Management Accounting: Cost Analysis and Reporting for Ever Joy

This report provides a comprehensive analysis of management accounting systems tailored for Ever Joy Enterprise, a leisure and entertainment company. It begins by outlining the essential requirements of different management accounting systems, differentiating between management and financial accounting, and highlighting the crucial role of management accounting in forecasting and decision-making. The report then delves into various types of management accounting reporting, including performance reports, inventory management reports, account receivable reports, and batch costing reports. Furthermore, it explores cost analysis techniques, specifically marginal and absorption costing, and their application in preparing income statements. The report also discusses the advantages and disadvantages of different planning tools used for budgetary control and concludes by examining how management accounting systems can be adapted to address financial problems. The report emphasizes the importance of principles such as influence, relevance, value, and trust in ensuring effective management accounting practices within Ever Joy Enterprise. Finally, it explores the role of cost accounting and inventory management systems, highlighting their importance in controlling costs and managing resources efficiently.

Management and
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1...........................................................................................................................................1
a) Essential requirement of different management accounting system..................................1
b) Various Types of Management Accounting Reporting.....................................................4
TASK 2............................................................................................................................................5
c) Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs................................................................................................5
TASK 3...........................................................................................................................................7
d) Advantages and Disadvantages of different types of planning tools used for budgetary
control:....................................................................................................................................7
TASK4...........................................................................................................................................10
e) Management Accounting System in Respond to Financial Problems:............................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting involve process of preparing account and management reports
that offer managers financial information required by them to make short term decisions. A
business organisation whether small, medium or large, management accounting is known as one
of the most significant part of every firm. This ensure effective execution of business activities
with optimum utilisation of financial resource. Collection and analysis of financial data make the
manager aware about financial position of company and help in plan future activities (Bouten
and Hoozée, 2013). Every joy enterprise which operate on leisure and entertainment sector is
consider under this report. Every joy is consulting Deloitte firm to write a manual for the
department of management accounting. Different type of management accounting system with
its essential requirements and various methods that can be use by company for accounting
reporting is all given in this. Further, different type of cost including marginal and absorption
costing with different planning tools is also included in given report. In addition to this,
adaptation of management accounting system by different organisations to deal with financial
problems is also mentioned under this.
TASK 1
a) Essential requirement of different management accounting system
Management accounting refers to the process of presenting financial and accounting
information that is used to formulate policies and future activities to be adopted by management.
This involve analysing internal business operations and cost in order to prepare accounts which
indicate the financial position of company (Management Accounting, 2018).
On the other hand, financial accounting refers to the process of summarizing, recording
and reporting the financial transactions resulting from various operations performed by company
throughout the year (Chenhall and Moers, 2015). These transactions are summarized for
preparation of financial statements like balance sheet, income statement and cash flow statement.
Difference between management and financial accounting:-
Basis of comparison Management accounting Financial accounting
Objective This concept is generally used
with the objective of providing
It is generally used to collect
financial information which is
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assistance in planning and
decision making process by
providing information over
various essential matters
summarized to prepare financial
statements.
Time frame These reports are prepared
according to the requirement of
organisation
Financial statements are generally
prepared at the end of accounting
year that is one year.
User This information is used by only
internal management.
Information is used by both internal
as well as external parties.
Role of management accounting:
 Management role play a crucial role in forecasting the events related to finance and
economy that support in making future plans.
 Management accounting analyses accounts and financial information to prepare report
such as standard costs, budgets, interpretation, cash & fund flow analysis which help in
controlling and managing the finance used by company.
 It also work toward providing recommendation related to the funding and resource
allocation by providing financial data of the company. This help management in
assessing the financial requirement of the company that further support in taking decision
related to raising of fund.
Thus, it is very essential for Ever Joy enterprise to apply and integrate management
accounting system to determine the efficiency of their operations, Budget they have to perform
various activities and amount to be raise in order to fulfil future needs. It also help in formulating
policies that further support in performing future actions toward the achievement of
organisational goals (Hiebl, 2014). Therefore, management accounting will also help Ever Joy
Enterprise in maintaining their better position in marketplace by taking corrective and
informative actions. Because all the financial information is first assess and then use to take
future actions so it help in reducing the chance of error and financial losses. Further there are
certain principals of management accounting which are as given below:
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 Principle of influence:- according to this principle communication is an essential factor
in management accounting as it provides insight of financial condition of company that
facilitate better decision making. Ever Joy Enterprise must communicate with their
employees in order to collect information from each part of an organisation. This
facilitate better understanding and acceptances of decision taken by higher management.
 Principle of relevance:- It suggest that management accountant must scan all the data
collected but use the information which is relevant to take decision (Hilton and Platt,
2013). Ever Joy Enterprise must assess the requirement of its stakeholders and then
identify, collect and assess the information for decision making. This help in satisfying
the stakeholder with the decision taken by company.
 Principle of value:- This principle suggest that impact of decision over value must be
analysed by connecting organisation's strategy with business model. This help Ever Joy
Enterprise in developing an understanding related to macro economic environment which
also identifies opportunities present for development.
 Principle of Trust:- It explains that balance between short term commercial intrest and
long term stakeholder value enhance trust and credibility. Managers of Ever Joy
enterprise must be ethical, mindful and accountable as it help company in improving their
process as well as reputation in market.
Management Accounting System:-
It refers to the internal system of an organisation which deployed to provide information
that is used for management to plan future strategies (Figge and Hahn, 2013). Management
accounting system is very essential task which provide several benefits when integrated with in
an organisation. As it support in identifying the capital to be required by a company to operate
future activities effectively. It also assists in formulating policies and procedures to be follows by
organisation to achieve desired result.
Cost: Cost is known as the value of money that is used to produce goods or services or an
amount that has paid to get something is known as cost.
Types of management accounting system:
 Cost accounting system:- It refers to a framework used by a company to estimate the
cost of product in order to control cost, valuation of inventory and profitability analysis.
(Lambert and Sponem, 2012). It assists Ever Joy Enterprise in identifying the services
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which are more profitable. This also help company in tracking the flow of fund related to
activities performed by them. Following are the types of cost accounting system:
Direct cost:- It refers to the cost related to production of goods and services which includes
material, labour, distribution cost etc. For ex., Direct labour and Direct materials.
Standard cost:- It refers an accounting technique in which company tries to identify the
difference between variances by comparing the actual cost incurred with estimated amount. For
ex., If costs are decided by company to attain offers is $50 and in actual the cost is incurred
amounted $80. This means the deviation is resulted around $30.
Inventory:
 Inventory management system:- It refers to the process of ordering, keeping and using
the inventory of company such as raw material, components and finish goods. Inventory
management system supervise the flow of goods from manufacture to point of sale (Lavia
López and Hiebl, 2014). By using this system Ever Joy Enterprise can manage their
inventory more effectively as it reduce the wastage by keeping track of each and every
flow. It also reduce time by keeping stock available, hence will support in increasing the
profit of company.
 Job Costing system:- It refers to an expense monitoring system which assign
manufacturing cost to products for enabling manager to track the expenses incurred
during this process. By using this system Ever Job Enterprise can keep the track of each
order and expenses incurred over it.
b) Various Types of Management Accounting Reporting
Management accounting refers to the process of identifying, evaluating, interpreting and
communicating the data related with performance of company which ensure development of
effective strategies. It is consider to be the essential part of an organisation that support toward
its growth. Management accounting report consists information about financial performance of
company and contain other relevant data. There are different types of management accounting
report which are as follows:
 Performance Report:-It refers to the process of analysing the performance of employees
by comparing the actual outcome with planned one. This help in identifying the factors
that must be improve in order to improve performance. Ever Joy Enterprise can apply this
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method that support in evaluating the performance of their employees. This help
company in achieving maximum benefit from its operations.
 Inventory Management Report:- This report consists of information related to the
opening and closing stock of a company. It includes many useful reports such as sales
report, purchase report, balance sheet, total GST report, stock summary report and many
more (Maas, Schaltegger and Crutzen, 2016). This report mention all the report related
to the stock and material used while performing operations. Ever Joy enterprise can use
this reporting system to keep track of all the information and transactions performed
related to the inventory of company. It It can use some techniques of inventory
management such as just-in-time approach, turn over ration and EOQ.
 Account Receivable Report:- account receivable refers to the money that a company
will receive from customer in future for products or goods sold by them. This report
consists of information related to the unpaid customers invoices and credit according with
the date range (Otley and Emmanuel, 2013). Ever Joy enterprise can use this report to
maintain the information related to account receivable which contains the information
about the customer to whom services are provided on credit. It also support in preparing
notes that assists management in recovering the amount within fixed period of time.
 Batch Costing Report:- This report includes a detail information related to the cost
required for manufacturing a set amount of goods. It includes both fixed as well as
variable cost incurred while producing the batch products i.e. in bulk. Ever Joy Enterprise
can use batch costing method to keep track of cost of production like labour cost,
production overhead and material cost.
TASK 2
c) Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
Cost is a sum of money paid by a firm to buy raw material and from suppliers for
production and delivery of goods and services. Cost can be divided into two parts: Fixed cost and
Variable cost. Fixed cost is always fix whether company produce goods or not like rent,
electricity bill etc. Variable cost is change as per production of output. Large unit of production
indicates big amount of variable cost.
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Cost volume profit: This is a method which is used to determine the break even point for
different cost structures and sales volume, one of the main feature of this is that it help managers
in make short term decisions. Various assumptions are make under this such as fixed cost,
variable cost and many more.
Cost variances: This is known as the difference between actual amount of cost and its budgeted
amount. In case of actual cost is less than the plan amount, cost variance is said to be favourable
and vice versa.
Different types of costing are mentioned below:- Marginal costing- It consist the cost of material and labour. When Ever Joy Enterprises
produces an excess unit of output then an additional cost is obtain is called marginal
cost(Tucker and Lowe, 2014) . Cost of an organisation is increases when they buy raw
material, using promotional techniques, increase in production unit etc. There is a
positive relation between total cost and marginal cost.
 Absorption costing- All types of manufacturing cost which is absorbed by quantity
produced are included in absorption costing. Overall cost of finished goods direct labour
and material is called absorption costing. If any organisation consider their financial
account for all the expenses then they use absorption costing method. It helps Ever Joy
Enterprises to know the full cost of production of manufacturing goods. There is negative
relation between net income and absorption cost.
Every Joy Enterprise in Manchester region is reviewing the concert for determining its
viability:-
Selling
price: £20 per unit
Variable
cost £10 per unit
Contributio
n £10 per unit
Fixed cost £60000
PVR Contribution/Sales*100
10/20*100=50%
BEV ( in
amount):
:
60000/50%= £120000
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Fixed cost /
PVR
BEV (in
unit): Fixed
cost /
contribution : 60000/10 = £6000
Calculation of expected profit used for outcomes
Contribution: Fixed cost + profit
: £(60000+3000)= £90000
Selling price: Contribution /PVR
= £(90000/50%)= £180000
Sales (in units): 8000*20= £160000
Contribution = sales *PVR
: £(160000*50%)= £80000.
Desire profit=contribution-fixed cost
= £(80000-60000)= £20000
Inventory Cost:
Inventory cost is that cost which is incurred to purchase stock or its maintenance. It
includes cost of capital, insurance, warehouse, obsolescences and taxation cost (Renz, 2016). In
Ever Joy Enterprises, this cost is associated with acquisition, deficiency and management of
stock. Inventory cost includes not only purchase price but also cost of repair and operations etc.
There are following three types of inventory cost which are as follows:- Ordering cost- This cost is obtain when Ever Joy Enterprices place an order to buy stock
like accounting cost, communication outlay etc. Carrying cost- It refers to that cost which incurred at the time of sorting of inventory
before sale. It includes cost of working capital, financing cost etc.
 Shortage cost- When Ever Joy Enterprises become out of stock for any reason then a cost
is arises is called shortage cost. It includes overhead cost, emergency shipment cost etc.
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TASK 3
d) Advantages and Disadvantages of different types of planning tools used for budgetary control:
Budget is an estimation of the expenses as well as revenues by a company for a particular
time period. It is a microeconomic concept. Profits of a company can be denoted by surplus in its
budget, while budget deficiency implicates loss (Sánchez-Rodríguez and Spraakman, 2012). In
case of a balanced budget, the expected expenditure is equal to expected income.
There are mainly two types of budgets. These are: Operating Budget: It refers to the projection of costs incurred during all of its operating
activities. It covers all the estimated incomes and expenses during a given time period
through detailed forecasts of sales revenue.
 Capital Budget: This budget is prepared to manage the usage of company's long-term
funds for future investments. It is important for Ever Joy Enterprises as it can determine
the economic and long-term financial profitability of the company's investments.
Budgetary Control: It is the process to align the financial objectives of a company with
given budgets. It is used to compare the estimated and the actual outcome.
Planning is important for budgetary control. It helps the firm to set up a framework to
manage company's financial resources. Managers at Ever Joy Enterprises can determine various
techniques for budgetary control that would help them ease their financial activities and their
evaluation. These are in the instrument that Every Joy Enterprises can use for budgetary control.
It's managers can develop strategies of management accounting. The three main planning tools
which the company can use are: Forecasting Planning Tool: This tool is applied when a strategic planning of the
business activities is required based on the predictable future outcomes (Schaltegger,
Gibassier and Zvezdov, 2013).
Advantages: Using this tool would allow the company to predict future market conditions
and formulate strategies accordingly.
Disadvantages: Seeing its qualitative nature, this tool can not predict the future outcomes
accurately which can be a threat to the firm. Contingency Planning Tool: This tool can be used to develop strategies against harmful
future outcomes that are unlikely to occur during the course of the business activity.
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Advantages: This tool would help build the company's trust in employees as well as
customers considering that their safety is company's top priority.
Disadvantages: There might be vast deviations in the nature of the contingencies as a
result to which this tool might have to be modified. Scenario Planning Tool: This tool can be used to formulate strategies and alternative
strategies for limited future outcomes or specific scenarios (Soin and Collier, 2013).
Advantages: Predictions in this tool can be right mostly as the managers take limited
factors into consideration.
Disadvantages: Proper training is required for the knowledge of factors included in this
tool which can be time-consuming at the time of spontaneous decision-making.
Behavioural Implications:-
While preparing the budget, some behavioural implications were indicated in Ever Joy
Enterprises:
 It is important that personal aspirations of the managers don't coincide with the
company's financial goal, as conveyed through a budget. The supervisor of the company must control the weekly reports of the budget because a
budget is controlled by different people throughout the process.
Common Costing Systems: Actual Costing: It is the recording of costs of specific products which is based on the
actual costing of factors, for instance, labour, materials, actual overhead costs, etc. Normal Costing: This method is used in case of cost deviation. It is used when
manufactured products are valued with actual material costs like material,labour and
overhead.
 Standard Costing: This costing is used to control the cost. It's also used to compare the
actual cost with the standard cost.
Cost systems are generally different that are depend on the costing activity which are
explained below:- Job Costing: It can used to accumulate the cost of a specific job Ever Joy Enterprises is
involved with. Batch Costing: This type of costing is used to determine cost of goods by the batch
instead by individual good.
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 Process Costing: This costing is used to determine the cost of operations and processes
involved in business activities.
 Contract Costing: It is used to determine costs related to a certain contract.
TASK4
e) Management Accounting System in Respond to Financial Problems:
Management accounting is a process of preparing report of accounts and management
which provides an accurate financial statement and information which is required by managers to
make decision regarding to Ever Joy Enterprises (Suomala, Lyly-Yrjänäinen and Lukka, 2014).
It helps to manager to generate extra revenue and eliminate financial problems. But after this,
some financial problems are arises which are faced by company.
Financial problems can be concerned as a situation where a business have to face
financial crisis which reduces efficiency of employees in day to day business enterprise. Ever
Joy Enterprises face several financial problems that are continuously reduces the profitability
index of a company. There are some tools that can be used by an organisation to deal with
financial issues Benchmarking- Benchmarking is a process of measuring quality of company's programs
and policies. It is a technique to identify financial problems by analysing cost and
revenue. It set a standard result by evaluating previous year data and compare the actual
result. If any difference arises in expected or actual then find out the reason and take
immediate action. It consists overall business efficiency of Ever Joy Enterprises and
helps to improve their performance and practices.
 Key Performance Indicators- KPI is used in any organisation for better progress and
success in corporate sector. KPI is developed to identify the 'Key' of a firm. It is a part of
strategic management technique which includes vision, mission and objectives of an
organisation. KPI has been divided into two categories: Financial and Non-financial
(Ward, 2012).
Financial KPI includes cash in hand, increment in stock prices, rate of market shares,
percentage of growth in sale, current ratio, gross profit margin and return on investment
etc. Non-financial KPI includes skill employees, health and safety, cost and production,
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