Utilization of Budgetary Control and Planning Tools in Management Accounting

This document discusses the utilization of budgetary control and various planning tools in management accounting. It explains the advantages and limitations of budgets such as cash flow budget, capital budget, operational budget, and zero-based budget. It also explores the role of management accounting profession and the use of key performance indicators (KPIs) in evaluating performance.

Management Accounting
(Project 2)

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 3............................................................................................................................................1
Utilization of Budgetary control:.................................................................................................1
Utilization of various planning tools:..........................................................................................4
TASK 4............................................................................................................................................4
Utilization of Key Performance Indicators:.................................................................................4
Role of management accounting profession:...............................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Managerial accounting process provides various planning tools for the administration so
that they can utilize them in strategic planning and effective decision making. Planning tools are
the instruments that provide a way to the organization to take actions for initiatives, inventions,
programs and policies. These planning tools and financial techniques helps in detecting financial
problems and provide solutions for them.
The management accountant of Toshiba Corporation, which is a Japanese multinational
company established in 1939 by the merger of Shibaura Seisakusho (Shibaura Engineering
Works) and Tokyo Denki (Tokyo Electric), is preparing this report which will explain the
advantages and limitations of several planning tools such as budgets. It will also provide the
understanding of KPIs and role of management accounting profession within the organization.
TASK 3
Utilization of Budgetary control:
Budgetary Control: Budgetary control can be described as a process that is utilized by
the managerial accountants to identify the variations between estimated figures and actual results
for the rectification in upcoming budgets and set the standards for the efficient performance. This
system helps the administration in finding out the discrepancies and taking remedial actions on
time. This controlling process is helpful for cost control and attainment of desired profits.
Various budgets which are created by the management of Toshiba Corporation in the process of
budgetary control are presented below:
Cash Flow Budget: Cash flow budget or cash budget is an overall view of cash inflows
as well as cash outflows during a specific period of time. Since the cash is a critical and valuable
asset for the company, it is essential to manage the flow and make better projection of this
element. This budget of Toshiba Corporation includes all the cash expenditures and cash
revenues that may occur during the accounting period.
Advantages:
 Cash flow budget helps the management to manage and maintain adequate cash reserves
to handle adverse situations and also helps to keep enough credit to pay bills on time.
 Administration of respective company is able to make effective decisions regarding
utilization of access cash or pre-plan for credits in case of cash shortage.
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Disadvantages:
 The major limitation of this budget is that it ignores accrual and matching concept and
only include ash transactions which do not provide accurate status of fund availability.
 Flexibility element is ignored by this budget due to which the company sometimes can
not be able to take the advantage of credit opportunities and other benefits.
Capital Budget: Capital budget is prepared by the selected company to evaluating and
comparing future expenditures and investments that are related to the capital and assets to
determine the worthiness of the these investment decisions (Lee and Madanat, 2017). This
budgeting process assist the management in identification of those projects that will create the
maximum returns for the company.
Advantages:
 The establishment is able to choose the tools, techniques and methods from various
capital budgeting techniques to decide the financial efficiency of any project or
investment.
 This budget provide assistance in making long-term investment decisions and prohibit the
managers regarding over or under investment.
Disadvantages:
 The decisions that are made with the help of this budget, are for long-terms and
irreversible in nature.
 A wrong capital budgeting decision taken can affect the long-term durability of the
company and hence it needs to be done judiciously by professionals who understands the
project well.
Operational Budget: Operational budget is an entire list of estimated expenditures and
revenues that may take pace within the organization in order to perform regular transactions and
activities within a specific time period. It includes operating incomes and expenses of the
respective organization which are necessary to run the business.
Advantages:
 This budget helps in developing financial accountability of the organization.
 Operational budget also helps in reducing organizational debts and building financial
reserves.
Disadvantages:
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 This budget includes all the small size transactions therefore it consumes time to be
prepared.
 Financial information may change form month to month hence it is necessary to update
this budget on a regular basis.
Zero Based Budget: Zero based budget is a new approach of preparing budgets in which
all the expenditures for the new accounting period are calculated from the beginning and each
increment in any expense is justified. This budget do not consider prior budgets to prepare new
budgets.
Advantages:
 All the expenses are justified in this approach therefore duplication or irrelevant expenses
can be eliminated.
 Only revenue generating operations can be taken into consideration with the help of this
budget.
Disadvantages:
 This budget takes time in preparation as it calculate and explain each expense in detail.
 It may bring a change in culture and decrease the spirit of corporation within the
company.
Rolling Budget: A rolling budget is continually modified to add a new budget period as
the most recent budget period is completed. Thus, the rolling budget involves the incremental
extension of the existing budget model. By doing so, a business always has a budget that extends
one year into the future (Biegert and others, 2018).
Advantages:
 Rolling budget provide flexibility in preparation of the budgets.
 Rolling budgets help to be more sensitive to unanticipated changes in circumstances and
allow to make adjustments for those changes in coming periods.
Disadvantages:
 The opportunities for the employees to attain the objectives may be limited before the
alteration of rolling budget.
 The continuous revision of the similar budget may be discouraging and disappointing for
the employees.
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Utilization of various planning tools:
Cost accounting: Cost accounting is a technique that is used by the management
accounting in order to calculate, manage and control the cost of production or rendering services.
With the help of an effective cost accounting system, managers of Toshiba Corporation are able
to calculate the cost and analyse the entire assembly line which helps in assessing the efficiency
of the production process. It also detect irrelevant costs and expenditures so that they can be
eliminated from the process. With the help of adequate accounting of cost, estimations and
budgeted figures can be mentioned properly and profitability can be increased by providing
affordable products.
Pricing strategies: Pricing strategies helps in deciding the optimum prices for the
organizational products which helps in attracting the customers. Various pricing strategies are
planned with the help of market analysis and proper utilization of these strategies provide help in
accurate estimations of profitability of the selected company. With affordable prices, company is
able to attract more clients and take advantage of competitive market.
Financial accounts analysis: A proper and accurate analysis of financial accounts helps
in detecting financial problems and make prior provisions for them. Analysis of financial
accounts also helps in managing the fair allocation of funds and find out the deviations in the
process and performance. With the modifications in strategies, budgets can be prepared in a more
effective manner (Iotti and Bonazzi, 2016).
TASK 4
Utilization of Key Performance Indicators:
Key Performance Indicators: A key performance indicator can be defined as a
measurable value or standard that helps in evaluating the effectiveness and performance of an
activity or entire establishment. These indicators can be set for both the internal and external
process of the organization. Internal KPIs are the values that helps in measuring the internal
performance such as employee turnover rate, degree of product defects, cost and profit ratio,
process efficiency measures, etc. (Lakew and others, 2017). The management of Toshiba
Corporation can use the KPIs to track the efficiently utilized working hours, measure the training
days and effectiveness of the training, evaluate the performance of internal communication
process and analyse sales volume. The proper utilization of these key performance indicators
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bring various advantages as well as disadvantages for the entire establishment which are defined
below:
Advantages:
Measurable results: The sole purpose of the KPI technique is to provide performance
report hence it use numbers, statistics and metrics to display accurate results.
Rewards: With the help of KPI, evaluation of each employee's performance and efforts
can be done properly which helps in providing rewards accordingly.
Future strategies: A proper tracking of the procedures helps the managers to modify the
previous goal performance and redesign the strategies accordingly.
Disadvantages:
Decrease in quality: Metrics that are used in KPI have tendency to gain weight rather
than authenticity of tasks which results in focusing on short-term goals and decrease in quality.
Standardization: The technique is goal-oriented and standardize the entire process that
results as a discourage for the creativity of the employees (Schwartz, 2016).
Loyalty: KPIs only focus on the process level and ignore to track the quality of work
which affect the relations between client and organization and loyalty of the clients may be lost.
Role of management accounting profession:
Management accountants play an important role within the organization as they various
tasks to ensure the financial security of the company, handle financial matters and helps in
planning managerial strategies. In case of Patisserie Valerie potential accounting fraud, the
company suspended its management accountant from his role because he did not perform his
duties well and done a fraud of around £20m (Patisserie Valerie scandal, 2019). An effective
management accountant should play significant role in identifying and preventing financial
irregularities. These roles are presented below:
 Their duties include recording and crunching numbers, helping to choose and manage
company investments, risk management, budgeting, planning strategies and decision
making.
 Management accountants need aptitude for and interest in numbers, maths, business and
production processes, along with accounting skills, knowledge in GAAP, and leadership
skills (Janin, 2017).
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 A management accountant should prepare reports and present them on a regular basis so
that long-term decisions can be made and corrective actions regarding adversities can be
taken at the right time.
 A managerial accountant have a pivotal position within the firm therefore the individual
need to participate in management procedures and maintain a required capital structure so
that control over the operations can be made.
CONCLUSION
It can be concluded with the help of above report that budgetary control is a major tool
for planning optimum strategies which helps in making decisions regarding day-to-day as well as
capital functions. These tools also helps in cost controlling, making pricing strategies and taking
competitive advantages. There are various financial problems take place within the
organizational environment which can be identify and solved with the help of KPI technique and
effective execution of management accounting process that is only possible by following
professionalism during the performance of accounting procedures.
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REFERENCES
Books & Journals:
Biegert, E. K. and et.al., 2018. Stress balance for a viscous flow with a single rolling particle.
In E3S Web of Conferences (Vol. 40, p. 04003). EDP Sciences.
Iotti, M. and Bonazzi, G., 2016. Assessment of Biogas Plant Firms by Application of Annual
Accounts and Financial Data Analysis Approach. Energies. 9(9). p.713.
Janin, F., 2017. When being a partner means more: The external role of football club
management accountants. Management Accounting Research. 35. pp.5-19.
Lakew, E. B. and et.al., 2017, May. KPI-agnostic control for fine-grained vertical elasticity.
In Proceedings of the 17th IEEE/ACM International Symposium on Cluster, Cloud and
Grid Computing (pp. 589-598). IEEE Press.
Lee, J. and Madanat, S., 2017. Optimal policies for greenhouse gas emission minimization under
multiple agency budget constraints in pavement management. Transportation Research
Part D: Transport and Environment. 55. pp.39-50.
Schwartz, P. M., 2016. The factors of failure in the implementation of dashboards as a tool to
measure KPI: An exploratory qualitative inquiry (Doctoral dissertation, Capella
University).
Online:
Patisserie Valerie scandal, 2019. [Online] Available through
<https://www.bbc.com/news/business-46897543>
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