Importance of Management Accounting Tools for Solving Financial Problems

This article discusses the importance of management accounting tools in solving financial problems. It covers techniques such as inventory management, liquidity management, key performance indicators, and financial governance. These tools help organizations overcome issues like inventory management problems and lack of liquidity.

MANAGEMENT ACCOUNTING
Contents
1

Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK2.............................................................................................................................................4
P3Calculation of absorption and marginal costing......................................................................4
M2 Applying managing accounting reports................................................................................6
D2 Financial report and interpretation of its data........................................................................6
TASK3.............................................................................................................................................6
P4 Description of various types of planning tools benefits’ and drawbacks...............................6
M3 Uses of planning tool for forecasting budget........................................................................8
TASK4.............................................................................................................................................8
P5 Discrimination of importance of management accounting tools for solving financial
problem........................................................................................................................................8
M4 Uses of managing accounting for sustaining organization success....................................10
D3 Assess how planning tools for accounting react appropriately to solve economic problems
to lead business entity to sustainable achievement....................................................................10
CONCLSION................................................................................................................................11
REFRENCES.................................................................................................................................11
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INTRODUCTION
Management accounting is a tool in which data are identify, calculated, recorded and
analysis in systematic way through which manager can able to take decision regarding their
future policies . In this report Prime Furniture has been select for the research , this report
includes the uses of costing technique to calculate cost and various types of planning tools which
are used for formulating of polices and taken effective decision. This report also contains the
uses of managing accounting methods in order to recognize cause of financial problem and make
policies to overcome the problems.
TASK2
P3Calculation of absorption and marginal costing
Management accounting technique: In management accounting system various techniques has
been used by corporations to identify cost and formulate statement of costing and profits.
Manager of Prime Furniture use following techniques (Dogenski, Ferreira and de Oliveira,
A2016).
Cost volume analysis: In these technique different types of methods for calculation of cost has
been defined. Job costing, process costing, marginal costing, standard costing. With the uses of
theses techniques manages able to determine their budget cost of production and standard cost.
Absorption costing: This also known as direct method of costing. N absorption costing method
managers use variable and fixed both type of item during calculation of profits.
Notes Year 1
£ £ £
Sales 66,000
Cost of sales:
Opening Stock* - 10
Add total production costs:
Variable overheads 50,700 42
Fixed production overheads 15,600 13
Less closing stock** 1,2 10,200 3
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Cost of sales 56,100
Gross profit 9,900
Less: Selling & Administration Costs(fixed) 5,200
Interpretation: If Prime Furniture se absorption costing method for calculation of profit then
value of net profit of the organization will be 4700 for one year and 16100 for the next year.
Marginal costing: This is very essential part of managing accounting. This type of costing only
considered variable item of organizational activities thus it also known as variable costing. It
provides basis to calculate break even analysis, margin of safety and relationship between
variable of the statements (Shinyie, Ismail, and Jemain, , 2014).
Notes Year 1 Year 2
£ £ £ £
Sales 66,000 7
Marginal cost of sales:
Opening Stock - 7,800
Add variable production costs:
Variable 50,700 42,900
Less closing stock 1, 2 7,800 2,600
Marginal cost of sales 42,900 4
Fixed manufacturing costs 9,000
Selling & Administration Costs(fixed) 5,200
Gross profit 8,900 1
Interpretation: If the manager of Prime Furniture apply marginal costing method then the
organization will be able to generate 8900 profit in first year and 16900 profit in the next year.
Product costing: This type of costing technique is utilized by business organization in order to
identify the cost of manufacturing products. It includes cost of each item. The main reason of
using this costing technique in the organization is to determine the cost incurred during every
product and which item charge higher rate of cost .This will useful to reduce external cost and
making effective policies.
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Cost of inventory: In this technique EOQ and VED analyse ,method has been used by managers
to determine the cost of inventories. Inventory cost technique has been used for recognized
managing cost of various stock material used in operating business activities. With the use of this
method Prime Furniture will b able to identify cost of managing stocks of furniture. This
technique utilize the cost of investing in maintaining stocks by implementing effective plans and
proper utilization of resources.
Cost variance: This technique is used by mangers to identify the deviation between standard and
actual cost plan for operating activities. Managers use material, labour and overheads variances
through which they can recognized the difference of variables of essential factors of product
manufacturing. With the uses of cost variances management department will be formulate
policies and also useful for making budgets in upcoming year. It is used to analysis the causes of
deviation and prepared process in order to reduce the deviations (Mancini and Ferruzzi, 2016).
M2 Applying managing accounting reports
Various managing accounting technique use to engage in recreation significant role in
Prime Furniture .Cost secretarial system marginal costing, incorporation costing, job process
costing inventory management technique all are use for keep day to day transaction of the
business organization.
D2 Financial report and interpretation of its data
This statement contains all the very important tools and necessary data connected to the
transaction of finance all cost, expense, prospect expense, all are considering within one
financial report it will help in interpret trade financial presentation to stockholder Manger
of Prime Furniture use this report to formulated financial statement and also use for
calculating a variety of ratios in order to assign presentation of the company with the use of
financial story profitability of the business has been increase.
TASK3
P4 Description of various types of planning tools benefits’ and drawbacks
Planning tools: It can be defined as those instruments which is use for provides essential action
and direction methods during preparation of plans and policies. By the use of these tools mangers
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able to plan their strategies by considering all the objectives of the business organization.
Following tools can be used by Prime Furniture
Budget: It is the most important tool of planning. This statement helps in providing numerical
data regarding future business strategies. On the basis of these tools managers able to recognize
their income and expenses. It depends on the skills of the manger they use which type of budget
favourable ad provides reliable details regarding future .Following are the types of budget
Operating budget: Theses budget are formulated too describe the data regarding operating
active. It will help in identifying future cost incurred in various activities and value of expected
operating profit for business organization.
Capital budget: Thus budget represent the allocation of capital and financial resource the
amount of shares and debentures used in formulating structure of Business Corporation.
Master Budget: It is the combination of all the operating, financial, production sales and capital
budget. Thus budget show summery statement through which mangers able to easily understand
the overall future performance of budget.
Budgetary technique: Formulation of budget is known as budgeting following are the methods of
preparation of budget (Sainaghi, Phillips,Baggi and Mauri, 2019).
Zero Base Budget: In this type of budgeting technique managers prepared budget by not using
any past records moreover they formulate budget by its initial level .Thus is also define as zero
be budget as everything started from initial level.
Rolling Budget: In this type of budgeting manger prepared budget for short time period and for
continues process.
Activity Base Budget: This is most famous type of budgeting technique and useful tool of
planning. In activity based budgeting,mangers prepared budget on the basis of allocation of
activities of the business organization.
Benefits
These tools useful to provide accurate information regarding future. Activity based budget help
in allocation of resources in effective manner.
Price strategy: With the use of effective pricing policies mangers able to determine their
products price rate. Various types of prices rate are available, manger can determine price on
discount or at premium they also sell their products on skimming pricing policies and cost based
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and competitive pricing policies. Organizations will earn profits only if their price are satisfied to
their customers and cover up cost of manufacturing product.
Cost system: Theses system is part of planning tool because with the use of effective co system
managers take decision regarding their cot and able to formulate policies and choose the best
alternative which is cost effective for future operations. Manager of Prime Furniture us job,
stranded and product as well as marginal and absorption costing method in order to determine
cost.
Benefits
Useful for recoganization of cost.
Help in controlling additional activities.
Drawbacks
It required skilled manager to calculate the cost.
Cost records are not necessary to provide relied information
Benefits
With the use of pricing strategies mangers able to take decision regarding effective policies
regarding the price.
They can earn more profits by selling prices at high prices (Badolato, Donelson and Ege, 2014).
Drawback
It requires skills manager to decide the price.
Success of the pricing policies depend on the satisfaction of labours.
Strategic planning tools: With the adoption of strategic planning methods business organizations
able to take decision through which they can attain goals of their future.
SWOT: This will help in identifying the strength, weakness, opportunities and threat of the
future operations. It is the most effective method of environment scanning. This also useful in
planning marketing strategies of the organization.
PEST: This technique used in determine the effect of political, economical social and
technological factors. This scanning framework help in formulating plans for external parties as
it will define the effect of external environment factors other business operations
Balance Scorecard: Thus method is part of planning and controlling procedure also. With the use
of balance scorecard mangers able to determine the performance of the business activities and
the reason ad causes of its difference.
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Benefits
With the use of strategic planning tools manger able to identify the effect of internal and
external factors on business operations.
They are useful for defining the threat, risk, opportunities of future business activities.
Drawbacks
These tools are not provide reliable information.
It required high cost for environment scanning techniques.
M3 Uses of planning tool for forecasting budget
Planning tools are tools which used in planning effect polices and take decision regarding
best alternative, with the use of budgeting, costing technique and effective strategies planning
tools manger able to formulate effective budget through which the identify future course of
actions d results of business organization.
TASK4
P5 Discrimination of importance of management accounting tools for solving financial problem
Financial problem: It refers as phase in which organization is not able to pay its debt
liabilities due to their lack of financial resources. In this situation managers working capital
value goes down and ratio of current assets and current liabilities is decreases due to incremental
of liabilities. Business Corporation face various types of problems and issues during run their
business activities and financial problem is part of it. Especially when organization is considered
under the small size organization. Prime Furniture is medium size organization it suffers from
the monetary issue within the organization because of lack of their inventory management and
problem of liquidity with the organization (González-Gil,Palacin and Batty, 2015).
Inventory managing: Due to changes of technologies and perception of customers, their
demand regarding the predicts change within the few month as rival industries of the Prime
Furniture provides various new innovative furniture material in the market thus customers focus
ad attract towards their rival industries. Due t his problem the stock of the organization issued be
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treated as wagered and it will not useful even cost incurred on maintain this stock also
considered as wastage cost.
Lack of liquidity: Due to many withdrawals, poor assets management facility, low profits, high
lending and lack of ability to cover up the assets ,accumulating of deposits , organization face
from liquidly problem thy don’t have enough working capital to pay their day to do liability.
With the use of management accounting methods they can resolve this problem
Key performance indicator: Skills of management accountant help in overcome the problems.
With the implementation of KPI the Prime Furniture will solve their issue. It is a tool of
management accounting which use to set a indicator on the basis of that performance has been
measured .It is used to analyse performances of financial and no financial aspect of the
organization. Indicator ca took as , revenue, sales rate, profits, etc. With the use of KPI manger
can solve their problem of inventory management as they set target to sell stock within given
time limit.
Benchmarked: In this method benchmark are set on to basis of that manger analysis the
performance of the organization. Manager of Prime Furniture will give incentive to those who
fulfil their target and cover up the benchmark limit.
Financial governance: This tool is useful to proved guideline and direction to work towards atone
their work in ethical way. to is useful to record all the transaction in systemic way. With the use
of this technique they can overcome liquidity problem as they can recognisant made policies to
recover their debt many from debtors.
Particular Prime furniture Royal Furniture
Problems face by organization The organization is suffers
from financial problem due to
lack of inventory management
system
Royal Furniture faces
problems of economy because
they don’t have sufficient
availability of liquidly to fulfil
their requirements
Managing system They used stock management
system though which they are
able to control and manger
stock and valuate inventory
and made systematic record
To overcome the problem of
liquidity the need to us
effective cash management
system. Through which they
are able to take cash from
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(Haq, Zhao and Rehman,
2020).
various institute and can
maintain liquidity in
organization
Technique Prime Furniture use KPI
method they market indicator
and on the basis of that they
can manage their stock
With the adoption of financial
governance technique ,
manger will be able to
formulate effective working
capital policies and with this
they solve liquidity problem.
M4 Uses of managing accounting for sustaining organization success
Management accounting tools included KPI and benchmarking with the use of these tools
manage Prime Furniture will overcome their liquid and investor problems formulating effective
policies and plan within business organization
D3 Assess how planning tools for accounting react appropriately to solve economic problems to
lead business entity to sustainable achievement.
Planning tools are useful for solving problem of business organization. A skills management
accountant required capabilities of effective communicational and management with the use of
technique capabilities manger of Prime Furniture use activity budget planning and pricing
skimming polices with the use of cost management system the ban strategic planning tool they
analyst the reason of financial problem by applying KPI and financial governance polices they
are able to overcome financial problems and is achieve competitive advantaging in order to attain
sustainability of the organization.
CONCLSION
The above project report has been used to concluded that most of business corporation utilize the
management accounting tools in order to monitor their profits and enhancing corporation
efficiency .For this purpose they use various managing technique, standard costing, job costing
with the use of these manger able to identify cost they use budgets and other planning tools
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through which are able to determine price formulate effective plans and policies in order to
overcome their financial problems and achieve goals of business organization.
REFRENCES
Books and journals
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order parameter for selecting optimal threshold of extreme rainfall events. Water
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Dogenski, M., Ferreira, N.J. and de Oliveira, A .L., 2016. Extraction of Corymbia citriodora
essential oil and resin using near and supercritical carbon dioxide. The Journal of
Supercritical Fluids, 115, pp.54-64.
Mancini, D. and Ferruzzi, C., 2016. Using collaboration platforms for management control
processes: new opportunities for integration. In Empowering Organizations (pp. 91-101).
Springer, Cham.
Sainaghi, R., Phillips, P., Baggio, R. and Mauri, A., 2019. Hotel performance: Rigor and relevant
research topics. International Journal of Hospitality Management, 78, pp.13-26.
Badolato, P .G., Donelson, D.C. and Ege, M., 2014. Audit committee financial expertise and
earnings management: The role of status. Journal of accounting and economics, 58(2-3),
pp.208-230.
González-Gil, A., Palacin, R. and Batty, P., 2015. Optimal energy management of urban rail
systems: Key performance indicators. Energy Conversion and Management, 90, pp.282-
291.
Haq, A .U., Zhao, B. and Rehman, R. U., 2020. Corporate governance and firms performance a
case of India. SMART Journal of Business Management Studies, 16(1), pp.73-79.
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