Using Planning Tools and Management Accounting to Respond to Financial Problems

This article discusses the different types of planning tools used for budgetary control, such as budgets, and their merits and demerits. It also explores how management accounting can be used to respond to financial problems and prevent them. The article covers decision-making processes, major financial problems faced by organizations, and the effectiveness of management accounting in dealing with financial problems.

How managers could use planning tools
and respond to financial problems
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Table of Contents
Elaborate the merits and demerits of several types of planning tools used for budgetary control. 3
Budgets........................................................................................................................................3
Purpose of Budgeting as tool for planning and control ..............................................................3
Different types of budgets...........................................................................................................3
Draw comparison between several ways in which the organisation can apply management
accounting in order to respond to several financial problems and further explain effectiveness of
management accounting in order to deal with financial problems and further prevent it. .............5
Decision making .........................................................................................................................5
Nature of decision making .........................................................................................................5
Major financial problems or decisions faced by organisation....................................................6
Explain effectiveness of Management Accounting in dealing with and preventing financial
problems......................................................................................................................................7
REFERENCES................................................................................................................................8
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Elaborate the merits and demerits of several types of planning tools used for
budgetary control.
Budgets
Budget is referred to the plan that is made in accordance with the income and expenses.
Budget can be basically referred as the estimate in aspect of the money that the organisation is
planning to spend over a specific period of time. For example, a month or a year. Budgeting is a
process of preparing a comprehensive list of several expenditures or focus upon specific
categories (Johnstone, 2020 ).
Purpose of Budgeting as tool for planning and control
There are several purpose of budgeting as a tool for planning and control. Various
purpose of budgeting tool have been discussed below.
 Forecasting income and expenditure- Budgeting is considered as a significant concept in
aspect of business planning process. The business owners are required to predict if the
business will incur profit or loss. Hence, the budgeting tools basically provides a model
for the ways in which the business is required to perform regarding the strategies, events,
plans, etc.
 decision making- The budgeting process tends to provide a financial framework in aspect
of the decision making process. Decision making process is referred to the proposed
course of that is planned by the organisation. In order to manage the business
organisation in a responsible manner, it is important to have a tight control over the
expenditures of the business.
 Monitoring the business performance- The budgeting process also enables the
organisation to measure the actual business performance of the organisation. It helps in
understanding if the business is working as per the expectations of the business. If the
variances occur, it states that the business faced deviation in aspect of the actual and
standard performance (Abdusalomova, 2019 ).
Different types of budgets
 Fixed budget- Fixed budget is a budget which is prepared for the activity level or level of
output which is in a definite manner. The figures tent to remain unchanged and in case
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any deviations are caused, then the variances in the figure are considered as the result of
change in volume of production or sales.
 Flexible budget- Flexible budget is referred to the budget that is prepared in context of
the changes in the nature of costs in context of the level of output. Flexible budget has an
advantage that it facilitates comparison with the budget of the corresponding budget of
the organisation.
 Flexed budget- Flexed budget is considered as the budget wherein the flexible budget is
revised at the actual level of activity. It tends to identify the variable, semi variable as
well as fixed costs.
 Sales budget- The sales budget is basically the budget that forecasts the estimates of the
sales for the organisation that are required to be achieved within the period of the budget.
 Production budget- Production budget is basically the forecast regarding the total output
of the organisation that is further fragmented into several estimates of the output in
context of the operations or schedules. The budget is expressed in form of quantitative as
well as financial units.
 Materials budget- In order to prepare the materials budget, production budget plays a
crucial role. Material budget focuses upon the acquisition of the direct materials within
the organisation.
 Purchase Budget- Purchase budget is a budget that is dependent upon the production as
well as the material requirement of the budget in the organisation. It basically comprises
of materials that are to be acquired within the organisation.
 Traditional budget- Traditional budget is referred as the budget that considers the budget
of previous year as the base. The traditional budget is accounting oriented and also
follows a routine approach (Kostyukova, And et.al., 2018).
 Zero based budgets- Zero based budgets are basically focussed upon the new economic
appraisal and also it is decision or project oriented. It follows a straight forward approach.
The zero based budgets follow a clear and responsive procedure.
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Draw comparison between several ways in which the organisation can apply
management accounting in order to respond to several financial problems
and further explain effectiveness of management accounting in order to
deal with financial problems and further prevent it.
Decision making
Decision making is referred to the concept of choosing the most feasible alternative
among the several courses of actions. Decision making is considered as a significant concept in
all the managerial functions. Decision making is a significant concept in planning as well as
coordination and control. Decision is referred to the point at which several plans, policies as well
as objectives tend to get translated into concrete actions. Planning can facilitate sound decision
making at the organisation which can be further implied for the course of action. Decision
making basically comprises of several objectives, policies, programmes, procedures as well as
rules and strategies. Decision making is important in order to deal with the several issues that
take place in several functional areas like production, finance, marketing as well as personnel
administration.
Further, problem solving helps in serving the organisation when the problem has been
overcome. Also, a level of personal satisfaction as well as a sense of accomplishment is received
in order to satisfy the egoistic demands of the individual.
Nature of decision making
The nature of decision making at the organisation have been discussed below.
 Goal oriented process- Decision making is referred as the goal oriented process within an
organisation. The focus of the organisation while deriving upon a decision is to
accomplish the goal of the organisation (falih Chichan and Alabdullah, 2021).
 Selection process- Decision making is referred as the process which is of selective nature.
The decision making process comprises of choosing the best alternative among the
several alternatives for the course of action.
 Continuous process- Decision making process is also considered as continuous in nature
or can be considered as a continuous process. Decision making is a never ending process
as the decisions are taken on a continuous basis for several activities in the organisation.
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 Art as well as science- Decision making is referred as the process which can be
considered science as well as art. Decision making process can be considered as science
as it is based upon the facts and information whereas it can be considered as art because it
requires creativity and presence of mind which can vary from person to person
(Rikhardsson and Yigitbasioglu, 2018).
 Responsibility of managers- Decision making is considered as the process which is
considered as responsible in nature. The decision making process is performed by the
managers at several level and they are hold responsible for deriving upon a specific
decision along with its outcomes.
 Positive as well as negative aspects- The decision making process can be considered of
positive as well as negative nature. Decision making can be considered as positive
wherein several activities are required to be performed and also it can be considered
negative wherein the decisions are taken in order to not perform several activities.
Major financial problems or decisions faced by organisation
 Closure and Shut down- Closure or shut down is a financial problem wherein the decision
has to be taken if the organisation will face a temporary or a permanent pause upon the
work.
 Make or Buy- Make or buy is a decision which the organisation takes on the basis
whether the organisation will buy a specific product or will produce it as per the capacity.
 Pricing- Another decision that is faced by the organisation is regarding the pricing
whether the price of the product should be based upon the market or the cost of the
product (Abdusalomova, 2019).
 Special Orders- The organisation also faces dilemma whether they should entertain
special orders or not based upon the profitability of the product.
 Capital investment- Another decision that is required to be brought upon conclusion is
the cost of investment in terms of capital that can be brought into the business.
Explain effectiveness of Management Accounting in dealing with and preventing financial
problems
Management accounting can be helpful in dealing with the financial problems in the following
ways-
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 Setting up of goals can prove helpful as they will involve several changes that can lead to
profits at the organisation while motivating employees as well.
 Management accounting requires planning for future that is done through the production
of reports in order to attain the goals in an efficient manner.
 Management accounting can help in dealing with the problems while making several
decisions at the workplace in long term that can facilitate problem solving
(Abdusalomova, 2020).
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REFERENCES
Books and Journals
Abdusalomova, N., 2019. PROBLEMS OF MANAGEMENT ACCOUNTING AND WAYS TO
SOLVE THEM. International Finance and Accounting, 2019(3), p.2.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems, 29, pp.37-58.
falih Chichan, H. and Alabdullah, T.T.Y., 2021. Does Environmental Management Accounting
Matter in Promoting Sustainable Development? A study in Iraq. Journal of Accounting
Science, 5(2), pp.114-126.
Johnstone, L., 2020. A systematic analysis of environmental management systems in SMEs:
Possible research directions from a management accounting and control stance. Journal
of Cleaner Production, 244, p.118802.
Abdusalomova, N.B., 2019. DIRECTIONS FOR DEVELOPMENT AND IMPROVEMENT OF
A MANAGEMENT ACCOUNTING SYSTEM. Economics and Innovative
Technologies, 2019(3), p.6.
Kostyukova, E.I. And et.al., 2018. Improvement cost management system for management
accounting. Research Journal of Pharmaceutical, Biological and Chemical
Sciences, 9(2), pp.775-779.
Abdusalomova, N., 2020. Principles of ties of internal control and management accounting
systems at the enterprises of black metallurgy. Архив научных исследований, (2).
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