H/508/0489 - Management Accounting of Ever Joy Enterprises

TASK 1

Difference between management and financial accounting

Management accounting: It is a technique which is used to analyze organizational performance with the help of management accounting systems and reports that are presented in front of internal stakeholders. Managers of Ever Joy Enterprises (UK) evaluate all the information to formulate decisions for the betterment of the organisation.

Financial accounting: It is the process of formulating financial statements that are required to analyze organizational financial status. Three different statements are generated under financial accounting that are income statement, balance sheet and cash flow. In Ever Joy Enterprises (UK) all of them are presented in front of external stakeholders so that they can take appropriate decisions like investing and others. It is very important for the organizations to conduct financial accounting every year so that detailed information about the company can be gathered (Amoako, 2013).

Difference between management and financial accounting: There are various differences between both the accountings and all of them are as follows:

Cost accounting systems

Cost accounting system: This system is used by companies to determine the cost which needs to be set for the products or services that are sold or rendered by the company to its customers. This system helps to set appropriate cost so that organizational goals like profit and sales maximization and customer satisfactions can be achieved (Bennett, Schaltegger and Zvezdov, 2013). This system is used in Ever Joy Enterprises (UK) to set such price to their services that can be paid by their customer. It is very important for all the organizations to attract customers by providing them pocket friendly services. There are various kind of techniques that are used under cost accounting system that are as follows:

Standard costing: This type of costing is used by companies to analyze difference between actual and budgeted cost. In Ever Joy Enterprises (UK) this accounting is used to analyze that organization is able to meet its standards or not.

Service costing: This costing system is mainly used in service sector which render various kinds of services as separate from those which associated with service delivery sector. Ever Joy Enterprises (UK) is the one who is related with providing all kind of entertainment and leisure related services to the customers.

Cost accounting system is very beneficial for the organization as it may help to set appropriate and accurate prices for the services and products that are sold to the customers. Managers of Ever Joy Enterprises (UK) use this system to attain organizational goals like profit maximization and customers satisfaction by offering them such services that may attract customers (Bovens, Goodin and Schillemans, 2014).

Inventory management systems

Inventory management system: This system is mainly used by companies o keep a track record of all the inventory which is used to provide services to their customers. In Ever Joy Enterprises (UK) inventory management system is implemented to keep detailed information of all the equipment that are used to provide leisure and entertainment services to the clients. This system is very beneficial for the organization as it may help to track the exact location of inventory. There are three different types of inventory management system that are used by companies all of them are as follows:

LIFO: Last in first out method is used by those organizations who use recently received inventory to provide services first to the customers.

FIFO: First in first out method is used by such companies who use earlier received good or stocks to perform organizational activities.

AVCO: In this methods organizations use inventory on the basis of average cost to provide services to the customers.

In Ever Joy Enterprises (UK) FIFO method is used by the managers in order to provide good services to the customers. in this method earlier received equipment is used to render services to the clients. Main purpose of this method is to use all the resources appropriately (Brewer, Sorensen and Stout, 2014).

Job costing system

Job costing system: This costing method is use by companies to analyze the cost which is involved in every job which is performed by the workers who are a part of organization. In Ever Joy Enterprises (UK) this system is used to assign cost to all the departments of the company who are liable to perform separate jobs according to the requirements of customers or clients. It is used when all the jobs are different from each other. It is very beneficial for Ever Joy Enterprises (UK) as it can help to allot appropriate costs to the activities that are performed by organization’s employees.

Different types of management accounting repots

Management accounting reports: In management accounting system various reports are generated by organizations that are used for the purpose of analyzing organizational performance. It is very important for the managers to formulate these reports appropriately so that internal stakeholders can evaluate exact status of the company (JOSHI and et. al., 2011). In Ever Joy Enterprises (UK) management reports are generated by the managers to analyze organization’s actual performance and other relevant information which can be used to formulate effective strategies for the organization that may help to achieve all the long as well as short term goals. All the management accounting reports are described below:

Performance reports: Such type of reports are mainly generated to evaluate performance of whole organization and individuals who are working in the organization. These reports are created by management of Ever Joy Enterprises (UK) in order to determine that organization is performing well or not and also analyze that all the employees are capable to perform allotted tasks or not. It is very beneficial for the organization as this may help to evaluate accurate performance of each employee so that incentives and other benefits can be provided to them accordingly.

Budget reports: Such reports are related to the budget which is set for each department of company. It helps to set appropriate budgets to all the divisions so that they may perform all the activities effectively in the budget which is allotted to them. In Ever Joy Enterprises (UK) budgets reports are generated to assure that all the organizational activities are performed in budget which was assigned. This report is very beneficial for Ever Joy Enterprises (UK) as it helps to analyze that all the operations are executed in the allotted budget or not (Klemstine and Maher, 2014).

Account receivables reports: These reports are created by the companies to determine the amount which was owned by all the clients. In Ever Joy Enterprises (UK) managers generated account receivable reports to analyze that amount which has not yet been paid by the customers. As Ever Joy Enterprises (UK) organization is providing services on credit to clients hence there are various customers who promise to pay the amount a few times later. All information of such type of clients are recorded in these reports to facilitate the managers to get idea of actual outstanding amount.

All the above-mentioned reports are very beneficial for all the companies as they may help to provide various information to the owners, top executives and managers of the company so that they may formulate strategies for the business and make decisions to attain all the goals.

Need of a sound accounting system

Advantage of sound accounting system: There are various benefits of accounting system that are used to collect, keep and process financials well as management information that are used while decisions making and strategies formulation. Major advantage of sound accounting system is accuracy in which exact and appropriate information is provided to the stakeholders so that they may take decision that can benefit them in future. Another advantage of a good accounting system is automation and productivity because in most of the companies are using digital system are used to record data for the purpose of enhancing transparency and appropriateness.

Advantage of timely production of accounting information: If the managers of the companies are having timely accounting and production information than it may help to pass effective judgement on the organization’s accurate position and performance. It also helps to formulate decisions for the future period. It is essential for the all organizations to create a positive image in the mind of stakeholders so that they may invest money in the company.

TASK 2

Cost: It refers to the total amount which is required to be paid by the seller to the buyer. Ever Joy Entertainment (UK) set appropriate prices to the tickets for its entertainment shows that’s why it is able to survive in the market. Two different types of costs are as follows:

Fixed cost: It refers to the cost that does not change with the quality of service or the production of goods. In Ever Joy Entertainment (UK) fixed cost remain unchangeable with the quality of service which is provided to the customers (Klychova and et. al., 2015).

Variable cost: This cost changes with the production and its units in manufacturing companies. As Ever Joy Entertainment (UK) is a service providing company hence variable costs in this company changes with the quality of service which is provided to the clients.

BEP: When an organization is in such situation when it is not earning profits and not bearing any losses. In Ever Joy Entertainment (UK) Break even for the company has been calculated below for the purpose of analysing organisation’s state in the market.

Number of tickets that must be sold

Selling price: 20

Variable cost: 10

Contribution: 10

Fixed cost; 60000

PVR= Contribution/Sales*100

: 10/20*100=50%

BEP ( in amount): Fixed cost / PVR

: 60000/50%= 120000

BEP (in unit): Fixed cost / contribution

: 60000/10

: 6000

Tickets to be sold to acquire profit of 30000

Contribution: Fixed cost + profit

: 60000+3000=90000

Selling price: Contribution /PVR

=90000/50%= 180000

Sales = 180000

Sp: Sales /per units

: 180000/20=9000

Calculation of profit if 8000 tickets are sold

Sales (in units): 8000*20=160000

Contribution = sales *PVR

: 160000*50%=80000.

Desire profit=contribution-fixed cost

= 80000-60000=20000

Interpretation: Profit volume ratio for the company is 50%, BEP in units is 6000 organization have to sale 9000 tickets to get a profit of 30000 and when 8000 units are going to be sold than profit of 20000 can be acquired by the company.

TASK 3

Budgeting as a planning and problem-solving tool to deal with financial problems

Budget: It can be defined as the estimation of future expenses that may occur in future. Budget is a financial plan for a specific time period in which monetary resources are allotted to various departments of the organisation so that they can perform all their operational activities appropriately. In Ever Joy Entertainment (UK) budgets are formulated by the managers to execute the business effectively with the help of limited resource. Mostly budgets are created for a period of 12 months in which specific amount is allotted to different divisions of the company. It is very important for the companies to perform all the budgets under budget so that business can be operated successfully (Lavia López and Hiebl, 2014). Various budgets are used by companies as planning tools such as sales, production and cash budgets. All of the are as follows:

Sales budget: This budget is prepared by the managers to manage all the sales related activities of the organisation. In Ever Joy Entertainment (UK) sales budgets are formulated by the managers in order to manage the selling activities in which services are sold or rendered to the service users. A business uses sales budgets to set department goals and determine earning and estimate production related requirements. A sales budget can affect operating as well as non-operating activities because all such type of activities are considered as the part of selling because wages are paid to the employees of the company who are providing services. Other non-operating expenses are also added in the cost of service that’s why non-operating activities considered as the part of this budget. Advantages and disadvantages of such budgets are as follows:

• Advantage: Major benefit of sales budget is that it helps the organisation to record all the sales related activities so that a higher profit can be recorded for the company. It also helps to analyse cost and profit of each service which has been rendered by Ever Joy Entertainment (UK).
• Disadvantage: As it is based on estimations and it is not possible to make accurate predictions about anything hence it may result negatively for the company in short as well as long term if the estimation is wrong.

Cash budget: All the cash related items are estimated with the help of cash budget. It includes receipts, payments, expenses, incomes that are going to take place in future. The estimations are made on the basis of prior year’s information and budgets. In Ever Joy Entertainment (UK) cash budget is made to analyse the amount which is going to be received and paid in cash by the company in forth coming period as it is made for future. It can guide the managers to use the monetary resources appropriately and effectively so that they can be saved for future perspective. If the organisation is not able to manage cash than company may have to face various problems that can occur in future (Lim, 2011). Advantages and disadvantages of cash budget are as follows:

• Advantage: It can help to avoid different types of debts that are required to be paid by the company in a specific time period. Cash budget is also very beneficial when organisation is willing to analyse the amount which is going to be received or paid in future so that future spending can be planned by the company.
• Disadvantage: It requires detailed documentation which is not possible for the companies because it is not easy to keep detailed documents.

Flexible budget: It can be defined as the budget that changes or adjusted with the changes in the organisational activities and it changes with the month. As income fluctuates with time and this budget allows to make changes in the budget with the fluctuations so that an appropriate budget can be formulated that may provide appropriate business information and its status. It is generated in Ever Joy Entertainment (UK) to calculate the different level of expenditures for variable cost and that depends upon actual revenues of the company. Advantages and disadvantages of flexible budget are as follows:

• Advantages: As it can be modified with the changes of income and expenditure level hence it can help to provide exact information about the business.
• Disadvantages: It requires continuous monitoring which is not possible for all the business entities. Some time the adjustments that are made are not recorded appropriately by the employees to misguide the managers it is also a major disadvantage of flexible budget.

All the above discussed planning tools help to deal with financial problems as they may help to estimate all the critical situations that may take place in future and affect organisation’s operations. Cash budget help to estimate the total amount of cash which is going to be acquired by the company in future hence this can help to deal with unexpected expenses as they are going to be estimated in advance. Sales and flexible budgets also help to respond financial problems appropriately by estimating the future conditions and formulating strategies (Tessier and Otley, 2012).

The way in which financial governance can help to prevent financial problems

Financial is related to lack of monetary resources which is faced by most the companies now a days. These problems affect the operational efficiency of the company as they are not having sufficient funds to execute business operations. Finance is a major requirement for the organisations so that all the activities can be performed appropriately. If the companies are not having sufficient funds than it may result negatively for the company and create issues like decreased efficiency of performing activities. In service industry all the organisations have to face problems due to market conditions and customers demand. Various financial problems are faced by Ever Joy Entertainment (UK). These financial problems decreased the effectiveness of the company and also lead toward failure. It is very important for the organisation to formulate strategies and use appropriate models so that all the problems can be dealt effectively. Few of the financial problems are as follows:

Unplanned expenses: These are the expenses that occur suddenly and are not planned by the managers. In includes the repair of the equipment that are used to render services to the clients. This problem is faced by Ever Joy Entertainment (UK) and its managers have to spend monetary resources to deal with all such type of expenses that create a shortage of money for operations (Van der Stede, 2015).

Improper money management system: When organisation is not able to follow appropriate principles that are introduced by regulatory authorities for accounting of financial information than it creates financial problems. It mis guide the managers and they are not bale to get exact information of finance.

All the above-mentioned issues can be identified with the help of benchmarking and KPI. Both the techniques are as follows:

Benchmarking: It is used to compare one company to another so that effective strategies can be formulated. Benchmarking is used by the managers of Ever Joy Entertainment (UK) to identify the issue of improper money management system as it organisation can compare its management system with others and then analyse the issues in its money management system.

KPI: KPI are the key performance indicators that are used to analyse that organisation is going to attain success or failure in future. It is used by the organisation to identify the issue of unplanned expenses which is identified with the help of financial KPI. Two types of KPI are as follows:

• Financial: This KPI is mainly used to reduce possibility of unplanned expenses by identifying them hence it is used by Ever Joy Entertainment (UK) to identify the issue of unplanned expenses.
• Non-financial: This type of KPI is mainly concerned with the measurement of success and failure of activities that are performed by the organisation.

Managers of Ever Joy Entertainment (UK) use financial governance to deal with both the above-mentioned problems. Financial governance is a technique in which organisations are directed to follow all the appropriate principles that are related to accounting. It guides managers of Ever Joy Entertainment (UK) to record all the financial information appropriately so that it can resolve the financial issues of the company (Zoni, Dossi and Morelli, 2012). As it guides to record all the data accurately than the problem of improper money management system get resolved. Unplanned expenses can also be ignored with the help of this technique because when all the monetary resources recorded appropriately than organisations will have sufficient funds to deal with all uncertain expenses.

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Comparison:

CONCLUSION

From the above project report, it has been concluded that management accounting is the process of recoding, monitoring, controlling, evaluating, assessing and determining management information. All such type of data in used to formulate management accounting reports with the help of different system. All the formulated reports are presented in front of internal stakeholders of the organization so that they can formulate strategies for the successful achievement of all organizational as well as individual’s goals. Various planning tools are also used by the management to respond all the financial problems that are faced by organization. These tools are sales, production and cash budgets.

REFERENCE

• Amoako, G. K., 2013. Accounting practices of SMEs: A case study of Kumasi Metropolis in Ghana. International Journal of Business and Management. 8(24). p.73.
• Bennett, M. D., Schaltegger, S. and Zvezdov, D., 2013.Exploring corporate practices in management accounting for sustainability(pp. 1-56). London: ICAEW.
• Bovens, M., Goodin, R. E. and Schillemans, T. eds., 2014.The Oxford handbook public accountability. Oxford University Press.
• Brewer, P. C., Sorensen, J. E. and Stout, D. E., 2014. The future of accounting education: Addressing the competency crisis. Strategic Finance. 96(2). pp.29-38.
• JOSHI, P. L. and et. al., 2011. Diffusion of management accounting practices in gulf cooperation council countries. Accounting Perspectives. 10(1). pp.23-53.
• Klemstine, C. F. and Maher, M., 2014. Management Accounting Research (RLE Accounting): A Review and Annotated Bibliography. Routledge.
• Klychova, G. S and et. al., 2015. Management aspects of production cost accounting in horse breeding.Asian Social Science.11(11). p.308.
• Lavia López, O. and Hiebl, M. R., 2014. Management accounting in small and medium-sized enterprises: current knowledge and avenues for further research.Journal of Management Accounting Research.27(1). pp.81-119.

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