Management Accounting Report: Financial Planning and Problem Solving

This report delves into the core concepts of management accounting, examining the application of various planning tools and strategies to address financial challenges within organizations. It begins with an introduction to management accounting, followed by a detailed discussion of planning tools like budgets (cash, operational, and master budgets), and cost-volume-profit (CVP) analysis, alongside the advantages and disadvantages of each. The report further explores pricing strategies and their impact on business performance, highlighting both benefits and potential drawbacks. A significant portion of the report is dedicated to comparing how organizations, specifically J Rotherham Limited and MSD Lighting Ltd., utilize management accounting systems to solve specific financial problems such as increasing overheads and loss of stock items. Techniques like benchmarking and Key Performance Indicators (KPIs) are analyzed, including their advantages and disadvantages. The report concludes by summarizing the effectiveness of these tools and methods in forecasting financial data and resolving financial issues. References to academic sources are also included.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
 Introduction
 Planning tools used in management accounting
 Ways in which organizations can use management accounting to solve
financial problems
 Conclusion
 References

ADVANTAGES AND DISADVANTAGES
OF PLANNING TOOLS
 Budgets-
 A budget is an estimate of expenditures and incomes over a fixed period
of time. J Rotherham can prepare different types of budgets which will
help them in planning for their operations.
 The budgets which they can use are as follows-
 Cash budget- A cash budget shows the estimate and forecasts of cash
revenues and expenses over a fixed period of time.
 Operational budget- An operational budget can be used by J Rotherham
to keep a track of its operational revenues and incomes.
 Master budget- A master budget refers to an aggregation of other lower-
level budgets to form a comprehensive forecast and estimate of revenues
and expenditures.

ADVANTAGES AND
DISADVANTAGES OF BUDGETS-
 Budgets help management in timely analyzing the problems present in
the system for their eradication.
 Budgets provide a tool through which policies and decisions of the
management can be thoroughly tested.
 Budgets make use of approximations and estimates which can lead to
inaccuracy in results.
 The success of budgets depends upon cooperation and coordination
between different departments of a company otherwise it would not give
accurate results.

COST-VOLUME-PROFIT
ANALYSIS
 CVP analysis is used in identifying the response of profits to a change in
the level of sales and output. It helps firms in identifying the level where
it earns no profit and neither incurs a loss.
 Advantages of CVP analysis-
 It helps the companies in finding out the break-even point at which it
neither earns a profit nor incurs a loss.
 It helps the firms in their planning and marketing efforts.
 Disadvantages of CVP analysis-
 It sometimes makes use of assumptions and estimates which can be quite
unrealistic in nature and thus there are chances of inaccuracy in obtaining
results.
 It makes use of number of units which cannot be the only driver of total
costs and revenues.

PRICING STRATEGIES
 A business can make use of different types of pricing strategies available so
that it can execute its various plans effectively and efficiently.
 Advantages-
 Pricing strategies can help the firms in aggressively marketing their
products and services to make them look quite appealing to the customers.
 Pricing strategies can help a business to a great extent in increasing their
revenues and thereby substantially maximizing the profitability level in the
long-run.
 Disadvantages-
 If the pricing strategy selected by enterprise is wrong in the context of the
market then it can result in customers shifting to other competitors resulting
in loss of business. Thus careful execution of these strategies is required to
attain success in the long-run.
 If a wrong pricing strategy is selected by company then its income level will
not rise as much as earlier expected by it. Thus if a firm has to raise its
income substantially then it needs to select a right pricing strategy for it.

COMPARISON OF ORGANIZATIONS
IN ADAPTATION OF MANAGEMENT
ACCOUNTING SYSTEMS TO SOLVE
FINANCIAL PROBLEMS
 Organizations need to use management accounting systems to get rid of
their financial issues and problems which act as a hindrance in achieving
the goal of maximization of profits.
 J Rotherham Limited is facing the following financial problems-
 Increase in overheads- The firm is facing this problem because its
expenses other than production and labor are increasing rapidly.
 Loss of stock items- Some of the company’s stock items are lost
resulting in loss of revenue.

CONTINUED…

 Thus in order to solve these problems J Rotherham Limited can make use of the
following techniques-
 Benchmarking- Benchmarking is a process of setting of different standards of
performance to be achieved in a business.
 Advantages of benchmarking-
 Improves standards- Benchmarking allows for improvement in standards of
the company.
 Helps in overcoming weaknesses- The process of benchmarking helps the
companies in overcoming their weaknesses by properly following the standards
and benchmarks set.
 Disadvantages of benchmarking-
 Incorrect comparison- Sometimes in the process of benchmarking incorrect
standards is set due to undue comparison with firms which have entirely
different level of operations
 Costly affair- Benchmarking is a process which is quite costly in nature and
thus increases the overall costs of the company for using it.

CONTINUED…
 KPIs- Key performance indicators or KPIs are tools which can be used for
measurement of performance.
 J Rotherham Limited can use financial KPIs to solve its problem of loss of
stock items as by use of ratio analysis it can be done.
 Advantages of KPIs-
 Measurable results- The use of KPIs gives measurable results which can
be used effectively for tracking of performance.
 Alignment- The use of KPIs helps in big organizations as it keeps different
individuals and teams focused on attainment of goals and targets.
 Disadvantages of KPIs-
 Decrease in quality- In order to meet the standards quickly, some large-
scale organizations can make compromises on quality of products and
services.
 Short-term oriented- KPIs are usually oriented for short-term only and
thus do not generally provide an effective strategy which can be applied to
long-term.

DIFFERENCE BETWEEN
ORGANIZATIONS ON THE BASIS
OF USE OF MANAGEMENT
ACCOUNTING SYSTEMS TO SOLVE
FINANCIAL PROBLEMS
Basis J Rotherham Limited MSD Lighting Ltd.
Financial problem It faces problem of loss
of stock items
It faces problem of
excessive cost in
manufacturing of
products.
Management
accounting system
used
It can use inventory
management system.
It can use cost
accounting system.
Application of the
system
It can use this system to
help in better tracking
and maintenance of
stock items
It can use this system to
control the costs being
incurred in production
of goods and services.

CONCLUSION
 From the above presentation, it can
be concluded that planning tools are
useful for firms in forecasting and
estimating their financial data. Also,
the ways in which organizations
make use of management accounting
systems has been discussed.

REFERENCES
 Grossi, G and et.al., 2019. Accounting, performance management
systems and accountability changes in knowledge-intensive public
organizations. Accounting, Auditing & Accountability Journal.
 Soobaroyen, T., Tsamenyi, M. and Sapra, H., 2017. Accounting and
governance in Africa–contributions and opportunities for further
research. Journal of Accounting in Emerging Economies.