Jeremy Oughton Course Description: Accounting in the Cloud

-Accounting Management PLEASE NOTE: YOU SHOULD INCLUDE THIS INFORMATION WITH EVERY ASSIGNMENT Please ensure your name is printed in the footer of every page of your assignment Learner statement of authenticity: I confirm that the attached completed assignment is all my own work, and does not include any work completed by anyone other than myself. Signed: H.L Date: 30/04/21 Centre statement of authenticity: On behalf of Brighton School of Business and Management, I confirm that the above mentioned learner is registered at

ASSIGNMENT COVER SHEET
Name:
Haarsh Lallbeharry
Student Number:
3009HNCB
Address:
Branch road
Fond du sac
Mauritius
Post code / Zip:
20602
Email Address:
[e-mail]
Date:
30/04/21
Course Name:
HNC BUSINESS
Tutor Name:
Jeremy Oughton
Assignment Name:
Accounting Management
PLEASE NOTE:
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LO1. Demonstrate an understanding of management accounting
systems.
Accounting for Management
Management accounting, the method of reviewing a company's expenses and activities in order
to compile internal financial analyses, databases, and books to help management in meeting
their goals is known as cost accounting or managerial accounting. In other words, it's the
method of deciphering financial and costing data and translating it into material that
management and officers may use.
Origin
Managerial accounting has its roots in the industrial revolution of the nineteenth century. During
this period, the majority of companies were closely managed by a small number of owner-
managers who borrowed money based on personal connections and personal properties. When
there were no international loans and no unsecured lending, there was no need for complicated
accounting records. Managerial accounting, on the other hand, was more advanced and
included the data needed to handle early large-scale clothing, steel, and other commodity
manufacturing. Due to new demands on companies from stock markets, creditors,
administrative authorities, and federal income taxes, financial accounting standards exploded at
the turn of the century. "Many companies wanted to collect funds from increasingly widespread
and remote sources of funding," Johnson and Kaplan write. To control these vast pools of
outside wealth, corporate executives required audited financial statements. When outside
funding outlets focused on audited financial statements, independent accountants were also
involved in designing well-defined protocols for corporate financial management. Public
accountants adopted an asset costing methodology at the turn of the century, which had a
major influence on management accounting. As a result, over the last few decades,
management accountants have focused mostly on ensuring that financial accounting
requirements are met and financial statements are released on time.
Roles
-Financial Strategies
Financial plans can be developed using sales projections, budgets, and job-costing approaches,
among other managerial accounting tools. They'll also use financial reporting data to develop
strategies for increasing total revenue, net profit, and earnings per share. If designing a budget
to purchase new properties or lowering operating expenses to ensure a company's long-term
viability, management accountants play a key role in developing good financial strategies..
-Explain Choices' Financial Implications
When senior executives change a company's financial strategy, management accountants may
explain the implications of adding additional debt or equity capital. Partnerships with other
companies, building new service centres, and laying off large numbers of employees all fit the
same trend. They'll see how decisions impact budgets and financial statements, as well as how
decisions affect the profit or loss of a business over time. Although certain policy choices will
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seem to be fair, only a careful review of the facts can allow an organisation to decide whether
they add up.
- Keep an eye on your spending
Management accountants can build rigid, fluid, or rolling schedules, as well as other forms of
reports, to help senior executives and department heads keep track of their spending. Since
running costs have a significant effect on bottom-line profit, this is critical. Business accountants
may help an organization operate as cost-effectively as possible by choosing the right budgeting
strategy for their stakeholders' unique needs. They will also create ad-hoc reports to help their
clients identify the kinds of costs their agency or company incurs.
Principles
-Designing and compiling
Accounting data, notes, reports, declarations, and other evidence of past, present, and future
results should be designed and compiled to meet the specific needs of each organization and/or
concern.
It means that the management accounting system is set up in such a way that all necessary
paperwork is available. If this is the case, there is a serious problem that needs to be solved.
Accounting records may also be modified and applied to meet the needs of management.
- Exceptional Management
The definition of management by exception is used for presenting information to managers. It
says the management accounting system employs a financial control system as well as
conventional costing methods.
To detect deviations, the actual output is compared to a pre-determined one. The root of the
problem is defined as the unfavorable deviations alone. If this is the case, management has
spent more time acting on the data rather than reading and analyzing it.
Accounting System and Management
Financial accounting is concerned with compiling records for third parties such as stockholders,
financial regulators, and lenders in accordance with generally accepted accounting principles.
Managerial accounting, on the other hand, takes a company's financial data and organizes it
into databases for managers to use in making decisions and identifying ways to improve the
company's operations. These reports, which are based on management's informational needs,
include budgeting, breakeven maps, product cost analysis, trend charts, and forecasts.
-Inventory Control System
The key goal of inventory management is to define the shape and position of stocked objects. It
is likely to occur before the usual and planned course of production and inventory stocking at
different locations within a plant or across a supply network.
-Accounting Scheme for Expenses
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Manufacturers report production processes using a cost accounting scheme and a permanent
inventory system. To put it another way, it's a manufacturing-specific accounting system for
tracking inventory as it goes through the various stages of processing.
-System of Job Costing
The practice of allocating costs to a certain job that you or the corporation is employed on is
known as employment cost accounting. This term is commonly used in the construction industry
to describe how a company allocates costs to individual construction projects.
-System for price management
Price management is the process of determining the sale sweet point, or optimizing price
against a customer's willingness to pay. Pricing optimization is a significant endeavor for
companies at all levels of the supply chain, including B2B and B2C, to ensure that their products
are delivered effectively at the right price while making a reasonable profit.
The different between Financial Accounting and Management Accounting
“
BASIS FOR COMPARISON FINANCIAL ACCOUNTING MANAGEMENT
ACCOUNTING
Meaning Financial Accounting is an
accounting system that
focuses on the preparation
of financial statement of an
organization to provide the
financial information to the
interested parties.
The accounting system
which provides relevant
information to the managers
to make policies, plans and
strategies for running the
business effectively is
known as Management
Accounting.
Is compulsory? Yes No
Information Monetary information only Monetary and non-
monetary information
Objective To provide financial
information to outsiders.
To assist the management
in planning and decision-
making process by
providing detailed
information on various
matters.
Format Specified Not Specified
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Time Frame Financial Statements are
prepared at the end of the
accounting period which is
usually one year.
The reports are prepared as
per the need and
requirements of the
organization.
User. User Internal and external
parties.
Only internal management.
Reports Summarized Reports about
the financial position of the
organization.
Complete and Detailed
reports regarding various
information.
Publishing and auditing Required to be published
and audited by statutory
auditors.
Neither published nor
audited by statutory
auditors.
“
Why information should be relevant to the user, reliable, up to date and accurate.
What is the definition of information?
Data that is reliable and timely, that is clear and structured for a reason, that is delivered in a
way that gives it significance and importance, and that can lead to an improvement in
awareness and a reduction in ambiguity. Information is useful because it has the potential to
influence actions, decision-making, and outcome.
Relevance
The information gathered should be pertinent to the purposes for which it would be used. This
will necessitate a periodic review of criteria in order to keep up with evolving specifications. We
have a responsibility to gather and publish performance data on a variety of regulatory metrics.
This are outlined in the White Paper, Strong and Prosperous Communities, released by the
government. To track success and drive progress, each service can identify accurate local
performance metrics when required. These are evaluated on an annual basis to ensure that
they are still relevant.
Reliable
Data processing systems should be stable and consistent across collection points and over
time. Rather than improvements in data collection techniques or processes, progress toward
output goals can represent actual shifts. Data from manual, automatic, or other processes and
records is easily known and readily accessible. Data by a third party, such as Hertfordshire
Constabulary and Hertfordshire County Council, is given by protocols.
Accuracy
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And if it has multiple uses, data should be accurate enough for the intended use and should
only be obtained once. Data should be recorded at the point of service. Data is also captured at
the point of service. Output data is automatically entered into Performance Plus by the service
manager or designated data entry staff.
Reliability
Data can be obtained as quickly as possible after an event or procedure and made available for
the intended use within a reasonable time frame. Data must be readily accessible and reliable in
order to support information requirements and influence service or management decisions.
Timeliness
Data should be collected as soon as possible following an event or activity and made available
for the anticipated use in a reasonable period of time. To meet information demands and
influence service or management decisions, data must be available in a timely and accurate
manner.
Why is it necessary for the knowledge to be interpreted in a comprehensible manner?
When users can read, understandable material must be easy to obtain ideas. And this
knowledge shows you how to schedule, monitor, and coordinate the decision-making process. A
short, full, and consistent interpretation of the details contained in the study is called
understanding. Users require information about the arrangement in order to interpret financial
statements. The genuine history of company practices signifies an appreciation of evidence and
financial quality that can be deduced by experienced individuals.
Different types of managerial accounting reports
Small business owners and managers use managerial accounting reports to keep track of their
company's results, and they are prepared if needed during accounting periods. Depending on
the scope of the project and the time-sensitive nature of the content, an owner or manager can
request reports periodically, annually, weekly, or even daily.
Budget Report
Budget reviews help small business owners in reviewing their company's performance, and
executives in analyzing and managing spending within their divisions if the enterprise is big
enough. The estimated spending for the year is usually dependent on actual expenses from the
previous year. When a small business or a specific department was over budget the previous
year and couldn't find a way to cut costs, the budget for the next year would need to be
increased to a more accurate level. Owners and employers may use budget analysis to provide
incentives to their employees.
Accounts Receivable Aging Reports
The accounts receivable aged report is a useful tool for companies who lend credit to their
customers to manage cash flow. Consumer balances are classified in this report based on how
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long they have been unpaid. Many aging databases have separate tables for invoices that are
30 days late, 60 days late, or 90 days late or more. A contractor could use the old study to find
problems with the company's collection process. If a substantial number of customers are
unable to pay their bills, the credit policies of the firm may need to be tightened. Through
checking the accounts receivable aged on a daily basis, the collections department is also
prevented from overlooking old debts.
Job Cost Reports
The expenses associated with a project are detailed in job expense forecasts. They're normally
paired with a revenue estimate in order for the company to assess the job's viability. This
encourages the company to focus on higher-earning facets of the industry rather than wasting
time and money on employees with reduced profit margins. Job cost assessments are also
used to measure expenditures when a project is still in progress, enabling management to find
areas where costs are rising too quickly.
Inventory and Manufacturing
Managerial accounting documents may aid physical inventory companies in improving their
manufacturing processes. Material waste, hourly labor rates, and per-unit overhead costs are
often used in these analyses. The manager will also compare different production lines inside
the company and see how they can improve or reward the teams with the best performance.
Impact of effective management accounting system in Wiz’s different departments
Finance, IT, networking, human resources, logistics, and sales are all integrated into one
structure through an effective management accounting process, which will have a positive
effect. Administrative accounting will provide non-financial information such as cash on hand,
monthly sales figures, number of phone calls every day, order backlog, delivery due dates,
aging state of accounts receivables and payables, and current inventory percentages of raw
materials and finished products. All of this information is used to categorize the various parts of
a company's key performance indicators.
It is intended to assist management in their stewardship role, as well as support management in
their day-to-day activities and decision-making. Machines were developed in 1880 to aid in the
accounting procedure. Advancements of computer management changed accounting systems
and procedures as the years progressed. The Accounting Information System has had a lot of
changes (AIS). This is intended to aid in the administration and regulation of operations relating
to the commercial and financial aspects of the company. The bulk of corporate companies need
an accounting procedure. Technology advances have resulted in the creation of a computerized
accounting system that is still widely used for businesses. As a result, a dynamic market has
emerged. As a result, organizations must upgrade their processes to properly balance their
knowledge needs in order to make better decisions.
An information system is a set of interconnected subsystems that gather, process, store, turn,
and distribute data for planning, decision-making, and management. Data gathering, sorting,
storage, transformation, and dissemination can also be made more efficient by the use of
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computers in information systems. Accounting management systems (AIS) are a type of
instrument used in the field of information and technology systems. It is important for
commercial companies. This is the person in charge of gathering accurate financial data for
decision-making. There are several different device implementations and they must take into
account aspects that affect how information is collected and reported. It would still be
determined by the information's intended consumers and the kinds of choices they are likely to
make. The size of the company, amount of transaction data, nature of operations, organizational
structure, and business model may all influence the system's architecture.
Accounting developed from a company's day-to-day operations in order to provide relevant data
for decision-making. Financial activity data is thus critical to an organization's life, viability, and
development. As a result, keeping a proper and reliable log of all events is a good way to get
the accounting data you need. Any corporation, whether private or governmental, is required to
keep financial records in order to evaluate its results. However, dramatic developments in
information technology and the advent of computers have had a significant impact on the
process of transmitting financial data. The first computer system was developed for accounting,
signaling a new era in the profession's history as companies rapidly welcome it to streamline
accounting records. Computers and advances in information and communication technology
(ICT) have altered the way accounting and accounting roles are carried out. The
computerization of financial accounting systems has presented challenges to the accounting
profession, as accountants now face a variety of issues, especially when performing accounting
and accounting for businesses in an electronic environment. However, it has expanded the
fraternity (scientific exposure) of accountants, allowing them to have more service levels and a
wider range of services to their customers. Auditors' schedules used to require separate stages
of preparation, but in today's constantly changing technologically-driven field of financial
statements, auditors may need to revise their conventional audit schedules and conduct checks
on a continual basis due to improvements in technology.
LO2. Apply a range of management accounting techniques
P3. Calculate costs using appropriates techniques of cost analysis to
prepare an income statement using marginal and absorption costs.
A. Price
In industry and accounting world , cost is the amount of money spent by a company to produce
something. Cost refers to the amount of money invested by a company on the production or
production of goods or services. The net margin is not used in this calculation. From the
standpoint of a vendor, cost is the quantity of money spent to manufacture a product or service.
A producer's expenses and profits would break even if he sold his goods at the production price,
ensuring he would not lose money on the sales. He will not, however, make a profit. The quality
of a good is also known as the price from the buyer's perspective. This is the price a vendor
costs for a good, and it covers both the manufacturing expense and the mark-up that the seller
adds to make a profit.
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B. Different Classification cost such as,
Fixed Cost
A quarterly cost that remains relatively stable independent of revenue or production.
While no costing is purely consistent over time of business, the concept of fixed costs is
expected in short-term cost accounting. The cost structures in organizations with a high
fixed cost system and those with a high variable cost structure are vastly different. This
distinction has an effect on the company's financial situation, as well as pricing and
profits. In comparison to high variable-cost companies, their breakeven point is typically
much higher, and their marginal gain (rate of contribution) is also much higher.
- EX- insurance, interest, rent, salaries
Variable Cost
“A variable cost is one that varies depending on the level of output or the services
rendered. There can be no variable costs where there is no manufacturing or no facilities
rendered.”
EX- Bonus, wage cost
Direct Cost
A direct cost is a price that can be traced back to a particular product or service's production.
Depreciation and maintenance costs, for example, are more difficult to assign to a particular
product and are often known as indirect costs.
-EX-Direct labor, Direct materials
Indirect Cost
Costs that are not strictly related to a cost object are known as indirect costs (such as a
particular project, facility, function or product). Indirect costs can be constant or contingent, but
certain overhead costs are direct costs that can be directly traced to a project.
-EX—Indirect labor, indirect material
C. Different Costing system such as,
Marginal Costing System
The marginal cost of one additional unit of output is referred to as marginal cost. The concept is
used to determine an organization's optimum production quantity, which is the lowest cost of
generating additional units. If an organization succeeds in this "sweet spot," its profits will be
maximized. The theory is often used to determine product prices as buyers negotiate the lowest
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possible price on those orders. An example of marginal costing (with imaginary figures) will
be:
Absorption Costing System
A method of assigning only variable costs to inventory is referred to as "variable pricing." This
strategy involves allocating direct suppliers and variable overhead costs to inventory while
charging all overhead costs to spending at the time they are incurred. Accounting schemes
(such as GAAP and IFRS) require that overhead be applied to inventory as well. Variable
costing has little room in financial statements. An example of Absorption costing (with
imaginary figures) will be;
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Job Costing System
Job costing is a way of collecting information about the costs associated with a certain
production or service task. This information may be used to deliver expense information to a
vendor as part of a cost-reimbursement agreement. The information can also be used to
evaluate a company's forecasting system, which should be capable of citing values that account
for a reasonable profit margin. The information may also be used to assign inventoriable costs
to finished goods.
Batch Costing System
When a collection of goods or services is made, batch costs are a series of costs that cannot be
tracked back to particular items or services within the group. For cost accounting purposes, it
might be necessary to assign the batch costing to specific units within a batch. If this is the
case, the total batch cost is summed up and divided by the number of units produced to arrive
at a unit cost.
Process Costing System
A process costing system accumulates costs when a large number of equivalent units are
generated. In this situation, it is more cost-effective to aggregate costs for a large batch of
products and then allocate them to the individual units generated. Since each unit's costing is
assumed to be the same as all other unit's, recording data at the actual unit level is pointless.
1.Calculate the unit cost under marginal costing & absorption costing techniques.
Marginal Costing
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The report below aims at illustrating how management accounting techniques can be applied at
Wiz Phone (UK) ltd so as to have the appropriate management information in order to take
informed decisions and to ensure follow up of the financial performance of the products
1.1: Management Profit & Loss Account and valuation of inventory
In order to measure the profitability of the Company, management profit and loss can be
prepared either using absorption costing or marginal costing
Absorption costing
Overhead is the cost incurred in the course of producing the mobile phone chargers and the
gadgets, but which cannot be traced directly and in full to the product.
The objective of absorption costing is to include in the total cost of the product an appropriate
share of the overhead of Wiz Phone (UK) ltd. An appropriate share is generally taken to mean
an amount of time and effort that has been used to produce these chargers and gadgets.
The practical reasons for using absorption costing at Wiz Phone are:
1. Inventory valuations: Value inventory of charges and gadgets at end of each reporting
date
2. Pricing decisions: The company can calculate the full cost of the charges and gadgets
using absorption costing and add a mark up to obtain the selling price.
3. Profitability of different products: Given that the company sells more than one product
(Charges and gadgets) with the use of absorption costing, it will be possible to establish
the profitability of each product separately
Under absorption costing any inventory is values at full production costs that is variable
production costs and a fixed overhead absorption rate.
Marginal costing
Marginal costing is an alternative method of costing to absorption costing. In marginal costing
only variable costs are charged as cost of sales and a contribution is calculated (Sales less
variable cost). The term contribution is the contribution towards covering fixed overheads.
Inventories are valued at variable production cost only
Marginal costing requires the costs to be split into fixed and variable costs. Fixed costs are
those that do not vary with output and examples will include salary of managers or maintenance
contracts with suppliers or licences to operate while variable costs are those that vary directly
with the level of output and examples will include raw materials (cables, circuits and other
components) and cost of labour.
Comparison between Marginal Costing and Absorption Costing
The below are the distinctions between the two approaches:
• Calculation of the cost. Under marginal costing, only the variable expense is added to
inventory, while under absorption costing, fixed overhead costs are still applied.
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• Profitability is essential. Under marginal costs, the profitability of each individual transaction
will tend to be higher, while under absorption costing, the profitability will appear to be lower.
• Measuring. Under marginal costing, profits are calculated using the contribution margin (which
removes added overhead), while under absorption costing, profits are calculated using the
gross margin (which contains applied overhead).
The workings and the profit and loss of Wiz Phone (UK) ltd under absorption costing and
marginal costing are shown below for the month of September 2016
The following table shows the selling price & cost per unit of the mobile chargers
Selling Price & Cost per unit ₤
Selling Price /Unit 35
Cost per Unit
Direct labour 5.0
Direct Material 8.0
Variable production overhead 2.0
Fixed production overhead 5.0
Standard Production cost 20.0
The following table shows the units produced and sold during the month
Inventory Units/Month
Opening balance -
Add production 2,000
Less Sales 1,500-
Closing balance 500
Under absorption costing these inventories will be valued at full production cost that is £20 per
unit
Under marginal costing the same inventories will be valued at variable production costs only
that is £15 per unit (5+8+2)
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The following table shows the profit and loss account under absorption costing the workings are
shown in the column working
Profit & Loss account under absorption costing
Items Working Basis Working £
Revenue No. of units sold *Price/Unit 1500*35 52,500 A
Less cost of sales
Direct costs No. of Units produced *cost/unit 2000*(5+8) 26,000
Variable production overhead No. of Units produced *cost/unit 2000*2 4,000
Fixed production overhead No. of Units produced *cost/unit 2000*5 10,000
Less Closing inventory No. of Units inventory *cost/unit 500*20 -10,000
Cost of sales 30,000 B
Gross Profit 22,500 A-B
Less Underabsorption of overheads Working (1) 15000-10000 -5,000
17,500
Less selling distribution and administrative expenses
Variable 15% of revenue 15%*52,500 -7,875
Fixed Given -10,000
Loss -375
Working 1
The following table shows the calculation of the under absorption of overheads in the cost of
sales
Monthly
Actual production 2,000
Budgeted proction (36,000 annually) 3,000
Underproduction (Units) 1,000
Underabsorption of overheads (1,000*£5) 5,000
The following table shows the profit and loss account under marginal costing; the workings are
shown in the column working
Profit & Loss account under Marginal costing
Items Working Basis Working £
Revenue No. of units sold *Price/Unit 1500*35 52,500 A
Marginal Cost of sales
Direct labour No. of Units produced *cost/unit 2000*5 10,000
Direct Material No. of Units produced *cost/unit 2000*8 16,000
Variable production overhead No. of Units produced *cost/unit 2000*2 4,000
Closing inventory No. of Units inventory *cost/unit 500*15 -7,500
Marginal cost of sales 22,500 B
30,000 C=A-B
Less variable selling costs 15% of revenue 15% of revenue -7,875 D
Contribution 22,125 E=C-D
Less fixed cost
Fixed production overheads Given -15,000
Fixed Selling & didtribution costs Given -10,000
Net Loss -2,875
The difference is profits reported under the two costing systems is due to the different
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inventory valuation methods used.
Absorption costing is reporting a lower loss of 375 because the inventory levels between the
beginning and end of period has increased.
In case in a particular month the inventory level between the beginning and end of period
decreases, absorption costing will report a lower profit.
The following table shows the reconciliation between loss under absorption costing and loss
under marginal costing
Reconciliation statements £
Loss as per absorption costing -375
Adjustment for inventory ( £5 per unit)
Less closing inventory (500*£5) -2,500
Loss as per marginal costing -2,875
1.2 Break even analysis
Based on the profit and loss accounts presented above, it is clear that the company is loss
making. The company has just started business and it is still in its introductory stage in the
product lifecycle facing difficulties to penetrate the market due to established competitors. In
such situation it is quite common to face losses at the start. However, such losses cannot be
sustained on a long term basis. The Company will have to make an assessment of how many
units that need to be produced and sold in order to break even. For this purpose, the company
can make use of breakeven analysis. Break even analysis indicates that level of output where
profit is zero. Once the break-even point has been calculated the company should aim at
producing above the break-even point so as to ensure profits.
The following table shows calculation of break-even point for Wiz Phone (UK) ltd
Break Even Point (BEP) is calculated as: fixed costs/Contribution per unit
Fixed costs:
Fixed production overheads £15,000
Fixed Selling & didtribution costs £10,000
Total monthly fixed costs £25,000
Total Contribution £22,125
No. of Units sold 1,500
Contribution per Unit £15
Break even point (Units) 1,695
BEP is calculated as: fixed costs/Contribution per unit
Fixed costs:
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Fixed production overheads 15,000
Fixed Selling & distribution costs 10,000
Total monthly fixed costs 25,000
Total Contribution 22,125
No. of Units sold 1,500
Contribution per Unit 14.75
Break even point (Units) 1,695
The calculation indicates that given current costs and selling price the company will have to sell
1,695 units in order to break even. Currently the company is selling only 1,500 units which is
below the breakeven point and this explain the loss making situation. Efforts from sale and
marketing department is required so as to increase sales in order to exceed the break-even
point. The sales and marketing department can also do some benchmarking in order to ensure
that the product is not over priced compared to competing products
The breakeven point can also be illustrated using a break even chart
1.3 Break Even Chart
A break-even chart shows the total cost and total revenue at different level of output. Break-
even point occurs where the sales revenue graph cuts the total cost graph. This is the point
where profit is zero.
The diagram below illustrates the break-even chart of Wiz Phone Ltd
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In the graph, the fixed costs is a horizontal straight line indicating that whatever the number of
chargers sold, the fixed cost remains constant.
The variable cost line starts at zero and varies directly with the number of chargers sold
To total cost line is the sum of fixed and variable cost
The total revenue line starts with zero and is directly related to the number of chargers sold.
The break-even point occurs where the total revenue line intersects the total cost line and this
happens at an output of 1,695 chargers. At this level of output, the total cost 59,322 is equal to
the total revenue 59,322 indicating profit is nil
Wiz Phone Ltd should aim at producing an output above 1,695 units
1.4 Cost Volume and Profit (CVP)
In order to deal with the loss situation, Wiz Phone (UK) ltd should also look at its cost elements.
The production manager together with the research and development department and
marketing department should consider a value analysis. This is a scientific approach of cost
reduction, which reviews the material composition of the product and product’s design so that
modification can be made which do not reduce the value of the product to the customer. The
aim is to reduce costs without affecting the perception of the product. The impact of cost
reduction on the profitability of the product can be analysed using Cost – Volume –Profit
analysis (CVP)
The following table shows the effects on profit due to some cost reduction programme which are
expected to reduce cost of material and overheads as described below:
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Profit & Loss account under Marginal costing
Items Working for Actual Working for Forecast Actual Forecast Forecast potential impact of Value analysis
Revenue 1500*35 1500*35 52,500 52,500 No change in Selling price and Volume
Marginal Cost of sales
Direct labour 2000*5 2000*5 10,000 10,000 No Change
Direct Material 2000*8 2000*8*80% 16,000 12,800 Direct material costs/Unit falls by 20%
Variable production overhead 2000*2 2000*2*90% 4,000 3,600 Varaible production overhead/Unit falls by 10%
Closing inventory 500*15 500*13.2 7,500- 6,600- Cost per Unit=(5) + (80%*8) + (90%*2)
Marginal cost of sales 22,500 19,800
30,000 32,700
Less variable selling costs 15% of revenue 15% of revenue 7,875- 7,875- No Change
Contribution 22,125 24,825
Less fixed cost
Fixed production overheads Given 15,000- 13,000- Decreas by 2000/month
Fixed Selling & didtribution costs Given 10,000- 10,000- No Change
Net Loss 2,875- 1,825
The above Profit and loss indicates that if there are efforts to reduce some of the costs, the
Company can be in a profitable situation.
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LO3. Explain the use of planning tools used in management
accounting.
a. Budget
A budget is a forecast of income and expenditures for a projected period of time that is
prepared and re-evaluated on a regular basis.
Budgetary Control
True revenue and expenses are adjusted to expected income and expenditure in order to see if
arrangements are being met and if they need to be modified to make a difference.
b. Different types of budgets
Capital Budget
The mechanism by which a company decides and reviews large-scale expenditures or
acquisitions is known as capital budgeting. Ventures such as constructing a new plant or
engaging in a long-term enterprise are examples of these costs and acquisitions. The
lifetime cash inflows and outflows of a future project are often measured in order to
decide if the potential returns produced exceed an appropriate target benchmark, a
process known as "investment assessment." e.g., this helps allocation for the
maintenance and forecasted equipment which WIZ would need to be innovative and
efficient
Advantages- Capital budgeting aids a company's understanding of the different uncertainties
associated with an investment opportunity, as well as how these risks impact the
company's returns. It aids the organization in determining which investment opportunity would have
the greatest return.
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 An organization can pick from a variety of capital budgeting strategies and
methods to determine whether or not a project is financially viable.
Disadvantages- Capital budgeting decisions are made over the long run and are almost often
permanent. Since the future is still unpredictable, these approaches are often dependent on
estimates and expectations. As long as the risk factor and the discounting factor are relative to the manager's
view, capital budgeting will remain introspective.
Operational Budgeting
Based on forecasted sales income, a detailed estimate of both future earnings and
liabilities over a given period (usually one year). It normally has many sub-budgets, the
most important of which is the sales budget, which is the first to be prepared. Since
capital outlays are long-term expenses, they are not included in an operating budget,
which is a short-term budget. For example, this may be used as a budget to manage
staffing levels, such as how many to hire and how to deal with salary increases.
Advantages- Needs for Long-Term Planning
An operational budget aids the small company in allocating funds not only in the near
term, but also over the course of several quarters or three years. According to the
website of Entrepreneur magazine, this enables your business to forecast expenses and
control spending in the near term in order to satisfy long-term financial commitments.
Creating an operating budget that takes into account the company's long-term financial
requirements necessitates rigorous analysis. Accurate financial forecasts necessitate an
examination of previous annual revenue, customer purchasing rates, and business
conditions.
Disadvantages:
Master Budget
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A master budget is a compilation of a company's individual budgets that is used to
provide a complete picture of the company's financial activities and health. Revenue,
fixed expenses, expenditures, and income streams are all factors that go into the master
budget, allowing companies to set goals and evaluate their overall progress as well as
the efficiency of individual cost centers. Master budgets are often used in broader
organisations to have the individual managers on the same board.
Advantages: Staff Morale- Jobs are motivated by the master budget because it allows them to
compare actual outcomes to budgeted output. The Master Budget aids workers
in gaining job fulfillment and contributing positively to the company's
performance. Preparation in Advance-The master budget detects and resolves any unusual
issues ahead of time. One of the business units, for example, is not doing well,
and the costs incurred are above the target cap. As a result, the company's
performance suffers.
Disadvantages: Continuity-Despite having logistical difficulties in achieving the goal, the
divisional staff were compelled to achieve it. It's because of top-level
management's pressure. As a result, sales figures are poor and expenses
are high. Managers can overlook new opportunities for the company's
expansion. Updates are difficult to come by -The master budget is difficult to alter. Small
changes in the budget take a variety of measures to add, alter, or remove. It
contains extensive definitions and graphs. As a result, a master budget is
difficult to comprehend for the average person.
Cash Flow Budget
A cash flow budget is a way of forecasting how and when money reaches and leaves a
business for a set period of time. It will aid a company in deciding whether or not it is
treating its currency properly. Cash management budgets look at accounts payable and
receivable to see if a company has enough cash on hand to keep going, how
productively the cash is being spent, and the likelihood of receiving cash in the near
future. A construction company, for example, could use the cash flow budget to figure
out how to launch a new building project before getting paid for the one it just finished.
Advantages: You become more resourceful as a result of this -When you use a cash budget,
you must look for efficiencies that you would not look for when you use other
financial resources and tools. You must find ways to save money, which includes
eliminating all excess from your spending plan. Businesses found that by closely
monitoring every pound (or equivalent) that enters and exits their cash flow, they
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can help manage spending and discover potential growth opportunities. When
you use this sort of budget, you can see just where your money is heading. Identify existing flaws as soon as possible-When you stick to a cash schedule,
you can easily see how you'll be able to fulfill your financial commitments. If not,
you'll be able to take disciplinary steps to guarantee that the spending projections
are fulfilled. From a commercial standpoint, being cash-only has no bearing on
the ability to borrow money. Borrowing to pay taxes or meet a monthly payroll is
preferable, particularly if the cash shortage is only temporary.
Disadvantages: Your spending power is limited-For such events, several companies have
stopped taking currency. You can find that renting a vehicle is impractical without
getting at least a debit card to access your cash capital. Without a debit or credit
card number, certain hotels will not allow a reservation. You can find it difficult to
obtain any of the resources your home or company requires if you turn to a cash-
only budget. As a result, the total effectiveness is hampered. Your ability to create a credit profile is hampered-Cash budgets will help you limit
the amount of debt you take on. This is beneficial in terms of saving money. That
also ensures that you will be limited in your ability to buy large-ticket goods.
Instead of paying the transaction, you'll need to save enough money to buy a car.
Instead of being able to use a mortgage, you'd have to save up the cash to buy a
house or home outright. In the long term, paying cash saves money while debt is
avoided. However, you are narrowing your options in the short term.
Financial Budget
A financial budget lays out how a corporation can handle its assets, cash flow, sales,
and expenses. A financial expenditure is a metric that is used to portray a company's
financial health and to offer a succinct overview of its expenditures in comparison to core
operations revenues. A tech company's operating budget may be used to determine its
price in the event of a public stock offering or acquisition.
Advantages: Financial awareness- Financial understanding of the company's costs and revenues is
needed for the implementation of a financial budget. The budget will demonstrate how
much money the business generates per month from sales and other means. It will also
show how much the corporation pays on fixed expenses such as office supplies and
electricity costs. The annual budget will also display the corporation's current assets and
liabilities. This will reveal whether or not the corporation is in good financial standing.
The budget would also reveal the company's financial situation in a nutshell, as it will
show whether the company makes a monthly profit or is continually incurring debt.
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Disadvantages- It just considers financial outcomes. - Budgets are mostly concerned with
allocating cash to specific activities and predicting the outcomes of business
transactions; they do not discuss more subjective issues such as the expense of
products and services provided to customers. It also prohibits any investigation
into the threats that the corporation faces. While it is not standard practice, these
other issues might be included in the budget.
c. Advantage and Disadvantage of budgeting
Advantage
Forecasting
A organizational budget not only helps you forecast annual budgets, but it also encourages you
to anticipate costs before they occur. For example, averaging your insurance premiums per
month will help you set average monthly revenue goals. Budgeting the same amount of money
for premiums in the months they're due allows you to keep track of your cash flow and pay your
bills on time each month. Budgets will help you predict your annual revenues based on a variety
of income scenarios.
Price Setting
When deciding the costs, premiums, and values, market conditions, such as your competitors'
pricing, aren't the only things to weigh. You must first decide your manufacturing and
operational costs before setting your prices. A budget helps you to project your utility, health-
care, marketing, rent, wages, debt servicing, and other costs to determine your true cost per unit
for manufacturing products or delivering services. If you know this, you will set the prices to
make the benefit you want. If this price is too high to be sustainable in your industry, you can
look at cost-cutting opportunities in your budget.
Disadvantage
Only considers financial outcomes.
Because of the budget's numeric nature, it aids in concentrating management attention
on the quantitative aspects of a business; this usually entails a deliberate emphasis on
can or maintaining profitability. Customers, on the other hand, are unconcerned with a
company's profits; they can only buy from it if they get excellent quality and well-made
goods at a fair price. Unfortunately, since these concepts are qualitative, they cannot be
used in a budget. As a consequence, user expectations are not always supported by the
budgeting principle.
Blame for outcomes
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If a department fails to achieve its budgeted targets, the department manager will blame
other agencies that offer resources to it for failing to fund it adequately.
Time required
Budgeting may take a long time, especially in a disorganized environment where
multiple budget iterations are needed. The time involved is minimized if a well-designed
budgeting procedure is in place, employees are comfortable with the process, and the
company uses budgeting methods. If business conditions are quickly changing, the work
required would be more extensive, necessitating many budget model variants.
d. Alternative methods of budgeting
Zero based budgeting
When planning a budget in a fast-paced market, it's always better to'start over' rather
than relying too heavily on past results. This is fitting for Kraft because the company is
still looking for new ways to improve. As a result, each budget is created without any
comparison to previous budgets. Shift is incorporated into budget thinking in this
manner.
Strategic budgeting
This entails spotting fresh, evolving prospects and devising strategies to capitalize on
them. This is similar to zero-based budgeting which allows Kraft to focus on getting a
competitive edge.
Activity based budgeting
This looks at individual actions and determines how important they are to the company's
progress. They will then be graded and prioritized, and sufficient budgets can be
allocated.
e. Approaches budgets
Zero Based Budget
“In ZBB the budget for any activity at the start of each year is set at zero. All expenditure
must be justified on a cost/benefit basis, including justification of continuing existence.”
Top-Down Approach
The budgets are created at the top and then moved down the line to individual agencies.
This is seen as a top-down strategy. This strategy is used in the budgeting methods of
affordable proportion of revenue, competitive parity, and Return On Investments (ROI).
Incremental Budget
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Incremental budgeting is based on minor differences from the prior year's budgeted or
actual results. This is a popular strategy in businesses where management does not
want to spend a lot of time preparing budgets or does not see the need for a systematic
re-evaluation. Since there is no competition in a particular industry, this mindset prevails,
causing profits to be retained year after year.
f. Pricing
“The amount of money charged for product or service, or the sum of value that
consumer exchange for the benefits of having or using the product or service.”
g. Pricing Strategy
An organization may use a variety of pricing strategies when selling a product or service.
The price may be set to maximize profit from each sold unit or from the whole market. It
may be used to defend an established market from potential competition, increase
market share in an existing market, or enter a new market.
Types
Price Skimming
Companies use price skimming as a tactic to maximize sales of new products and
services by setting prices high early on in the process. When new entrants hit the
market, the company consistently lowers prices.
Price skimming has the benefit of helping businesses to achieve a competitive edge over
early adopters before lowering prices to attract more price-sensitive consumers. Price
skimming not only lets a small business recoup its manufacturing costs when a
commodity is first introduced to the market, but it also provides the appearance of pricing
and exclusivity.
Psychology Pricing
As the economy begins to crawl back to full fitness, price remains a major issue for
American consumers. Psychology pricing refers to marketing tactics that enable
customers to make decisions based on intuition rather than logic.
Setting a watch's price at $199, for example, has been found to attract more buyers than
setting it at $200, considering the small difference. The reason that people pay more
attention to the first number on a price tag than the second may explain this trend. The
aim of psychology pricing is to increase demand by giving the appearance of improved
value to the consumer.
Penetration Pricing
h. A few companies use these strategies to get into the marketplace and gain market
share. Any company will either give out a few things for free or lower the price of their
products for a limited period, such as a few months. This method is only used by
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businesses to create a customer base in a particular area. France Telecom, for example,
gave out free telephone calls to subscribers in order to catch or retain the highest
number of customers in a given region. Sky TV, on the other hand, gave away free
satellite dishes in order to create demand for them. This offers a head start and a client
base for the companies.
i. How do competitors determine their prices?
Pricing Strategy Options
Competitive pricing is one of the four major price strategies. Another choice is cost-plus
pricing, which applies a fixed profit margin to the net cost of a product, including
products, labor, and overhead. Markup pricing refers to the addition of a fee to the sale
price of a product. The optimal profit-to-volume ratio is used to determine the demand
price; if volume is increased significantly, a lower per-unit profit is sufficient. A price that
is equivalent to that of other sellers selling the same goods is referred to as "competitive
bidding.
"About Competitive Pricing
When several businesses sell the same products and there isn't anything to distinguish
one retailer from the other, retailers use a competitive selling strategy. A market leader
would ideally set the price for the product in order to remain competitive, and other
vendors will have no choice but to follow suit. Vendors will either match or set rates in a
close range to the industry leader.
Establishing Competitive Pricing
The agreed price can be seen as a starting point for vendors that aren't industry leaders.
They would then charge a little bit extra for things like better customer service or a
longer product warranty. Retailers must be well aware of their rivals' costs as well as
their consumers' price sensitivity. After the price has been set, the number of purchases
must be tracked to see how the tactic is successful.
Risks of Competitive Pricing
Aggressive bidding, in fact, causes profit margins to narrow for many small enterprises.
As a result, the company is vulnerable to a cost increase. As a result, independent
retailers competing with high-volume, big-box stores can opt for a different pricing
strategy that gives them a greater profit margin buffer and justifies it by citing their niche
benefit, such as being small and customer-focused.
j. Supply and Demand considerations.
In economics, supply and demand refers to the relationship between the quantity of a
commodity that producers want to market at varying prices and the quantity that
consumers want to buy. In economics, it is the most widely used model of price
determination. The price of a commodity is determined by the supply and demand
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relationship in a market. The equilibrium price is the price that results from a contract
between the good's producers and consumers. When the economy is in equilibrium, the
amount of a commodity supplied by consumers equals the quantity demanded by
customers.
Illustration of the relationship of price to supply (S) and demand (D)
Demand Curve
The quantity of a product demanded is dictated by its price, as well as other factors such
as the prices of other commodities, consumer incomes and preferences, and seasonal
effects. In basic economic science, all factors aside from the item's price are often left
constant; the study then focuses on the relationship between various price levels and the
actual amount that can be purchased by consumers at each of those prices. A demand
curve, with the vertical axis representing price and the horizontal axis representing
quantity, can be used to map the price-quantity combinations.
A downward-sloping demand curve reflects consumers' willingness to purchase more of
a product at lower cost. Although fluctuations in the commodity's price can be monitored
over a constant demand curve, non-price effects would cause the demand curve to
change.
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Illustration of an increase in equilibrium price (p) and equilibrium quantity (q) due
to a shift in demand (D).
Supply Curve
The quantity of a good supplied in the market is calculated not only by its price, but also
by a variety of other factors, such as the cost of substitute products, manufacturing
technology, labour supply and cost, and other manufacturing factors. In basic economic
analysis, determining supply involves looking at the relationship between different prices
and the sum potentially supplied by suppliers at each price, while keeping all other
factors that influence the price constant. A supply curve, which has a vertical axis for
price and a horizontal axis for quantity, can be plotted to show those price-quantity
combinations. An upward-sloping supply curve usually reflects manufacturers'
willingness to sell more of the commodity they manufacture in a market with higher
prices. Any change in non-price conditions can cause the supply curve to vary, while
price changes can be tracked over a steady supply curve.
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Illustration of an increase in equilibrium price (p) and a decrease in equilibrium
quantity (q) due to a shift in supply (S).
Market Equilibrium
The role of a market is to balance demand and supply using the pricing system. If buyers
wish to purchase more of a good than is already available at the same price, they would
opt to bid up the price. If suppliers wish to buy less than what is already available at the
same price, they will lower their bid prices. As a result, a trend toward the equilibrium
price has emerged. This tendency is caused by the business system, and the resulting
supply-and-demand balance is known as a market equilibrium.
While these changes are not necessarily proportional, the volume sold normally grows
as the price rises, and the willingness of consumers to purchase a commodity typically
declines. The price elasticity of supply or demand is a calculation of supply and
demand's tolerance to price increases, calculated as the ratio of the percentage change
in quantity supplied or demanded to the percentage change in price. If the price of a
product decreases 10% when sales increase 20%, the price elasticity of demand for that
commodity is said to be 2.
Demand for products with readily available substitutes is expected to be elastic, which
means it can react more easily to price increases. This is because when a product's
price rises, customers can soon replace it with another. Demand for a good may be
inelastic if there are no nearby substitutes and the item constitutes just a small portion of
the consumer's earnings. Premiums will be raised by firms with more inelastic demand
for their products in order to increase total revenue; those with elastic demand will not be
able to do so.
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Supply-and-demand research would favor markets for final goods and services, as well
as markets for labor, capital, and other sources of output. It can be seen at the firm or
sector level, as well as at the overall economy level.
Demand for goods with readily available alternatives is likely to be elastic, meaning it
can react more quickly to price rises. This is due to the fact that as the price of a
commodity increases, consumers will quickly swap it with another. If there are no
surrounding alternatives and the commodity only accounts for a limited portion of the
consumer's revenue, demand for the item could be inelastic. Firms with inelastic demand
for their goods will be able to lift premiums in order to maximize net revenue; those with
elastic demand will not be able to do so.
Cash budget analysis of Wiz Phone
Jan Feb Mar April May Jun
Chargers to be sold 700 900 1100 1330 1500 1700
Cash inflows (opening Balance) -680 -2348 -2948 -4728 -7058 -9178
Sales 1400 1800 2200 2600 3000 3400
Trade Receivables 2000 1400 1800 2200 2600
Total Inflows 720 1452 652 -328 -1858 -3178
Less: Cash Outflows
Cost 1120 1440 1760 2080 2400 2720
Operating Cost 60 80 100 120 120 120
Storage Cost 120
Tax 250
Trade Payables 1120 1120 1440 1760 2080 2400
Cost of Inventory 768 1760 2080 2400 2720 3040
Total Cash Outflows 3068 4400 5380 6730 7320 8280
Net Cash Outflows -2348 -2948 -4728 -7058 -9178 -11458
Closing Balance -2348 -2948 -4728 -7058 -9178 -11458
It is clear from the cash budget above that Wiz Phone is expected to face cash shortages in the
coming months with a peak funding requirement of £11,458 in June. As such Wiz Phone should
react now in order to deal with the situation.
Wiz Cash Budget Use & Analysis:
One of the benefits of a cash budget is that it allows an organization to predict where a cash
loss will occur and the size of that shortfall. In exchange, the budget shows where a gap
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between budgeted and real values will require borrowing to close. It may be necessary to obtain
short-term funding in order to purchase goods, promote merchandise, or cover monthly
expenses.
Wiz Phone will assess potential investment prospects in part based on the opportunity's likely
funding needs and costs by forecasting cash requirements. Financing expenses, for example,
would have an impact on the viability of an acquisition and product growth. This method enables
a business to focus on only certain corporate objectives that are financially viable.
Looking at the cash budget of Wiz Phone you can see that all of the closing balance are
negative. This isn’t a good sign for any businesses and may lead to their failure in the long term
when reserve funds are depleted. However, using the cash budget helps you in deciding what to
do when getting negative cash balances and would help Wiz Phone to act quickly.
Tools to improve cash flow balance:
1. Taking out a short-term loan or line of credit will help you maximize your cash flow. The
bank grants you a lump amount of money that you pay back in daily instalments for a
limited period of time for a fixed-term loan. A lender gives you a maximum loan balance
that you can use if you need money, and you only pay interest on the money you need.
However there is associated risk of this is not being able to pay back with the interest
leading to banks ceasing assets .
2. Increase cash inflows- There are different measures which can be taken to increase a
business inflow such as the following: One method which Wiz Ltd is to produce more
charges and then advertise it in a manner to gain more sales leading to a bigger revenue
stream coming into the business. Secondly taking into the consideration that the market
of chargers is elastic this may lead the company to reduce the prices to attract more
consumers and increase the sales revenue. Lastly the company can reduce and
manage trade receivables by screening consumers and checking the customers’ ability
to pay back.
3. Reduce cash outflows- The company must relook at all costs incurred by the business
and find ways to reduce them. First of all, they can reduce the material cost by buying
cheaper material which would reduce cost of production leading to a decrease in total
cost, They could also negotiate better credit facilities from suppliers such as renting out
spaces and paying after a few months however this solution would allow help in the
short term.
Justification to use cash budget for Wiz phone
The use of the above cash budget is very useful for Wiz. It helps the company to plan for
future inflows and outflows of the business. A cash budget is critical, particularly for small
businesses. It enables a business to determine the volume of credit it may lend to
consumers without running into liquidity issues. A financial allocation lets a business stop
running out of cash during times where it has a lot of expenses. If the corporation is unable
to cover its bills due to a cash deficit, the problem must be addressed quickly by increasing
sales, deferring or cutting any charges, or obtaining bank permission for a larger loan. Since
these options are expensive, time-consuming, and unreliable, it's best to budget for
increased costs ahead of time if at all possible.
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LO4. Compare ways in which organization could use
management accounting to respond to financial problems.
Benchmarking
Benchmarking is the process of matching a company's products, facilities, or processes to those
of a competitor considered to be the best in the industry, often known as "best in class."
Benchmarking is used to identify internal areas that can be improved. By studying companies
with superior performance, breaking down what makes such superior performance possible,
and comparing such systems to how the enterprise operates, you will implement changes that
will yield drastic effects.
This may include tweaking a product's features to help suit a competitor's offering, extending the
range of services you provide, or introducing a modern customer relationship management
(CRM) system to allow for more personalized customer communications.
There are two kinds of change prospects: incremental and drastic. Continuous growth is
incremental, necessitating only small tweaks to yield positive performance. Significant changes
can only be achieved by reengineering the entire internal work setting.
Key Benefits
Benchmarking has a number of other advantages in addition to helping businesses become
more effective and successful, including: • Improving employee knowledge of cost systems and
organizational procedures • Encouraging teamwork and collaboration in the pursuit of being
more sustainable • Improving familiarity with main success indicators and prospects for
company-wide change
In essence, benchmarking lets workers realize how one minor aspect of a company's operations
or goods, or one employee's efforts, will contribute to a huge victory.
Key Performance Indicator(KPI)
A performance indicator, also known as a key performance indicator (KPI), is a measure that is
used to evaluate performance. KPIs are used to evaluate an organization's or a task's success
(such as campaigns, services, products, or other initiatives) in which it is involved.
Success is often interpreted as achieving some level of corporate goal on a consistent basis
(e.g., zero failures, 10/10 consumer satisfaction, etc.) and is often described as progress toward
strategic goals. As a result, choosing the right KPIs necessitates a clear consideration of the
company's goals. [requires a reference] 'What is important' is often decided by the department
evaluating the data – finance KPIs can differ from sales KPIs, for example.
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Different methods for determining the current state of the enterprise and the key activities are
related to the collection of performance metrics so it is critical to know what is relevant. Quality
metrics are often linked to 'performance improvement' projects, and these assessments can
help detect potential improvements. A common approach to choose KPIs is to use a
management scheme like the balanced scorecard.
Financial governance
Non-governmental organisations (NGOs) are dedicated to assisting their clients. The NGO's
executive board is in charge of running the organization on behalf of the beneficiaries. As a
result, the governing body's members are often referred to as "trustees." They act as stewards,
protecting and maintaining the beneficiaries' interests..
The board of directors is ultimately responsible for the organization's ethical, moral, and
financial well-being.
The governing body
The governing body can be referred to as a board of trustees, a board of governors, an
administrative council, an executive committee, or something else entirely. A collection of
permanent or temporary sub-committees, such as those for Finance and Personnel, are often
formed by the council. Advisory committees are often established to help a nation initiative or a
new project succeed.
The five roles of board members
Board members should stop being overly active in the organization's day-to-day operations,
while they may be mindful of what is going on. Their five responsibilities include: Ensuring that funds are used efficiently to assist recipients, Ensuring that the company has enough funds Assuring that the organization's senior management is successful
1.Ensuring the contributions are used efficiently to assist beneficiaries Ascertaining that the company has realistic methods for assessing and reacting to social
issues. Keeping track on whether the company is doing a good job, bringing its agenda into
action, and getting good value for money. Approving an annual spending schedule focused on the costs of related programs.
Assuring that the company has adequate financial monitoring and accounting processes
in place to ensure the contributions are spent wisely.
2. Ensuring that the company has sufficient funds
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 Approval of the annual budget's revenue portion Keeping track of the amount of money earned Acting actively to ensure the organization's long-term viability, including approving a
funding plan.
3.Assuring that the organization's senior management is successful. Recruiting a chief executive with experience in financial accounting (or supporting the
Chief Executive to develop these skills) Assisting the CEO in creating a culture of sound financial management (e.g. leading by
example and encouraging finance and programmed staff to work together)
Accounting management skillset Reporting & Planning
The skills needed to plan for the future, assess success, and monitor financial reports.
Making Decisions: The ability to make decisions, manage risk, and maintain an ethical
environment.
Technology: The abilities required to successfully control technology and computer systems
in order to operate a company.
Operations: As a cross-functional corporate associate, you'll need these skills to better boost
company-wide operations.
Leadership is described as the willingness to work cooperatively with others and motivate
teams to achieve organizational goals.
Characteristic of an effective management accountant
Competence Professional duties must be carried out in accordance with relevant laws, regulations,
and technological requirements; maintain a high level of technical experience while
actively expanding your skills and skill. Have timely decision-making information and recommendations that are accurate, clear,
and concise. Recognize and express any professional flaws or limitations that would preclude you
from making an educated decision or effectively completing an operation.
Confidentiality • Keep information confidential until you have permission or are required by statute to do
so. • Inform those who need to know about the correct treatment of classified information.
Keep an eye on the subordinates' activities to ensure compliance. • Prevent the misuse of classified information for unethical or illegal ends..
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Credibility
• Any additional content that might reasonably be assumed to influence an intended
user's view of the documents, analyses, or guidance should be disclosed.
• Report any delays or flaws in information, timeliness, processing, or internal controls in
compliance with corporate policies and/or relevant regulations.
How can these skills be used to prevent and/or deal with financial problems?
Find a Replacement for One Large Expense in Your Monthly Budget
If you replace an expense or a trend with something new, it's best to delete it or change it.
Consider if you can replace your pricey coffee habit with a new ritual if you wish to avoid
drinking it on your way to work. You would want to get a fresh travel cup and some of your
favorite coffee (which you can make at home!). Then rearrange your routine so that you aren't
tempted to go out for coffee in the first place.
Take a separate path to work, for example.
Pick one cost that is eating up a significant portion of the spending and replace it. One example
is reducing coffee consumption. What about your leisure expenses, avoiding smoking, or
reducing your hobby and recreational spending? When all of your payments are paid up to date
and you have a little spare money in your checking account, you'll know you've completed this
assignment.
Identify Expenses You Can Reduce
Determine which areas of the budget would need extra attention in the coming month. Look at
ways to save money on the utilities. When you're not at home, wash your clothes in cold water
instead of steam, and switch down the heat and turn off the lights. If you have none, decide if
you need both a home phone and a cell phone. It's impossible to get out of a routine.
Determine which products or services you no longer want yet are still paying for. Many
customers simply let their packaged bundles renew month after month, even though their
preferences have changed. This may be attributable to a lack of time to thoroughly review their
bills, but taking the time to look through your bills line by line and calling vendors to adjust
service plans or cancel contracts completely will expose a considerable amount of unreported
money.
Increase Your Spending Awareness
Think of what you know about yourself from just using cash. Was it easier or more difficult to
part with cash than it was to part with plastic? Was there enough money to buy everything you
liked, or did you just buy what you needed? At the end, how much money did you have?
When people use plastic instead of dollars, they spend up to 15% more per buy, according to
some studies. Spending more on each transaction adds up with time, so be mindful of how you
invest your money if you want long-term debt relief.
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Create a Spending Plan or a Budget to Solve and Prevent Financial Problems
A monthly spending plan is one of the easiest things you can do for your finances, but it's the
most overlooked solution to most people's financial problems. A spending calendar, also known
as a budget (the technical term for a monthly spending plan), simplifies life and provides you
with a roadmap to help you decide how to invest your money.
Ironically, it's also something you'll almost certainly never study in a Cambridge or Harvard
lecture. Not to single out these colleges, but others do not teach students how to build a budget.
To compensate for this lack of preparation, the third task is to create a budget overview.
If you've never created a functional household budget, try this immersive budgeting app that
takes you through the whole process. Using the information gleaned from the expense tracking
to build a budget based on real figures.
If there's a cost you'd like to exclude from your spending, begin by halving it. This will teach you
if you have the stamina to carry it out in the long run. How you can make budgeting a habit of
your life.
Evaluation of the benefits of Management Accounting systems
and their application within Wiz Phone
In management accounting, national accounting rules are seldom practiced. Business owners
should design management accounting systems that are specific to their company's operations
or knowledge requirements. There are some advantages of management accounting. These
advantages are often linked to a company's ability to improve operations and profitability.
Company owners can achieve a strategic advantage by incorporating cost allocation processes
into their management accounting function.
Reduce Expenses
Management accounting will help companies cut their running expenses. Managers also use
management accounting data to assess the cost of economic resources and other corporate
practices. With this experience, owners can better understand how much money it costs to run
their company. Business administrators may use management accounting to evaluate the
efficiency of economic resources used to produce goods or services. If the average product
quality does not suffer, business owners will cut production costs by converting to a less
expensive raw material.
Improve Cash Flow
Budgets are crucial in planning for management. Budgets are often used by industry leaders as
a financial path map for future acquisitions. Expenditures are often based on historical financial
records from a business. Management accountants will go over the specifics and create a
master budget for the whole company. Larger organizations may use several smaller budgets
for departments or entities. For most cases, specific expenditures are merged into the
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company's master budget. Budgets have one primary goal: to save money for the company by
closely reviewing both needed and unnecessary cash expenditures.
Business Decisions
Management accounting also assists business leaders with making decisions. Company
managers and executives should use management accounting statistics as a decision-making
instrument rather than relying solely on qualitative analysis to make rational decisions.
Management accounting usually provides a systematic overview for various governance
openings. Company owners should review each opportunity through the prism of objective
analysis to ensure that they have a clear view of strategic choices.
Increase Financial Returns
Accounting with management would also assist company owners in increasing their financial
gains. Management accountants may prepare financial forecasts related to customer demand,
potential earnings, or the effect of consumer price fluctuations in the economic marketplace.
Market owners frequently use this information to ensure that they can supply enough goods or
services to meet current demand at current prices. The level of competition in the market is
often a source of anxiety for businesses. Competition can damage the company's financial
gains from sales transactions.
Tools which Wiz Phone (U.K) can use to respond to financial problems
Tool 1- PESTLE
You can't begin every research without first identifying the most serious issue. Otherwise, you'll
be squandering your time and money. Problems can be identified in a variety of forms. You
may, for example, perform a risk assessment. It assesses emerging risks (or threats) and their
consequences. The greater the effect, the greater the financial damage to your company or
goods.
However, if you already know what the dilemma is (and why you're looking for a solution using
PESTLE analysis), you can get started anytime you want. In this situation, the issue arises
because you have several issues that are both competing for your attention.
“You need information to fix your problem. Answering questions in your PESTLE analysis
should uncover the relevant information you need.”
Political: Changes in political parties should be addressed. Are they by your side or against
you? It's possible that new legislation has been passed. You must become acquainted with
them and determine how they affect your dilemma. Remember to have a firm grasp on policy
reforms, legislation, taxation, and political stability as well.
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Economical: Consider the economic situation. From attraction to labor, everything is covered.
You'll still have to consider the global economic situation. Is it doing well? Are you still suffering
from the economic downturn? What effect does it have on you?
Social: Customers are usually involved in this section. What they do, where they work, and
what keeps them from investing their hard-earned money are all factors to consider. For
example, consider unemployment rates and house prices. You can't run a company without
clients.
Technological: All makes use of technology in every way. Which one do you prefer? Is it
necessary to upgrade it in order to meet consumer demands? Take a look at the market to see
what they're using. Does it have an effect on you?
Legal: To what extent are you bound by the law? That could be a matter of copyright legislation.
Employee arrangements, for example. Is it possible that these are the source of your issues?
Even if it isn't, it's necessary to stay informed because laws and regulations change often.
Environmental: For many people, environmental friendliness is important (maybe even the
ones you interact with). A organization that isn't environmentally conscious may come under
pressure from the media. Does this have any bearing on your issue? Is it having an impact on
your business? Are you able to take action to become more environmentally conscious right
now?
Once you've addressed these (or any questions you've thought of), you're on the way to
resolving Wiz’s financial problems.
Tool 2- SWOT
A financial SWOT analysis is used to get a broad understanding of a company's present and
future financial situation. It provides insight into how an organization's revenues are doing right
now (thanks to the established Strengths and Weaknesses), as well as future incidents that
could drastically shift its finances (the Opportunities and Threats). This will help a company
schedule both financially and strategically, by understanding what sales and costs to predict and
how to pivot to improve its financial standings, in compliance with international tax laws.
A financial SWOT review is performed to gain a comprehensive understanding of a company's
current and future financial condition. It gives you an idea of how an organization's earnings are
going right now (thanks to the proven Strengths and Weaknesses), as well as potential events
that may have a significant impact on its finances (the Opportunities and Threats). This will aid a
company's financial and strategic planning by determining what revenue and expenses to
anticipate, as well as how to pivot and boost its financial standings while adhering to foreign tax
laws.
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Since the Strengths and Weaknesses reflect the current state of the market, it's normally best to
start there. Strengths and Weaknesses can also be seen when looking at balance sheets, which
display sales and losses, for a financial SWOT review. This will help you figure out whether the
company has a strong or poor cash flow, which may be a significant Strength or Weakness.
Assets, liabilities, and the supply of borrowed funds are other financial Strengths and
Weaknesses to consider. It's especially important to figure out whether the company can
effectively borrow money and at what interest rates.
New income sources are the huge Opportunities in financial SWOT assessments. The Ansoff
Matrix, which divides new revenue streams into four categories depending on the level of
demand and/or product growth needed, may be a helpful method for identifying new revenue
streams.
The lack of current income sources may be a major threat. To find these, market analysis
methods that define external factors, such as PESTLE analysis, may be useful. PESTLE
analysis examines the political, economic, sociocultural, technological, legal, and environmental
influences that may influence a business. This robust structure makes spotting areas in which
the company might be affected even easier.
Tool 3- Porters Five Forces Analysis
This theory is based on the premise that five variables decide a market's competitive intensity
and attractiveness. Porter's five powers will help you find out who in a market environment has
the most clout. This is useful for calculating the strength of a company's current competitive
position as well as the strength of a position that a company may choose to seek in order to
achieve financial leverage.
Strategic analysts also use Porter's five forces to decide if new products or services have the
potential to be competitive. Through understanding where power exists, the theory can also be
used to recognise places of superiority, reinforce vulnerabilities, and eliminate errors.
The five forces are as follows:
1. The supplier's capability. An assessment of how simple it is for producers to lift prices. This is
influenced by the number with suppliers of each critical input, the uniqueness of their product or
service, the supplier's relative size and capacity, and the cost of switching from one supplier to
another.
2. Purchasing power. An assessment of how cost-cutting is feasible for customers. The number
of buyers in the industry, the importance of each individual buyer to the company, and the cost
of switching vendors for the buyer all affect this. When a business already has a few key clients,
it can still set terms.
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3. Competitive rivalry. The key factors are the volume and skill of new entrants into the market.
By offering undifferentiated products and services, certain competitors will reduce consumer
appeal.
4. Threat of Substitution. When near alternative products stay in a market, customers are more
likely to turn to alternatives in response to price increases. This reduces both the dominance of
suppliers and the market's competition.
5. Threat of new entry. Profitable markets attract new entrants, eroding profitability. Since
incumbents face strong and long-term obstacles to entry, such as patents, economies of scale,
capital requirements, or government regulations, profitability will sink to a sustainable level.
There are five powers at work. Study may assist organisations in identifying the factors that
influence success in a particular industry, as well as in making decisions such as whether to
enter a particular industry, whether to increase capability in a particular industry, and how to
execute strategic strategy to address Wiz’s financial issues.
Analyzing how, in responding to financial problems, management accounting can lead to
Wiz Phone sustainable success.
Management accounting's main purpose is to aid management in making decisions. In the
event of financial challenges, management needs information about how to increase. Today's
conundrum is how to build strategies, business models, and systems that address social and
environmental problems while still driving financial success and shareholder value.
Any companies, according to the Environmental Management and Assessment Institute, have
the know-how to meet these demands and thrive in a sustainable economy.
According to the Management Report, many business organisations have disappeared into
valuable intelligence and science by failing to develop transparency capabilities. This entails
examining and reflecting on the impact of various factors. Furthermore, 60% believe that the
administrator is in charge of presenting information and analyses to farmers in order to solve
environmental and social problems. Just 45% of those who answered are in fact present.
Regardless of this detail, the respondents' main reason is the policy makers' needless defect.
Data-incompatible systems and processes are another common stumbling block.
The senior responder may have expertise about this sort of information in this situation. CFOs,
CEOs, and executives, for example, spoke for 52% of the topics relating to decision-making.
And social influences on corporate success, as well as the business climate.
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The fact that 60% of voters feel there is no need to acquire this information from the producers
is one of the most important obstacles to survey identification. However, there are signals that
things are starting to look up, with two-thirds of the predicted rise in environmental and social
data estimated to happen in the next two years.
1. Creating a cash balance forecast
Cash flow predictions will assist you in predicting future cash surpluses or deficits, allowing you
to make the best decisions possible. It will assist you with tax reporting, preparing new
machinery acquisitions, and determining whether you need small business loans.
It may also be used to assess the impact of a planned market transition or decision. If you're
considering recruiting a new hire, for example, you'd factor in the higher pay and associated
costs. The updated numbers in your cash flow estimate will inform you whether or not hiring an
extra employee will put the company in a better shape, which will help you determine whether or
not to recruit them.
Prepare a report Management accounts provide information that can help a company
succeed in a variety of ways: To aid in the consolidation of affairs in the decision-making process, administrative
accounting methods and procedures such as natural resource benefit, life cycle
expense, and carbon footprint are used. Connect the organization plan, market model, performance overview, and operating
license to fixed industry challenges.
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