Management Accounting: Planning Tools, Use of Systems, and Financial Problems

This presentation provides an overview of management accounting, focusing on planning tools, the use of management accounting systems by organizations, and financial problems faced by Carfulan. It explores the advantages and disadvantages of different planning tools, such as budgets, CVP analysis, and pricing strategies. The presentation also discusses techniques for solving financial problems, including benchmarking and KPIs. It compares Carfulan's management accounting system with MSD Lighting Ltd. and evaluates the use of management accounting in achieving sustainable success. References are provided for further reading.

Management Accounting

 Introduction
 Planning tools of management accounting
 Use of management accounting systems by organizations
 Conclusion
 References
Table of contents

 Different types of planning tools can be used in management accounting by the
organizations. Carfulan makes use of the following tools for these purposes which are
budgets, CVP analysis and pricing strategies.
 Budgets-
 A budget refers to preparation of a financial plan which is an estimate of
expenditures and revenues over a particular period of time.
 The types of budgets used in an organization are as follows-
 Cash budget-
 A cash budget refers to an estimate of cash receipts and expenditures over a
particular period of time
 Operating budget-
 An operating budget refers to estimation of operating expenses and revenues over
a particular period of time.
 Sales budget-
 A sales budget refers to estimation of sales revenue and other related expenses
over a particular period of time.
Advantages and Disadvantages of different
types of planning tools

 Advantages-
 Control- Budgets provide the much-required control over a business which
helps in achieving efficiency and effectiveness in operations
 Focus on goals- Budgets help an organization to be focused on achievement of
goals and objectives.
 Disadvantages-
 Time required- It takes a lot of time to prepare a budget which can turn out to
be disadvantageous for the organization.
 Strategic rigidity- Preparation of budget leads to strategic rigidity and
therefore flexibility is reduced.
Continued…

 CVP analysis is used in order to find out the impact change in costs and volume
creates on a company’s operating income.

 Advantages-
 Aids in decision-making- CVP analysis helps out in decision-making in an
organization as it can effectively evaluate the relation between costs and sales
volume.
 Helps in finding out BEP- CVP analysis helps in finding out the break-even point
to identify a level where neither profit is earned nor loss is incurred.
 Disadvantages
 Not suitable for multi-product operations- CVP analysis is not suitable for those
companies which deal in multiple products.
 Makes use of approximations- CVP analysis makes use of approximations which
can also turn out to be wrong.
CVP analysis-

 Pricing strategies are used by organizations to set a suitable price for their
products according to the situation prevailing in the market.
 Advantages-
 Attracting customers- Right use of pricing strategies can attract various
customers towards the products and services of the firm.
 Increasing profits- If pricing strategies are used effectively and efficiently
then it can result in increase in the level of profits of the company.
 Disadvantages-
 Can affect the number of customers- Pricing strategies can affect the
number of customers if they are not applied correctly by the organization.
 Loss of market share- If the pricing strategy chosen by the organization is
not suitable according to the interests of the customers then it may lead to a
loss of market share.
Pricing strategies-

 The planning tools i.e. budgets, CVP analysis and pricing strategies are extremely
helpful for an organization if it has to achieve its long-term objectives in the future.
These tools can facilitate Carfulan to plan and manage its operation properly so
that appropriate strategies can be devised to achieve the objectives. Budgets can
help it to forecast its expenditures and receipts, CVP analysis can facilitate finding
of break-even point and pricing strategies can help in setting the right price. Thus
overall these tools help the company in decision-making.
Analysis of use of planning tools

 Financial problem refers to a situation where the business is either not making
profits by continuously running into losses or is facing issues which are reducing
its level of profits. These problems can be faced by Carfulan if its management
efficiency is not good.
Comparison of organizations in adapting of
management accounting systems

 Over-expenditure on promotions- Carfulan is spending excessively on its
advertisements of products and services. This results in increase in overall
expenses which affect the budget of the organization.
 Decreasing profits- Carfulan’s profits are witnessing a steady fall over the years
which creates a worrying sign for the company because it will hinder the aim of
maximization of profits.
Financial problems faced by Carfulan

 Benchmarking- Benchmarking refers to a process in which certain standards
are set which have to be followed by the organization to achieve the desired
results. These can be either of the industry or of the organization itself.
 Advantages-
 Setting standards- Benchmarking helps in setting of standards which helps
the organizations in achieving them to optimize performance.
 Increase in efficiency- Benchmarking results in increase in efficiency because
standards are properly followed in the company because of it.
Techniques for solving financial problems

 Disadvantages-
 Unrealistic standards- Unrealistic standards can be set using benchmarking which
is not appropriate for the organization.
 Costly process- Setting of benchmarks for performance is a costly process and
cannot be afforded by the small companies.
Continued…

 KPIs- KPIs or Key performance indicators refer to metrics which are
used to measure the performance in an organization.
 Advantages-
 Achievement of objectives- KPIs help in achieving the objectives set
by the organization.
 Performance measurement- KPIs facilitate measuring of performance
of the organization so that comparison can be done.
 Disadvantages-
 Affects quality- In order to achieve the targets the workers may
compromise on quality.
 Standardization- It leads to standardization which is not always good
for the organization.
Continued…

Basis Carfulan MSD Lighting Ltd.
Financial problem Inappropriate price used for
products.
Excessive overheads.
Management accounting
system used
Price optimization system. Cost accounting system.
Application of the system It can be used to set a price
which is appropriate.
It can be used to identify
the reason for excessive
overheads and removing
these excessive overheads.
Comparison of organizations on the
basis of use of management accounting

 Management accounting not only aids the managers in decision-making but can
also be used by the organizations in order to achieve sustainable success in the
future. If the companies like Carfulan properly implement its approaches then they
can easily leave the competition behind through proper strategic decision-making.
This will lead to achievement of efficiency and effectiveness required for success.
Also by properly following its techniques the firms can reduce their overall costs
and can maximize their revenues which will ultimately result in increase in the
level of profits.
Analysis of use of management
accounting

 Planning tools like budgets, CVP analysis and pricing strategies are extremely
helpful for organizations like Carfulan to increase their overall operational
efficiency and effectiveness. Proper use of these tools facilitates planning in
advance by the management to face different situations and circumstances which
may occur in the organization. Also these tools help a lot in making forecasts and
assumptions which can help in estimating the level of profit a company is going to
earn in a particular period of time. This will benefit it in the long-run to prepare the
required strategies for decision-making.
Evaluation of planning tools

 From the above presentation, it can be concluded that planning tools can be
effectively used by organizations for their decision-making. Also, organizations use
different types of management accounting systems to deal with their financial
problems.
CONCLUSION

 Ax, C. and Greve, J., 2017. Adoption of management accounting innovations:
Organizational culture compatibility and perceived outcomes. Management
Accounting Research. 34. pp.59-74.
 Messner, M., 2016. Does industry matter? How industry context shapes
management accounting practice. Management Accounting Research. 31. pp.103-
111.
REFERENCES

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