Management Accounting: Planning Tools and Financial Problems

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 3............................................................................................................................................1
Explanation of the advantages and disadvantages of varied types of planning tools which has
been used for budgetary control..................................................................................................1
3.1 Analysis of the use of planning tools and its application to prepare and forecast budgets...3
4.0 An evaluation of how organisations are adapting management accounting systems to
respond to financial problems.....................................................................................................4
4.1 An analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success............................................................................................5
4.2 An evaluation of how the use of management accounting planning tools can solve
financial problems to lead organisations to sustainable success.................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting is a significant procedure which tends to mainly focus on preparing
the key financial reports which helps in carrying out the operations of the business. It is useful
for the financial manager in taking long term as well as short term decision (Isaac, Lawal and
Okoli, 2015). This study will highlight on effectively understanding the management accounting
system. Moreover, this study also mainly focus on applying the range of appropriate
management accounting techniques which is considered to be highly significant in attaining the
key results and outcomes. The present study also focuses on evaluating the advantages and
disadvantages of varied types of planning tools which has been used for budgetary control.
Lastly, the main focus of the study is to examine how the organization has been adapting to the
management accounting system which helps in responding to the key financial problems.
TASK 3
Explanation of the advantages and disadvantages of varied types of planning tools which has
been used for budgetary control.
What is budgetary control?
Budgetary control is an effective procedure where the appropriate set of budgets are
prepared in order to compare it with the actual performance and find out the specific set of
variance. Finding the variance with the budgetary control tools helps the management of the
company take corrective actions (Mohamed, Kerosi and Tirimba, 2016). Budgetary control aids
planning of the key annual operations and also focuses on coordinating with the key activities
and various different parts of the company. Budgetary control helps the organization in
enhancing the overall efficiency of the company by the attainment of the goals and objectives of
company. The documented budget must always be accessible and transparent.
Advantages of budgets as a budgetary control tool
The budgets are considered to be significant because it helps in effectively defining the
key goals, policies and plans associated with the organization. It is prominent in managing the
money effectively and also focuses on allocating appropriate set of resources related with the
project. Budget helps in meeting the objectives of the company and monitoring performance
(Lockwood, 2016). It also helps in the better identification of the problems before they actually
occur and helps in improved decision making. Budget is a day to day management of the task
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which helps in the better evaluation of the performance and helps in reviewing profitability and
planning how to effectively manage the fund. Budgeting helps the management of the
organization to effectively track the income and expenses of the company.
Disadvantages of budgets as a budgetary control tool
The major disadvantage associated with the budget is that, it is mainly based upon the
key assumptions which results in inaccurate predictions of the data. Preparation of the budget is
considered to be as a time consuming process. It required high degree of expenses to prepare
reliable and accurate budget (Budgetary Control: 9 Limitations of Budgetary Control –
Explained, 2020). This budgetary control tool only focuses on the numerical and quantitative
terms and does not analyse the qualitative terms which is also necessary for the better
performance of the company. Hence, it takes into consideration only financial numeric outcomes
which is the major limitation of this budgetary control tool.
Advantages of variance analysis as a budgetary control tool
Variance analysis is considered to be as one of the key significant tool of the budgetary
control because it is useful in the identification of the reason behind variation within the income
and expenditure of the current year from that of the budgeted value. It is useful in effectively
understanding the reason behind the fluctuation. It helps in taking necessary decision to reduce
the adverse effect of the variance (Gooneratne and Hoque, 2016). It is considered to be as the
effective budgeting activity. It is significant in controlling the expenditure and helps in the better
estimation of the budget in order to evaluate the performance of the company. Variance analysis
is useful for the organization to be proactive and focuses on attaining the targets of the company
and helps in mitigating any potential risk.
Disadvantages of Variance Analysis as a budgetary control tool
One of the key limitation linked with the variance analysis tool is that it is a time
consuming procedure. This eventually leads to delay in taking corrective set of actions. Detailed
analysis of the each factor results in the delay in decision making. It is expensive process and
each department need to be analysed.
Advantages of Responsibility Centres (responsibility accounting) as a budgetary control
tool.
Responsibility Centres is an effective budgetary control tool which helps in establishing
sound mechanism for the control. It is significant in effectively evaluating the actual
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