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Accounting of Managers | Question-Answers

   

Added on  2019-11-20

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Running Head: ACCOUNTING OF MANAGERSAccounting of ManagersSubject Code-Trimester No.- Student’s name- Word Count -1462 Professor – University -

ACCOUNTING OF MANAGERSP a g e | 2Question 1:a).It is quite important to create and use flexible budgets when it comes to evaluation of past performances of a profit center in relation to manufacturing and sales of a product. It is the nature of flexible budget to consider the importance of operations conducting at different levels. For example, if an organization is working at 75% level, its raw material expenses say,shall be 7500 (10000*75%). Now, if the same organization is working at 90% level, its raw material expenses shall be 12000 (10000/.75 * .90). If an organization was using a static budget, it will be very difficult to channelize the flow of funds as per different activity levels [CITATION Acc176 \l 16393 ]. The objective of such performance evaluation is to analyze a company’s operating effectiveness and efficiency. It also reflects a company’s true reality in terms of cost and revenue with respect to the performance levels. It is easier to control and adaptive to changes in the business environment [ CITATION Acc176 \l 16393 ]. b).A budget act as a road map or a guide for the flow of funds in an organization. Apart from preparing a cash budget for a manufacturing business, some other budgets are also prepared. The three other budgets that must be prepared at the same time or before the cash budget is prepared are sales budget, production budget and purchases budget [ CITATION Acc179 \l 16393 ]. In a manufacturing concern, purchases budget is related to raw materials. It is prepared weekly, monthly, quarterly or half-yearly basis. The same is the pattern for sales budget and production budget. All these three kinds of the budget are interrelated to each other. They are prepared on a similar line of cash flow when it comes to its timing i.e. weekly, monthly or half-yearly. Such data has a direct impact on a cash budget. If an organization needs to plan its purchases budget, the considerable outflow of cash shall be reflected in a cash budget. Similar is the case with the sales budget. Expected receipts can be recorded as per the flow ofsales or past trends. Thus, all these three budgets influence cash budget and have its own implications on it [ CITATION Lum17 \l 16393 ]. c).Operating cycle is the time period which an organization takes to convert its inventoryfrom purchase to selling it and receiving cash against it. Generally, an organization having shorter operating cycle is considered as a favorable position from the angle of a cash flow. Cash cycle refers to time which an organization takes to convert its resources into cash. The

ACCOUNTING OF MANAGERSP a g e | 3difference between the operating cycle and cash cycle is that the former focuses on operating efficiencies whereas the latter aims for the management of cash flow [ CITATION The171 \l 16393 ]. The elements of operating cycle are average payable days, average collection period and inventory turnover days. Cash cycle’s elements are days payable/ receivable outstanding and days inventory outstanding. The aim of working capital is to ensure that an organization is having enough liquid funds to run its business. Such elements help in facilitating an effective working capital. By carefully understanding the implications of receivable and payable turnover, an organization can channelize its flow of funds accordingly. For quick money, days of receivable and payable money shall be less and for a longer duration, there will be a number of days [ CITATION The171 \l 16393 ]. d).I do not agree with the statement. Accounting is an unbiased system which does not get influenced by the nature of an entity. Profit is one of the prime aims for any form of an organization. It is not true that government organizations should not worry about earning a profit. Yes, when compared to private enterprises, the intensity of earning a profit of government organization is low but having no intention of earning a profit is completely false[ CITATION Bou17 \l 16393 ]. Accounting is a mechanism which gives proper shape to an organization’s flow of funds. Governed by the government regulations and accounting standards, it reflects the true and complete picture of companies. Without accounting, a company will not stand in a financial industry. Based on accounting, investors and others take vital decisions of investing in a company. It is a face of a company which cannot be ignored at all. Thus, it is totally untrue that government organizations does not have to worry for profit or pay attention towards accounting [ CITATION Bou17 \l 16393 ]. e).The main purpose of any costing system is to provide data with respect to cost to the managers which will help in decision making and plan to control cost. Costing system comes with other ancillary objectives and features. It also aims for an effective cost reduction. It tries to cut down cost and bring it to its budget level by removing unnecessary expenses. It also aims for cost control by controlling the expenses of cost in various activities of an organization. It also serves the purpose of a guide and road map reflecting cost incurred, cost planned and future prospects of using costs in an organization. Costing system was

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