HNC Business Unit 5: Management Accounting Assignment Analysis

This report provides an overview of management accounting, focusing on its application within a business context. It explores various planning tools like cash budgets and capital budgeting, highlighting their merits and demerits. The report also delves into how management accounting systems, such as KPI and benchmarking, can be used to address financial issues like decreased sales and higher expenses. It analyzes case studies of companies facing financial challenges and the techniques they employed to overcome them. The report emphasizes the importance of planning tools and management accounting systems in forecasting budgets and achieving sustainable success. The conclusion reiterates the usefulness of these tools in preventing financial problems, with references to relevant academic sources.

Management
accounting

Introduction
In the aspect of financial planning, there are a range of planning tools which are used
by managers for accurate forecasting of income and expenses. Along with
management accounting systems contributes for each department’s financial and non-
financial planning.

Planning tools of budgetary control
 Capital budgeting
 Cash Budgets

Merits and demerits
Merits:
 It helps in minimizing risk of loss on
various kinds of financial proposals.
 Contributes in choosing investments
effectively.
Demerits:
 This is not suitable in each case because
some techniques of investment appraisal
make analysis on assumption basis.
 It is not useful for smaller size projects.

Cont…
 Cash budget- This is type of budget that contains detailed information about
estimated cash expenses and cash receipts for upcoming time period. In relation to
above Continental clothing company, they use this budget to manage their
liquidity position.

Cont…
Merits:
 It is useful budget as by help of this
managers can track usage of cash
balance.
 This leads to effective management of
available financial resources.
Demerits:
 This budget limits the spending efficiency
of companies as they cannot do cross
expense limit over budget.

Management accounting system to solve
financial issues
Financial issue- In this competitive environment, companies are facing a range of
problems. Some common example of financial problems is mentioned in such
manner:
 Decreased sales turnover
 Higher expenses

Techniques
 Key performance indicator
 Bench-marking

Comparison
Basis Continental clothing limited ABC limited
Financial issue This company faced the problem of lower sales
revenues.
While financial issue in this company was related to
increased cost of various operations.
Techniques used The executives of this company used KPI method in
order to find out actual cause of financial issue.
They used Bench-marking approach in order to make
comparison of actual performance with others so that
issue can find out.
Management
accounting system
Their managers used price optimization system in
order to revise their prices. After changes in prices,
customers started to buy their clothing items that
resulted in increased sales revenue.
This company has used cost accounting system. By
help of it, they managed their overall expenses by
tracking variances. Thus, they became able to know
which expenses are unwanted and solved their issue.

Planning tools to prepare and forecasting of budgets
The importance of planning tools cannot be neglected as by help of these managers
can derive key information regarding to estimated income and expenses which lead
as framework for forecasting of upcoming time period's budgets. Such as in above
company, they use cash budget and capital budget that help them in making accurate
projection of cash and investment proposals' efficiency.

Planning tools to solve financial issues which leads to
sustainable success
Different types of planning tools help to companies in order to solve financial issues.
This is so because, these tools give an idea to managers about which activities will
lead to higher cost in future. Due to which, it becomes easier for managers to prevent
financial issues that leads to sustainable success.

Conclusion
 On the basis of above presentation, this can be concluded that planning tools and
management accounting systems are useful for companies in order to prevent
financial issues. The presentation articulates about planning tools like cash
budget., capital budget along with their importance to solve the issues. In addition
to this, role of two management accounting systems including price optimization
system and cost accounting system is also mentioned.

References
 Cescon, F., Costantini, A. and Grassetti, L., 2019. Strategic choices and strategic
management accounting in large manufacturing firms. Journal of Management
and Governance, 23(3), pp.605-636.
 Taschner, A. and Charifzadeh, M., 2020. Management accounting in supply
chains–what we know and what we teach. Journal of Accounting &
Organizational Change.