Advantages and Disadvantages of Planning Tools in Management Accounting

Management
Accounting.

Contents
INTRODUCTION.................................................................................................................................3
TASK 1.................................................................................................................................................3
A. Advantage and disadvantage of various types of planning tool....................................................3
B) Use of various planning tool for preparing and forecasting budgets.............................................7
C) Adaptation of management accounting system to respond financial problems.............................7
d) Management accounting system lead to long term sustainable success.........................................9
e) Planning tool to avoid financial problem.......................................................................................9
CONCLUSION...................................................................................................................................10
REFERENCES....................................................................................................................................11

INTRODUCTION
Management accounting is considered to the techniques of manager that help them
determine, organise, report and make effective decision (Anderson and Sedatole, 2013). This
collected information helps them in preparing management reports and accounts which
further provide them appropriate and timely financial and performance information about
worker and company. To understand the importance of management accounting Airdri is
taken into account.
In this report advantages and disadvantages of different planning tools are
implemented to control budgetary process and their effectiveness to solve financial problems
is described. Report also shows the importance of management accounting system to respond
the financial problems.
TASK 1
A. Advantage and disadvantage of various types of planning tool.
Budget:
It is defined as the financial plan which is a microeconomic idea that demonstrates the trade-
off made when one product is traded for another. In business term it is defined as an internal
tool used by management and is frequently not required for reporting by outside parties. A
financial plan is valuation of income and expenditures over a predefined future timeframe.
Budgets can be made for an individual, a household, group of personnel, a firm, for
government, country and international companies that all are willing to spend money and
making profit. In Airdri, manager makes use of different kind of budgets as a planning tool
that further helps in solving and overcoming various kinds of financial issues (Drury, 2015).
There are various advantages of budget that help in maintaining the budgetary control process
in Airdri. Budgetary control process is related to the actual comparison of income and
expenses by manager of company with the planned revenue and spending. Some of the
common advantages and disadvantages are explained below:
Advantages:
 Budgets transform planned strategies into action of achievement. They state
the assets, incomes and events required perform the executed plan for the specific
period of Time.
 It supports to have a great record of companies business activities.
 Budgets improve communication with employees and help them to overcome any
problems.

 It support in improving resources distribution because all requests for every
department are explained and acceptable.
Disadvantages:
The main problem happens when budgets are realistic and are applied automatically and
strictly that hinder the decision making of manager (Hilton and Platt, 2013).
 An inflexible budget structure decreases creativity and innovation of other worker at
lower levels, so it is very difficult for companies to make money for new ideas thus
companies faces financial issues.
Fixed Budgets:
A developed fixed budget is about a basic instrument to evaluate the achievement of
private companies both long and short term period of time. Further, a fixed budget
supports in keeping the whole business monetarily careful when making little and
expenses. In companies like Airdri, this budget is prepared by manager to determine the
spending for a single business activity. The execution report is set up by contrasting
information from open tasks. Fixed budgets don't change when manufacture level
changes within an organisation. Some of the basic advantages and disadvantages are
described below:
Advantages:
 Fixed budgeting helps manager to teach other employee, as they had a clear
difference between the things they need to do with their workforce.
 A fixed budget permits a commercial firm to measure both short-term and long-
term finances resources that are required on single project.
 The steady, fixed budgeting sanctions small business holders to have record each
changes and also changes the profitable model accordingly to take benefit of
helpful monetary variations of economy.
Disadvantages:
 Flexible budgets also are not correct way to record expenditures. In detail, all they do
is gives a simple standard that will be hard to follow, should revenue or costs change.