Management Accounting Systems and Planning Tools for Financial Problem

This report explores the use of management accounting systems and planning tools in responding to financial problems. It discusses the advantages and disadvantages of different types of planning tools and how organizations are adapting their management accounting systems to address financial issues.

MANAGEMENT
ACCOUNTING
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Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Covered in PPT.......................................................................................................................3
TASK 2............................................................................................................................................3
P3. Cost Calculate cost and presentation of different planning tools.....................................3
TASK 3............................................................................................................................................8
P4. Explain the advantages and disadvantages of different types of planning tools..............8
P5. Compare how organisations are adapting management accounting systems to respond to
financial problem..................................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
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INTRODUCTION
Management Accounting implies to practice of conducting the inner operating operations
and implementing relevant decisions to efficiently accomplish the business purpose. This is
generally used to make the necessary choices for company's internal motives which involve
financial and non-fiscal information (Arroyo, 2012). This report explores aspects like as
understanding the MA systems and reporting methods in the context of Prime Furniture which is
a growing East London based corporation. Computation of varying costs had also been
performed based on effective technique. In addition, this study also describes use of distinct-
distinct planning method/tools in management accounting and also different ways
whereby companies can use them to resolve financial issues.
TASK 1
Covered in PPT
TASK 2
P3. Cost Calculate cost and presentation of different planning tools
Absorption Costing: It is the essential method of costing under which cost of product is
computed on the basis of two essential expenses that include direct as well as indirect expenses.
While carry out the calculation both indirect and direct expenses are computed on the cost of
product (Chenhall and Moers, 2015). In relation to the Prime Furniture limited application of
absorption costing is the significant technique in terms to reduce the expenses and make
significant utilisation of resources effectively.
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Marginal costing: It is a technique of calculating cost to compute the production of cost
under which the unit fixed cost are not considered in order to determine the total production cost
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associated by the company (DRURY, 2013). It focuses on different elements or different forms
of the expenditure that include manufacturing expenses, office expenses, administration expenses
selling as well as distribution. In context to the Prime furniture Limited carry out marginal cost
to analyse additional unit associated with the manufacturing of product.
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Therefore, on the basis of above calculation of absorption and marginal costing it has
been depicted that both methods significantly helps to calculate net profit as well as to determine
the present differences (Hiebl, 2014). The one and only aspect which considered being critical is
associated with fixed overhead expenses which is the foremost reason of the differences that
arise while carrying out calculation. Explanation is shown below:
Based on first quarter:
Overhead absorbed - 66000*0.20 = 13200
Fixed overhead costs – 16 so there are getting under absorption about 1600
In 2nd quarter:
Total absorbed expenses: (74000*0.20) = 14800
Fixed costs = 16000 so there are under absorption approx 1200
So there are understand the differences between both profits due to fixed overhead -
Particular Q1 Q2
…... ….Profit from
absorption 4700 5900
-2800 -1200
….. …..Profits as from
marginal 1900 4700
TASK 3
P4. Explain the advantages and disadvantages of different types of planning tools
Preparing a budget
Budget is the pre-planning of all the expenditure of company while starting a particular
project (Kokubu and Kitada, 2015). Each and every company prepare budget on the basis of their
income as well as expenditure so that they can make the optimum utilisation of resources as well
as reduce unnecessary expenditure of entity. Different forms of the budget along with their merit
and demerit are explained below:
Sales Budget- In Prime Furniture, this kind of budget consists the sales in form of units and
assist in analysing the income from these sales. Sales budget can be approaches and systems that
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help the venture in manufacturing of commodities and services or trading in a particular time
frame.
Advantages- This kind of budget is important for the assignment of origins to different
products and services so that they can assist in concerting the estimate sales (Nitzl, 2016). It also
help in framing sales systems so that the enterprise can attain its designed aims and objective
regarding sales.
Disadvantages- This kind of budget is time taking and could be accepted by the employees
of the venture easily. It is not capable to effectively verbalisation the upcoming manner of acts.
Production Budget- In respective firm, this budget indicates to fiscal plan that consists diverse
units that are manufactured in specific time. In this firm, it can be analysed by the managers so
that they can determine that how much units can be produced by consisting furore need. With the
help of this monetary plan, the management of the company can gather information regarding
manufacturing of units that are needed to fulfil consumer’s needs.
Advantages- It assist in operating and devising the work of raw substance, final product
and inventory activity, it is crucial for controlling and decreasing the cost of producing units to
monitor stocks.
Disadvantages- within this budget, there are lack of flexibility when the management of
the comoany organise production process then there are different covariant that are amended
quickly
Cash flow Budget- In Prime Furniture, it refers to the calculation of all fund and expenses that
are common to create in a specific time. This estimate can be made supported to monthly,
quarterly and yearly.
Advantages- It is efficacious for the organisation and help in determining the fund
weather it is conserved and where it used in several acts and operations.
Disadvantages- The activities of this type of budget taking more time and they are less
flexible due to which in consist commercial figure and present it to company’s management
department.
Operating budget: To manage all the income and cost for a particular time zone operating
budget is prepared by financial manager. This form of the budget includes the projects which are
designed for the sales of company. this budget can be for monthly, half yearly, quarterly and
annually basis (Kotas, 2014). In relation to the Prime furniture limited company can adopt
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operating budget to manage their performance for the short tenure and maintain consistency in
their business.
Advantages- This helps to acknowledge the actual strength as well as weaknesses of
company for which measures are designed to recognize the problem and solve them accurately.It
helps Prime Furniture Company to attain its short term goals.
Disadvantages- Lack of communication is one of the common problems that may arise in
various sections while computing operating budget for various section (Otley and Emmanuel,
2013). Analysis of variance may take time for the management to reach out to a conclusion.
Cash Budget: This type of budget is exclusively used to calculate the cost revenue and
expenditure based on certain assumption for the time period. Application of cash budget by the
Prime furniture company helps in recording the cash receipts as well as payment to analyse the
actual position of company which is beneficial for both internal and external stakeholders
(Sánchez-Rodríguez and Spraakman, 2012).
Advantages- This type of cost helps in managing the expenses of the company which led
down the cost and expand profitability margin. It helps to forecast financial situation of the
company based on which the financial decisions can be taken (Schaltegger and Burritt, 2017).
Disadvantages-It is difficult to gain the determined result as it does not include the non cash
expenditure due to which whole dependency on the cash budget is not only the solution for
company.
Pricing strategies: Pricing strategies helps to estimate the cost as well as expenses of offering in
order to attract more and more of existing and potential customer. Prime Furniture Company
involves different types of pricing strategies or policies in order to support the production of
company and maintain profit margin within specific accounting year (Suomala and Lyly-
Yrjänäinen, 2012). It helps in the better valuation of commodity in relation to the competitor, so
different methods are explained below:
Cost plus pricing: This is an essential method under which cost of good remains fix
while carrying out manufacturing for a particular time period. It involves cost of labour cost of
material and overhead cost that is recovered through selling goods and services.
Full costing pricing: This is considered as an effective method under which the cost of
the product is associated with the direct cost incurred to produce the product for a particular time
period.
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Budget variances
It states to the divergence among baseline amount and monetary value of expenses,
profits and actual value. In reference to respective enterprise, it mentions to the real amount for a
particular accounting class (Otley, 2016). This type of variances arise cause of anticipation as
they are not capable to monitor the approaching fund and profitability with entire exactness.
Importance of Budget variance- It helps in managing budgets by controlling budgeted and real
costs, it assists in identifying or determines the reason if the substance are measured and
supervised. In Prime Furniture, with help of it, the managers can converse to program managers
to define substantial variances and provide resolutions.
TASK 4
P5. Compare how organisations are adapting management accounting systems to respond to
financial problem
Financial problem: It refers to the critical and undesirable situation which create problem while
performing financial activities. It can be those fiscal process and acts that generate issues and
barriers to operate the business of venture in effective way. It can be lack of finance to which the
frim are not operating the business activities, operation and factors etc. in Prime Furniture
different activities are influenced by it in negative term. There are different problesm related to
monetary value that can suffered by business organisations. Some issues are discussed below:
Unequal cash flow: As cash flow involves different elements like operational, investing
as well as financial activities of the company. So under this situation the organisation creates the
cash flow under which the financial activities of entity do not matches and create the financial
problem (Suomala and Lyly-Yrjänäinen, 2012).
Carrying out unnecessary expenditure: As per this issue the company remain incapable
to manage the income as well as expenses of company due to which they intend to spend more
rather than generating more (Tucker and Lowe, 2014). This particular issue causes the firm to
face the lack of issue due to which they remain unsystematic in order to manage the internal
activities of company.
Methods to indicate the financial issue
Key performance indicators: Key performance indicator refers to the measuring unit that
helps the business to identify that whether they are able to success or progress effectively for a
particular time period. This matrix is used by the manager in order to track the performance of
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their employee and promote them to constantly enhance their performance effectively. Absence
of key performance indicator lacks in addressing actual performance of the organisation due to
which it is considered as critical factor and followed effectively.
Benchmark: It is the other performance indicator under which standard performance is
set for internal stakeholder on the basis of their existing performance or by analysing the
competitive strategy (Ward, 2012). This helps to enhance average performance and working
capability of employees which leads to the possibility for improvement and consistently leads to
the success of an organisation.
Financial governance: Financial governance is related to collecting, monitoring,
managing as well as controlling all the financial information of company. This let companies to
carry out their performance or manage their financial activities by controlling the data and
disclosing true statement. It basically defines the personal responsibility of internal management
in order to control the quality of report and effectively state the financial or profit and loss
statements.
Comparision
Basis Seatable manufacturing limited Prime furniture limited
Financial Problem The company is anticipating the
problem which is associated with
the income due to which it is
presented that respected company
can effectively present or spend
money by maintaining record of
both cash and non cash transactions.
Here the company faces the issue
of inadequate cash flow that
arises due to high expense and
low generation of funds. This
may affect the financial
operations of entity.
System Cost accounting system is used
in order to resolve the problem
associated with arranging the
financial record on continuous basis.
This helps to overcome the financial
problem effectively
(Wickramasinghe and Alawattage,
Application of Inventory
management system helps to
sort out of the issue in terms to
maintain cash flow and manage
large amount of receipts as well
as payments.
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2012).
CONCLUSION
From above study it has been articulated that managerial accounting is effective framework
which offer vital information to top managing staff by transforming raw data into such
information, this is wider and core aspect which enable managers to take effective decision. This
involve use of reporting methods and planning tools which allow managing staff in responding
financial issues. This is also help to evaluate the performance and results over a specific time-
span. There is different kind of management accounting systems that are effective to determine
the fiscal document of the firm, provide it to the administration of the comoany so that the
management ca administrate and make control over fiscal execution of the company. Diverse
kinds of planning tools are also assistance for the venture as they help in monetary value
planning and budgetary control of the enterprise. There is different type of fiscal problems that
are arisen in the comoany. To reduce and minimise these conflicts and complexities the venture
can utilise diverse accounting system so that the firm can operate its business in effective way
and get over these financial crises in appropriate way.
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Weetman, P., 2019. Financial and management accounting. Pearson UK.
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