Management Accounting and Planning Tools for Financial Problem Solving

This report discusses the importance of management accounting in businesses and its essential requirements. It also explores different types of management accounting reports, calculation of costs using appropriate techniques, advantages and disadvantages of planning tools, and how companies adopt management accounting systems to respond to financial problems. The case study focuses on Aj and Sons, a consultancy firm, and their use of management accounting techniques and planning tools to improve their financial performance.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
P1 Management accounting and its essential requirement .........................................................1
M1 Benefits of management accounting ....................................................................................2
P2 Different types of management accounting reports ...............................................................2
Task 2...............................................................................................................................................3
P3 Calculation of cost by using appropriate technique ...............................................................3
M2 Application of range of management accounting technique and producing financial reports
......................................................................................................................................................4
Task 3...............................................................................................................................................4
P4 Explanation of advantages and disadvantages of planning tools ...........................................4
M3 Analyse the uses of different planning tools and their application ......................................6
Task 4...............................................................................................................................................6
P5 Compare how companies are adopting management accounting system to responding
financial problems .......................................................................................................................6
M4 Responding to financial problems ........................................................................................8
CONCLUSION................................................................................................................................8
REFERENCE ................................................................................................................................10

INTRODUCTION
For running a business and making profits there is needed to proper arrangement of
income and expenses which arises in workings. Accounting is the process of measuring,
communicating and processing of financial information that can be uses to set the goals in
relation to increasing profitability and maintain high brand image. It has been seen that is
organisation is not able to ready accounts, prepared income statement and matching the balance
sheet then there is gap in cash flows which affected the business negatively (Maas, Schaltegger
and Crutzen, 2016). Management accounting is essentialism for companies which can be uses to
set the accounting standard and knowing information how to manage the risks and profits. To
have good knowledge and skills about management, planning and accounting become easy for
owner to control over their income and expenses. This report is based on Aj and Sons, company
that is a consultancy firm providing information and consultancy services to customers and
increase the organisational profitability. Topics are involves in report management accounting
system and its essential requirement, reports in relation to accounting, planning tools which uses
to control over budget and financial problems that can be solved by managing the performance.
Task 1
P1 Management accounting and its essential requirement
Accounting is the term which involves number of transactions and accounting
information that uses to operate the business and increase the business performance by
identifying income and expenses. This is mainly required in all sizes of business who wants to
get right information about their income and expenses. The management of organisation is
responsible to provide accounting data and transaction to accountant so they can exactly tell how
to control over expenses. In Aj and Sons company management is preparing different types of
management accounting system that are as explained:
Inventory management system– This system is mainly uses to track the inventory and
stock level of an organisation that can help to keep records of all data and stock. This is
important for organisation to understand the needs of customers regarding demand of products
and maintain proper records so right information about availability and unavailability of
inventory provided. This is essential required for management of Aj and Sons to track the
inventory level and manage the orders (Quattrone, 2016).
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Cost accounting system – This is defined a framework which uses by organisation to
estimate and check the cost of their products so profitability can be maintain. It provides the
information about what cost of product can be arises and how they can manage properly. Aj and
Sons uses cost accounting system for tracking the cost and managing the performance by
identifying costs. This is essential required to make the economical to organisation and get the
profits by managing expenses.
Price optimisation system – The model of price optimisation is considered as a
mathematical programme that mainly uses to set the prices of products and services which are
produced by organisation. Aj and Sons set the prices of their products and services which they
are providing that can help to analyse profits. The essential requirement of price optimisation
system is to decide the prices and fill the customer's demand by offering them products and
services (Armitage, Webb and Glynn, 2016).
M1 Benefits of management accounting
System Benefits and application
Cost accounting This provide benefits of estimating the cost of products and
services so it become easy to calculate profits. Aj and Sons
applying this, to get information about investing money and
receiving income on this business.
Inventory management This can help to track the inventory level and provide right
information about availability and out of stock. The management
of AJ and Sons uses this to get information about inventory and
services which organisation has produced.
Price optimisation This can help to set the right cost of products so customer can
feel good by paying reasonable amount of products. Aj and Sons
is applying this to set the prices of their services and get the
profits.
P2 Different types of management accounting reports
Accounting reports are prepared to collecting the information and transactions that can be
use further to make right business decisions. This is important for organisation to understand the
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needs of their business and keep proper records which can help to control the excess data. Aj and
Sons is using different types of accounting reports that are as explained:
Inventory management Report: Organisations that produce physical products and
inventory, or involves in production of goods and services with several issues, this report is
suggested. It is prepared to analyse problems, costs related to each activity in production, efforts
of labours, overheads related to these activities. In reference to Aj and Sons,, this helps to
analyse data on inventory costs, labour and other overheads involved in production process. In
this report raw data and informations are used to optimize assembly and machinery process. It
provides a comprehensive account of stock or supply of various items (Ameen, Ahmed and Abd
Hafez, 2018).
Performance reports – For management it is important to analyse the employee's
performance and provide the job satisfaction by giving rewards. This report uses to review the
performance and increase the motivation level so they retain for long term. In Aj and Sons,
management prepare performance report that can help to evaluate how employees are working
and how earlier they complete their task. Management also motivates employees so they can
accept challenges and improve business performance.
Cost Managerial Accounting Reports: Cost management in accounting is a form of
management accounting that is designed to help business owners to predict business expenses.
Purpose of this accounting report is to avoid going over budget so that businesses can hold
revenues as much as possible. In Aj and Sons, cost accounting deals with calculation and
assessment of costs and expenses to purchase or produce something. Its primary purpose is to
calculate per unit cost using different costing techniques and to facilitate managers in decision
making (Uyar and Kuzey, 2016). The main activities of this accounting reporting in Aj and Sons
is preparation of budgets, defining costs, profits, production capacity and efficiency of plant and
machinery. This report helps to identify and break down costs for profit measurement.
Task 2
P3 Calculation of cost by using appropriate technique
Marginal costing – This is defined as accounting system in which variable costs are
charged to cost units and fixed cost are written off in against of contribution. In this variable cost
are changes as output changes and then treated as marginal costing.
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Absorption costing - This is accounting method that capture all cost which arises in
organisation whether fixed and variable. This involves direct material, direct labour, rent and
insurance costs that are related to a business.
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M2 Application of range of management accounting technique and producing financial reports
In business environment there are many techniques which can be uses to analyse the
financial informations and increases the productivity. The marginal and absorption costing are
two technique which are uses in different ways and provide the benefits to organisation. This can
help to increase the organisational brand image by creating high profits (Yigitbasioglu, 2016). In
context to Aj and ons, management analysis both technique and get information which technique
is useful to make higher profits and increase the productivity in business environment. The
managers of organisation analysis the performance and make decision accordingly.
Task 3
P4 Explanation of advantages and disadvantages of planning tools
Planning tools are considered as instrument and system that can be uses to guide the
organisation by managing and completing task. This mainly uses to control over budget and
make the profits. This is important for organisation to analyse which planning tool suits the
organisation's position and how they implement in initiative, programme and intervention. This
provides more details about system that can be uses to manage the business performance.
Budgetary control is referring a situation that states how to control over excess and make profits
in changing environment. In context to Aj and Sons, managers uses different types of planning
tool for controlling their budget that are as explained:
Master budget – This budget consider all of the smaller budget in business and turns
them all budgets. The another says superior budget that covers the information of all budget
which is prepared by management in order to operate the business and increase the performance.
The management of Aj and Sons organisation prepare master budget by considering all income
and expenses, summary of all budgets and other expenses which has arises while running a
business that can help to provide the right information about productivity and profitability. This
involves all summary of master budget such as marketing, HR, sales, IT, consultancy and
operation that increases insights about productivity (Phan, Baird and Su, 2017).
Advantages – This budget reveals how much their organisation is earning and spending
money as whole that can help to manage the business and increases profitability. This has ability
and capability to solve the problems which arises in business activities and improves the
organisational productivity. Aj and Sons is using the master budget by focusing on all smaller
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budget so activities can be managed and settled properly and maintain the profitability (da Silva
Laureano, and et. al., 2016).
Disadvantages – In preparing the master budget there is need of specificity which is
difficult for organisation to find this and implement in their industry. This budget is difficult to
read and update because this involves many categories and number of informations.
Operating budget: The planning tool is detailed projection of entire forecasted expenses
and incomes that are based on predicted sales revenue in particular time period. In AJ and Sons,
operating budget assist in planning daily operations so that the company do not run into financial
ditch (Bukhoriev, 2018).
Advantages: Operating budget benefits managers of AJ and Sons through managing its
current expenses and properly projecting future spending. It also helps in building financial
reserves as well as tracking entire operations ion systematic manner.
Disadvantages: In AJ and Sons, financial information changes month to month because
company either exceeds or fails in meeting revenue projections. In such case, if operating budget
so not change each time for reflecting new figures of income then any projection in the budget
are inaccurate. This further results in cash shortfalls or inability to meet obligations related to
finance.
Capital budget: It is termed to the planning tool which comprises of capital payments
addition to receipts. In AJ and Sons, capital budget are mainly used for the purpose of allocating
money for acquiring as well as maintaining fixed assets (Khocha, 2017).
Advantages: Capital budget assists finance managers of AJ and Sons to evaluate
sustainability of investments in projects. It also helps in understanding levels of risks addition
too their effects.
Disadvantages: Decision of capital budget are based on long term and are irreversible in
nature. Wrong decision results in huge negative impacts in context to long term durability of
organisation. Inadequate investment often create difficulty for managers of AJ and Sons to
enhance the capital.
M3 Analyse the uses of different planning tools and their application
This is important for organisation to understand their financial performance and
capabilities so strategies and planning can be formulated accordingly. This can help to manage
the business activities by using the suitable planning tools which are important and increases the
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business performance. In context to Aj and Sons, planning tools are uses by management which
can help to analyse business performance and deliver the right products and services. For
instance, Capital budgeting tool stating the long term planning which can help to operate the
business by recording fixed assets and equipments. This provides right information regarding
long term plans and strategies which can help to maintain higher profitability. Operating budget
is uses to keep records of daily expenses and maintain the profitability. Moreover, the chosen
organisation is using master budget by considering all budgets which provides right information
and maintain profitability accordingly (Ismail, Isa and Mia, 2018).
Task 4
P5 Compare how companies are adopting management accounting system to responding
financial problems
Financial problems are those problems which arises while running a business and
affected the profitability. The person who is operating the business should be analysis the
problems which are pertaining at the time of making profits so it has reduces profits. But there
are many activities and system that can be uses to solve that problem and provide higher profits.
Different types of financial problems are as explained:
Late payment by customers – This means a business is operating and running by
managing the credits where customers place order to buy products and make a promise to pay
after. This reduces the liquidity position and create a problem of receiving money on time.
Therefore, it can a financial problem for management who are facing while running a business.
This problem also can be face by Aj and Sons as it has many clients who get services on credits
and not paying money on time (Agrawal, 2018).
Gaps in cash flow – For operating a business and knowing financial position cash flow
prepares by management that involves different activities such as operating, investing and
financial activity that uses to know financial information. Aj and Sons can face this problem due
to lack of financial planning and lack of inventory management that can create problems in
relation to a business.
Technique that uses to identify problems
KPI – This indicator refer as tool that states set of quantifiable measurement that mainly
uses to identify the company's overall long term performance. This can help to determine the
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organisation's strategic, financial and operational achievement which increases business
performance and maintain high profits. This involves financial and non financial information
which can be uses to complete task accordingly and analyse the profitable activities. Aj and Sons
uses this tool to analyse the financial and non financial performance which they are performing
in organisation and can help to operate the business effectively (Kumarasiri and Gunasekarage,
2017).
Balance scorecards – This is a tool that states the strategic performance of an
organisation by keeping track of execution of activities. In organisation number of people
working who implement plans which is formulated by management, can help to operate the
business and increases the activities. This cam help to improve the internal business functions
and get external outcomes. Aj and Sons uses this tool for measuring and providing feedback to
organisation and interpret the information to management so better decision can make for
increasing profitability.
Financial governance: This is considered as the set of rules as well as regulations that
are applied through firm in order to respond through financial problems which are regarding lack
of monetary resources. Manager of Aj and Sons utilised this for deals with issues related to
unanticipated expenditure as well as delay in payment through suppliers through examining that
appropriate principles of accounting are comply through firm or not. When overall records are
produced effectively then this will aids in preparing budgets that can be utilised into complex
situations (Orelli, Padovani and Katsikas, 2016).
Comparison of different organisation for responding financial problems
Basis River Island JD Sports
Financial problem This is fashion retailing
company, facing the financial
problems of late payment by
customers which has reduced
the organisational profits.
The financial problem which is facing
by company is gaps in cash flow due
to poor financial planning and not
recording investment activities
properly.
Identification of
problem
This problem is identified by
using KPI tool that states how
This problem is identified by using
the Balance scorecard tool which
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financial and non financial
activities are not working
properly (Ng and et. al., 2017).
states lack of poor financial planning,
lack of monitoring and other activities
are happening in organisation.
Uses of system for
solving problem
Cost accounting system is
should be uses by organisation
that can help to identify cost
and make planning according
which helps to solve the
problems.
Inventory management system should
be uses by industry that can help to
track the inventory and stock of
organisation and keep records of all
items which can help to solve
problems and increases profitability.
M4 Responding to financial problems
Management accounting is highly important for organisation that can be uses to make the
right business decision by considering all information accurately and providing right details.
Systems which are uses to operate the business and solving the problem of chosen organisation
are inventory management and cost accounting that can help to increase business performance.
Moreover, financial governance is a government system that formulate some static rules that can
help to provide the suggestion for solving problems and increases organisational profitability
(Major, 2017).
CONCLUSION
From the report it can be concluded that management accounting is uses to identifying
business information that covers financial data and transactions in order to manage business
activities. Inventory management system uses to track inventory, costing system uses to identify
accurate cost and prices optimisation system uses to set the prices which can help to increase the
organisational profitability. Reports are prepared to set the future activities and planning tools
give benefits of controlling budget which is beneficial for organisation.
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