Management Accounting Planning Tools Analysis Report

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ANALYZING PLANNING TOOLS

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TABLE OF CONTENTS
BREAKEVEN ANALYSIS................................................................................................................... 3
ACTIVITY BASED COSTING..............................................................................................................4
BENCHMARKING............................................................................................................................5
REFERENCES...................................................................................................................................6

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Management accounting makes use of numerous planning tools such as benchmarking, activity-
based costing, cash flow budgeting, discounted cash flow methods and breakeven analysis
amongst others. The analysis of the three most effective planning tools is as follows:
BREAKEVEN ANALYSIS
Breakeven analysis can be defined as a financial tool which is helpful for determining the point
at which the activities undertaken by the business organization would be profitable. This is the
determination of the point at which the company is not making any profit and losses and at the
same time, all the relevant costs are being covered. The breakeven analysis is being performed
by taking into consideration the revenues, fixed cost and the variable costs (Carey et al., 2017).
The breakeven analysis is majorly used in conditions of taking the decision of manufacturing a
new product, initiating new business and also in situations of change in the existing business
model.
EFFECTIVENESS OF BREAKEVEN ANALYSIS
The use of breakeven analysis by the organizations is highly beneficial as it helps in the
determination of the unutilized capacity of the organization after the breakeven within the
activities is achieved. Therefore, it enables the management to determine the maximum
amount of profit which can be generated by a particular activity of providing products/services
(Bedford et al., 2016). The breakeven analysis is also beneficial for determining the impacts on
the profits of the organization when the processes of the company are changed from manual to
automatic. The impacts on the profitability of the company can also be determined in
situations of alteration in the prices of the products and changes in the sales volume (Carey et
al., 2017).

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ACTIVITY BASED COSTING
Activity-based costing can be defined as an accounting technique which can be used by the
organizations for determining the total cost of the activities which are needed to be undertaken
for the manufacturing of a product. This method takes into consideration both the overhead
costs and the direct costs involved in production activities. The players of the manufacturing
industry make substantive use of the activity-based costing technique (Namazi, 2016). This
method focuses on grouping the individual activities which have similar processes into a
common cost pool which is related to a common cost driver. It is one of the most effective
methods of assigning the indirect costs and aids the business organizations in making decisions
regarding the pricing of products and overhead decisions (Plowman, 2017).
EFFECTIVENESS OF ACTIVITY BASED COSTING
Activity-based costing is highly effective for the organizations as it facilitates the allocation of
the overhead expenses to various products and jobs based on the amount of actions which are
needed to be performed for production. This is also useful for the management in terms of
outsourcing or downsizing of the activities (Namazi, 2016). This method is highly beneficial in
enhancing the reliability of the costing data by providing details of the true cost and also by
making classification of the costs incurred across different stages of the production process. The
activity-based costing is widely used for pricing of the services, analyzing the profitability across
the product line, product costing, customer profitability analysis and others (Plowman, 2017).

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BENCHMARKING
Benchmarking can be defined as the process of measuring the overall performance of the
products and services of the business. The performance is being measured in comparison with
the other major players of the industry. The process of benchmarking is helpful in identifying
the internal opportunities which are available with the businesses which would be helpful in
ensuring improvements (Schneider et al., 2016). The possibilities of improvement available with
the businesses could be categorized majorly into the dramatic opportunities and continuous
opportunities. The dramatic changes can be implemented by bringing in changes or focusing on
the reengineering of the overall internal work processes (Madsen et al., 2017). The continuous
improvement helps in implementing small changes within the processes for reaping sizeable
advances.
EFFECTIVENESS OF BENCHMARKING
Benchmarking is highly effective for the companies as it helps in ensuring that the processes are
efficient and reaps huge profits for the business. Benchmarking also helps in improving the
understanding of the employees for the internal processes and the cost structures (Schneider
et al., 2016). The process of benchmarking helps in encouraging the cooperation and team
building which would enable the firm in becoming highly competitive. In addition to this,
benchmarking is also highly beneficial in enhancing the overall familiarity with the key
performance indicators of the business and also determining the opportunities available for the
business in ensuring improvements in business processes (Madsen et al., 2017).

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REFERENCES
Bedford, D.S., Malmi, T. and Sandelin, M., 2016. Management control effectiveness and
strategy: An empirical analysis of packages and systems. Accounting, Organizations and Society,
51, pp.12-28.
Carey, M., Knowles, C. and Towers-Clark, J., 2017. Accounting: a smart approach. Oxford
University Press.
Madsen, D.Ø., Slåtten, K. and Johanson, D., 2017. The emergence and evolution of
benchmarking: a management fashion perspective. Benchmarking: An International Journal,
24(3), pp.775-805.
Namazi, M., 2016. Time Driven Activity Based Costing: Theory, Applications and Limitations.
Iranian Journal of Management Studies, 9(3), pp.457-482.
Plowman, B., 2017. Activity based management: Improving processes and profitability.
Routledge.
Schneider, M.L., Mahlendorf, M.D. and Schäffer, U., 2016. Professional Performance and
Bureaucratic Benchmarking Information.