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INTRODUCTION

Management accounting is a techniques which is used by manages of an organisation to gather and formulate accounting information in an appropriate manner so that internal stakeholders may analyse actual situation of business (Management accounting, 2018). This may also guide managers, owner and other concerned persons of company to make strategic decisions. In management accounting various reports are generated in order to keep track record of each activity of enterprise. Company taken in this report is Ever Joy Enterprises (UK) which is a client of an accountancy firm.

This report consists various informations regarding management accounting system, methods of its reporting and benefits, application of costing techniques and advantages and disadvantages of different planning tools that are used in budgetary control. The way in which organisations are adapting management accounting system to respond financial problems in also discussed under this report.

TASK 1

P1 Management accounting system and its types

Management accounting: It is process of monitoring  and controlling managerial informations of business so that all the operations can be controlled by managers. In Ever Joy Enterprises (UK) management accounting is used to analyse business performance in order to make strategic decisions.

Difference between management and financial accounting:

Basis

Management accounting

Financial accounting

Stakeholders

Reports generated under management accounting are presented to internal stakeholders only.

All the statements generated under financial accounting are presented to external stakeholders.

Compulsion

It is not compulsory for companies to conduct management accounting.

It is essential for the organisations to conduct financial accounting every.

Monetary or non monetary informations

All the monetary and non monetary informations are recorded in the reports of management accounting.

Only monetary informations are recorded in the financial statements.

Management accounting system: It is a system which is used by organisations in order to record and analyse all the valuable information to analyse organisational performance. In Ever Joy Enterprises (UK) different management accounting systems are followed (Banerjee, 2012). These systems are explained below:

Cost accounting systems: This system is mainly used by manufacturing companies to record all the costs involved in the production activities. In Ever Joy Enterprises (UK) this system is used by the managers to record cost of their activities that are performed by their employees. It is also used to analyse cost of equipments, labour and other overheads. This system is very important for company as it can help to determine actual costs. It is mainly used to determine direct costs and standards costing is an example of cost accounting system. Both of them are explained below:

  • Direct cost:Such type of cost is directly related to the product or service provided by organisation. In Ever Joy Enterprises (UK) various direct costs are recorded by managers these costs are labour, commissions, rendering expenses etc.
  • Standard costing:It is a costing method which is used to analyse the variances between actual and budgeted costs. In Ever Joy Enterprises (UK) this method is used to analyse differences between standard and real cost which has been bear by the organisation.

Inventory management system: It is used by various companies in order to keep a record of stock which is used to perform all the operational activities (Bodnar and Hopwood, 2012). In Ever Joy this system in implemented to analyse that what resources and equipments are used to execute operations. This system is very beneficial for the organisation because this can provide exact information of inventory and for Ever Joy inventory is its employees and equipments that are used to provide services.

Job costing system: While organisations are willing to analyse the cost involved in the different jobs than this system can help to determine the same. In Ever Joy job costing system is implemented to examine the expenses and costs of each activity which has been performed according to the specification of customers. It is advantageous for the business enterprise as this can provide idea of costs separately and specificity according to their nature.

P2 Methods used for management accounting reporting

Management accounting reporting: It is a process of recoding managerial information to different reports that are provided to internal stakeholder so that they may analyse performance and position of a company (Fullerton, Kennedy and Widener, 2014). In Ever Joy  various reports are generated to figure out that organisation is able to attain its predetermined objectives or not. Such types of reports guide the managers to to make strategic decisions that may help the business to become successful. All management accounting reports are defined below:

  • Performance report:Such type of reports are generated by the organisations to analyse individuals as well as organisational performance. In Ever Joy managers use these reports to make strategic decisions that are related to the future events to enhance the performance. It also guides the executives of companies to provide incentives to their employees according to their work so that they may get motivated. This report is very important for the organisation as it may help to record accurate measure of the presentation.
  • Budget report:An organisation who is willing to manage all its spendings than it is essential for the company to prepare budget reports as this may help to reduce and control the expenses and other costs. In Ever Joy such type of report is generated with the help of estimation which is based on prior years. In budget report all the information of sources of earnings and expenditures are mentioned. This report is very advantageous for Ever Joy because it can help to achieve objectives by limiting and reducing over spendings.
  • Inventory management report:These reports are majorly used by manufacturing companies in order to record all the information related stocks that are used in production activities (Herzig and et. al., 2012). It is created in Ever Joy Enterprises (UK) by the managers to keep a track record of all the stock related information like equipments that are used to provide services and employees who are providing services. This reports is very beneficial for the company as it can help to record exact business information.
  • Account receivable reports:Such reports are generated by the companies who are providing credit to the customers. In Ever Joy Enterprises (UK) account receivable reports are created to get the exact owed amount by customers so that all the outstanding can be collected to increase funds that can be used to perform operations more effectively. This report is very beneficial for the business enterprise as it can help to strengthen or tighter the credit policies for customers.

All the above mentioned reports are generated by Ever Joy because these reports can provide exact and accurate information to the internal stakeholders so that they may analyse position and performance of the company (Hilton and Platt, 2013). All of them are also very helpful while making strategic decisions as valuable data can be gathered from such reports.

M1 Benefits of management accounting systems

Management accounting system

Benefits

Cost accounting system

· It can help to compare costs of services with other companies.

· With the help of cost accounting system company may formulate effective strategies for employees. For example suitable plan for incentives, wages and rewards.

Inventory management system

· It can help to save time which is very beneficial to enhance employee efficiency.

· When managers will have accurate information of inventory than this may help them to plan accurately.

Job costing system

· It may guide the managers to assign to each task which is going to performed by the organisation.

· It is very flexible as all the overheads and direct costs are calculated with the help of this system.

D1 Management accounting system and its reporting is related to organisational process

Management accounting system and its reports are very beneficial for the organisations as this my facilitate the managers while making strategic decisions. In Ever Joy both of them can help the organisation to attain its predetermined goals and objectives. Cost accounting system is followed by managers to get the information of cost which is involved in different activities. Account receivable reports that are generated by Ever Joy helps to tighten the credit policies so that all the owed amount can be collected on time. Performance reports are created to analyse performance of individuals and whole organisation so that it can be assessed that activities are performed effectively or not.

TASK 2

P3 Calculation of cost using appropriate techniques

Cost: It is a monetary value of labour and overheads that are spent by the company to supply a service. In Ever Joy the cost is set by the managers for every service according to its nature. It is essential for a company to set appropriate cost so that it can attract more and more customers (Kaplan and Atkinson, 2015). There are different types of costs that are faced by organisation while supplying the services:

  • Fixed cost:This cost is totally fixed and do not vary with the nature of service and always remain constant for every services. It is paid by the company to its employees and it includes salaries, rent and wages.
  • Variable cost:It is a type of cost that increases or decreases while service is changed by the company. It depends upon the nature of service or proportion of output.
  • Semi variable cost:Such type of costs are partly variable and partly fixed. Semi variable costs remain fixed for a certain level and than get changed with the proportion of output of services.

Break even point: It is a point when company reaches to the situation where company is not having any profits and not facing any type of loss but all the costs get recovered form the revenues (Kotas, 2014). In Ever Joy it is calculated to analyse that what amount of services company needs to supply to cover all the costs that are spent upon them.

  1. Number of tickets that must be sold to attain break even

Particular

Amount

Selling price (U)

20

variable cost (U)

10

Contribution

10

 Fixed cost

60000

PVR: Contribution/ sales *100

        : 10/20*100= 50%

 BEP: Fixed cost / contribution per unit

  : 60000/10= 6000

  1. Tickets needs to be sold to attain profit of 30000

Particular

Amount

Selling price (U)

20

variable cost (U)

10

Contribution=profit + fixed cost

90000

 Fixed cost

60000

Profit

30000

50%= Contribution/ sales

Sales= 90000/50% = 180000

In units= sales/ per unit cost

180000/20

=9000

  1. Profit when company is selling 8000 tickets

Particular

Amount

Sales

8000*20 = 160000

Contribution

Sales * PVR = 160000/50% = 80000

Fixed cost

60000

Desired profit

20000

Desire Profit: Contribution – fixed cost

Profit:  80000 - 60000 = 20000

M2 Application of management accounting techniques

In Ever Joy different management accounting techniques can be used by the managers so that they may get the exact information of business so that it may reach to the predetermined goals. These techniques are explained below:

Historical costing: It is a techniques which is used in accounting to record exact amount or value of an asset when it was acquired by the company. In Ever Joy this method can be used by managers to record all the assets and liabilities of original cost.

Standard costing: It is a method which is used in cost accounting system that may help to analyse the difference between actual and budgeted costs, so that organisation can plan for future events more effectively.

D2 Data interpretation

From the above questions it has been analysed that company can reach to the level of break even when it sells 6000 tickets so that it can recover all its costs. When fixed cost for the company is 60000 and contribution is 10 then BEP is ascertained as 6000 units. If Ever Joy Enterprises (UK) is willing to attain a profit of 30000 than it is essential for the organisation to sale 9000 tickets. If 8000 tickets are sold by the company than it may attain profit of 20000.

TASK 3

P4 Advantages and disadvantages of different planning tools used for budgetary control

Budget: It is tool which is used to estimate all the possible expenses and revenues over a specific period of time. It is plan of action that carry all the information of a business's future activities. In Ever Joy Enterprises budgets are generated by the managers to reduce the extra expenses that may take place in future (Otley and Emmanuel, 2013). Budgetary control is also very important for the companies who are willing to reduce their actual costs that are spent upon operational activities. It helps to set financial and performance goals for the organisation so that success can be attained in short time. Main objective of budgetary control is to compare actual performance with the budgeted and take immediate actions in unfavourable situations. Following budgets are prepared by the organisation:

  • Master budget:It is the aggregation of all the budgets that are produced by an organisation's different departments. It includes forecasted cash, financial plan and budgeted financial statements. In Ever Joy master budget is used by the management to record all the direct activities of the organisation. When an organisation is formulating proper budgets than this may help to forecast and control spendings of the organisation and this may help to reduce the possibility of financial problems. It is an expensive budget but provides favourable results to the managers of the company.
  • Flexible budget:This budget is generated by those organisations that are changing their activities continuously. It is more sophisticated  and useful as compare to other budgets. It is generated by Ever Joy to estimate revenues and expenses for upcoming period. This can help to predict best and worst situation that may take place in future. If an organisation is conducting flexible budget than it may help to ignore negative events that can affects operational activities.

Following planning tools are used by the Ever Joy in budgetary control:

Forecasting tools: These tools are mainly used to forecast possible future situations that may take place and affect the efficiency of the organisation. In Ever Joy these tools are implemented by the managers to evaluate the possibility of uncertainties (Otley, 2016). The estimation under these tools are based on past data and current market trends so that risk and negative events can be reduced. Advantages and disadvantages of theses tools are explained below:

Advantages

Disadvantages

It may help to provide the information of possible outcome of an action which has been taken by the managers.

There is no guarantee of accuracy as it is not possible to forecast future accurately.

It provides valuable information to the business that may help in strategic decisions.

Decisions that are made on bad or wrong forecasts may affect the business's operations.

Contingency tools: Such types of tools are mainly used to predict negative or unfavourable events that may occur in future. In Ever Joy these tools utilised to analyse such factors who that can result adversely (Wickramasinghe and Alawattage, 2012). Following are the advantages and disadvantages of these tools:

Advantages

Disadvantages

Help the mangers to be aware of possible risk or uncertainty.

Cost of implementing these tools is very high and out of budget.

Guides the organisations to make appropriate strategies to deal consequences.

These tools take high time to result appropriately and accurately.

M3 Use of planning tools in preparing and forecasting budgets

In Ever Joy Enterprises (UK) two planning tools are used by the managers these tools are forecasting and contingency. If organisation is willing to reduce the possibility of risks and uncertainties than these tools can help to forecast them in advance and make effective plans to deal with the same. In an organisation it is very important to plan effectively to reduce unfavourable events to enhance the capability of performing activities.  Planning tools can predict possible issues that can leave adverse effect on the efficiency of the business enterprise.

P5 Adopting of management accounting system to respond financial problems

Financial problems are related to the deficiency of monetary resources that are used to run all the operational activities of an organisation (Parker, 2012S). If a firm is not having sufficient funds to execute its business than it may reduce its profitability and performance level. Ever Joy is a company who is rendering services to local community and the company is also facing various financial problems. These type of issues can reduce effectiveness and efficiency of performing activities. All the financial problems are explained below that Ever Joy Enterprises (UK) is facing:

  • Ineffective money management system:This problem occurs when organisation is not following right accounting principles to record all the finance related information. If the information is not recorded properly than this may result in improper management of funds and can create a financial problem. In Ever Joy managers are not able to follow the appropriate rules and regulations that are set by the government in order to maintain funds for the organisation. It has resulted in financial problem for the company.
  • Late payments by clients:When company's credit policy is not effective than the clients  will not pay their owed amount on time and this creates a deficiency of monetary resources within the organisation (chaltegger, Gibassier and Zvezdov, 2013). As Ever Joy is providing services on credit to its customers and they are not able to pay the outstanding amount on time hence it has resulted in a financial issues that company is facing.
  • Sudden expenses:These are the expenses that are not planned and happen suddenly and managers do not have reserved funds to deal with the same. In this situation they have to use money to resolve that creates a financial problem in future. Ever Joy Enterprises (UK) is also facing this problem as some expenses cannot be planned in advance.

Following techniques are used by Ever Joy to identify above mentioned problems:

KPI: It is Key Performance Indicator that are used to analyse that organisation is effectively performing or not so that all the objectives can be attained. There are two different types of KPIs both are explained below:

  • Financial KPI:It is a measure value which is used by companies to determine that plan are executed properly to generate profits and revenues. In Ever Joy Enterprises (UK) it is used to identify problem of sudden expenses and in effective money management system as it is focused with all the financial activities of the organisation (Soin and Collier, 2013).
  • Non financial KPI: This KPI is a tool which is used to determine organisational processes that may result in success and achievement of goals.

Benchmarking: It is a technique which is used to compare one business's processes to another. In Ever Joy Enterprises (UK) it is implemented to identify financial problem of late payments by clients because it can help to compare all credit policies with other businesses and result in the identification of weak credit policies (Ward, 2012).

In Ever Joy Enterprises (UK) financial governance is used to resolve all the identifies financial problems. It is a technique that directs companies to record, monitors, collect and control financial informations. In Ever Joy Enterprises (UK) It is used to Ever Joy Enterprises (UK) resolve issues of sudden expenses, late payments and improper money management system by guiding the company to record accurate and exact information, set appropriate credit policies and providing a frame work which is very important to be followed at the time of reporting.

Ever Joy Enterprises (UK)

Sollatek UK

Cost accounting system is used by managers to analyse costs of each activity

JIT (Just in time) is used to reduce time involved in manufacturing process.

Inventory management system to record every activity related to the inventories that are equipments and employees of the company.

Price optimisation system is implemented to set appropriate price for the products.

Job order costing system is used to analyse cost of each job performed by the company.

JIT is used to meet the demand of customers.

M4 Use of management accounting system to deal financial problems

Different management accounting system can guide the organisation to deal financial problems as all the accurate information is recorded in the reports of accounting. All these problems can be resolved with the helps of financial governance as it is mainly designed by the government to set accounting guidelines for the organisations that are required to be followed at the time of reporting.

D3 Application of planning tools to deal financial problems

Contingency and forecasting planning tools are used by Ever Joy Enterprises (UK) in budgetary control these tools can also help to resolve all the financial problems as it can help to predict all the problems in advance. Such type of tools can guide managers while they are planning to resolve business problems like financial and other.

CONCLUSION

From the above project report it has been concluded that, management accounting is a process of planning, controlling and monitoring management information so that internal stakeholders may get the exact information of the business. Its system and reports can help the companies to perform their activities effectively and efficiently so that all the goals can be attained. Every organisation is facing problems that are mainly related to finance all these issues can be resolved with the help of planning tools. These tools may also help to forecast and control budgets so that overspending of funds can be reduced.

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REFERENCES

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  • Management accounting. 2018. [Online]. Available through:
    <https://www.mbacrystalball.com/blog/accounting/management-accounting/>