HNC Business: Application of Management Accounting Report

This report explores the application of management accounting within a business context, specifically focusing on planning tools and responses to financial problems. It begins with an introduction to budgetary control and then delves into various planning tools, including zero-based budgeting, capital budgeting, and cash budgeting, along with their respective advantages and disadvantages. The report then compares different methods organizations can utilize to address financial challenges, such as benchmarking, key performance indicators (KPIs), variance analysis, and the balanced scorecard, using Nisa Cubic as a case study. The conclusion emphasizes the importance of these methods in evaluating business performance and achieving sustainable success. The report also includes references to relevant academic sources.

Management Accounting

TABLE OF CONTENTS
 Introduction
 Planning tools used in an organization
 Comparing ways organization can use ma in responding to financial problems
 Conclusion
 References

INTRODUCTION
 Budgetary control refers to exercising control over the actual results or performance of
the business in comparison to the budgets prepared so that timely and appropriate
action can be taken.
 In this presentation, the different types of planning tools that can be used by the
organization along with their merits and demerits.
 Also, a comparison is drawn between organization in respond to financial problems
they face.
 In this Nisa is taken as an organization, which is retail grocery store in UK.

PLANNING TOOLS USED IN AN
ORGANIZATION
In an organization different types of tools and techniques are used by the organizations that
can be used for budgetary control.
Zero based budgeting
 It is a budgeting technique that involves preparation of budget from the zero level or from
the scratch as it involves re-evaluating each and every expense again along with its
justification that is required to be incurred by the department.
 This method is very essential for running the business.
 In this budget is prepared based on the upcoming needs because of which budget is
allocated.

Cont..
Capital budgeting
 This method is used by the organization in order to take decisions with respect to the long term
investment.
 It involves the decision whether to invest the available funds in the project or not.
 In this method, each project is evaluated on the basis of future profits in a specific period by considering
the time value.
 It involves six steps which includes identify investment opportunities, gathering different investment
proposals, making decision, preparing budget and approval, implementation and review of performance.

Cont..
Cash budgeting
 Under cash budget, budget is prepared in relation to the estimated cash inflow and cash outflow
during a specific period.
 This budget helps in determining whether the organization has sufficient cash to meet it day to
day expenses and other short term expenses.
 It also determines whether the organization is having too much idle cash which is unproductive to
the organization.
 Thus, this method helps in identifying the surplus or deficit of funds so that relevant actions can
be taken.

Cont..
Advantages:
 It helps in avoiding debt as it identifies the current cash balance assists in maintaining
the minimum balance.
 This budget helps in identifying the efficiencies and finds way to save cash and
eliminate unnecessary activities.
 It gives a close look to the reality in terms of expenses to be incurred.
 This budget helps in effective communication of financial position and anyone an look
into it to determine the issues.

COMPARING WAYS ORGANIZATION CAN USE
MA IN RESPONDING TO FINANCIAL
PROBLEMS
There are different ways in which an organization can respond and
resolve its issues but for doing that it requires identifying its key issues
using some performance measurement metrics.
Benchmarking
 It is the process of comparing the organizations policies and
processes with that of the competitor best in class in the same
industry.
 In this method, organizations sets some standards based on which
actual performance of the business is compared to the benchmark.

Cont..
Key performance indicators
 It is one of the performance metrics that assists organization in monitoring and measuring
its performance.
 These key performance indicators varies from organization to organization and industry to
industry.
 The most common KPIs in relation to finance is the gross profit margin, current ratio,
turnover ratio, debt-equity ratio etc.
 Similarly, a sales manger will be concerned with the changing sales backlog.
 A business analytics software can be used to collect relevant information to calculate KPIs.

Cont..
Variance analysis
 It is used in analysing the difference between the actual performance and the budget set by the
company.
 It also helps in analysing the reason or causes for difference in the performance of the
organization.
 It helps businesses in taking corrective actions in order to improve the performance of the
company.
 This method helps in identifying and evaluating the reasons of fluctuation in the result and what
actions can be taken to reduce its impact.

Cont..
Balance scorecard
 It is a combination of performance target which in result shows the performance of the
organization in achieving its objectives.
 It enhances the performance in respect to the business processes, growth segments of
the business, financial and customer.
 The major assumption in this system is that business is required to perform well in all
the four segments.
 Learning and growth looks at the overall corporate culture. Internal business processes
refers to how smoothly the business is functioning.

Cont..
Financial governance
 In this, organization gathers information and monitor and execute
controls the financial information.
 It includes how an organization can track its financial transaction,
control data and comply with the statutory requirements.
 The poor governance management will be because of fraud, material
errors, poor decision making and low stakeholder's confidence