Use of Planning Tools in Management Accounting

This report discusses the use of planning tools in management accounting, including fixed budgets, operational budgets, zero-based budgeting, and activity-based budgeting. It explores how these tools can assist in forecasting budgets and dealing with financial problems. The report also compares the ways in which companies like Starbucks, McDonald's, and Burger King apply management accounting techniques to address their financial problems.

MANAGEMENT
ACCOUNTING

Table of content
INTRODUCTION..........................................................................................................4
LO 3................................................................................................................................4
Use of planning tools in management accounting...................................................4
LO 4................................................................................................................................7
Comparing ways in which companies could management accounting in dealing
with their financial problems...................................................................................7
CONCLUSION..............................................................................................................8
REFERENCES...............................................................................................................9

INTRODUCTION
Management accounting is the kind of accounting which is concerned with the
reporting of costs related data for an objective of assisting the management of the
company in their decision making process. In the present project report, different
kinds of planning tools will be analyzed and their application in the forecasting of
budgets be evaluated. Further, it will also include a comparison regarding how
companies can apply the management accounting techniques for dealing with their
financial problems.
LO 3
Use of planning tools in management accounting
There are various kinds of planning tools which assists the managers of the
organization in forecasting their operations,expenses for the future. Some of the
planning tools are as follows :
Fixed budgets :
These are the budgets which are does not get changed for any level of sales
volume. It remains static irrespective of the increase or decrease in the level of
production and sales. This is the reason why it is also called as static budget. This type
of budget is helpful only when the costs are majorly fixed so that expenditure does not
change as income or revenue variate (Schaltegger and Zvezdov, 2015).
Advantages :
 It is easier to create, implement and follow as it does not require the regular
updates in the budget throughout the accounting period for which they are
created.
 This budget is capable of providing the meaningful insights about the costs of
organization especially when a variance analysis is conducted. This allows the
managers of the company in assessing the areas where they might be
underestimating or overestimating the expenses which leads to better business
decisions.
Disadvantages :

 These budgets lacks the element of flexibility and does not allow any room for
variations that are necessary to be considered during the accounting period. These are based on past records and data which may not provide useful
information to the managers of a firm.
Operational Budget :
It is a budget which comprises of estimated revenue of a company along with the
associated expenditures for an upcoming accounting period. It includes the fixed and
variable costs which changes with the change in the level of sales, operating expenses
such as interest loan etc.
Advantages :
 It allows the managers the flexibility in allocating the variations in the budgets.
 It assists the management of a company in keeping the track of the business.
Disadvantages :
 Preparation of the operating budget involves much of the resources of the
company in terms of time, man and money.
 Time consuming job.
Zero based Budgeting :
It is a type of budget in which it is prepared from the scratch with a zero base.
Preparation of this budget consists of re-evaluation of each of the component of cash
flow statement along with the justification of all the expenses that are to be incurred
by the organizational departments (Azudin. and Mansor, 2018).
Advantages : It facilitates accurate result by starting the preparation from the scratch. It takes into accounts the variations and budget inflation. It enhances the coordination and communication within the organization. It leads to decrease in the redundant operations of the company,
Disadvantages : Creating a budget from zero base is a time consuming task. It is costly for the management of the company. Trained and highly skilled manpower is required for creating and performing zero
based budgeting.
Activity based budgeting :
This budgeting refers to the type of budgeting where the budgets are created by
using the technique of management accounting which is activity based costing which

emphasizes on considering the overheads expenses or costs.
Advantages : The biggest advantage of this type of budgeting is that it does not take into
consideration the records or data of past time rather it very closely and deeply
evaluates and analyses the acclivities which are incurring the costs. The resources
and funds are then after allocated to the different activities. It helps the managers in eliminating all kinds of unnecessary and unprofitable
activities which are consuming the resources of the company. This aids them in
controlling their cost of operation which eventually helps them in building a
competitive advantage over others in the market (Activity Based Budgeting ,
2019).
Disadvantages : Creating and performing activity based budgeting is a complex process which
requires the trained and skilled personnel. It consumes high amount of resources and provides short term outcomes.
Use of planning tools and their application in the preparation of the budgets
Sales budgets is one of the form of budgeting in which sales are estimated for an
upcoming accounting period. This planning tool helps the manager in the financial
forecasting of the company.
Likewise, cash flow statements helps the management of the company in
estimating the cash inflows and cash outflows for the future period. Based on the
historical data of cash flow statements, the organization is assisted in preparing cash
budgets for the future accounting period.
Tools of budgetary control along with acting as the techniques of monitoring and
controlling the activities of the company, it also facilitates the planning process of the
business. Preparation of the budgets or forecasting of the expenditure for the future
activities allows the managers to follow a base for incurring the expenses within the
boundaries set by such budgets. Over expenditure would mean that company is not
implementing the budgets or spending plan properly or while preparing the budgets,
the managers have not taken into consideration the material facts & factors which has
the potential of affecting the activities of the business significantly such as inflation in
the prices of material and labour (How to Use Budgeting and Budgetary Controls as a
Tool of Management, 2017).

LO 4
Comparing ways in which companies could management accounting in dealing with
their financial problems
Organizations face different kinds of financial problems such as decreasing sales,
more cash outflows instead of cash inflows, less liquidity, lower profitability etc. In
such conditions, management accounting techniques could be used by the companies
through which they can form decisions more rationally and effectively that could help
in coping up with their financial problems (Schaltegger, Etxeberria and Ortas, 2017).
Below is the comparison between Starbucks, McDonald's and Burger King regarding
how they apply management accounting system:
Bench-marking :
It is one of the method of management accounting system through which
Starbucks deal with its financial problems. Bench-marking is the process of
evaluating the performance of company’s performance with the standard set by the
best performing company in the industry. By the application of this technique of
management accounting , the company has managed to control the activities in terms
of cost and is effectively dealing with the problems of financial nature. Bench-
marking allows the managers in identifying the areas where the Starbucks is spending
too much which in return is not providing the profitable results to the company.
Through this, proper evaluation of own’s performance is facilitated through this
technique and helps the managers in forming more rational and effective decisions.
However, the problem with this technique is that it does not reflect the conditions
under which the best performance of the company was obtained by the competitor in
the industry. This deviates the decision making process and sometimes does not
provide as accurate decisions & strategies as accepted.
Variance analysis :
McDonald focuses on performing the variance analysis which assists in assessing
any deviation in the actual performance when compared against the standard
performance already set by the company. This technique of management accounting
helps the company in finding out the reasons behind the unsatisfactory performance
after which it takes corrective actions for implementing the plan as desired. This tool
of performance evaluation helps the managers in confronting with the financial

problems more effectively (Appelbaum and et.al., 2017) .
Key performance indicators :
KPIs refers to the measurable value that stipulates as to how effectively and
efficiently has the company has performed and managed to achieve its key objectives.
Burger King uses KPIs for evaluating their performance by assessing how far they
have managed to reach their targets. There are different KPIs such as employees,
company’s profitability etc. This technique is considered as one of the best tool of
measuring and evaluating the success of the organization because it takes into account
ever aspect of the business (Nishimura, 2019). Further, it also facilitate the managers
of the business entity in responding to their financial problems by analyzing the
performance of each of the key activity of the organization from which it becomes
convenient to the management of Burger King that which activity or department is
over utilizing its resources against the profits/ income generated by such activity.
Therefore, it can be said that different organizations uses different planning tools
and techniques of management amounting for responding to their financial problems.
CONCLUSION
From the above project report, it can be summarized that managers of the
organizations gets immense help from the application of management accounting in
their operations. It was seen in the report that companies use bench-marking, variance
analysis, key performance indicators for responding to their financial problems and
uses different planning tools such as fixed budget, operational budgets, zero based
budgeting for preparing the expenditure plan according to which the activities are to
be undertaken.

REFERENCES
Books and Journals
Nishimura, A., 2019. Uncertainty and Management Accounting: Opportunity,
Profit Opportunity, and Profit. In Management, Uncertainty, and Accounting (pp. 73-
95). Palgrave Macmillan, Singapore.
Appelbaum, D and et.al., 2017. Impact of business analytics and enterprise
systems on managerial accounting. International Journal of Accounting Information
Systems. 25. pp.29-44.
Schaltegger, S., Etxeberria, I.Á. and Ortas, E., 2017. Innovating corporate
accounting and reporting for sustainability–attributes and challenges. Sustainable
Development. 25(2). pp.113-122.
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs:
The impact of organizational DNA, business potential and operational
technology. Asia Pacific Management Review. 23(3). pp.222-226.
Schaltegger, S. and Zvezdov, D., 2015. Expanding material flow cost accounting.
Framework, review and potentials. Journal of Cleaner Production. 108. pp.1333-
1341.
Online
How to Use Budgeting and Budgetary Controls as a Tool of Management.2017.
[Online]. Available through <https://pocketsense.com/use-budgeting-
budgetary-controls-tool-management-1269.html>
Activity Based Budgeting.2019. [Online]. Available through
<https://efinancemanagement.com/budgeting/activity-based-budgeting>