Management Accounting Report: INWIDO Financial Analysis

This report provides a comprehensive analysis of management accounting, focusing on budgetary control and financial problem-solving within the context of the British multinational window and doors merchandise company, INWIDO. The report explores various planning tools used for budgetary control, including forecasting, contingency, and scenario planning, along with different budget techniques like production, cash, and financial budgets. It further examines how management accounting systems can address financial problems, highlighting the use of Key Performance Indicators (KPIs), benchmarking, and financial governance. The benefits of an effective management accounting system, such as improved performance, growth, and financial efficiency, are also discussed, supported by ratio analysis of INWIDO's financial data. The conclusion emphasizes the importance of management accounting in analyzing costs, supporting financial reporting, and aiding in effective financial decision-making.

UNIT 5
Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................2
L03...................................................................................................................................................2
Different planning tool used for budgetary control with their advantages and disadvantages....2
L04...................................................................................................................................................5
Management accounting system to respond financial problems................................................5
Benefits of effective management accounting system: ...................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
1

INTRODUCTION
In accounting term, management accounting is the presentation of useful accounting data
to in order to formulate strategies that must be followed by the manager to assist their daily
business operation (Wickramasinghe and Alawattage, 2012). It also supports the manager of
company to perform and execute all necessary activities such as planning, organising, staffing,
directing and controlling. To under the importance of management accounting INWIDO is
selected. Company is a British multinational window and doors merchandise
In this report merits and demerits of various planning tools helpful for budgets control are
shown. However, analysis of financial issues those are being arises in an organisation are done
by making comparison among other companies.
L03
Different planning tool used for budgetary control with their advantages and disadvantages
Budget: This is the expected costs which are required by the various departments and
process in order to perform their tasks effectively without any problem in the cited firm. It is also
defined as the assigning funds to the different processes after evaluating the expenses and profits
of the last year (Ward, 2012.).
Budgetary control: It is the process of the controlling the different allotted budgets to the
various processes. This is done by comparing the actual and expected outcomes to determine
whether the budget is strictly followed or not. It is useful for INWIDO company to identify the
gaps in their budgets and performance and then implement suitable policies and strategies to
eliminate such gap in future.
It is crucial for INWIDO company to control and regulate their budgets of different
processes in order to enhance their profitability and efficiency. Budget control plan needs to be
implemented successfully based on the requirements of the various departments to ensure that
the activities are carried out smoothly. Different tools for budget control are given below:
Forecasting tools: It is helpful for any organisation to determine the future scenarios
using past and present changes in the trends. The gathered data is reliable and almost accurate as
it is collected from both internal and external departments. INWIDO company can use this for
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determining the future trends which can adversely affect the company in future (Soin and
Collier, 2013).
Advantage: It gives valuable insights of the business in order to take judgements
regarding the betterment of the company.
Disadvantage: The nature of future is dynamic and can't be accurately predicted.
Contingency tools: This tool is used for identifying the risky factors which can influence
the company's growth and operations in the future time. This tool is useful for INWIDO
company in evaluating the profitability and performance of the different operations of the
company, INWIDO company needs to analyse such factors and implement suitable strategies for
overcoming them in future.
Advantage: It provides extra resources when any problem arises in business operations
related to existing resources.
Disadvantage: This tool is expensive and takes much time to implement.
Scenario planning: It provides the structured path to execute the strategic planning of a
firm. This is useful for assuming the effects of working environment in the firm. INWIDO
company should use this for identifying the possibilities which can affect the process of the
company in future.
Advantage: This tool can be adjusted according to the aroused situation and is very
flexible to use.
Disadvantage: It takes large amount of time during practical.
Types of budget techniques
Budget is very important for any organisation to perform their various operations of
different process effectively without any problem of money involved (Senftlechner and Hiebl,
2015). Various types of budgets used by the INWIDO company are discussed below:
Production budget: It is the budget which is utilised in the production activities of an
organisation. It includes various costs such as production, transportation, supply, promotion etc.
which are used in the production of product and services. This budget is often categorised in to
different budgets like raw material costs, labour, R&D cost and inventory budget. This budget
will help the INWIDO company to determine their total cost of production process so that they
can utilise the budget effectively.
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Cash budget: It is the expected projection of the amount of cash in the organisation. It
includes the cash inflows and outflows of the company such as revenues, loans, expenses paid or
received etc. It provides the cash flows of various transaction and processes. Through this
budget, INWIDO company can effectively determine their current cash position of their
company to understand whether their cash flows are in control or not. If the cash flows are not
under control, then management should take appropriate measures to control them.
Financial Budget: It is the expected incomes and outflows in an organisation for the
long as well as short term. It is helpful in providing the financial statistics and position of the
company in the market. It is useful for INWIDO company to manage their finances of various
operations for performing their business operations efficiently (Nielsen, Mitchell and Nørreklit,
2015).
Cash Forecasting budget: Cash forecasting budgets enables to maintain the liquidity in
the organisations. It helps to compare actual financial performance with budgeted target.
INWIDO company prepares various cash forecasting budgets which are following-
 Cash flow statement- It is a statement which helps to analyse the change in the
cash and cash equivalent due to change in the balance sheet or other financial
statement.
 Cost volume profit analysis- This is helpful in analysing the effect on the income
of a company because of cost and volume change..
 Cost variances- Cost variance is the difference between the actual cost incurred
and budgeted cost. It measures the difference between both.
 Investment appraisal- Investment appraisal is a method for analysing the value
and risk of a project.
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L04
Management accounting system to respond financial problems.
Organisation need to manage cash flows of the company which helps in to maintain regular flow
of cash. Because of this manager have proper awareness about their liquidity. It provides
accurate information regarding their flow of cash. With the help of this report management can
take decision according to it. Manager build strategies which is required in the organisation for
the identification of their resources. Organisation must maintain enough amount which is helpful
to pay their obligations. There are some useful techniques which help the company to maintain
their performance.
Key performance indicators (KPI): - It is a business matrix which is used by corporates
or managers of the organisations. It analyses those factors which one is beneficial for the
company. Key performance indicate focus on those functions which provide highly relevant
information the organisation. KPI helps in determining companies’ strategies regarding goals and
performances. There are two type of indicator in the KPI first one is financial indicator and
second one is non-financial indicator (Leitner, 2013).
Benchmarking: - Benchmarking are those process which compare their products and
services with other companies’ products who is best in the same industry line. Benchmarking is
that point which determine the opportunities of improvement. In the benchmarking, there are two
ways of improving opportunities fist one is continuous and second one is dramatic. Continuous
is like increment and dramatic improvement means re-engineering the whole internal process. In
the benchmarking technique, organisation compare their performances in the basis of actual
performance and standard performance. This technique provides accurate difference with the
exact reason , which help in the future to take decision.
Financial governance: - Some important rules and regulation made by the government
which help the organisation to solve their financial problems. These rules followed by the all
company which help in maintaining financial issues.
Park wood Ltd Ever Joy Ltd
Financial performances measured by the
company from taking past year performance.
Which provide accurate information regarding
Actual performance compares with standard
performance which provide the gap and it is
indicated that the opportunities of
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changes. KPI technique will solve the problem
which is arises due to problem in the financial
statement.
improvement.
In the Park Wood Ltd company their some
issues related to cash flow which is managed
by the Key performance indicator (KPI)
techniques (Lavia López and Hiebl, 2014).
Ever Joy Ltd using financial governance and
benchmarking techniques to solve the financial
problems.
Benefits of effective management accounting system:
Management accounting is very important for the companies to take internal decisions. It
provides all kind of information including monetary and non monetary information which is
required by the managers to make future policies and strategies. In addition it consist various
kind of reports which are necessary to evaluate the performance of organisation.
There are number of additional benefits to a company like INWIDO to implement the concept of
accounting system such as it reduces the work pressure and support to run business in more
appropriate manner. Some of the basic benefits are:
Performance: With the proper use of Inventory management system multinational
company like INWIDO are helpful in reducing the gaps due to which cost of production raised.
This help them to sell product at decent price helping to increase profit and improving the overall
performance of operation.
Growth: All the system of management plays an important role to make company grow
and develop in this competitive environment. INWIDO is one of the leading companies in UK
market, therefore manager use to calculate net profit for year with the help of marginal costing
techniques in order to determine the growth during a time period. With the help of Account
receivables report manager are able to raise fund in company and distribute the same to make
operation effective.
Ratio analysis: It is important for the companies to calculate different ratios to analyse the
financial conditions. INWIDO company calculate various ratios whose analysis is described
below:
 Profitability ratio- This ratio indicates the profitability of a company for a particular
period. The selected company is calculating gross profit ratio for three years and this ratio
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is increasing continuously. In the 2016, it was of 56.88% and it increased in next year. In
2017 it became 57.59% and in 2018 it increased by almost 2% and became 59.69%.
Herein, company' s gross profit ratio is getting increased continuously which shows good
sign for the company.
 Liquidity ratio- This ratio states that how much liquidity or cash available in the
organisation. This ratio includes quick ratio. Company is calculating liquid ratio of
2016,2017 and 2018. In 2016 they are getting quick ratio of 1.37 which increased in 2017
and became 1.41. In addition it also increased in year 2018 and converted as 1.49. It
shows that company has sufficient liquidity to run the operations.
Financial efficiency- It helps to check the financial condition with the help of financial
statement. INWIDO company prepares various financial statements like balance sheet, income
statement etc. On the basis of income statements, it is analysed that company's revenues are
decreasing. In 2016, revenue was of $ 1019900 which decreased in 2017 and became $ 911700.
In addition, company got again low revenue in 2018 which was of $ 798600. As well as
company's current assets are also less in compare to liabilities. For example in 2018 company has
the assets of $ 601600 but they have more liabilities which are of $ 1453800. So it is not a good
sign for the company because liabilities are more than assets, it means they have less amount to
pay debts.
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CONCLUSION
In the conclusion it has been observed that management accounting is also knows as cost
accounting which help in analysing significant cost of business operation that further support to
form financial report, records and accounts. Assorted types of planning tool are useful in solving
financial issues such as, managing cash flows, effective planning etc. There are different types of
accounting tools that are used in solving the financial problem faced by companies.
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REFERENCES
Books and Journal:
Lavia López, O. and Hiebl, M. R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of Management
Accounting Research. 27(1). pp.81-119
Leitner, S., 2013. Information Quality and Management Accounting: A Simulation Analysis of
Biases in Costing Systems (Vol. 664). Springer Science & Business Media.
Modell, S., 2014. The societal relevance of management accounting: an introduction to the
special issue. Accounting and Business Research. 44(2). pp.83-103.
Nielsen, L. B., Mitchell, F. and Nørreklit, H., 2015, March. Management accounting and
decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No.
1. pp. 64-82). Elsevier.
Senftlechner, D. and Hiebl, M. R., 2015. Management accounting and management control in
family businesses: past accomplishments and future opportunities. Journal of
Accounting & Organizational Change. 11(4). pp.573-606.
Soin, K. and Collier, P., 2013. Risk and risk management in management accounting and
control.
Ward, K., 2012. Strategic management accounting. Routledge.
Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches
and perspectives. Routledge.
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