Management Accounting Report: Adapting to Financial Problems

This report delves into the core concepts of management accounting, focusing on budgetary control and its associated tools. It begins by explaining the advantages and disadvantages of various planning tools used for budgetary control, such as budgets, variance analysis, and responsibility centers. The report then analyzes how these planning tools are applied in preparing and forecasting budgets, highlighting the significance of tools like marginal costing, absorption costing, and cash flow analysis. Furthermore, it evaluates how organizations adapt management accounting systems to address financial problems, including issues like lack of cash flow, capital shortages, and poor accounting practices. The report concludes by examining how effective management accounting can lead organizations to sustainable success by resolving financial challenges and improving operational efficiency. The report provides insights into how management accounting can be used to improve the overall financial health of a business.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 3............................................................................................................................................1
Explanation of the advantages and disadvantages of varied types of planning tools which has
been used for budgetary control..................................................................................................1
3.1 Analysis of the use of planning tools and its application to prepare and forecast budgets...3
4.0 An evaluation of how organisations are adapting management accounting systems to
respond to financial problems.....................................................................................................4
4.1 An analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success............................................................................................5
4.2 An evaluation of how the use of management accounting planning tools can solve
financial problems to lead organisations to sustainable success.................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting is a significant procedure which tends to mainly focus on preparing
the key financial reports which helps in carrying out the operations of the business. It is useful
for the financial manager in taking long term as well as short term decision (Isaac, Lawal and
Okoli, 2015). This study will highlight on effectively understanding the management accounting
system. Moreover, this study also mainly focus on applying the range of appropriate
management accounting techniques which is considered to be highly significant in attaining the
key results and outcomes. The present study also focuses on evaluating the advantages and
disadvantages of varied types of planning tools which has been used for budgetary control.
Lastly, the main focus of the study is to examine how the organization has been adapting to the
management accounting system which helps in responding to the key financial problems.
TASK 3
Explanation of the advantages and disadvantages of varied types of planning tools which has
been used for budgetary control.
What is budgetary control?
Budgetary control is an effective procedure where the appropriate set of budgets are
prepared in order to compare it with the actual performance and find out the specific set of
variance. Finding the variance with the budgetary control tools helps the management of the
company take corrective actions (Mohamed, Kerosi and Tirimba, 2016). Budgetary control aids
planning of the key annual operations and also focuses on coordinating with the key activities
and various different parts of the company. Budgetary control helps the organization in
enhancing the overall efficiency of the company by the attainment of the goals and objectives of
company. The documented budget must always be accessible and transparent.
Advantages of budgets as a budgetary control tool
The budgets are considered to be significant because it helps in effectively defining the
key goals, policies and plans associated with the organization. It is prominent in managing the
money effectively and also focuses on allocating appropriate set of resources related with the
project. Budget helps in meeting the objectives of the company and monitoring performance
(Lockwood, 2016). It also helps in the better identification of the problems before they actually
occur and helps in improved decision making. Budget is a day to day management of the task
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which helps in the better evaluation of the performance and helps in reviewing profitability and
planning how to effectively manage the fund. Budgeting helps the management of the
organization to effectively track the income and expenses of the company.
Disadvantages of budgets as a budgetary control tool
The major disadvantage associated with the budget is that, it is mainly based upon the
key assumptions which results in inaccurate predictions of the data. Preparation of the budget is
considered to be as a time consuming process. It required high degree of expenses to prepare
reliable and accurate budget (Budgetary Control: 9 Limitations of Budgetary Control –
Explained, 2020). This budgetary control tool only focuses on the numerical and quantitative
terms and does not analyse the qualitative terms which is also necessary for the better
performance of the company. Hence, it takes into consideration only financial numeric outcomes
which is the major limitation of this budgetary control tool.
Advantages of variance analysis as a budgetary control tool
Variance analysis is considered to be as one of the key significant tool of the budgetary
control because it is useful in the identification of the reason behind variation within the income
and expenditure of the current year from that of the budgeted value. It is useful in effectively
understanding the reason behind the fluctuation. It helps in taking necessary decision to reduce
the adverse effect of the variance (Gooneratne and Hoque, 2016). It is considered to be as the
effective budgeting activity. It is significant in controlling the expenditure and helps in the better
estimation of the budget in order to evaluate the performance of the company. Variance analysis
is useful for the organization to be proactive and focuses on attaining the targets of the company
and helps in mitigating any potential risk.
Disadvantages of Variance Analysis as a budgetary control tool
One of the key limitation linked with the variance analysis tool is that it is a time
consuming procedure. This eventually leads to delay in taking corrective set of actions. Detailed
analysis of the each factor results in the delay in decision making. It is expensive process and
each department need to be analysed.
Advantages of Responsibility Centres (responsibility accounting) as a budgetary control
tool.
Responsibility Centres is an effective budgetary control tool which helps in establishing
sound mechanism for the control. It is significant in effectively evaluating the actual
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achievement with that of the set standard. It is useful in evaluating for the deviations for which
they are highly responsible. This budgetary control tool is prominent because it helps in guiding
the management to effectively plan and also structure the future expenditure and examine the
revenue of the company. It helps in the creation of cost consciousness (Abdullahi and et.al.,
2015). This tool helps the management of the company to carry out its business activities in a
reliable and efficient manner. Responsibility Centres budgetary tool is useful in the creation of
budget consciousness, maximization of the profit and reduction in the cost. The work and the key
achievements of the employees will be reviewed on a continuous basis. It is a prominent cost
control tool which helps in creating consciousness.
Disadvantages of Responsibility Centres (responsibility accounting) as a budgetary control
tool
The major limitation of this budgetary tool is that, it becomes difficult in the designing of
the organizational chart which tends to delineate line of responsibility. There seems to be likely
rise in the conflict related with the organizational interest and the individual interest which
eventually results in high degree of problem in the application of this budgetary tool. Conflict
among the different departments of the company is the major limitation associated with the
responsibility accounting budgetary control tool.
3.1 Analysis of the use of planning tools and its application to prepare and forecast budgets.
Planning tools like marginal costing, absorption costing, break event point, standard
costing, fund flow and cash flow analysis are considered to be as the major planning tools which
helps in the preparation and the better forecasting of the budget. These effective planning tools
will help in assisting the preparation of the effective budget plan and helps in the better analysis
of the areas of the cost which must be effectively reviewed (Mohamed, Kerosi and Tirimba,
2016). These planning tools helps in the better identification of the constraints so that growth of
the company can be managed effectively. This is useful in taking informed set of decision and
focuses on providing appropriate set of indication to take corrective action. Absorption costing
takes into consideration all the cost of production which helps in the effective preparation and
forecasting of the budget.
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4.0 An evaluation of how organisations are adapting management accounting systems to respond
to financial problems.
Management accounting mainly comprise of the internal system which the organization
tends to use for evaluating and measuring the procedure for effective management of the
company. It is useful in taking relevant set of decision for the future and helps in evaluating the
impact of the cash flows upon the key operations of the business (Abdullahi and et.al., 2015).
Management accounting system is significant because it helps in providing the critical set of
information to the management in order to take decisions related with operational activities.
The Dairy Crest Company has been facing wide range of financial problems which tends to
largely affect the business operations.
 Lack of cash flow: Managing the cash flows of the company is crucial for the most
business owners. It is very challenging for the organization to effectively manage the
cash flows of the company. Preparing proper budget and effectively using the cost
accounting system helps in managing the key cash flows of the company. The cost
accounting system is useful in effectively managing the cash flows of the company and
also helps in effectively estimating the cost of the product for carrying out the analysis.
Implementation of the effective inventory policies and cutting back on the cost helps in
improving the cash flows of the company (Lavia López and Hiebl, 2015). Monitoring of
the inventory effectively helps in creating a better cash flow management.
Implementation of the effective inventory management system helps in effectively
managing the cash flows of the company. Use of relevant price optimization system
assist firm to examine which customer will respond at different price level.
 Lack of capital: Intellectual capital based management accounting is an effective system
which is useful in effectively maintaining equal and sufficient degree of current asset,
working capital as well as the current liabilities for the company. It is useful for the
organization in meeting the expense obligation which is significant to maintain optimum
level of cash flow and the expense obligation by effectively maintaining sufficient degree
of cash flows which helps in meeting the short term financial decision of the company
(Bromwich and Scapens, 2016). It is one of the key prominent strategy which helps in
effectively ensuring that the company has been carrying out its operation with utmost
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degree of accuracy and ensures that the current assets and the current liabilities of the
company has been utilized effectively. Job costing system helps in allocating the
manufacturing cost to individual items of a product i.e. raw material, labor and other
overhead. This way it helps the organization to attain high degree of growth and success
for the future.
 Poor accounting practices: This is one of the major aspect which must be effectively
used in managing the key financial problems. Complying with all the necessary
management accounting system helps in improving the accounting practice within the
business. Inefficient procedure and the oversight tends to put the company in high degree
of dilemma which in turn largely affects the business performance (Otley, 2016).
Effectively analysing and interpreting the key financial results is useful in improving the
poor accounting practice within the company.
4.1 An analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success.
Resolving the financial problems like lack of cash flow within the company by preparing
proper set of budget and use of relevant inventory tool is an effective management accounting
tool. Implementation of the effective inventory management system helps in effectively
managing the cash flows of the company (Maas, Schaltegger and Crutzen, 2016). However,
effectively managing the cash flows of the company leads to high degree of sustainable success
to the company and leads to better operational efficiency. Effective flow of the cash within the
business is a sign of meeting all set of operational expenses and greater degree of profitability for
the business.
Resolving the financial problems associated with the lack of capital helps the company
function properly and helps in effectively operating the business smoothly without any sort of
financial problem. It leads to high degree of sustainable success to the company which is useful
in making adequate degree of payment to meet its short term liabilities (Kaplan and Atkinson,
2015). Moreover, maintaining adequate level of capital through intellectual capital based
management accounting is significant in ensuring that there adequate degree of solvency within
the business in order to provide uninterrupted flow of the production. It is significant in
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effectively indicating that, the company has been maintain adequate level of capital to meet out
its expenses and short term obligations.
Effective accounting policies are considered to be of key relevance importance because it
leads to higher sustainable growth and success to the company. Effective accounting policies
tends to ensure that, all the financial transactions associated with the business has been complied
in systematic manner. However, effective accounting policies is considered to be very important
for the growth and success of the company (Gooneratne and Hoque, 2016). Disclosure of the
accounting policies is useful in preventing loss and helps in the prevention of misuse of assets.
4.2 An evaluation of how the use of management accounting planning tools can solve financial
problems to lead organisations to sustainable success.
Planning tools like absorption costing, break event point, marginal costing, standard costing,
fund flow and cash flow analysis are considered to be as the major planning tools which helps in
effectively solving the problems which eventually results in high degree of success and growth to
the company. Financial statement analysis is also another effective planning tool which helps in
interpreting the financial position of the company and leads to high degree of success towards
the organization (Maas, Schaltegger and Crutzen, 2016). Use of the budgetary control planning
tool helps in meeting the objectives of the company and monitoring performance. It is also
significant in meeting the operational goals and efficiency. Marginal costing tool is useful for
the management in taking decision and is useful for the management in setting prices. It is
significant in effectively evaluating the work efficiency which helps in creating a solid basis for
the financial control. Cost accounting system plays the crucial role in managing the cash of the
company and leads to greater success to the company.
CONCLUSION
From the conducted study it has been summarized that, Management accounting is useful
for the financial manager in taking long term as well as short term decision. Budgetary control
aids planning of the key annual operations and also focuses on coordinating with the key
activities of the company. Responsibility Centres is an effective budgetary control tool which
helps in establishing sound mechanism for the control. These effective planning tools will help in
assisting the preparation of the effective budget plan and helps in the better analysis of the areas
of the cost which must be effectively reviewed. Managing the cash flows of the company
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through monitoring of inventory helps in effectively managing the cash flows of the company.
Intellectual capital based management accounting is an effective system which is useful in
effectively maintaining equal and sufficient degree of current asset, working capital. Effective
accounting policies are considered to be of key relevance importance because it leads to higher
sustainable growth and success to the company.
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REFERENCES
Books and Journals
Abdullahi, S.R and et.al., 2015. The role of budget and budgetary control on organisational
performance: a case study of Tahir guest house, Kano state, Nigeria. International Journal of
Innovative Research in Information Security. 4(2). pp.22-28.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years
on. Management Accounting Research. 31. pp.1-9.
Gooneratne, T.N. and Hoque, Z., 2016. Institutions, agency and the institutionalization of
budgetary control in a hybrid state-owned entity. Critical perspectives on accounting. 36. pp.58-
70.
Isaac, L., Lawal, M. and Okoli, T., 2015. A systematic review of budgeting and budgetary
control in government owned organizations. Research Journal of Finance and Accounting. 6(6).
pp.1-11.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Lavia López, O. and Hiebl, M.R., 2015. 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.
Lockwood, M., 2016. The UK's Levy Control Framework for renewable electricity support:
Effects and significance. Energy Policy. 97. pp.193-201.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136. pp.237-
248.
Mohamed, I.A., Kerosi, E. and Tirimba, O.I., 2016. Analysis of the Effectiveness of Budgetary
Control Techniques on Organizational Performance at DaraSalaam Bank Headquarters in
Hargeisa Somaliland.
OBI, J.N., 2015. Budgeting and budgetary control as the metric for corporate
performance. International Journal of Sustainable development. 3(1). pp.1-33.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Online
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Budgetary Control: 9 Limitations of Budgetary Control – Explained. 2020. [ONLINE].
Available through< https://www.yourarticlelibrary.com/budget/budgetary-control-9-limitations-
of-budgetary-control-explained/25770>
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