Management Accounting: Planning Tools & Applications

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MANAGEMENT ACCOUNTING
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Table of Contents
Introduction......................................................................................................................................3
LO3. Use of planning tools that are used under management accounting..................................4
P3 advantages and disadvantages of different types of planning tools used for budgetary
control..........................................................................................................................................4
M3. Use of different planning tools and their application in preparing and planning of budget.5
D3 evaluation of planning tools helps in solving the financial problems....................................6
LO4. Ways in which an organization can use management accounting. Application of
management accounting in business enterprises.........................................................................9
P5. Evaluation of activities, how organizations adapt management accounting systems.........10
M4 analysis of how an organization can lead to sustainable success through management
accounting..................................................................................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
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Introduction
Budgeting is an important activity that plays an important role in the function that are required to
be carried out for a future term and for a fixed period of time. Budgeting refers to an activity or
process that an entity requires to be spent for performs its activities. Budgeting is simply an
identification of future expenses and considering balancing the expenses with the income.
Different types of budgets are prepared for different functions. Budgeting is to identify the
analytical review require to perform the different tasks that are in need to perform to attain the
organizational goals and objectives.
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LO3. Use of planning tools that are used under management accounting
Planning tools are inter-related with the business activity as it guides the entity to carry out its
functions effectively. Various panning tools are considered to be effective but some of them are
referred to as follows like standard costing, budgetary control, fund flow analysis, Marginal
costing financial statement analysis etc. These tools consider being used to carry out the
functions with effective business policies. Planning tools allow in the evaluation of activity so
that business should is transparent and consider as properly utilized to evaluate actions.
(ERSERİM, 2016)
Under budgetary control, various tools help to identify and analyses the capacity of the business.
Under this strategy proper financial needs are required to be analyzed and estimated the needs
accordingly and used as per the requirements of business.it is such planning tool which is used to
control over the effective business concern and to properly analyses the defined activity.
Through this tool, the business operation can be directed towards the defined goal and it helps to
effective analyses and identifies the needs.
Various types of budgets are performed in respect of the organization, fixed budget, functional
budgets, and flexible budget. In respect of fixed budget, the organization is being identified
about the expenses to be incurred by the organization and is the pre-defined expenses. On the
basis of such information, expenses are being included in the budgeted information and hence
properly acknowledged by the entity.
P3 advantages and disadvantages of different types of planning tools used for budgetary
control
Management accounting provides various advantages with respect to planning tools. as these
tools help in achieving goals and objectives with respects to achieving targets and helps in
analyzing effective decision making.
Disadvantages in relation with budgetary control are referred to as it does not cover the whole
aspects needed to require to be included in the proper budget. as the budget includes the targeted
activities; it does not include the proper activities to be incurred for a particular period of time.
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Suppose J limited has prepared a budgeted profit forecast based on 50000 units
Particulars Budget (in €) Actual (in €) Variance (in €)
(37500 units sold)
Sales Revenue (A) 1500000 1075000 425000(A)
Costs
Material 375000 311750 63250(F)
Labour 450000 351500 98500(F)
Production overhead 130000 117500 12500(F)
Admin overhead 70000 66500 3500(F)
Total costs (B) 1025000 847250 177750(F)
Operating profit (A) - (B) (C) 475000 227750 247250(A)
If there are differential activities are identified under the fixed budget, then such budget will not
be treated as a fixed budget and then it will be turned under the budget i.e. flexible budget.
(Stede, 2017)
M3. Use of different planning tools and their application in preparing and planning of
budget.
The main aspects of the flexible budget are that it can be adjusted as per the requirement
schedule, and helps to identify and analyses the different aspects to carry out the proper analyses.
Under the flexible budget, the information’s can be adjusted as per the requirements and can be
transposed accordingly.
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A flexible budget is prepared by the entity as a common tool and covers the whole expense
criteria of each and every action. The effective tool of the flexible budget is that it can be
performed at each production level, capacity level and on the basis of examination at different
factor. Activity identified at the most beneficial and functional to the entity selected as a proper
tool for carrying out its performance. (MACHADO, 2016)
Functional budget referred to such budget, which is preparing for a particular activity or
business. Functional budget is preparing under the cost accounting system to identify the cost of
production, sales, administration expenses. For the preparation of these budgets, it shall require
that proper analysis would be conducted by an entity so that it can easily be identified as an
effective analysis.
D3 evaluation of planning tools helps in solving the financial problems
Different planning tools are provided to concern the effective needs and defined as follows: -
 Financial planning: - the main requirement of any business is to earn and acquire the
maximized profit. For earning such type of profit, an entity requires to prepare a strong
financial schedule with respect to carrying out its activities. To consider and attain the
required profit.it is a need to prepare a panning structure and therefore this financial planning
helps the entity to attain such essential profits.
 Cost accounting: - the cost accounting reports the cost data as per the different product wise,
department wise, etc., the status of the system defines the factors and reflects the schedule of
costs. The data being prepared is compared with the required figures and hence helps to
identify the proper analysis. The comparison of the analysis is to identify and define the
reasons and to evaluate the differences arises due to the comparison.
 Cash flow analysis: - cash flow statements are preparing for the analysis of cash outflows and
inflows require considering and carrying out in the business concern. These statements help
to collectively identify the factors through which the entity loses its cash or attain its cash. It
is a necessary requirement to determine the future balance of outflows and inflows.it
determines the analysis through operating activity, investing activity and financing activity.
 Marginal costing: - marginal costing is an important aspect of covering and entity’s costs,
this tool helps to evaluate the variable cost and on the basis of that per unit cost is evaluated
and identified. Marginal cost helps to determinate selling price and through that the resources
allocated to even the basic structure. So that the product cost and various portions can be
properly analyzed. (MADUEKWE, 2015)
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Particulars Product
A
Product
B
Product
C
(in €) (in €) (in €)
selling price per unit (a) 40 25 47
Less:- Variable cost per unit (b) 28 9 31
Contribution per unit (a) - (b) 12 16 16
Material in KGs require for a particular unit of a
product 2 1 4
Contribution per KG of product 6 16 4
Ranking as per criteria II I III
Production plan
Ranking Particular Kg Units Total(in Kg)
I B 1 800 800
II A 2 1000 2000
III C 4 50 200
Total 3000
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 Decision making accounting: - a proper strategy can be performed if a better strategy can be
identified from various options available. And out of such available options section of the
best option is an important aspect. And therefore for selection of such a strategy, it is
necessarily required to analyses a proper decision-making process. Thus in considering the
effective solution, proper decision-making tool should have to be operated and for that, the
decision-making tool is required. This tool helps to identify the best option from the various
available options and thus considering being necessary.
 Ratio analysis: - ratio analysis tool is an important tool and plays a vital role in evaluation
and effective decision making. This tool is necessary for considering the performance of a
business for a provided period and thus reflects the necessary tool.
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LO4. Ways in which an organization can use management accounting. Application of
management accounting in business enterprises.
The organization can use management accounting for being responded to financial problems. As
the organization needs to require and analyses the financial problems.
Entities can prepare the required data like an income statement considering as: -
Income statement
Particulars Budget (in €) Actual (in €) Variance (in €)
Sales Revenue (a) 100000 90000 10000
Less:- variable cost
Material 40000 35000 5000
Labour 20000 20000 0
Total variable cost (b) 60000 55000 5000
Contribution (a) - (b) (c) 40000 35000 5000
Less:- Fixed cost (d) 15000 15000 0
Operating profit (c) - (d) (e) 25000 20000 5000
The financial problems are defined to be as follows: -
The organization should have to identify the problems that create and attract the difficulties
towards the working conditions of the organizations and thus it caused the financial difficulties
thus to allocate the proper analysis of the effective tasks that are performed for a period of time.
It is a need of the situation that an identified performance of the critical situation requires to be
prepared and to cover the provisions, the organization should identify the difficulties and analyze
the task to define the necessary vulnerabilities needed for the performance of the task.
(Cuzdriorean, 2017)
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P5. Evaluation of activities, how organizations adapt management accounting systems.
After identification, a specific budgeted schedule to be prepared for the proper identification and
allocation of the proper due expenses, the budget is a necessary requirement to analyze the
function. The organization should evaluate and identify the ways that a budget should be
prepared in such a way that it shows the proper ways that money being spent can be easily
identified.
The budget should be prepared by considering the financial priorities and identification of the
spending choices that reflect the proper guidance that an organization is required to be achieved
by attaining the best aspectual conditions. The organization should have to take the steps that
help in addressing the identifiable problems and effective functions that help in achieving goals.
as the management accounting provides proper guidance in respect to addressing the problem,
the organization should take small steps to achieve the targeted activity to achieve specific goals.
Goals can be achieved through an effective plan, therefore organization requires to prepare an
effective plan that is required to provide a proper strategy to overcome from the problems that
are financial problems and helps to achieve the good things from that problems.
M4 analysis of how an organization can lead to sustainable success through management
accounting.
Management accounting helps to analyses and review and provides the aspects that how the
things are going and for proper understanding, it is required that the things are to be review and
identify how the activity is going and make a review over that.
Thus management accounting helps in identifying the financial problems and through that, it
helps to overcome and provides better aspectual conditions and requires providing guidance to
perform the related functions and activities. (Helden & Alsem, 2016)
Management accounting is such an effective tool which helps and guides to require to analyses
the considering activities through planning tools and through the proper budgeting requirements.
The organization should have to identify their stress points and it requires recognizing the
specific process and thus needing to be evaluated properly.
The management accounting tool guides an organization to prioritize the most effective
systematic criteria that helps and enables the tasks to perform its necessary activities.
Organizations need to comply with the standards principles of accounting tool which helps and
guides to cover and identify the requirements that can be evaluated and work in a proper manner.
The basic function is to provide guidance and identify the functional aspects require to
differentiate between attainable tools and achieved tasks.
It is a basic need to cover the requirements of the business functions and analyses to be properly
evaluating the tasks that may be performed to evaluate rather than to allocate the resources.
Management accounting provides and guides a sustainable growth that needs to cover and proper
follow up need to be performed in a basic structure. The target activity needed to comply with
the coverage of financial problems and therefore management accounting helps in developing the
structure of a management tool.
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Conclusion
Details are considered with the main aspect that is in relation to the management accounting. As
the management accounting helps to acknowledge the proper actions and require providing the
targets that are in respect to the functions performed over a period. Management accounting
guides and provides that in a specific manner an entity can recover from its problem and can
achieve its goals and objectives. Thus management accounting plays a vital role in confine with
the objectives and helps in attaining objectives.
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References
 Alsem, K.J., Helden, J.V., 2016. The Decline Interface between Management Accounting
and Marketing Management. Journal of Accounting and Marketing. Vol 5. No.3.
 Cuzdriorean, D. 2017. The Use of Management Accounting Practices by Romanian Small
and Medium-Sized Enterprises: A Field Study. Accounting and Management Information
Systems, Vol. 16(No. 2), pp. 291-312.
 ERSERİM, A. 2016. Framework for Management Accounting Research: A Bibliographic
Study. Journal of Accounting, Finance and Auditing Studies, pp.145-163.
 MACHADO, M. 2016. Management Accounting Software and Accounting Practices:
Empirical Study on SME Enterprises. WSEAS TRANSACTIONS on BUSINESS and
ECONOMICS.
 MADUEKWE, C. 2015. THE USAGE OF MANAGEMENT ACCOUNTING TOOLS BY
SMALL AND MEDIUM ENTERPRISES IN CAPE METROPOLE, SOUTH
AFRICA. CAPE PENINSULA UNIVERSITY OF TECHNOLOGY.
 Stede, W. 2017. “Global” management accounting research: some reflections. Journal of
International Accounting Research, forthcoming.
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