LCBB5002 Management Accounting Report: Budgeting and Analysis

This report delves into the core concepts of management accounting, highlighting its crucial role in business decision-making, cost analysis, and financial reporting. The report begins with an introduction to managerial accounting, emphasizing the importance of internal financial records and reports for guiding management decisions and achieving business objectives. The main body of the report provides an overview of management accounting's evolution, and its impact on modern businesses. It then explores the process of preparing budgets, including activity-based budgeting and the balance scorecard, and their benefits. The report then analyses the benefits of budgeting, including improved coordination, cost consciousness, and strategic vision, and the ways in which they can be implemented. The report concludes by summarizing the importance of budgets for business enterprises.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Managerial accounting refers to process to analyse business cost and the operations for
preparing the internal financial records and reports and for accounting to help managers to make
decisions for achieving the goals and objectives of business(Otley, 2016). In other terms, it refers
to process of using financial and the costing data and than making effective translation of data
into the useful and meaningful information for executives and management of the business.
Report will involve critical analysis of needs and the process of preparing the budgets. This will
be providing detailed analysis about the modern budgeting processes like activity based
budgeting and balance score card.
MAIN BODY
Management accounting is being used from centuries to calculate the costs of product.
Accounting techniques were even used by the households and businesses like preparation of cash
budgets or activity based. These budgeting techniques helped them to spend as their available
and framed budgets. This helped businesses and households in preventing going out of cash due
to overspending. As the time have changed management accounting techniques have evolved
and enhanced as per the needs of businesses. Till data various management accounting theories
and concepts have been developed by various authors.
Managers of the enterprise use management accounting informations for properly
informing themselves before any decision is taken about the matter within the organisations. This
helps management in managing and performing the control functions (Quattrone, 2016). As per
“Institute of Management Accounting” it is a profession involving partnership in management
decisions making, to devise planning and performance management system and to provide
expertise in the financial reporting & controls for assisting the management in formulation and
the implementation of organisational strategy.
Management accountants looks at events happening in and around the business
considering needs of business. These data and informations are used for emerging estimates.
Cost accounting refers the process of translating these data and estimates into knowledge which
will be used ultimately for guiding the decision-making process. Consistent to role in modern
corporations, managerial accounts are having dual reporting responsibility. As strategic partner
& as provider of decisions based over operational and financial informations. Managerial
accountants have responsibility of managing the business teams and at same time for reporting
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relationship & responsibilities entity's finance organisation (Bromwich and Scapens, 2016).
Management accountants provide for planning, forecasting, performing variance analysis, to
review and monitor costs inherent in business are one having dual accountability for both finance
and business teams.
Money and time are the scarce resources for all organisations and individuals therefore
the effective and efficient use of resources requires proper planning. Planning and control
together are required for enhancing the business. Budgets are the tools used by managers for
planning and controlling use of the limited resources. Budget refers to a plan showing objectives
of company and the manner in which management will be acquiring and using these resources
for attaining the objectives.
Corporations, not for profit organisation and government units use different type of
accounting budgets. The responsibility budget is designed for judging performance of individual
segments or managers. Capital budgets are prepared for evaluating long term capital project like
additions of the equipments or relocation of plants. Master budgets of company consists of
planned operating and financial budgets. Operating budgets help in planning the future earning
and it results in projected income statements. Financial budgets help management to plan for
financing of the assets and it results in projected statements of financial position.
Budgeting process involve planning for the future profitability as earning reasonable
returns over resources is primary objective of company. Company should devise methods for
dealing with uncertainty of future. Most of the companies devise blueprints for actions that will
be taken given foreseeable events which might occur.
A budget shows operating plan of the management for coming periods. It formalizes
plans of management in the quantitative terms. It forces every level of management of thinking
ahead, in anticipating results and taking actions for improving the poor results. It also motivate
the individuals for striving and achieving the stated goals. Corporations could use the actual
budgets for comparison and evaluating the individual performance. For example standard
variable costs for producing of personal computers at an enterprise is budget figure. The figure
is than compared with actual costs for producing customers for evaluating the performance of
production managers of computers and employees engaged in the production activities of
business (Weetman, 2019).
There are various other benefits resulting from the preparation & use of budgets like:
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 Activities of the business could be better coordinated.
 Managers of the business are aware about the plan and direction on which to proceed.
 It helps in making employees cost conscious that helps in developing habit of conserving
resources.
 Company reviews organisation plans and modifies them whenever essential.
 Budgets helps in fostering vision which otherwise would not have developed.
Planning processes results in formal budgets providing opportunity to various level of
management for thinking through and committing future plans.
There are various kinds of budgets that are prepared by the organisations
Activity Based Budgeting
Activity based budgeting refers to process for creation of blueprints or the financial plans
in advance that will be acting as yardstick to address individual activities. These activities are to
be carried by organisation with the given resources using the research tools & for allocating
resources as per the priorities in budgets (Mahal and Hossain, 2015). The allocation is made as
per the expected costs which are to required for spending.
Components and process of activity based budgeting
 It begins with identifying the activities that revolves around resource consumptions.
Activities are classified mainly as main and secondary activities denoting degree of
importance and involvement of activity to organisation based on their priority. Main
activities refers to activities that are related directly with objectives and necessary.
 Secondary activities refers to activities creating added values to customers and changing
the preference in favour of organisations that involve significant resources.
 After defining activities next step is of identifying the method of distributing resources
and costs accordingly between activities that are done by inducers. These are factors to
define consumption levels among the different activities.
 There are mainly three inducers influencing the decisions are time representing duration
for processes, resources required for each activity and the last is number of time activities
are repeated after gathering all facts for calculating the appropriate costs.
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Advantages
 Budgeting takes focus over forward activities instead of looking towards the previous
activities that is common feature under the traditional based budgeting. It lays emphasis
over the steps to be undertaken and the area of improvement instead of reviewing things
that were done earlier and allocating costs accordingly.
 Budgets are sourced based on the resources and activities allowing better insights over
inefficiencies in process and source of imbalance. This helps managers in finding areas
on which improvements can be made for making the jobs more efficient (Rodrigues,
2016).
 In a dynamic environment this budget has practical approach and make easier for
managers and employees for communicating and executing activities in time bound way.
This also evaluates performance by fixing the accountabilities for specific activities
Balance Score Cards
Balance score card refers to performance results and targets showing performance of
organisation in meeting objectives of stakeholders. This is management tool recognising
organisational responsibilities of different stakeholders groups like suppliers, employees,
customers, community, business partners and shareholders. Different stakeholders are having
different needs and desires which are required to be balanced by organisation. Concepts of
balance score cards is of measuring the performance of organisation in different activities.
Balance score cards used and developed in most of the companies. It is used primarily at the top
management levels for supporting the development of organisational strategies (Tan, Zhang and
Khodaverdi, 2017).
This is approach seeking to provide comprehensive and balanced frameworks for judging
performance of organisation different perspectives. It also helps management in assisting and
controlling organisations in unique and modern way.
Balance score cards have four perspective of analysis.
Financial perspective – This perspective indicate whether the operations and strategy of
company adding value for shareholder.
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Customer perspective – It involves seeing business from eyes of consumers. It involves
identifying the extent to which expectations of customers are met by company.
Business & production process perspectives – The points attention on performance of the major
internal processes driving the organisation.
Learning & growth perspectives
This perspective consider the potential future performance of organisation directing the attention
on basis of future success infrastructure and people of the organisation.
Advantages
 BSC facilitates understanding and communication of business strategies and goals at
every organisational level.
 It brings vision and strategy of organisation to the focus of management preventing
deviations (Ibrahim, Yulianti and Christian, 2018).
 It integrates non financial and financial goals & performance measures in single system
that is not considered by traditional controlling methods.
CONCLUSION
The study helps in coming at conclusions that the budgets are very important for the
business enterprises. Budgets are been prepared by organisations for having a proper and
planned structure to be followed by organisations. The budgets helps in preventing the
unnecessary expenditures of company and allocating resources over productive activities.
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REFERENCES
Books and Journals
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research.31.pp.45-62.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research.31.pp.118-122.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years
on. Management Accounting Research.31. pp.1-9.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
Mahal, I. and Hossain, M.A., 2015. Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting.6(4). pp.66-74.
Rodrigues, R.M.T., 2016. Activity based budgeting: caso de estudo ADIRA, SA (Doctoral
dissertation).
Tan, Y., Zhang, Y. and Khodaverdi, R., 2017. Service performance evaluation using data
envelopment analysis and balance scorecard approach: an application to automotive
industry. Annals of Operations Research.248(1-2).pp.449-470.
Ibrahim, N., Yulianti, D.T. and Christian, A., 2018, October. Supplier Performance Measurement
for Online Travel Agent Using Balance Scorecard: Case Study: Klikhotel. com. In 2018
International Conference on Advanced Computer Science and Information Systems
(ICACSIS) (pp. 45-50). IEEE.
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