Accounting for Business - Assignment

Running Head: ACCOUNTING FOR BUSIENSS
FINANCIAL ANALYSIS

Accounting for business 1
Executive summary
The report gives a concise summary of challenges faced by the company Pooma Sports Ltd
and the outcomes of the analysis done. The first part of the report deals with the budgeting,
its benefits and problems covering the behavioural aspects. The problems include the issues
which arrived at time of preparing budgets and reactions of the people towards it. Second part
gives a detail information about the categorization of cost on the basis of its behaviour. It
states the reason for fixed cost becoming stepped at some point. It also involves the risk and
return analysis of the two manufacturing options for producing Rugby boot with reference to
the concept of operating gearing. Operating leverage is taken as a basis for estimating the risk
and return involved in given options. The third part of the report identifies the reasons for the
difference between the company’s profit and its net cash flow. It gives the explanation
regarding the negative cash flow and the profit in the end of six month. Appraisal of the
chosen apportionment basis and the view point of sales director is done in the fourth part. It
contains the reason why these basis are appropriate and which method is superior, original
costing or revised costing. The last section of the report contains the detail about the
investment appraisal techniques used in evaluating the two investment options available with
the company. Overall, the report has whole analysis of the challenges faced by the company.

Accounting for business 2
Contents
Contents................................................................................................................... 2
Task 1...................................................................................................................... 3
Budgeting and its behavioural aspects...........................................................................3
Benefits of budgeting................................................................................................ 3
Problems of budgeting............................................................................................... 3
Task 2...................................................................................................................... 3
Cost behaviour and stepped cost.................................................................................. 3
Review of risk and return........................................................................................... 4
Task 3...................................................................................................................... 4
Reasons for the differences between cash flow and operating profit.......................................4
Task 4...................................................................................................................... 5
Appraisal of the reason.............................................................................................. 5
Appraisal of Sales Director’s view................................................................................5
Task 5...................................................................................................................... 6
Reasons for conflicts................................................................................................. 6
Risk..................................................................................................................... 7
Returns................................................................................................................. 7
Recommendation..................................................................................................... 7
Reference.................................................................................................................. 9

Accounting for business 3
Task 1
Budgeting and its behavioural aspects
Budgets are basically use to control the management and are specifically made to stimulate
the appropriate use of resources and to support other managerial functions. Budgeting helps
in identifying the organizational goals and allocation of responsibilities to achieve those
goals. It provides assistance in the implementation of a chosen strategy by the organization.
Once properly understood and implemented, it can turn out to be the most useful technique of
management accounting (Shim, Siegel and Shim, 2011).
Benefits of budgeting
There are various benefits which can be derived from preparing budgets. Following are:
 Systematic planning: the process of budgeting provides an organized framework for
implementation of major strategic decisions and make sure that all the available
resources are optimally used (Raghunandan, Ramgulam and Mohammed, 2012).
 Communication and co-ordination: budgets helps in promoting a proper cooperation
and communication between the different departments of organization. It links the
various units with each other, thus results in the achievement of overall objective.
 Cost awareness and Quantification: through proper allocation of the resources,
budgets provides the benefit of cost awareness and quantification (McWatters and
Zimmerman, 2015).
 Control and Evaluation: budgeting system provides a basis for evaluating the
performance by comparing the actual results with the budgeted ones. It identifies the
areas which need modifications, analysis and investigation, resulting in better control
(Weygandt, Kimmel and Kieso, 2009).
Problems of budgeting
Budgeting is a complex process and most of its problems are behavioural. The success of a
budget mainly depends upon the human behaviour which includes the attitude of people
toward it. The focus of behaviour include the degree of participation that top management
willing to delegate to middle level management in course of preparing budgets. The mangers
may draw up the budgets as per their personal priorities by using top-down approach. This
will cause many problems to the workers as they may find it unrealistic. Sometimes, budgets
are used in the form of punishment. Managers use them to penalize the employees for
overspending and putting restrictions on them. As a result, workers become aggressive and
may not willing to do their job anymore. So to achieve the targets, these behavioural
problems should be minimized (Raghunandan, Ramgulam and Mohammed, 2012).