Benefits and drawbacks of budgetary control planning tools

This article discusses the benefits and drawbacks of different types of planning tools used for budgetary control. It explores how these tools can help in managing financial and anti-financial performance. The article also provides insights into the role of budgetary control in organizations.

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
P1 MAS and their application ..................................................................................................................3
P2 Different ways of MA reports. ............................................................................................................5
D1 Correlation between MAS and MA reports........................................................................................7
TASK 2..........................................................................................................................................................7
P3 Preparation of income statements. ...................................................................................................7
M2 Techniques to prepare income statements. ...................................................................................11
D2 Interpretation of produced income statement................................................................................11
TASK 3........................................................................................................................................................12
P4. Benefits and drawbacks of different types of planning tools used for budgetary control..............12
M3 Role of planning tools......................................................................................................................14
TASK 4........................................................................................................................................................14
P5 Importance of MAS to solve issues...................................................................................................14
M4 MA to respond financial problems..................................................................................................16
D3 Role of planning tools to solve financial issues.................................................................................17
CONCLUSION.............................................................................................................................................17
REFERENCES..............................................................................................................................................18

INTRODUCTION
MA is described as an accounting system that allows a business to operate more effectively.
This can be defined as the implementation of accounting methods to find out need of monetary
data for better management. It concentrates on aspects of accounting (Bromwichand Scapens,
2016). Under this accounting both financial and non financial information is used in order to
produce internal reports that lead to better decisions. The collected information is used by
managers to determine systematically. MA is a system mechanism that offers the details
necessary for various levels of management. The report is based on company that is Grant
Thornton, headquartered in United Kingdom. This company is one of the main accounting firms
which provide its services to its clients. Creams limited are a client company of above
accounting firm. This company sells ice cream, doughnuts. The project report covers detailed
information about various accounting systems and reports as well as different range of planning
tools are also mentioned. The further part of report demonstrates about role of MA in solving
financial issues.
TASK 1
P1 MAS and their application
MA is also considered as managerial accounting and is characterized as a judgment creating
process for providing monetary data to administrators. MA is generally utilized for the
accounting department of the company, since that is mainly the different from financial
accounting concepts (McLaren, Appleyard,and Mitchell, 2016). Through this process financial
information and tax forms are shared through a financial division with the management
personnel of the company. This background knowledge is used to take better as well as for more
accurate decisions, track the organization performance, business trends etc. It includes various
kinds of accounting systems like:
 Inventory Management System- The system for stock management is a tool for better
stock regulation through the organization’s supply chain. In Creams limited the whole
distribution cycle from placing orders to suppliers is constrained by this method and it
enables the whole path of in a systematic manner (Aria and Rahadjeng, 2018). Through
using the inventory control method, sales firms, retailers, manufacturers and vendors can

make their stores effective by taking correct decisions for stock purchasing. The system
involves vital range of methods such as LIFO, FIFO and Average Costs. It is essential for
companies to take corrective actions for management of stored inventories. Below
description of these methods is done:
LIFO (Last in first out) - It is a type of method in which stock that comes last is used
first for production.
FIFO (First in first out) - This method is different from previous method, as under it
stock that comes first in store is used for production.
Essential requirement- This accounting system is required in Creams limited for
effective management of stored level of inventories. As they offer different types of
bakery products and by help of this accounting system, manager gets aware about how
much products are remained unsold at the end of month.
 Cost accounting system- It is a form of management accounting method that
encompasses a large wide range of operations as well as financial factors. In order to
hold cost under estimate, it is important for companies (Fleischman and Parker, 2017).
This accounting is used, as in the aspect of the above company, to maintain production
expenses below the expected cost. The main objective of this is to focus on keeping cost
of various operations lower as much as possible. Without it, this can possible to keep
their cost lower from estimated value of cost. It is not associated to specific company as
it can be applied in any business whether it is financial and non financial.
Essential requirement- It is required in Creams limited to find out cost of each activity.
The finance manager of company uses cost accounting system to identify costs in their
products of waffles and chocolate doughnuts separately.
 Price optimization system- It is a method which includes a particular way of setting
pricing and service requirements for the customer. This accounting method helps
businesses to gain useful market patterns and data on consumer requests. Basically, this
collected information is used by businesses to take suitable actions for setting of prices
of their products. In the sense of the above mentioned chosen company their selling

department changes price strategies in accordance with consumer needs and they do so
by help of this accounting system.
Essential requirement- The need of this accounting system in Creams limited is that sales
manager determines prices of waffles and chocolate doughnuts at a level which is
suitable for both parties including customers and company. It is being done by making
proper analysis of market trends and customers feedback.
 Job-order Costing- The job ordering system monitors the expense of each work inside
the organization. The management can closely track each task's costs and determine if
the actual costs generated is relatively close and expected costs is higher. Substantial
shortfalls in costs will force management to analyze and implement corrective steps to
address the cost increase cause. This approach collects and accumulates costs for
specific workers, work orders or assignments. The cost of each task is calculated
appropriately and each work described separately. Under above business they implement
it in order to manage cost of each job in an effective manner.
Essential requirement- It is essential for above company in order to compute cost of each
activity individually. This is being done by measuring level of expenditure in order to
produce one unit of waffles and chocolate doughnuts.
P2 Different ways of MA reports.
These are defined as documented reports consisting of detailed information about the
monetary and anti-monetary components (Maas, Schaltegger and Crutzen, 2016). Such reported
details are frequently used by organizational departments to take effective measures at the right
time. The accountant of Cream limited generates the below reports which are as follows:
 Cost report- This includes details on expenditures for the execution of a variety of
business and operations (Yin and Tian, 2017). Along with under this report, the activities
are classified by their expense level. The aim of the report is to concentrate on certain
elements and factors that are more expensive (Machado, 2016). In relation to the above
company, their finance team uses this report in order to manage overall number of
expenses below standard cost. Under this report, different types of costs are classified as

per its nature like direct cost, indirect cost and many more. Due to which it becomes
easier for managers to take appropriate actions.
 Stock report- This can be known as a report that includes information about stored
volume of products of stores. This report is prepared with the assistance of the stock
management system. The main aim of this report is to assist the production department in
taking the appropriate measures about how many units are needed. The above-mentioned
organization produces different types of food products in accordance of this report’s
information. In this report information about all types of goods is included such as raw
material, WIP and prepared products. Such information helps to managers to take right
action.
 Accounts receivable report- It includes information about the amount of debtors liable for
companies with the actual date of sale. The importance of it is to assist finance
department to devise specific policies and strategies (Darko, Adarkwah, Donkor and
Kyei, 2016). Basically, this report is mainly used in that organization in which credit
transactions are done on higher basis. By help of it managers can determine efficiency of
their debtors. Their financial team in the above organization utilizes crucial details by
help of this report in order to collect debts on time from debtors.
M1 Importance of MAS.
System Name Benefits
Cost accounting system It is associated with making calculation of overall cost
that occurs into various operations and activities
(Gomez-Conde and Lopez-Valeiras, 2018). In the
Creams limited company, finance manager utilizes key
information about cost of each product in which they
deal. Due to which, it becomes easier for them to make
effective financial plan for next year.
Job costing system It contributes to quantifying the cost of each production
number generated. It is being used in that organization in

which huge volume of output is produced. This is due to
above accounting method as managers become able to
know cost of each output. In the aspect of Creams
limited, their production department measures cost of
each unit including all bakery items. This is suitable for
them because their product portfolio is larger.
Price optimization system This allows businesses to determine the price of goods in
line with the recent market trend. It is based making
analysis of market trends and customer needs. On the
basis of it managers of companies analyze and set pattern
of prices. In respect of Creams limited, this accounting
system is used by sales department with an aim of setting
prices of waffles and chocolate doughnuts in accordance
of customers feedback. By help of this they become able
to sell out more products.
Inventory management system It accounting efficiently determines the value of the stock
reserved. This is designed to minimize inventory costs
( Otley, 2016). As above described that it makes
evaluation on the basis of various kinds of techniques
such as LIFO, FIFO and many more. In the production
department of Creams limited, they implement this
accounting system which contribute to them in effective
management of quantity of all products including
waffles and chocolate doughnuts. As well as it also helps
them in keeping cost of storing inventories lower.
D1 Correlation between MAS and MA reports.
The MA includes a variety of accounting systems and records which comply with
company procedure and enterprises (Rebelo, Santos and Silva, 2016). With regard to the above

business, their separate departments are linked to the accounting system. For example in the
Creams limited in order to of raise profits, the price optimization system is aligned in sales team.
The stock report is related to the production department. For instance in the above mentioned
company, their managers use different reports for corrective measures in the retail field. Apart
from it, rest of reports are also linked to companies departments such as finance department of
above company take decisions regards to credit facility to customers in accordance of accounts
receivable report. This link between process of company and accounting systems leads to higher
success of business entities.
TASK 2
P3 Preparation of income statements.
Marginal costing method: This can be interpreted as a costing method by which the effects
of different activities occur in various ways (Nathwani, 2020). The fix expenses are considered
as time cost while non fix costs are viewed as unit costs.
Advantages- It is of essence continuous. That is because variable expenses differ periodically
but the total cost will not shift over a long period of time.
Disadvantage- One of the key problems of this technique is that the time dimension is not taken
into account.
Absorption costing- This is a system of costing that defines and allocates in common the costs
paid for various tasks and operations (Gersil and Kayal, 2016). The cost of the product is
considered under fixed and non-fixed costs. There are also other limitations and benefits such as:
Advantages- The biggest benefit of this system is that it can efficiently track revenue.
Disadvantage- It is not helpful in enhancing market performance. That is because it is difficult
for managers to make a right judgment due to keeping all factors into account.

M2 Techniques to prepare income statements.
There are different types of techniques in order to produce financial statements. It
depends on companies that which method they implement for financial reports (Armitage, Webb
and Glynn, 2016). In the above report, profit and loss accounts are produced on the behalf of two
methods which are marginal and absorption costing. Under both of these techniques value of net
profit is different due to way of taking expenses. Apart from it, various kinds of labor and
material variances are calculated in accordance of particular formula. For instance under labor
variance four types of variances are calculated such as labor price, quantity etc. same as under
material variance too, different types of variances are computed as per given scenario.
D2 Interpretation of produced income statement.
In accordance of produced financial system under different methods this can be find out
that net profit is 50000 and -25000 under marginal costing. As well as under absorption costing
profit is also similar that is of 50000 and -25000 for similar time period. The reason for which
both methods are producing common outcome is that in the absorption costing, under/over
absorption overheads are considered due to which results are same. While if there is no
consideration of under/over overheads then outcome could be different in both methods. In
addition, variances are also computed including labor and material variances.
TASK 3
P4. Benefits and drawbacks of different types of planning tools used for budgetary control.
Budgetary control- It can be described as a way to manage financial and anti-financial
performance across a number of budgets (Mohamed, Kerosi and Tirimba, 2016). In this
dimension of the budgetary function, the managers of businesses undertake corrective measures
to produce more results by means of such financial plans. In other words, this can be defined as
process of making budgets on the basis of gathered past years’ financial information. Under it, a
vital range of budgets are included which leads to effective decision making. There are a number
of budgets, several of which are:
 Operational budget- It is a form of budget that is related to do the forecast over a certain
amount of time of revenue and expenditures. With the aid of this budget, administrators
can predict the volume of material required to execute different activities more

effectively. Objective of this to manage operations and activities of a company in an
effective manner. It becomes possible by correct prediction of further income and
expenses of a particular time period. In the context of above Creams limited, their
administrators take corrective steps to handle multiple organizational forms. Specific
strategies are used in this budget, for example:
Variance analysis- It is related to differentiating between actual results and estimates.
Standard costing- This is a form of method that is linked to the calculation of incremental
costs and used as a comparison measure.
Benefits- This budget is valuable for businesses to monitor their actual regular spending.
As well as it is useful for companies to ensure proper utilization of resources and capital
into various operations.
Drawbacks- This budget has constraints as well as the benefit. For example, this budget
takes so much time and money which is impossible to achieve for small companies.
 Flexible budget- This is a financial plan that fluctuates in terms of output and quantity
shift (Boyabatlı, Leng and Toktay, 2016). This budget is widely used in those companies
in which activities are expected to change in future. One of the key features of this budget
is that it is user friendly. This is so because it can be updated whenever company needs.
Like the above-mentioned firm, this budget is designed for potential fluctuating
operations by accountants.
Advantages- It is so simple to use, because companies can track their everyday expenses
and revenue. As well as this budget can be applied in any kinds of business. There are no
any specifications to apply this budget, even small companies can also adopt this budget.
Disadvantage- This adds to data theft, because users can conceal real data by modifying it
every day. Along with this budget needs to be updated on daily or monthly basis that
leads to complexity.
 Capital budget- This can be described as a kind of budget that is linked to the output
assessment of lengthy-term investments such as machinery, plants and many more (Dong

and Smith, 2017). The Finance Department takes important long-term investment choices
on the basis of this budget. Basically, this budget is used in those companies which make
large financial investments into various projects. This is so because it guides to finance
managers to take corrective actions before making a higher capital investment.
Throughout the above-mentioned Creams limited, their finance team has used this budget
for disciplinary steps in order to control financial capital properly. As well as they allow
expenditure by doing careful assessment of projects. Within this, various forms of
methods are used such as:
NPV- Under it valuation of project’s current efficiency has been done.
Payback period- It measures the approximate amount of time that will be utilized to
recover the expense of the project.
ARR- In this method, the expected cost of return on a project is estimated.
Internal rate of return- This is method by which the return rate of a project is measured.
Advantage- This budget assists businesses in taking better decisions about the selection
of project plans. In addition, by help of this budget companies can gain higher benefits by
taking right actions to make investment in various projects.
Drawback- This budget's major downside is that it is entirely on the assumption and
business cannot depend on its assumptions. Along with, it cannot be applied in small
companies as they do not make large financial investments.
M3 Role of planning tools.
Different types of budgets are used by companies to make financial choices. All these
forecasts help them better control their money streams and to forecast specific projects and
events correctly (Henttu-Aho, 2016). Their accountants produces different budgets, like the
operating budget, flexible budget, in the sense above Creams limited. All these budgets are
important in the specific calculation of revenue and expenditure. Such as operating budget helps
to above company in order to smooth conducting financial and non financial activities. As well

as capital budget contributes in choosing financial project by making proper evaluation. This is
likely as the management of the following company evaluate data from previous years for
forecasting future operations. Thus can be stated that planning tools of budgetary control are
important for making accurate forecasting which leads to organization success.
TASK 4
P5 Importance of MAS to solve issues.
Monetary issues- In the present market scenario, rivalry is increased which leads to different
types of monetary problems (Vovchenko, Holina, Orobinskiy and Sichev, 2017). Such issues
arise from inadequate preparation and execution of the policy. In a basic way, financial
challenges arise because of the shortage of funding assets because businesses do not conduct
specific functions.
Higher storage cost- It can be understood as a form of monetary issue that occurs in
companies due to lack of proper management of stocks. This issue can impact negatively to
companies' performance because if stock will not be managed effectively then it may lead to
higher cost of other operations. In Creams limited, they face this issue because their inventories
are not managed in an effective manner.
Lower sales revenue- It is one of the common financial issue that is faced by different
organisations. The reason of this issue can be inaccurate pricing strategies, higher cost or many
more. This issue can hamper overall performance of a business, because if sales is lower then it
may difficult to sustain in competitive environment.
MA methods to respond financial problems:
 Benchmarking- It compares financial dimensions of a business with strategic businesses
aimed at identifying adverse variations (Hileman and Rauchs, 2017). This helps the
business to figure out which factors is the result of the financial issue. In respect to
Creams limited, they implement this method in order to make comparison of their
financial performance with another company. It helpes them in identifying area of issue.
 KPI- It is a method which is connected with an effective evaluation of financial and non-
financial aspects (Elhuni and Ahmad, 2017). From the financial point of view,

competitiveness of the business, costs etc., are included while tension level of employees,
ties, etc., are mentioned in the non-monetary dimension. By making analysis of these
financial and non financial indicators, it becomes easier for managers to take suitable
steps regards to continuity of activities and operations.
 Financial governance- It is interpreted as a method where a business entity records the
whole financial operations accurately for a specified period of time. With this method,
the actual monetary challenges are identified and solutions can be utilized to address the
problem. This tool is being used as monitoring method in order to resolve financial
issues. It is so because under this data is recorded in a arranged way that leads to better
financial performance.
 Activity based costing- This technique is linked to the overall number of costs measured
independently according to each operation. It can be useful to fix issues. That is because
managers can independently assess each operation to avoid higher costs. Under it, each
activity is assigned with a particular cost which helps in computing cost of each produced
output.
 Balance scorecard- This is a form of method that relates to the measurement of
corporations 'total productivity. The perspective is different, for example, financial,
business, internal development and the perspective for internal processes
(Koesomowidjojo, 2017).
Comparison:
Basis of
difference
Creams limited Continental clothing limited
Monetary issue They faced issue of increased
expenditure regards to inventory
storage. Due to this issue, they suffered
from huge loss.
This company faced issue of lower
sales revenue and cause of this issue
was ineffective pricing method used
by them.
Management The manager of company have used The sales manager of this company

accounting
system used
inventory management system because
it guides about how to track daily usage
of inventories.
have used price optimization system.
This is so because under it price of
products are set as per market
conditions.
Way of using
management
accounting
system
This accounting system was applied by
above company's manager for those
units which are consuming higher time
to sold out as well they also identified
those units which are sold in less time
period. As a result, they became aware
about those products which can
produce higher revenues along with
products which are consuming higher
expenditure.
The price optimization system was
implemented in company for
identifying external factors including
customers feedback, market trends
etc. Due to which, the manager of
company set a limit of price that is
according of external environmental
data. As a consequence, their sales
revenue started to increase because
price was affordable for different
customers.
M4 MA to respond financial problems.
The only way to address monetary problems is to implement the MAS with less time.
Like the above-mentioned company, the issues have been successfully addressed using the
benchmarking method (Appelbaum, Kogan, Vasarhelyi and Yan, 2017). In the Creams limited
company, they have applied inventory management system with an aim of managing different
stock level. Due to this their issue of higher cost of storage solved. Herein, this is important to
know that they became able to solve their issue in less time by help of accounting system. As a
result, they became able to sustain in competitive environment that lead in sustainable success
for them.
D3 Role of planning tools to solve financial issues.
The financial plans can be interpreted as monetary strategies related to the particular
strategic appraisal process linked to forecasting of financial activities (Maksymenko and
Melikhova, 2018). They use a number of budgets in the above Creams limited as operating
budget, flexible budget and many more. Each planning tool is linked to each department’s

performance. Such as operating budget helps in solving issues regards to operational activities.
As well as capital budget helps in solving problems related to financial aspects. They all need
these budgets to monitor the variances and allow them take proactive action to fix issues. This
shows that planning tools contribute in huge manner to achieve success.
CONCLUSION
In accordance of above part of study this may be stated that business must imply MA
methods for their day-to-day corporate activities in order to ensure the viability of a systematic
corporate work. The report articulates vital schemes, such as cost accounting, job accounting,
pricing and inventory systems. For the chosen company, every accounting program is essential
for many purposes. The other section of the report concludes with various reports consistent with
the process of the organization. Few calculations were also carried out in conjunction with the
data set of brief. Furthermore, the report concludes on planning tools and the position of
accounts systems to deal with monetary problems.

REFERENCES
Books and journal: