Management Accounting in Ikea

Added on - Nov 2020

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MANAGEMENTACCOUNTING
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1P4 Explaining advantages and disadvantages of different types of planning tools used forbudgetary control........................................................................................................................1P5 Evaluating how companies are adapting management accounting system for respondingfinancial problems.......................................................................................................................7CONCLUSION..............................................................................................................................11REFERENCES..............................................................................................................................12
INTRODUCTIONManagement accounting includes provisions which managers undertake for analysingmonetary dataset and making better decisions. Such field of finance provides management witheffectual framework for decision making. Moreover, it furnishes all the information, includingboth monetary & non-monetary, associated with internal operations and thereby helps indeveloping competent strategic and policy framework. The present report is based on Ikea whichprovides customers with innovative furniture, appliances and home accessories. In this, reportwill provide deeper insight about planning tools which firm can employ for the purpose ofbudgetary control. Further, it will also shed light on the techniques which can be used for dealingwith monetary issues or problems.P4 Explaining advantages and disadvantages of different types of planning tools used forbudgetary controlBudgeting is replicated as process to prepare budgets as budgetary control is a techniqueor device of managerial control via budgets. The budget is a quantitative or financial statementformed for specific duration as this states policy to be directly pursued with objective to attainthe set objective. It helps in offering standard for comparison with outcome which is actuallyattained. In simple words, this is an estimate of future needs and arranged on orderly aspect ,recouping some or every activity of any business for specific duration (Hiebl, 2018.). Theessence of budget is known as detailed plan of preparation for specific future period andfollowed through system of records which serves as check on the plan.Budgeting control is referred as system which implies budgets as mode of planning andcontrolling each aspect of selling and producing services along with commodities as well.Moreover, budgetary control is planning in advance of different business aspects could becontrolled. The important features of budgetary control are stated as activity planning of everydepartment, tracing actual performance, coordination in different departments, comparing inbudgeting standards and actual performance, identifying deviations and extracting reasons in thisaspect and undertaking the follow-up action. Budgeting is formulation of plan for specifiedfuture period in numerical aspect. The organizations might establish for units, divisions,departments or for entire organization. The usual time duration for a budget is one year and isexpresses in financial terms. These are foundations of most control systems.1
The planning tools and techniques for budgetary control are stated below with theirmerits and demerits:Ratio analysis:This is the most vital tool of financial control which is used for purposeof judging financial performance of business. Ratio is calculated by undertaking proportion ofsingle financial variable related to other financial variable. By extracting ratio among two relatedfinancial variables, important interpretation could be made which would help to take decisions.Moreover, these financial variables are gathered through financial statements like balance sheetand profit and loss account.MeritsThis helps in facilitating control over various activities through determining weaknessand strengths of business (Saeidi and Othman, 2017).This leads to preparation of budget due to different ratios act as specific guide to identifybudgeted figures for various activities.DemeritsThe single ratio could not predict any incident in accurate basis as numerous supportingratios must be calculated for forecasting an incident. In this aspect, it is time consumingaffair.The ratios extracted on historical figures could not forecast future in precise manner.Budgets: This involves time and cost for purpose of preparation as it has both benefits anddrawbacks as well.MeritsThis forms association among objectives and resources.This helps in establishing guidelines in form of road map for purpose of proceeding inappropriate direction.It provides the best management of subordinaries and fosters appropriate study prior todecision making.DemeritsFormation of budget is very time consuming and very difficult in poorly organisedenvironment where is high need of iteration is budget (The disadvantages of budgeting,2019).2
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