Management Accounting Report: Financial Problem Solving and Tools

This report delves into the realm of management accounting, exploring its significance in internal decision-making and organizational performance evaluation. The report uses Morrison's company as a case study, examining various planning tools used in budgetary control, including budgets, fixed budgets, flexible budgets, incremental budgets, zero-based budgets, and variance analysis, along with their respective advantages and disadvantages. It further investigates the application of these tools in budget preparation and forecasting. The report highlights how management accounting systems are used to address financial problems, such as cash management, inventory issues, and cost control, using ratio analysis, benchmarking, and key performance indicators (KPIs). A comparative analysis of Apple and Tesco illustrates the practical implementation of accounting techniques to solve specific financial challenges. Finally, the report evaluates the use of planning tools in achieving sustainable success, emphasizing the importance of effective management accounting systems in overcoming financial issues and promoting long-term organizational viability.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK2.............................................................................................................................................1
P4 Advantage and disadvantage of different planning tools used in budgetary control..............1
M3 Use of different planning tools in preparing and forecasting budgets..................................4
P5 Management accounting system in relation to solve financial problem.................................4
M4 Use of management accounting system to respond the financial problem to achieve
sustainable success.......................................................................................................................6
D3 Evaluation of planning tools to solve the financial issues to get sustainable success...........6
CONCLUSION................................................................................................................................7
REFRENCES...................................................................................................................................9
Books and journals.......................................................................................................................9

INTRODUCTION
Management accounting is a kind of accounting system which consist many informations
that are helpful for managers in making internal decisions(Ward, 2012). In addition, this
accounting system includes various accounting reports which helps organisations in performance
evaluation and controlling. To understand about the management accounting system's mean and
its uses Morrisons company is selected which was founded in 1899. Its headquarter is in
Bradford UK. This company offers various groceries and food products.
This project report includes the detailed information about the different planning tools
with their advantage and disadvantage. In addition, report tells about the way in which different
organisations apply management accounting system to respond the financial problems.
TASK2
P4 Advantage and disadvantage of different planning tools used in budgetary control..
Budgetary control- Budgetary control is a kind of system which is related to the setting
of financial and performance goals and comparing the actual performance with those
goals(DRURY, 2013). It helps the managers in analysing the organisational performance as well
as employees performance. Apart from it, this controlling system provides a framework for
making future policies and plans to achieve goals, objectives. With the use of budgetary control
system, an organisation can make efficient utilisation of financial and human resources.
Morrisons company use this controlling system to measure the actual performance. They use
different tools of budgetary controlling system which are followings:
Budgets- These are the estimation of income and expenses of a particular time period.
Now these days budgets are used by families, companies and governments etc. It is important to
know that basically budgets are made for one year. The basis of budget preparation are the past
financial activities which helps in accurate estimation. The selected company prepares budgets
for coordinating the all activities in an effective way.
Advantages-
 It helps in determining the areas in which funds are required.
 These helps in controlling the income and expenditures of companies by accurate
estimation.
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Disadvantages-
 The preparation of making budgets sometimes consumes too much time which
effects the other important activities as well as it becomes costly.
 Budgets do not provide accurate cent percent results, these are just an estimation
of income and expenses.
Fixed budget- It is also known by the static budgets. These budgets do not change due to
change in sales or volume. In addition, it remains same in the entire time period of the budget.
This type of budget is suitable for those activities which are expected to be unchanged in the
future(Wickramasinghe and Alawattage, 2012). Morrisons company applies this type of budget
for those activities which can't be flex in the future. It has some advantages and disadvantages
which are discussed below:
Advantage-
 Fixed budget is easy to track and maintain because this does not change timely
which helps in reducing the complexity of budgets.
 This type of budget need not to be adjust in each month which reduce the
manpower and costs.
Disadvantage-
 It can become very inflexible when there is a situation to be change in budget.
 This budget does not give priority to optimum utilisation of resources.
Flexible budget- Flexible budget is a kind of budget which changes according to change
in the sales and volumes. This type of budget is more easy to use because it flex when there is
need to change in the budget. It is also known by the variable budget. The selected company use
this budget in making estimation of those financial activities which are variable. Apart from this,
it has some advantages and disadvantages which are following:
Advantages-
 Flexible budget is helpful in making better cost control because it reacts quickly
on the problem situations.
 It updates with the current data because this flex as per the change in the sales and
volume.
Disadvantages-
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 This type of budget enables the cheating in the financial data because it can be
change so ineffective employees can hide their low performance.
 It requires more planning and effort otherwise it can become confusing to
manage. Incremental budget
Incremental budget- This type of budget is based on an approach. In this budget current
year's existing budget becomes the base for making upcoming year's budget. This is why because
managers assumes that all the activities of current year will be same in the next year and if there
will any change then it would be added in that new budget. Morrisons company implements this
type of budget in those activities which are going to be same in next year. Incremental budget
has some advantages and disadvantages which are discussed below:
Advantages-
 This budget is very easy to implement because it does not require any detailed
analysis.
 Incremental budgets are easy to see impact of change this is why because these
budgets remains same as previous year's budget but if any change occurs, then it
becomes easy to find.
Disadvantages-
 It is difficult to review the budget because it has same data as the previous year's
budget.
 This budget leads to the waste of resources because it use the resources as per the
previous year's budget so it is not necessary that situation may same as past.
Zero based budget- This type of budget starts from the zero base and each activity
justifies before entering in the budget. This brings accuracy and transparency in the budget. The
selected company use this budget which helps them in providing accurate result about the
performance. This budget have some advantages and disadvantages which are following:
Advantages-
 It brings efficiency in allocation of the resources because it each activity has its
own justification.
 This budget can change as per the change in the organisation.
Disadvantages-
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 It consumes too much cost and time because it requires huge human power in
preparation of budget.
 This budget creates more paper work which can result in complexity.
Variance analysis- This analysis is related to the comparison of actual behaviour with
the forecasted behaviour in the budgeting(Hiebl, 2014). It analyse the way in which difference
between actual and targeted behaviour impact the performance of business. Morrisons company
use this analysis for comparing the actual performance with targeted goal.
Advantages-
 It is helpful in minimising and controlling the cost.
 This focus on the inefficient performance holders and provides suggestions for
improving the performance.
Disadvantages-
 Wrong estimation of standards can become a big issue of this analysis.
 In this analysis, sometimes it becomes harder to decide which variance is
significance and which one is not.
M3 Use of different planning tools in preparing and forecasting budgets.
The planning tools of budgetary control are too crucial in making of budgets because
these tools have all the informations which are required in forecasting the budgets(Herzig,
Viere, Schaltegger and Burritt, 2012). In addition, different planning tools provides a framework
of forecasting the budgets. Morrisons company use various tools like variance analysis, zero
based budgets, static budget etc. All these helps them in accurate budget making and forecasting.
Each tool has significant role in context on budgets.
P5 Management accounting system in relation to solve financial problem.
Management accounting system is becoming a key part of internal management in
businesses(Lukka and Vinnari, 2014). This accounting system is not limited to the internal
management of companies, this is helping businesses in solving the various financial problems
which occurs in a company. In addition, this system is increasing its own importance in the
context of overcoming financial issues. In today's era companies face various issues like problem
of cash management, inventory management and higher cost etc. Herein, management
accounting system helps in all the way, first it detects the exact issue then provide suitable
method to solve the issues.
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Different organisations have variable problems it depends on them that how they manage
the issues. It is important to detect the actual problem because in the absence of knowing actual
problem all the resources can be waste in solving the issue. For this companies use various tools
to identify what is problem. Some of those tools are described below:
Ratio analysis- It is the process of calculating financial information in the terms of
percentage and units. This helps in analysing the actual financial position of the company. It
consists various ratios like profitability ratios, liquidity ratios, solvency ratios etc. All these ratios
helps in analysing about what is the actual problem in the company. Morrisons company
calculates different ratios to know their financial condition and to identify the actual problem.
Benchmarking- It is a tool of comparing a company's process and performance with
other competitive companies to get competitive advantage over rivalry firms. This helps in
checking that in which areas company is weak in compare to other companies. So overall it
analyse the actual weakness or issue of company with the help of comparison. Morrisons
company compares their process and products with their competitors to evaluate the aspect in
which they are weak.
Key performance indicator- KPI is a performance measurement tool which analyse the
actual performance of a particular activity or individual. In addition, it compares the performance
with pre set standards. The above selected company applies this tool in analysing the actual
performance and identifying the issues of lower performance.
Herein, the comparison of two different companies is given in reference to solving
financial issue with use of appropriate management accounting techniques. Comparison of apple
and tesco is given below:
Apple Tesco
Problem- The company is facing the issue of
assigning a level of price and due to this their
customers are not satisfy with price in some
countries.
Problem- This company is getting the issue of
right stock management and due to this they
are unable to match demand of customers. As
well as they are not aware about the available
stock in their warehouses and because of this
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production system is not efficient.
Solution- In this situation, company is needed
to implement price optimisation method. This
is why because it is a kind of method which
provide a framework in analysing respond of
customers at different pricing level. In addition
it is helpful in determining a level of price
which is suitable both to the customers and to
the company.
Solution- On the basis of above issue, they are
needed to apply a right accounting system that
is inventory management system. This system
tracks the movement of goods in entire
production system as well as it helps in
analysing quantity of finished goods at the
warehouses. With the help of this company
will be able to solve above issue.
M4 Use of management accounting system to respond the financial problem to achieve
sustainable success.
Management accounting system and its various techniques helps companies in solving
the financial issue(Edwards and Boyns, 2012). This is why because management accounting
system includes various techniques like inventory management, price optimisation etc. It
depends on the issue that which system is needed to solve. Apart from this, if an organisation is
able to solve the financial issue with accounting system then it will directly help in achieving the
sustainable success. The selected company applies different accounting tools and techniques to
solve the financial issues.
D3 Evaluation of planning tools to solve the financial issues to get sustainable success.
Management accounting consists various accounting tools which helps in overcoming
from the financial issue(Vosselman, 2014). Companies use different planning tools like budgets,
flexible budgets etc. All these tools helps in providing the guidance to solve the issues. For
example Morrisons company use many planning tools like zero based budgeting, variance
analysis, static budgets and many more. These helps company in analysing the financial problem
and if there is any problem regarding to the lower performance then it helps in solving that issue.
CONCLUSION
From above project report it has been concluded that management accounting system and
its tools are very important for all the organisations. Due to accounting systems and techniques
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companies can become able to identify the financial issue and can solve that issue. Apart from
these this accounting system is needed to be use first in the internal management because in the
absence of this it can't be implemented effectively.
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REFRENCES
Books and journals
Ward, K., 2012.Strategic management accounting. Routledge.
DRURY, C. M., 2013.Management and cost accounting. Springer.
Wickramasinghe, D. and Alawattage, C., 2012.Management accounting change: approaches
and perspectives. Routledge.
Hiebl, M .R., 2014. Upper echelons theory in management accounting and control
research.Journal of Management Control. 24(3). pp.223-240.
Herzig, C., Viere, T., Schaltegger, S. and Burritt, R. L., 2012.Environmental management
accounting: case studies of South-East Asian companies. Routledge.
Lukka, K. and Vinnari, E., 2014. Domain theory and method theory in management accounting
research.Accounting, Auditing & Accountability Journal. 27(8). pp.1308-1338.
Edwards, R. and Boyns, T., 2012.A history of management accounting: The British experience.
Routledge.
Vosselman, E., 2014. The ‘performativity thesis’ and its critics: Towards a relational ontology of
management accounting.Accounting and Business Research. 44(2). pp.181-203.
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