Management Accounting and Financial Planning: A Strategic Report

This report provides a detailed analysis of strategic management accounting and financial planning, covering key areas such as short-term and long-term pricing strategies, capital investment techniques, the role of budgeting during the COVID-19 pandemic, and transfer pricing. It critically discusses the use of relevant costs in pricing decisions, highlighting the conflicts between traditional absorption costing and relevant cost-based pricing. The report evaluates the usefulness and limitations of capital investment techniques like Accounting Rate of Return (ARR), Payback Period (PBP), and Net Present Value (NPV) in choosing between investment opportunities. Furthermore, it explores the role of budgeting in supporting businesses beyond the pandemic and examines various methods used by taxing authorities to determine the reasonableness of transfer prices, offering a comprehensive overview of strategic management accounting principles and their practical applications.

Management accounting
and financial planning

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Critical discussion of utilising the relevant cost to set selling price that may be appropriate
for short-term pricing decisions & inappropriate for long-term pricing decisions as well as
conflicts between reporting profitability under traditional absorption costing system and
utilisation of relevant cost based pricing.....................................................................................1
B. Conflicts between reporting profitability within traditional absorption costing system and
utilising relevant cost based pricing.............................................................................................2
TASK 2............................................................................................................................................3
Critical evaluation of usefulness and limitations of capital investment techniques to choose
between alternative investment opportunities..............................................................................3
TASK 3............................................................................................................................................7
Critically discuss the role of budgeting to support enterprise beyond the Covid 19 pandemic...7
TASK 4............................................................................................................................................9
Critical discussion of various means of taxing authorities to determine if a transfer price is
reasonable ...................................................................................................................................9
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Strategical Management Accounting was firstly introduced by Simmonds in 1981 and
refers to the analysis as well as provisions of data of management accounting with respect to a
business and its rivalries to build and control the strategies of business. It has interconnection
between accounts and analytics and is the implication of collecting data, preparing analysis and
initiation of appropriate data that provides benefits to the firm (Krutova, 2020). It also consists of
several pricing decision-making strategies to cooperate between the changeability in intrinsic &
extrinsic marketplace. Within this report, there is a discussion of short & long term pricing
strategies relevant to selling price along with an effective evaluation of usefulness and
limitations of capital investment techniques. The role of budgeting to support the business during
COVID 19 will also be considered. Furthermore, there will be a critical discussion of several
means of taxing authorities that are used to determine reasonability of transfer price.
1role

TASK 1
A. Critical discussion of utilising the relevant cost to set selling price that may be appropriate for
short-term pricing decisions & inappropriate for long-term pricing decisions as well as
conflicts between reporting profitability under traditional absorption costing system and
utilisation of relevant cost based pricing
Relevant cost is a term of management accounting explaining avoidable costs incurred
only at the time of making business decisions. This type of cost helps in eliminating inessential
information that becomes complex in later period. Within strategic management accounting,
pricing strategy is a tool that is used by the business to price their products or services through
conducting a research for knowing customers perception. Relevant cost is of four types and its
use in regard to set the selling price for long term and short term pricing decisions are described
as under:
Avoidable costs
This cost is defined as an expense which will not be incurred if a specific operation is not
performed within the business and decision regarding this type of cost will not be considered and
implemented (Dahal, 2021). Avoidable cost is an expense of business which can be removed by
not conducting any specific business activity. The company producing multiple products can exit
the one who is underperforming and hence, the cost associated with them will also get removed.
The business tries to move as many costs as they can for becoming the avoidable costs. It
provides the business more flexibility in terms of financial disturbance. According to my
knowledge, when this type of cost is ignored by the enterprise, it results in declining of the cost
that directly expresses the large sales volume in near future or in existing period. Avoidable cost
is only meant for short-term pricing decisions as none of the company ignores any disbursement
for the duration of long-term.
Future cash flow
Within this type of costing, expenses related to cash that will be incurred in near future
while formulating decisions are included (Bracci, 2021). When there is decline in the cost
incurred in future, then the selling price will also tends to reduce and it is only possible under
short-period. This kind of costing is required within the business because fast-growing of
business requires more cash to purchase the stock and hire employees. Hence, according to me it
2role

is very important to track the cash flow of the business. It also facilitates the company in
developing the confidence for owners, capitalists and financial institutions as they provide
control and visibility. The businesses are not be able to predict the scenarios of costing under
long-period because the conditions of the market frequently fluctuates.
Opportunity costs
This cost is stated as the foregone advantage that is derived from an alternative which is
not get chosen. For appropriate evaluation of opportunity cost, advantages and associated cost of
each alternative must be weighed as well as considered against other alternatives (Nimtrakoon
and Tayles, 2019). This type of cost is important within the business as it provides assistance to
manufacturer in ascertaining whether the production is to done or not. The company can gains
economic advantage of production activity by making a comparison with the alternative of not
producing at all. Opportunity cost helps in allowing the business for making healthier decisions
regarding the production. While doing previous project if a firm is not considering possibilities
regarding another project, it means it is sacrificing that cash inflows with other one. This type of
cost only happens under short-term as no company is having the courage to ignore the
proficiency with various projects and are considered only one at a time.
Incremental costs
It is the cost that is added by producing one more unit of a product or service and is also
known as marginal costing. This kind of cost is important for ascertaining the level of
profitability of various segments of the business. According to my understanding, the excess of
this cost over the incremental revenues hampers the financial position of the business so it is very
important to make a control on these type of costs. When this type of situation happens in the
company, then it stores that additional unit for the future period. The value is raising only in
current period not in future which means the company can recoup this cost by maintaining other
expenses of the existing period.
B. Conflicts between reporting profitability within traditional absorption costing system and
utilising relevant cost based pricing
Uses of relevant cost pricing Absorption costing
The only purpose of this function is to
evaluate the strategy of costing with
This type of method offers the process of
tracking the perfect scenario of the
3role

several kinds of methods within the
company (Thomson, 2017). This function
dost not provides profitability and those
situations that has direct relation of
conflicting behaviour of nature.
profitability in the company. All kind of
costs are included in this type of method
like variable and fixed costs. It refers to
the overall framework of product line
decision making and the process of
proficiency reporting gets success in this
method.
Management accounting literature review:
According to the view of Matsuoka (2020), The concept of management accounting is the
most significant source of formal information within the business. It plays a crucial role in
providing assistance to administration of the company by serving them information or data that
helps in planning, organising and controlling business activities. The use of this study is to
expand the knowledge of researcher on management accounting evolution and dynamic roles of
management accountant in business. The concept of management accounting includes
management accounting systems, strategic management accounting and recognising the
changing roles and duties of management accountants.
TASK 2
Critical evaluation of usefulness and limitations of capital investment techniques to choose
between alternative investment opportunities
Capital investment technique is defined as the strategy in which it is determined that
whether capital is worth to invest or not (White, 2019). This function is used for the short as well
as long term expansion of the funding. According to my academic learning, the key role of
organisational appreciation of assets is to maximise the earnings and find its optimum level. It is
only possible by expanding the revenues and decreases the costs. For calculation of investing
opportunity, there are five different methods and that are described as under:
Accounting Rate of Return (ARR):
It is the rate of return in the percentage form which is estimated from an investment or
asset as compared with initial investment cost. The purpose of this technique is to make capital
4role

budgeting decisions. The calculation of Accounting rate of return is done by dividing the average
annual profits with average investment. Here is the formula given to calculate ARR:
ARR = Average annual profits / average investment * 100
Here, average annual profits are those profits which are estimated after the adjustment of tax and
depreciation.
Usefulness of ARR: There are some applications of ARR and that are explained as under:
 Maximisation of financial condition: The scope of ARR is that almost all people are
invested in their business for capital formation and their great success (Astuty, 2021). For
doing this, the company has to maintain its past records in a well-defined and transparent
format in front of them. By comparing these reports, the company take the correct
decisions.
 Decision cannot be unfinished: The results of the investments are taking a lot of time as
there is an estimation of income which will be taken after deducting all the external
factors of the scenario. It means that the alternative choices between the two ptojects can
be typical but not unfinished and it takes a long-period.
Limitations of ARR:
 Administrators of the company also want bonuses or incentives, hence, they have their
personal choice to choose that type of investment which has net income within short-
period.
 This technique is depended on the net profits and becomes manipulative for the
supervisors of the company to choose the correct decisions.
Pay back period (PBP):
This technique is defined as the time period that is required to recoup the cost of the
investment (Oliveira, 2020). As per my knowledge, this financial analytical tool helps in
explaining the relationship between inflow & outflow of cash so that business can run in a
smooth way. It is expressed with years basis only for a period of short-time. The calculation of
Payback period is done by dividing the initial investments with cash flow per year. Here is the
formula given to calculate PBP:
PBP = Initial investment / Annual cash flow
Usefulness of PBP: There are some applications of PBP and these applications are
described as below:
5role

 Flow of information: It is the starting of the project where the information is collected as
its nature is of short-period. It provides assistance in processing the flow of information
for choosing the correct alternative project.
 Helps in Investing judgement: The technique of payback analysis shows the
interpretations on the basis of time. Each project has its different investment that is
required to be fulfilled and facilitates in taking the decisions regarding investment for
better flexibility as well as liquidity.
Limitations of PBP:
 Ignores time value of money and projection income: The technique of payback period
ignores the time value of money as well as profitability (Chandrarin, 2021). It also
ignores the projection income on investment.
 Not include all cash flow: It is the major drawback of this technique that it does not
includes all the aspects of cash-flow and this technique is not realistic in nature.
Net present value (NPV):
This financial technique is used to ascertain the overall value of an investment
opportunity. It is the variation between the current value of cash inflows over a defined period of
time. This technique is used to analyse the profitability of a project (Alfian, 2017). The
calculation of Net Present Value is done below with a formula:
NPV = Rt / (1+
i)t
where, 'Rt' is the net cash flow at time, '
i' refers to the rate of discount and '
t' refers to the time of
the cash flow.
Usefulness of NPV: There are some applications of NPV and these applications are
explained as follows:
 Risk & Uncertainty: This technique is riskier and is unusual way for calculations as
because of market conditions of each task-order due to uncertain rate of interest of
services occurred from each project. Hence, it is difficult to identify the better project in
terms of another.
 Complexities of investment decision-making: Projection's NPV are have so much
complications at the time of taking the decision (Asiaei and et.al, 2021). It happens
because of the purchasing power of the organisation to recoup the total outflows and
inflows along with the assessment of present value and hence, becomes more complex.
6role

Limitations of NPV:
 Not gives exact information: The technique of NPV dos not give the exact frame that
which project to be choose because it shows absolute terminology rather than relative
terms.
 Not consider project life: NPV does not consider the life of the project at the time of
measuring the judgements and hence, it becomes partial and unfair for alternative
investments with several life.
Profitability Index (PI):
This technique is a measure of attractiveness of a project or investment in which it is
evaluated that which project is more attractive among the others (Nørreklit, 2017). This
technique states the present value with its future benefits. On the basis of my academic learning,
I analyse that it covers the cash flows with initial investment. This technique is directly related to
the NPV to evaluate the forthcoming revenues.
Usefulness of NPV: There are some applications of Profitability Index and these
applications are described as under:
 Control on expenses: Within this technique, the expenditures that occurred are shown less
in number as hey are more concentrating on the areas of income and declines the
expenses to control the greatest contributive task between the other alternatives.
 Nationalist Value: It expresses the overall proficiency of the company as in relation to
capture the outcomes based on NPV (da Rosa, 2020). The technique of PI shows the
increase in per capita income through all the projects. However, the order of best project
expresses the greatest contribution in the economic condition.
Limitations of PI:
 No influence on dollars of NPV: This technique provides relevant results but is not
influencing the dollars of NPV showing no variation in nature.
 No individual and different response: The technique of profitability index does not shows
the individual and variant answers for the projects or investments because it has the direct
relation with the method of NPV.
Internal Rate of Return (IRR):
This technique is used to analyse the financial position of the business for estimating the
profitability of potential investments. The variability in the interest rate is called the discounting
7role

rate that means the optimum level of amount can be invested in the particular project and
facilitates the investors to examine the profitability of the project. The calculation of internal
Rate of Return is done with the help of taking the difference between the present or estimated
future value ans original initial value divided by the original value and multiplication the process
by 100. it is estimated by the given formula:
LDR + [(X – Investment) / (X – Y) ] * (HDR – LDR)
where, LDR is lower discounting rate, HDR is higher discounting rate, X is NPV at lower
discounting proportion and Y is NPV at higher discounting proportion.
Usefulness of IRR:
 Huge Investments: It is expected that the company will earn huge profits from huge
investments (Bacho, 2019). More concentration is on huge capitalists in the company to
invest at high value with the contract of investors in the market-place. As per my
knowledge, these type of personnel can make higher influence on the alternative
projections of company for choosing the process of investment in terms of how much,
what to, etc.
 Long term effect on profitability: This technique is expressing the competition level in
far-based projects (Ossola, 2021). While comparing the several projects in the long term,
it is taking a large amount of investment, manpower and hardworking team to do
competition of making the best influence on others. This gives important effect on their
capital decision making.
Limitations of IRR:
 Every alternate project is ranked by the value of IRR and not by the size of dollar which
adversely influences economic valuation.
 The pattern of cash movement preferences on each project are not expressly
acknowledged.
 This technique has possibility to estimate multiple rate of return on same project that
hampers its uniqueness.
8role

TASK 3
Critically discuss the role of budgeting to support enterprise beyond the Covid 19 pandemic
A budget is the statement of estimation of overall revenues and expenditures over a
particular period of time. Generally it is a financial plan that is set for a specific period to
enhance the success of financial undertaking within the business. There are several roles of
budgeting to support the business. Some of the roles & importance that are covered up in
supporting the enterprise beyond COVID 19 period are described as follows:
 Engagement with short-term or present time commitment: The management should
commit with the actual projects or least unsafe tasks. Because every undertaking has
various capital need for its completion. But after covid, it is hard to negotiate the lower &
middle level concerns to set up the high finance function and reverting with good net
income. So companies only can select the projects with short-run for well-timed windup
and less costlier by nature (Wang, 2021). According to me, it can be good for all
outgoing performance such as fulfilling loyalty, future expansion in project and no-
burden of job role.
 Controllability on the managerial functionality: After pandemic situation, by setting up
the funding basics, companies can monitor the several management functions like
administration, research & development, marketing, finances and many more. Each
function requires the particular fund management criteria to execute the actions which are
given to manpower of each section. They all have been established with the mindset of
less expenditure and more net income with outlook of carrying out the target of the
undertaking (Dimitrov, 2017). By doing this, they can expect from superiors for their
individual & general as well as organizational interest execution.
 Involvement of uncertainty needed reserve fund: Just like permeate situation,
corporations cannot forebode the future uncommonness and risk conflict. They only can
restore extra finance tom prevent that threat. It confines that the companies should more
concentrate on gainful acquisition and gives good performance to everyone along with
reservation of money alongside giving safety and security to the owner for fetching the
power of measuring in the existing period. This shows the good fiscal evidence of the
corporation as they are also focused 'with savings not only outlaying'.
9role

 Influence investors by showing transparency: For any administration, the new turning
point after pandemic is being cavilling. Institutions should need to set up and promote the
externals such as shareholder's, financing people and other stakeholder's to invest in their
undertakings or businesses with correct loyalty and clear nature (G'iyosov, 2019). This
gives surety to investors for taking right and fair decision to achieve the goals if company
by supplying them appropriate finance with high expectation in return. According to my
knowledge, they must concentrate on new experimentation, highly updated technology
and innovations on top level for greater selling of their products & services and higher
profits
 Facilitate solutions for management conflicts: Sometimes the conflicts arises in between
the management and people while setting up structural areas of workings. As per my
understanding, the pre-determined, completely investigated budget can be a convergent
thinker for the enterprise. There are various outlook within the workplace that is going to
be managed and because of it every business should outsourcing its experts to make
specific as well as relatable system of budget in the presence of everyone (Chu and Chiu,
2021). It is helpful for negotiating the different ideas and generating the better decision
for later period.
These careful disciplines and actions can make the strategical instrument one of the best
method while fetching justice for the particular project or total fiscal year after the pandemic
situation.
TASK 4
Critical discussion of various means of taxing authorities to determine if a transfer price is
reasonable
Transfer Pricing is a legal term and is essential functionality of the enterprise's activity of
various enterprises (Mohamed and Jamil, 2020). Within this, many multi-national companies are
interact with each other in the lower and favouring evaluation.
According to my understanding, Taxes Authorities refers to any governance authority
that has documentation over collection, investigation, findings and imposition of taxation. The
transferral prices-levels are depending on these taxation powers.
10role