Management Accounting Project: Planning Tools and Financial Problems

This report provides a detailed analysis of management accounting, focusing on planning tools and their application in addressing financial problems within an organization. The study uses Vectair Holdings as a case study to illustrate the practical application of various tools, including cash budgets, incremental budgets, and zero-based budgeting. The report examines the advantages and disadvantages of each tool, highlighting their effectiveness in managing cash flow, setting pricing strategies, and developing strategic plans. It also explores how these tools can be used to identify and resolve financial issues such as budget planning and controlling, pricing strategy, and strategic planning. The conclusion emphasizes the importance of management accounting in supporting decision-making and improving organizational performance. The report also provides references to relevant literature, supporting the analysis with academic research and industry best practices.

MANAGEMENT
ACCOUNTING
PROJECT
TWO

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
1. Compare planning tools that are used in management accounting.........................................1
PART B............................................................................................................................................3
1. Effectiveness of management accounting tools in dealing with financial problems..............3
CONCLUSION................................................................................................................................4
REFERENCE...................................................................................................................................5

INTRODUCTION
Management accounting is the process of analysing business costs and operations to
prepare financial report, records and account. It is the presentation of analysing the business
activities for internal management to decision-making (Chenhall and Moers, 2015). Present
study is based on the “Vectair holdings” which is founded in 12 may 2005 was registered office
located in Basingstoke. This company is a leading technological innovator, manufacturer and
supplier of hygiene products to over 120 countries worldwide. Study lays emphasis on planning
tools like cash budget, activity based costing and incremental budget tools are used in
management accounting. Report will also highlight the tools of management accounting help to
resolve the financial problems to organisation.
PART A
1. Compare planning tools that are used in management accounting
Cash budget:
Cash budget is an essential planning tool of management accounting for Vectair holdings.
It is a planning or estimation of company's cash inflows and cash outflow for a specific period
(Henri and et.al., 2016). It involves firm's cash inputs and output sources such as revenue,
expenses, loans etc.
Advantage: It shows the cash position of firm over a period so that firm take actions to
manage or arrange its reserves or funds. It also helps the company to take decision about short or
long-term investments.
Disadvantage: cash budget has disadvantages as well as advantages such as lack of
flexibility, manipulation of figures, ignorance of non financial factors etc. Management of
company take decisions based on budget. If estimation is not correct, then company have to face
negative outcomes. Ignorance of Non financial factor also affects financial decisions of
company. For ex: interest rate influences the decision to borrow loans from banks.
It is effective for making proper cash budget of the firm. By this tool company know
about their cash inflows and outflows. Proper cash budget help to achieve goal of the firm. That
budget help to company to take effective and valuable decision for increase profit of firm.
Incremental budget:
When a budget is based on preceding budget or company's actual performance of
previous budgeted period, is called Incremental budget. It is an important planning tool for
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Vectair holdings that helps or leads it to spend more or less for the next budgeted period (Kaplan
and Atkinson, 2015). It helps the firm to planning or forecasting of incremental distribution for
the next period.
Advantage: Incremental budget is very useful planning tool for company because this
type of budget is easy for using to plan for future funding. It requires small or slight changes in
proceeding’s funds allocation. It also ensures the company regarding funding stability.
Disadvantage: This planning tool also have demerits. The primary disadvantage of
incremental budget for firm is that it does not allow any innovation. In this form of budget,
methods of working remain same. Its disadvantage is perpetuating allocations. It means if
company allocated specific amount of fund to a specific business resources or department in
previous budget and basis of that, firm allocates fund for the future while there is no longer
requirement for many funds.
It is effective for the company to analysis the forecasting budget planning. By this
company know about their future expenses. It is useful for future budget planning. That helping
to ensure about the funding stability in the company. It is easy and effective management tool of
management accounting.
Zero based budgeting:
Zero based budgeting is another form of budget that helps the Vectair holding as a
planning tool for management accounting. In this method of budgeting, Managers of the firm
have to justify or approve all the budgeted expenses for the next period, not only the changes on
the basis of previous budget.
Advantage: Zero based budgeting method helps the Vectair holding to increasing its
profits or revenues and decreasing its expenses. Using this approach, company will eliminate or
cut the unnecessary costs. It also increasing the involvement of employees in decision making to
find out which type of expense is controlled by firm (Morden, 2016). It also shows more accurate
picture of the requirement of funds regarding desired revenues.
Disadvantage: Zero based budgeting also has demerits. Zero based budgeting is very
time consuming approach. This approach requires involvement of large number of employees
and experts to prepare this type of budget because under this method, managers have to justify
each and every expenses of its firm.
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It is effective for the company to justified the expenses for the next. By this company
able to change their previous budget. It helps to increase the involvement of employees in
decision making. That tool is control the expenses of firm and shows accurate balance of funds
of firm.
PART B
1. Effectiveness of management accounting tools in dealing with financial problems
Budget planning and controlling: It is very necessary for a growth of business that
Company’s cash inflows are more than compare to outflows. If firm’s sales are good, it is does
not mean company is safe from this issue. If company does not pay its dues or debts at the
specific time, it means company facing this problem (Otley, 2016.). To overcome this problem,
Vectair holdings should proper budget planning and control so that company knows about its
expenses and revenues. Company can prepare budget by using cash budget planning tool. It
involves estimation of cash inputs and outputs of firm such as: revenues, expenses, loan and
debts etc. for a specific period i.e. monthly, quarterly or annually. It helps the firm to resolve this
issue by forecasting its long term and short term cash needs.
Pricing strategies: The one of the common financial issue in any business is pricing
strategy. The firm makes profit by using pricing strategy. The firm makes profit by reduces
indirect or overhead cost of the product. Firm reduces indirect costs of its product by zero based
budget planning. By zero based planning, managers re-evaluate indirect costs of the product and
eliminate unnecessary expenses on the production. When cost of production decreases, Vectair
holding increases its revenues by using market penetration pricing strategy. It helps the firm to
increase its revenues by selling its good on lower price as compare to other firms.
Strategic planning: one of the most conman financial issues of business is the right
product or services. For that, they make planning strategies. Sometimes, the economy affect the
business because of customer choices and habits, demand of product that are decreases (Wouters
and et.al., 2018). One of the challenge for Vectair holding to face this problem. Company can
solve this problem by using of incremental budget tools in their financial system. Incremental
budget planning is easy to using for future funding. This will help to making effective strategic
planning of demand and supply of the firm. It helps to firm to resolve their demand and supply
problem. This will help to increase the profit of firm and productivity.
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Identifies financial problems: It is important to identifies the financial problems. For this
they have make proper cash flow statement. Bills payments is most important part of the Vectair
holding. Company payment their vendors where they purchase their raw material. To overcome
this problem company can identify the financing problem related to their bills and payments. For
that company uses the activity based costing tool (Management accounting. 2017). This will help
to analysis the accurate and clear cost of the raw material and also to bills. It involves the
estimation of their bills and payments which is company pays to vendors. Through this company
can able to increase their profit and productivity.
That all are the problem solve by applying management tools of financial system. That
help to face financial problem of the firm which solved by using tools.
CONCLUSION
From the above study it had been concluded that management accounting has applicable
in the organization to helped in devising planning, supporting decisions of management. That has
support to management decision making and its performance. It explains the organizational
strategies to generate its profit. Report has covered by the different planning tools of
management accounting which was used in the organisation. For improve companies profit and
productivity. In the study also discussed on different management accounting tools was helpful
for solving financial problem of the organisation. That was affect to its profit and productivity.
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REFERENCE
Books and journals
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
Society, 47, pp.1-13.
Henri, J. F., Boiral, O. and Roy, M. J., 2016. Strategic cost management and performance: The
case of environmental costs. The British Accounting Review.48(2). pp.269-282.
Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
Morden, T., 2016. Principles of strategic management. Routledge.
Noordin, R., Zainuddin, Y. and Mail, R., 2017. Competitive strategy, elements of strategic
management accounting information, and performance consequences-a conceptual
link. Jurnal Akuntansi dan Bisnis. 8(1).
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research.31.pp.45-62.
Wouters, M. and et.al., 2018. T Course: Management Accounting 1 [T-WIWI-102800]. Module
Handbook Industrial Engineering and Management (B. Sc.)
ONLINE
Management accounting. 2017. [Online]. Available through: <https://cleartax.in/s/management-
accountingl>
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