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Management Accounting: Assignment (solved)

Added on - 22 Nov 2020

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ManagementAccounting
Table of ContentsINTRODUCTION...........................................................................................................................1P4 Analyse advantages and disadvantages of different types of planning tools which are usedfor budgetary control..............................................................................................................1P5 Evaluate how companies are adapting management accounting system for respondingfinancial problems..................................................................................................................7CONCLUSION..............................................................................................................................11REFERENCES..............................................................................................................................15
INTRODUCTIONAccounting is the process for recording, analysing, interpreting data and information insystematic manner. Each and every organisation should follow proper accounting system in theirbusiness for running various activities and task(Adler, 2013). Budgetary control is procedure formanaging budget and set financial goals and compared actual results with set standard. Thisreport highlights about merits and demerits of various planning tools which are used in budgetarysuch as flexible, fixed, incremental, variance and zero based. It also covers pricing strategiesalong with management accounting system to respond financial problems. Thus, it includesbenchmarking, ratio analysis and Key Performance Indicators.P4 Analyse advantages and disadvantages of different types of planning tools which are used forbudgetary control.Budgeting refers to process of preparation of detailed projections with respect to futureamounts. It is a financial plan which assists in carrying out activities in future. It comprises ofsales budget which includes production, other departments, capital expenditure, products andother budgets. Basically, it is financial or quantitative statement which is formed for particularduration of time to attain desired goals and objectives. It helps to compare standard offered withwhat is obtained. It is approximation of future requirements which are arranged in sequentialmanner. This is referred to as detailed plan for peculiar time period within future. They arefollowed by system of records which acts as check on plan.Budgeting control refers to a system in which budget specifies mode of planning forcontrolling different aspects which are related with producing and selling of services. It isadvance planning of various aspects of organisation which require budgets and must becontrolled. Major feature of this is to plan tracing actual performance, comparison in standardbudget and potential performance, coordination among various departments, carrying out follow-up action and identification of deviations(Agbejule, 2011). It is a plan for specific time intervalwhich comprises of numerical values. This plan can be developed by organisation as per theirrequirements like it can be for different departments, divisions, units or for organisation as awhole. Normal duration of budget is around one year and it is created every year. Moreover, it isrepresented in financial terms. They acts as foundation of almost all control systems. There are1
different techniques and tools for planning of budgetary control they are mentioned below alongwith their merits and demerits.Ratio analysis:It is a financial statement analysis which is used to analyse financialperformance of organisation in different areas. Basically, it is a tool which is used byorganisation(Arroyo, 2012). By usage of this organisation can make comparison betweendifferent organisations which differ in size. This is measured by taking proportion of one year'sfinancial variable to other year's financial variable. By this organisation can formulate importantdecisions which can assist them to carry out their operations in future. These financial variablesare collected via usage of financial statements such as balance sheet, profit and loss account.Their merits and demerits are mentioned below:MeritsIt is used to measure both short term and long term financial conditions of organisation.Moreover, it also analysis efficiency of organisation in terms of both profit andmanagerial activities.It is used to analyse structure of organisation in context of finance as well as it can beused to accounting performances with respect to previous and current accounting.Furthermore, it also assists in making decisions with respect to their performance infuture and also coordinates different functional activities of organisation.DemeritsSuppose if data which is attained from accounting department is not correct, theninformation which will be attained from ratio analysis will not be certain.Result is dependent on historical data, which means that derived ratio will not bedependent on current condition of organisation(Banerjee, 2012).To attain idea about performance of organisation they need to calculate different ratios assingle ratio will not furnish required results and decisions cannot be taken. Each andevery factor must be considered.Budgets:It corresponds to objectives of organisation which are based on significance ofprediction and activities which they have planned. It is not estimation but it is just hypothesis. Itsadvantages and disadvantages are shown below:Merits2
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