocated and therefore decision making becomes easier in this case. Example
of direct cost consists of: Development expenditure incurred for developing a visitor
attraction for the visitors of Ever Joy Enterprises (UK)
Indirect costs – The term indirect costs refer to the expenditure incurred in the company
which cannot be directly attributed to any specific product or service and there expenditures
are incurred in general for the company. The indirect costs are allocated to different products
and services based on certain assumption that must be reasonable for the company. Example
of indirect in case of Ever Joy Enterprises (UK) is: Office administration expenses associated
with managing an office for customer’s grievances regarding various services offered by the
company Ever Joy Enterprises (UK).
Standard costing – The standard is the branch of cost accounting where standards are
established within the company in order to make comparisons with the industry averages and
achieving a successful growth in the market. The standards will be determined after
considering the various factors of growth and development for the company.
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c. Inventory management systems
The inventory management systems will refer to the process of accounting in which
inventories including the finished goods and work in progress will be managed and reported
appropriately and timely for achieving success in the production capacities. The inventory
management will be crucial for the enterprise in order to achieve the optimum level of
inventory to be held in the company which will result in timely availability of stock and will
also assist in achieving minimum cost of inventory held in the company. The basic aims of
implementing inventory management system in the company are:
 Achieving an optimum level of inventory that must be maintained in the company so
that no orders are delayed and the cost of maintenance is minimum for the company.
 Identifying the optimum level of placing the orders for purchase of various materials
and establishing the concept of just in time inventory (Ahmetshina, et. al., 2018).
The inventory management system will utilize various kinds of methods to records its
inventory in the records which are associated with the following:
 First in first out method: The first in first out method is the traditional and most
commonly utilized technique of costing in which costs associated with inventory
utilized will be considered on the basis of oldest inventory being sold first. The cost
of oldest inventory maintained in the company will be considered for the purpose of
calculating cost of products sold.
 Last in first out method: The last in first out method is just the opposite of first in
first out method where latest inventory held by the company will be considered as
items sold for calculating the appropriate amount of costs (Goddard & Simm, 2017).
 Weighted average method: The inventory system in this method will be concerned
with determining weighted average of the inventory held by the company during the
year and this will help in analysing an average situation associated with the company.
9

d. Job costing system
The job costing system can be considered as the system of management accounting which is
implemented in the organisations who are having decentralised operations. The job costing
requires identifying each and every job taken by the company for producing a particular
product or services and the costs associated with each of these jibs will be considered for the
purpose of decision making. The cost classifications will be made after recognizing the
different types of costs incurred in the company for that particular job. The essentials of job
costing system are as under:
 There should be proper alignment of process costing, batch costing with that of job
costing implemented by the company so that better results can be achieved.
 The system effectiveness will be based on the accuracy identified in obtaining a job
and product specification (Goddard & Simm, 2017).
10

e. Different types of management accounting reports
Reports Description Use in Ever Joy
Enterprises (UK)
Cost and revenue reports The cost and revenue reports
in the management
accounting system will be
concerned with providing
accurate and timely
information about the
various types of costs
incurred by the company
and the revenues obtained
by incurring each of these
cost in relation to the
company (Hosoda, 2018).
The use of this type of
system for Ever Joy
Enterprises (UK) can be
significant in taking pricing
decision and strategic
decision of the company.
Budgetary reports The budgeting reports of the
company are concerned with
preparing and establishing
the budgets in context of
various standards and
benchmarks established by
the senior management of
company and identifying the
reporting the actual results
together with the budgetary
reports.
In case of Ever Joy
Enterprises (UK) the
budgetary reports can be
useful in making
comparison and identifying
the reasons where loopholes
exist in the performance of
company.
Performance reports The performance reports The performance reports in
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will be concerned with
preparing a chart where the
performance measures will
be reported and presented by
the company in order to
interpret the results
associated with various
operations of the company
(Hosoda, 2018).
case of Ever Joy Enterprises
(UK) will be helpful in
determining the actual
results obtained by the
company and making
critical evaluations about the
future performance of
company Ever Joy
Enterprises (UK).
Inventory reports The inventory reports of the
company will be concerned
with identifying and
reporting all the inventories
maintained during the year
and valuing the cost of
inventory. The inventory in
these reports will be
consisting of work in
progress and finished goods
inventory.
In case of Ever Joy
Enterprises (UK), the
inventory reports will be
prepared for managing the
cost of providing services to
the customers.
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f. The need for a sound accounting system and the importance of the department
producing timely, accurate and relevant information:
There is significant importance associated with adopting a sound and relevant accounting
system in the company and providing accurate and timely information due to the following
reasons:
 Assists in better decision making: The timely and adequate amount of information
presented in these reports will be crucial for making decisions in the company. The
analysis and interpretation made by various types of managers will be performed after
considering the above reports of management accounting and the critical evaluation
can be made for the current situation of the company. This will help the business
managers in making appropriate decision and improving the quality of decision
making in the company (Kren, 2018).
 Improving the operational performance of company: The use of various system of
management accounting will consider the application of standard costing where the
standards will be determined and the actual performance will be compared with the
standard performance. The analysis will help in identifying the reasons associated
with low level of performances achieved by the company and the same reason can be
resolved as soon as possible.
 Achieving appropriate profitability and controls over the cost expenditures: The
adoption of proper accounting system in Ever Joy Enterprises (UK) will help the
company in implementing appropriate ad adequate internal controls within the
organisation. The implementation of internal controls will be associated with ensuring
the fact that all the costs associated with selling and producing the product are under
control and necessary steps has been taken in order to eliminate the wastages in
company. The controls over the expenditures can be placed after identifying the
reasons associated and controlling that expenditure up to an acceptable level. This
will help the company Ever Joy Enterprises (UK) in attaining large amount of success
and growth (Kren, 2018).
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Task 2
Break-even point
Break-even point can be defined as a point where the total sales and total costs are equal. In
other words, break- even point can be defined as a point where there is no net loss or profit to
the company. Graphically, break- even point is the point where the total revenue and the total
cost curves meet (Warren, et. al., 2013).
Figure: Break-even point
By Author, 2018
Break- even quantity
Break-even quantity is the formula that is used to determine the break- even point for the
company. In other words, break-even quantity refers to the number of units a company must
sell to cover all expenses or costs (Otley, 2016). It is calculated by using the formulae which
are mentioned below:
Break- even quantity: Fixed costs/Contribution
The break- even analysis assists to the company to determine what need to sell, annually or
monthly to cover the expenses or costs of doing business. It is an essential financial tool
which assists the company to measure at what stage the company’s business operations will
be profitable. Break- even analysis is essential and useful in studying the relation between the
fixed cost, variable cost and revenue (Weygandt, et. al., 2015).
Components of Break- even analysis are: Fixed costs and Variable costs
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a. The number of tickets that must be sold to break even (i.e. the point at which there is
neither profit nor loss)
The number of tickets that can be sold for achieving the breakeven profits will be calculated
below:
Particulars Amount (£)
Fixed costs 60000
Price Per unit of ticket 20
Variable cost per ticket 10
Contribution per unit 10
Break even number of tickets to be sold (Fixed cost/Contribution
per unit
6000
The above calculations have been made after considering the formula of break even in units.
The numbers of tickets that must be sold in order to achieve the no profit no loss situation are
6000 tickets. It can be established that at this level of production the sales value will be
£120000. The variable cost in the context will be £60000 and fixed cost will be £60000.
Therefore, there will be no profit or loss accruing to the company at this level of production.
15

b. If we want to make a profit of £30,000.00, how many tickets should be sold?
In order to achieve the desired profits following units should be sold by the company:
Particulars Amount (£)
Fixed costs 60000
Desired profits 30000
Contribution per unit 10
Units to be sold for desired profits (FC + DP)/Contribution per
unit
9000
It can be established that 9000 tickets must be sold in order to achieve the desired
profitability of £30000.
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c. What profit would result if 8,000 tickets were sold?
Calculations of profits if 8000 tickets are sold:
Particulars Amount (£)
Tickets Sold 8000
Price per ticket 20
Sales (8000*20) 160000
Less:
Fixed cost (Given) 6000
0
Variable cost (8000*10) 8000
0
Net profits (160000-60000-80000) 20000
The net profit in this case will be £20000 and the fixed cost will be £60000.
17

Task 3:
a. You are to evaluate how budgeting can be used by Ever Joy Enterprises as a
planning and problem-solving tool in dealing with financial problems, but also for
leading the organisation to sustainable success.
Budgeting is simply balancing expenses with the income for a particular period of time. In
simple words, budgeting can be referred to as a tool that helps in tracking our finances.
Creating a budget helps you to know the useless expenses and putting these expenses to an
end.
Budgeting adopted in Ever Joy Enterprises:
Numerous managers view planning as a fundamental fiendishness that must be done by the
top managerial staff and funders. Notwithstanding the task of social occasion the money
related information, there is frequently an uneasy inclination activated by estimating the
obscure. The adoption will help in estimating the future availability of resources and their
utilization towards growth opportunities (Matambele, 2014).
Steps to overcome financial problems while utilizing financial budgeting:
Step1: Analysis of past data
Prior to looking into the future, accumulate the most recent three years of benefit and loss
statements, preferably with spending correlations. The objective here is to find patterns,
examples and issue territories, both in income and cost things.
Analyse each detail. Has it increased or decreased over the last three years. Some cost classes
will probably demonstrate a consistent increment as costs rise. Those costs can be
effortlessly planned with a rate uptick.
This top to bottom survey will uncover the both conditions influencing your association and
blind side regions in your spending procedure (McLaney & Atrill, 2014).
Step 2: Set your action plan
The action plan will be concerned with introducing the ideas of taking use of various
financial resources and in what quantity they have to be used by the company Ever Joy
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Limited. Next should come an examination of the income hotspots for the program to decide
deficit or abundance. On the off chance that extra assets are required, staff ought to be
occupied with thoughts on the best way to get that going, and in addition the probability of
achieving the objective. Staff individuals who effectively take part in setting and dealing
with the financial plans under their control complete a superior employment of controlling
uses. The actions plan introduced will be provide the base for planning the next activity.
Step 3: Always plan for unexpected
When planning a budget, the Ever Joy Enterprises always plans for unexpected things like a
sudden rise in prices or decrease in demand for a particular product etc. Study of the market
is very important. One should always study the market very closely and record the data.
When planning a budget, the company should keep a small amount aside for meeting
unexpected. This saves them at the times when those conditions are actually faced by the
Ever Joy Enterprises (Otley, 2016).
Step 4: Drafting of the budget
Since you've define objectives, assembled information and gotten new statements, you're
prepared to set up the financial plan. Begin with the premise of what you totally know – costs
and incomes. Through the objective setting process, you recognized income expected to
cover automatic objectives. A perfect allocation of budget will also lead to a sustainable
business as all the risks are properly backed up in the budgeting process. The Ever Joy
Enterprises will be ready to face any problem. This will make the Ever Joy Enterprises
successful in the market and with all this planning it will be a sustainable business also
(Nørreklit and Mitchell, 2014).
19

b. You are to also evaluate how strong financial governance can help to pre-empt or
prevent financial problems for Ever Joy Enterprises and the means by which
management accounting systems can contribute.
Financial governance means to the manner a company gathers, monitors, manages and
controls the company’s important financial information. It involves how management of the
company track and record the essential financial transactions and manage them accordingly.
The company’s also records the performance which was done in the financial year. All the
compliance and disclosures are recorded in the reports of the company. The poor financial
governance effects to the company’s business operations and goodwill and risks of poor
financial governance consists of misappropriation, fraud, regulatory penalties, reduced
stakeholder confidence, etc., to avoid this problem the company always follow the
compliance and disclose everything to their stakeholders how provide funds and resources to
the company (Danaei, et. al., 2014).
Importance of financial governance to the Ever Joy Enterprises:
 When the enterprises place controls on financial data, the management provides
complete reports, plans, budget and other important financial documents to the
departments and its stakeholders in an accurate manner.
 Good and accurate financial information assists to the management to prepare the
financial reports which provides relevant and accurate information to its investors for
their investments.
 Financial governance allows enterprises to identify and rectify the risks in the faster
manner.
 Financial governance results in clear accountability and ownership.
How Ever Joy Enterprises improve financial governance?
 Stay up with the latest on all consistence controls.
 Use a unified and centralized corporate disclosure management software.
 Mechanize monetary information and controls.
 Lead visit chance appraisals.
 Lead inside and outside reviews.
 Utilize a solitary information distribution centre for every single corporate datum.
20

Compliance
Compliance is the process of abiding by various laws, regulations, standards or any other
rule. It ensures that an organization has the processes and internal controls to meet the
requirements imposed by governmental bodies, regulators, industry mandates or internal
policies. Regular audits can improve the compliance and also avoid risks (Hosoda, 2018).
Benefits of compliance to the Ever Joy Enterprises
 Minimise the legal risks and also avoid future costs.
 Built trust and goodwill among stakeholders and also attracts new one.
 Increase profits and sales of the company.
 Attracts customers, suppliers and other investors to the company.
Consequences of non- compliance to the Ever Joy Enterprises
 Fines
 Loss of reputation
 Down time and loss of productivity
 Imprisonment
 Loss of current or potential staff
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Conclusion
It can be concluded that management accounting will play a crucial and determining role in
analysing and interpreting the financial as well as other performance of the enterprise. It will
help the business mangers in decision making process associated with the function of
planning, controlling and organising. The various system of management accounting will be
effectively adopted in an organisation while fulfilling the basic essentials in the company.
The application of break-even analysis and other techniques of cost accounting will help in
assessing the cost data and making important cost decisions. The application of financial
governance and budgeting system will allow the company to assess the resources availability
and meeting the financial requirements.
22

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