Accounting Fundamentals - Limitations, Need for Management Accounting and Techniques

This article discusses the limitations of accounting fundamentals, the need for management accounting, and various techniques used in accounting such as break even analysis, budgeting, and capital investment appraisal. It also covers qualitative factors, the relationship between cost and quantity, and the importance of management accounting in decision making and efficient resource utilization. The article cites references from various books and journals.

Accounting
Fundamentals

Contents
QUESTION 1.................................................................................................................................................3
(d) Limitations..........................................................................................................................................3
QUESTION 2.................................................................................................................................................6
(a) Need for management accounting.....................................................................................................6
(b) Techniques.........................................................................................................................................7
REFERENCES................................................................................................................................................9

QUESTION 1
(d) Limitations
Connections among two quantities are shown using linear and non-linear equations. Every
percent increase in the x variable often does not result in the very same increase in the y variable
in a non-linear connection.
Relationship between sales price and quantity: Prices that fluctuate based on the quantity of
usage by the client are known as non-linear pricing. A water tariff, for instance, can have greater
per gallon or per liter charges for greater past purchases than for lesser consumption rates. Non-
linear rates, like inter pricing, enable the operators to collect price increases at the margins that
represent production revenue whilst managing profits with inframarginal price levels. For the
achievement of sales at particular level require to reduce sales prices in effective manner after
that people use that product in broad manner. As a result they can achieve their sales target.
Since of the downwards demand curve, price promotions can increase sales, but they can
also decrease selling based customers predict a reduced profit in the end. Pricing power enhances
the size of the two impacts indicated above, and the main impact decides when sales promotions
can create sales. That used a risk based scenario, we demonstrate that whenever the second
impact is greater, a change in price sensitive reduces discount coupons; just as the first impact is
predominant, the contrary is happening.

Relationship between cost and quantity: The cost-quantity relationship is non-linear, and there
are considerable variances in cost-quantity relationships between products from different
technologically intensive sectors. They discover that such disparities are linked to ostensibly
higher firm spending on research and development. To learn more about the link between the

observable cost-quantity relationship and different intentional company measures aimed at
improving efficiency. They discover that the theoretical conversion of the link between cost (a
measure for effectiveness) and raw material to the finished into the organizational learning curve
requires active actions at the organizational level, such as investing and R&D.
Qualitative factors: Qualitative factors are non-quantifiable decision results. The following is an
overview of qualitative factors: Self esteem. The effect of introducing a break room to the
production facility on employee satisfaction.
Business awareness: Commercial knowledge is the capacity to comprehend what renders a
company profitable, whether via the purchase or sale of goods or the provision of services to a
market. 'Business aims' or 'Especially complex' are other terms for communication skills.
Competitor’s actions: A competitive action is a real strategic activity taken by a company to
increase its market positioning or develop or preserve its comparative edge. Competitive
dynamics is a word that encompasses a wide range of actions and reactions by businesses
performance in a global market.

QUESTION 2
(a) Need for management accounting
Management accounting is essential to recognize a company's financial status as well as to
communicate to all those involved in planning, leading, encouraging, managing, and measuring
results. It places a stronger focus on decisions that will have an influence on the progress. It is
necessary to prepare a strategy.
o Integral part of management: Management accounting procedures are an important aspect of a
company's internal organisation, as they use the company's systems to obtain intended objectives
and maintaining required outcomes to consumers, owners, and users.
o Provide financial and non- financial information: Managerial accounting delivers financial and
non-financial information to the management and other inside industry leaders in a business.
Because audit firms are not required to analyses management financial data, it can be delivered
to corporate managers promptly, and estimations and predictions are allowed.
Identification, generation, presentation, interpretation and use of information relevant to:
o Formulating business strategy: The practice of documenting the planned orientation of a firm
and the specific steps to accomplish its objectives is known as strategy formulation. This method
is used to allocate resources, priorities tasks, coordinate the entire organisation, and validate
business needs.
o Planning and controlling activities: Planning and control, often referred as production
control, are ability of a leader that sought to understand what all market expectations are and
then resolve how a firm can meet such requirements by evaluation and organizing.
o Decision making: Recognizing a judgment, acquiring evidence, and evaluating possible
remedies are all steps in the judgment process. By collecting important information and
identifying options, a walk judgments procedure can assist with making more careful, considered
decisions.
o Efficient resource utilization: Allocation, or managerial, efficiency is a characteristic of a
well-functioning market in which all commodities and activities are divided effectively among

consumers. It happens whenever participants are capable of making decisions about how to
spend their resource based on reliable and widely obtainable facts represented in the
marketplace.
Corporate governance and internal control o Financial accounts insufficient due to:
Internal governance measures (internal controls) are essential for a company's success and the
prevention of financial crime. Supervision by the board is one of the internal control actions that
ensure appropriate company performance. Audit procedures and strict policies are required.
o Frequency of preparation: The regularity with which financial statements are prepared may
indicate an owner's trust in the accuracy of their financial reporting. Companies that cost -
effective approach reports on a daily basis are considered to be more educated and aware of their
value in judgments.
(b) Techniques
Break even analysis: Production managers and financial managers frequently employ break-
even calculations. It is focused on separating manufacturing costs into "variable" (costs that
make it possible to create increases) and "fixed" (costs that remain constant) (costs not directly
related to the volume of production).
Budgeting: Budgeting is a method of making a financial plan. A budget is the name for this
expenditure strategy. Making a budget proposal enables them to know ahead of time if they will
have sufficient resources to meet they ever want to accomplish. Fundamentally said, accounting
is the method of quantifying spending and revenue.
 Incremental technique: To really get the present year's budgets, incremental budgeting
utilizes previous year's actual statistics and subtracting a percentage. Since it is
straightforward, it is the most widely used budgeting strategy. Unless the key cost drivers
do not change throughout the year, incremental budgeting is reasonable.
 Activity based budgeting: The number of inputs available to sustain the company's aims
or outcomes is determined through activity-based budgeting, which is an upper budgeting
strategy. A corporation, for instance, establishes a revenue goal of $100 million. The

business must first define the actions that must be completed in order to fulfill the sales
objective, but instead evaluate the expenses associated with completing those operations.
Capital investment appraisal: Capital investment evaluation, also referred to as capital
budgeting, is basically a new proposal that aids in the assessment of a company's long - term and
short expenditures. Properties, infrastructure, R&D initiatives, ad campaigns, new trees,
advanced factories, and other aspects of the business are all subject to this type of capital
investment review. To put it another way, cash flow assessment is the process of allocating
substantial production and capital expenditures to corporate expenses. Small businesses, for
example, use capital investment evaluation to determine on new enhancements into emerging
businesses as well as growth and addition of new operations.
 Net present value: After normal financing obligations are fulfilled, this investment
appraisal method exploits the cash in-flow, either surplus or shortage. The goal of all
capital investment appraisals is to achieve a positive net present value (NPV). The net
present value (NPV) is a mathematical model incorporating net cash flow at a specific
point in time ‘t' and a discount rate, i.e. (t – initial capital outlay).
 Accounting rate of return: This capital investment appraisal method determines the
revenue that a project can produce with the amount of total capital investment that the
project will require. Projects with a higher rate of return are obviously preferable to those
with a lower rate of return. ARR is a non-discounted capital investment evaluation
method, which means it does not account for the risk premium.

REFERENCES
Books and Journal
Zhou, C. and et.al, 2020. A new damage model accounting the effect of joint orientation for the
jointed rock mass. Arabian Journal of Geosciences. 13(7). pp.1-13.
Pirveli, E., 2020. Earnings persistence and predictability within the emerging economy of
Georgia. Journal of Financial Reporting and Accounting.
Jordan, E. E. and Samuels, J. A., 2020. Research initiatives in accounting education: Improving
learning effectiveness. Issues in Accounting Education. 35(4). pp.9-24.
Hann, R. N. and et.al, 2020. Information frictions and productivity dispersion: the role of
accounting information. The Accounting Review. 95(3). pp.223-250.
Xiao, X. and et.al, 2020. Preaggregation Matching of Donors and Acceptors in Solution
Accounting for Thermally Stable Non-Fullerene Solar Cells. ACS Applied Materials &
Interfaces. 12(52). pp.58082-58093.