Management Accounting Report: Ever Joy Enterprises Financial Analysis

This report provides a comprehensive overview of management accounting principles and their application within Ever Joy Enterprises. It begins by defining management accounting and contrasting it with financial accounting, emphasizing its role in internal decision-making. The report then delves into various management accounting systems, including cost accounting, inventory management, and job costing, detailing their functionalities and importance. Different management accounting reporting methods, such as budget reports, cost managerial reports, and job cost reports, are explained, highlighting their significance in providing timely and relevant financial information to management. The report further explores the calculation of income statements using absorption and marginal costing techniques, offering insights into their respective methodologies and implications. Additionally, the report discusses the advantages and disadvantages of planning tools for budgetary control and examines how organizations adapt management accounting systems to address financial challenges. The report concludes by emphasizing the importance of a sound accounting system for effective business operations and financial decision-making within the company.

MANAGEMENT ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Explaining management accounting and different type of management accounting system.....3
a. Presenting difference between Management Accounting and Financial Accounting.............3
b. Cost accounting system:..........................................................................................................4
c. Inventory Management System:..............................................................................................5
d. Job costing system:.................................................................................................................5
e. Explaining different methods used for management accounting reporting............................6
f...................................................................................................................................................7
TASK 2............................................................................................................................................7
Calculating the income statement using absorption and marginal costing techniques of
accounting method......................................................................................................................7
TASK 3............................................................................................................................................8
a. Explaining the advantages and disadvantages of different types of planning tools used for
budgetary control........................................................................................................................8
b. Comparing how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is important concept for an organisation. It help the
management of the organisation to make important decisions with the relevant information
provided by the different departments. In a competitive corporate world, having effective
management accounting system is crucial to be remain competitive in the market. The
management accounting system and reporting helps in efficient running of financial and other
business activities in organisation.
The present report is based on Ever Joy Enterprises, which will help it to understand the
importance of having an effective management accounting system in organisation. The present
report will discuss the importance of management accounting system and different types of
accounting system. Further, the report will demonstrate different type managerial accounting
reporting and its importance in company. The report than include a calculation of net income
with different accounting techniques. Furthermore, the report will ,depict about the advantage
and disadvantage of planning tools for budgetary control. At last, the report will discuss how
management accounting system can help the company to resolve its financial problem.
TASK 1
Explaining management accounting and different type of management accounting system
a. Presenting difference between Management Accounting and Financial Accounting.
It is the process of preparing and providing the information regarding financial and
statistical to the higher authority of management so that they make the strategies and decisions
regarding the long term as well as the short term managerial decisions (Kaplan and Atkinson,
2015). It helps the management of the company to perform their basic functions like planning,
organising, managing and controlling of the overall business activities so as to achieve their
overall business objectives.
The difference between management accounting and financial accounting are:
Management accounting Financial accounting
It is an accounting system that are prepared to
provide the information to the manager to
It is the accounting system that are focuses on
preparing the financial statement of the

make policies, plans and strategies for the
efficient business operations.
organisation for the internal as well as the
external users to provide information of the
company's financial performance.
Management accounting provides monetary as
well as the non-monetary information of the
company also.
Financial accounting provides monetary
information of the company only.
Management accounting's main objectives is to
assist the management in providing the
information which helps in decision making
process of company.
Financial accounting main objective is to
provide information about the company's
financial performance to the outside users like
shareholder, investors, auditor, government etc
(Hilton and Platt, 2013).
Management accounting can be prepared at
any time when required and as per the need of
management.
Financial accounting re prepared at the end of
each accounting year.
Management accounting system is essential for the Ever Joy enterprises, so that the
management can make the effective decisions and policies to increase the company' future
performance. The management can take the company's financial information to develop the
report for making decisions. The management accounting system helps the company to make
more effective decisions from the information and reports. Management accounting system
focuses on the costs that are associated with the production of goods and services in an
organisation. There are different types of management accounting system that can be used by
Ever Joy enterprises. They are:
b. Cost accounting system:
It the method of evaluating a company's cost in producing a single product by evaluating
its overhead costs and fixed cost (Ward, 2012). The company analyse the cost to know the
profitability analysis, inventory valuation and controlling of the cost incurred. Its important for a
company to know the profitability of the product, which can be ascertained when the actual price
of the product will be estimated. Cost accounting system are of two main types they are:

 Standard costing: it is the techniques of the accounting which are used to identify the
differences between the actual cost of the good produced and the cost that should be
incurred in the production.
 Direct cost: it is the price that are assigned to the production of the certain goods or
services. there are certain cost that are difficult to assign in the production that are
depreciation or the administrative expenses which are included in the indirect expenses.
Direct cost is useful for the management at the time of decision making regarding the
cost controlling.
 Actual costing: it is the cost that are incurred in the production process of a product.
Actual cost includes direct labour, direct material, and other direct charges.
 Normal cost: it is the estimated or predetermined cost of producing a good.
c. Inventory Management System:
This system helps in tracking goods in its entire process production the process of the
supply chain in company (Otley and Emmanuel, 2013). It cover the flow of goods from the
production to retail, warehousing to shipping and all other movements of the goods involved
between the final delivery of the product to the customer. This management helps in evaluating
the total cost of inventories so as to generate high profit return to the company. There are various
cost that are holds with the inventories, the inventory management system helps in evaluating the
need of the inventories so as to explicit the cost of the product. There are three methods of
inventory valuation:
FIFO: in this method it is assumed that the goods that are manufactured first will be sold first and
newer inventory will remain unsold.
LIFO: in this method the old product or inventory manufactured will be out for sale first. it will
be used when company assumes that the price of inventory will rise in future.
Average cost method: it helps in calculating the cost of ending inventory and the coast of good
sold will be calculated on the weighted average cost per unit of inventory.
d. Job costing system:
in this system the cost is assigned to every product which helps in evaluating the manager
the actual expenses in manufacturing of that product. It the assigning of the manufacturing costs

to an individual product systematically in overhead expenses, direct labour, material so as to
estimating the actual value of the product (Wild, 2017). This system is very essential to control
the use of raw materials, labour hours by assigning each cost for different customer.
Batch costing is specific form of order costing. A finished products requires different
components for assemble and may be manufactures in economical batch lot. In Batch costing
items are manufactured for cost.
e. Explaining different methods used for management accounting reporting.
Management accounting report are the tools which helps in understanding the financial
performance of the company to the higher authority of management. The management reports
includes all the statistical and financial data that are to be required to the management of Ever
Joy enterprises to formulate the decisions and strategies for the future performance of the
company (Hilton and Platt, 2013). Managerial reports are continuously generated throughout the
accounting period. It is important for the managers to provide relevant data and information on
correct time so that the management can take the efficient decisions regarding the operations of
the organisation. There are different types of management accounting reports which are
essentials to the Ever Joy enterprise's management :
Budget report:
It is the most fundamental report off managerial reporting. It is very essential report that
help in measuring company's actual performance with the budgeted performance (Fullerton,
Kennedy and Widener, 2013). It helps in analysing the performance of different department and
in controlling cost of the expenses. The budged is usually based on the expenses incurred from
the prior years budget. All sources of earning and expenses are being estimated and on the basis
of that the cost are being allocated to each department of the organisation. It is the main objective
off the company to run its operations by limiting in the budgeted amount.
Cost managerial accounting reports:
This reports help in calculating' the actual expenses incurred in manufacturing of the
product this report includes the expenses of raw material, direct labour (DRUR, 2013). Overhead
cost and other expenses. The cost managerial reports involves all the information which help the
management in estimating the total cost of production. It assist the management in evaluating

production cost of a product and the selling cost of the product. Profit margin are than estimated
in these report which helps the management in making decisions regarding the manufacturing
activities and controlling costs.
Account receivable ageing report:
This report are essential when business are relies on providing credit facilities to its
customer or distributors (Callahan, Stetz and Brooks, 2011). These reports are very vital for the
company as it helps in ascertaining the balances of the clients and distributors. These report also
helps the accountant to know the defaulter and finding issues regarding the collection process of
the company. The report helps in making policies for tightening credit facility that can help the
management in sufficient cash flow in company.
Job cost reports:
These report shows the expenses regarding the manufacturing of a product or a assigned
job. These report usually made to check the estimated revenue to evaluate the profitability of the
job. It helps the management to know the higher earning area of the organisation, so that the
management can focus and provide extra efforts to profitable area (Hoitash and Hoitash, 2017).
It assist the management in proper allocation of cost, from the area which are not are not so
profitable for the organisation.
f. The need for the sound accounting system and the importance for the department producing
timely.
Maintaining the sound accounting accounting system is important for the success of Ever
Joy Enterprises. it is an important system to control and ensure the proper management and
business operation of the company. The need of sound management system can be understand
from the importance if effective naad efficient operations, reliable reporting and compliance with
applicable laws and regulation. The importance of department in producing reports timely are:
 Management can take the decisions regarding the future growth and policies timely.
 Providing accurate information will help in making budgets for all the departments as per
their performance, so that the department can do their operations effectively.
 In order to prevent any fraud in the company. The accounting report will help to evaluate
and prevent any fraud in the organisation.

TASK 2
Calculating the income statement using absorption and marginal costing techniques of
accounting method.
Absorption Costing:
It is a techniques of accounting method of evaluating the cost of inventory. Absorption
costing is full costing method as it considered both fixed and variable cost in calculating the
manufacturing cost of the product (Liu, Zhang and Wu, 2011). It takes into account all the
manufacturing costs in the unit produces. This cost will include the direct material, direct labour,
and both variable and fixed manufacturing expenses. It is considered as most suitable as the other
method as it considered all the possible manufacturing costs.
Marginal costing:
It is the techniques of costing method where only variable cost are taken into
consideration while calculating the manufacturing cost of the inventory. Under the marginal
costing, the fixed cost are considered to be constant for the accounting year (Ilak and et.al.,
2018). It is based on the behaviour of cost that changes with the level of output. It is not
considered as an appropriate method as it does not take fixed cost into calculating net profit.
Income statement as per marginal cost:

Income statement as per absorption costing:

BEP: Break even point is the level where the production level where the total expenses of the
company is equal to the total revenue earned from selling that product. The profit of the
company is zero at the break even point.
calculation of Break even point:
Particulars Figures (in £)
Variable cost 10 per unit
Fixed cost 60000
Selling price per unit 20
Contribution per unit 10
BEP (in unit) total fixed
cost/contribution per unit 6000
BEP in value=BEP in unit*selling
price 60000
Desired profit 30000
Total ticket to be sold (desired 9000

profit/contribution+bep)
Profit if 8000 ticket are sold 20000
Interpretation
As per analysing the calculation above, it can be said that the break even point of ticket
in units is 6000. however, the break even profit is 60000 pounds. In order to get desired profit of
30000, the ticket that need to be sold is 9000. if the company wanted to sell 8000 tickets, the
total profit earned will be estimated is 2000.
TASK 3
a. Explaining the advantages and disadvantages of different types of planning tools used for
budgetary control.
Budgeting is a process of estimating revenue and expenditure over a specified future
period of time. At company it is an important tool used by the management of company to
evaluate their income and expenses for the future period, such budgets are prepared by
evaluating the prior budgets (Dunk, 2011). Budgeting is the process of preparing a budget. It is
process of planning future activities of the business and establishing the goals that should be
achieved in the coming year. Budgeting helps in making financial goal for the company and
helps in achieving those goals by creating a proper plan.
Budgetary control is the process through which the actual performance of the company is
being compared to the budgeted plan in order to find any variances if any. This variances will
help the management in to take corrective measures to improve the performance. Budgetary
control act as a tool for controlling the finance of the company. Ever Joy Enterprises should
established budgetary control as a tool to control its financial problems.
Budgetary control ids a continuous process that helps in planning and coordination. There
are various planning tools that helps in controlling the budgets of the company (Silva and
Jayamaha, 2012). Planning tools are the techniques which compares the actual results with the
planned one, and helps in controlling the variances to achieve maximum profitability for the
firm. The planning tools for budgetary controlling are:
Cash budgets:

It is process through which company forecast its cash receipts and payment through
which the actual cash is measured in a specific time period. It is a process of evaluating the
company's cash position. It includes the inflow and outflow of cash that involves the revenue
collected, expenses paid, and other loans receipts and payments (Hofstede, 2012). Management
uses the cash budget too manage the cash flows of the company and to be sure that there is
enough cash flow in the company to fulfilled any requirement.
Advantage of cash budgets:
 It helps in avoiding the debt situation for company. It ensure that company have the
sufficient case to pay its bill.
 It helps in better coordination of the employees and all the activities in organisation
(Otley and Emmanuel, 2013). Cash budget helps in showing the availability of excess cash, which makes it possible to
plan any profitable investment plan (What is Budgetary control? ,2018).
Disadvantages of Cash Budget:
 The success of cash budgets relies on the activities performed by employees.
 It is prepared in the future estimation of receipts and payments, any uncertainty can be
happen that leads to failure of the budget.
 There is no or little flexibility in the cash budget, once the budget is prepared it is very
difficult to make any changes as the budget will be presented to the management of
company.
Zero based budgeting:
It is method of budgeting in which a new budget is prepared without considering the prior
years budget. Thus, the new budget will be based on zero basis, it will consider the performance
of the activity in organisation. On the basis of performance the budget will be prepared and
allocation of cost will be done accordingly (O'connor, 2017). In zero based budgeting method,
company has to review each activity in order to control the spendings of activity that are not
accordingly to estimated budgets. In such case, prior performance of that activity is of no use. Th
budget has to prepared.