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Increasing Decision-Making Effectiveness with Management Accounting Practises

University: University of Warwick

  • Unit No: 9
  • Level: High school
  • Pages: 13 / Words 3353
  • Paper Type: Assignment
  • Course Code: N/A
  • Downloads: 277
Question :

This sample will let you know about:

Discuss the benefits of MAS.

What is the role of Management Accounting in solving  financial issues?

Discuss advantages of different planning tools of budgetery control.

Answer :
Organization Selected : Alpha Limited

INTRODUCTION

Each company wishes to achieve their individual goals and targets in the present competitive corporate environment in order to maintain market share. Management Accounting is a central process that allows companies to successfully accomplish their objectives. As its name suggests it includes various accounting mechanism and management components. It provides a comprehensive and efficient mechanism for improving operational and financial efficiency, as it comprises of appropriate methods of reporting relevant data to upper management in order to make important decisions (Burritt, 2017). The primary responsibility for creating managerial accounting framework rests with managing personnel.

This study evaluates different fundamental aspects of managerial accounting such as multiple systems, system's requirements, reporting approaches and planning tools in context of Alpha Limited. This corporation belongs to mid-size manufacturing corporation It involve application of various distinct-distinct techniques and how these help in responding to financial problems. Study also contains comparative analysis of adaption of MA in order to respond to different financial-problems.

Management accounting and its types.

MA relates to explicit management framework which establishes cooperation between management accounting operations with the aim of transmitting substantive and pertinent information to top-level management to help them in decision-making processes (Schaltegger, 2018). It is a key mechanism that enables managers to determine organizational goals and objectives. Organizational leadership is key people for implementing the whole accounting management system. This is a broader dimension that encompasses all basic principles and practices that allow organizations to track their overall performance and achieve goals. MA plays a valuable role in gathering, expressly recording and reporting corporate budgetary and financial information and evaluating enterprise budgets. It also plays a major role in assigning resources and arranging funds to improve efficiency of business.Take online assignment help in the UK from expert writers at the best price.

Management Accounting Systems: Management accounting draws up various systems to meet specific organizational necessities. Different organizations adopt these systems as pertheir needs. MA systems are structural frameworks that handle various internal procedures to support organizational processes that help achieve business goals. Various distinct MA systems enact different requirements for the systematic regime of such systems. Alpha is also applying multiple systems in management frameworkto accomplish different goals, as follows:

Cost Accounting System: This system contains of all management operations that require executives to evaluate each unit's expense and regulate expenses. It also promotes the acknowledgement of needless spending by businesses like Alpha Limited and decreases these cost forms to maximize cost-effectiveness (Soderstrom and Stewart, 2017). This requires all costs' efficient identification and categorisation as fixed-costs, variable-costs, production cost, overheads etc.This management system is imperative for companies to screen the use of money and overall costs taken place in the processes of operating various functions. They are utilizing such accounting system to retain costs low than projections in chosen corporation.

Inventories Management System: This system allows entity to regulate stocks and other inventories items effectively. Managers apply it to tracking unusual inventory expenses in Prime furniture and taking action to streamline such costs. It is vital for manufacturers to reduce storage and handling costs of stock-items and to retrieve information about inventory use in performing manufacturing-related activities. As regards the above-mentioned Alpha limited corporation, they use this MA system which allows them to measure raw material usages, manufactured goods including many other. This includes the use of approaches for valuing inventories such as Average costs, LIFO-approach, FIFO-approach etc. and for effective inventories/stocks categorisation.

Job-costing system: The system establishes the specific crucial jobs/tasks for creating transparency within the enterprise. Here in job-costing system, managers systematically categories all the processes and activities, and then classify them as Job-task. This ensures accountability within organisational framework, as under it all the costs/expenses are assigned to these classified jobs. It supports momentous and quick decision-making framework. Alpha Ltd's managers utilising this system to assess the cost incurred in any particular job-process and in some division. In attempt to evaluate and maintain costs jobs as cheap as possible, It is crucial for businesses. As regards the above-mentioned Alpha limited corporation, they use this system to continue providing their finance unit with valuable information about costs of each movement and job allocated to complete various portions of operations.

Price optimisation system: This mechanism makes it smoother to controlling and monitoring the prices of products while keeping the demand and profits at same or greater level (Nuhu, Baird and Appuhamilage, 2017). This system allows managing staff to determine the connection between demands and price of various products as they provide business competitive benefits. Price of Pizza and other beverages are determined applied this system in Alpha corporation. Managers under it determines factors which affects price and demand of its products directly or indirectly. This system defines the unique correlation between price and demand of products, which eventually assist in setting goals and objectives.

Management Accounting Reports:

Each function of a business enterprise relies on core information or the facts condensed. Management decisions and other operations are carried out in business centred on various kinds of information so that any minor error or misunderstanding in information will result in incorrect decision making. Reporting of business related information is critical task, thus managers in corporation like Alpha limited relies on multiple methods of reporting prescribed under MA systems. Management's decisions are purely depending on reporting approach and comprehensiveness. In this regard, here following is discussion on multiple reports of MA, as follows:

Cost Report: In this method, reports prepared are comprises of extensive, standardized information of costs/expenses incurred through various tasks and procedures. Using this report, unit of finance may be ready to find variation among actual and projected efficiency. Managers create it in sense of above-mentioned Alpha to document deviations and to maintain an additional sheet of eye on overall performance. This determines each pizza and other product item' cost which help them in assessing the overall cost effectiveness of operations. It summarises all the costs as per their significance, extent of relevancy and nature that assist managers in controlling different costs.

Performance Report: This report emphasises on reporting of human-resources and personnel engaged in different organisational activities. Objective of report is to assess the performance and efficiencies of personnel across the enterprise and allocation of works among employees efficaciously (Quinn, Strauss and Kristandl, 2014). This enables managers to optimise utilisation of human resources. To control employee turnover ratio management in Alpha, use this report as it offers comprehensive information about each employee personnel and support evaluation of performances within enterprise over the specific timespan. This report further assists in determining appraisal policies and other employee benefits.

Inventory reports: It specifically records and offers inventories details. Management apply this report to take decision regarding order placement, re order level, inventories maintenance. This is critical report which shows how much inventories are in stock as well as ascertain the requirements of inventories and stock-items. As in Alpha, inventories managers list all the raw items of food and other related materials which are essential for production of Pizza along with costs and number of items stored as inventories. They also maintain inventories register which help in preparation of inventory report. Also production managers determine how much stock in process and processed. Both inventory and production managers, with coordination frame such report.

Accounts receivable ageing report: For ensuring the timely collection of debtors and receivables, this report is as it holds all the essential data which help managers in assessing the average period of collection (Johnstone, 2018). One of key features of such report is that data is systematically reported under it, such that managers can effectively target the portion of debts to be recovered. In Alpha limited corporation, they use this report to concentrate on those clients whose sum is to be receivable within one year. This is main report which assist in maintaining the working capital by ensuring regular receipt of amounts. In Alpha this report also help to maintain cash flows of entity since managing staff with assistance of this report collects all the sums within reasonable time.Take Examples of Assignments Now!!!

Benefits of MAS.

MAS

Benefits

Cost accounting system

It is consistent with mechanism to reduce costs under requirements for different operations and functions. It is being implemented to monitor the expense for each activity as part of the Alpha limited company and to maintain direct control of expenses.

Price optimisation system

This concerns the process of setting prices of products in keeping with the appropriateness of various external actors. Their sales team employs this management system for the price of their produced pizzas in the Alpha limited company.

Inventory management system

This is linked to the successful control of the quantity of inventory stored in stores. They employ this management system for the best use of their processed raw resources under Alpha Limited Company.

Job costing system

I allows the independent monitoring of expenses for each task. This accounting system is used by the above firm to determine the cost of jobs assigned to various operations and tasks.

Critically evaluate how management accounting systems and management accounting reporting is integrated within organisational processes:

Integration of described systems in corporate processes and primary role is critical for successful adoption and adaptation of various MA systems (Krumwiede and Charles, 2014). Such Integration encourages effective alignment among systems and various practices that enables staff management to develop direct control over important tasks. As in corporation Alpha, their revenue division is incorporated within system of price optimization and inventory management to enhance their revenue level. Therefore, their procurement department uses relevant inventory data reports and the accounting department even analyses essential information from cash receivable ageing report etc.

Role of accounting techniques to produce income statements.

In accounting, range of practices are used for reporting income and many more financial reports (Botes and Sharma, 2017). For example, two costing methods are used for the production of profit and loss account of certain data in the sense of the above calculations. These are absorption and marginal costing techniques. Marginal costs are a strategy where fixed and unfixed costs are taken into account in a different way. Fixed expenditures are treated as time costs in this method, and unit costs are classified as non-fixed costs. In absorption costs methods, at the other hand, all the forms of costs that arise are taken into account similarly to the unit costs.

Interpretation of produced financial statements.

In the above part two income statements are primarily drawn up under absorption and marginal costs. As with the absorption costing method, net profits for the duration of April, May, June, July, August and September are 175000, 130000, 220000, 175000, 140000 and 200000. During the margin, net income for the timespan of the same period varies from 175000, 100000, 250000, 175000, 150000 and 200000. The information is the same for both methods, but the amount of total profit is different when preparing the income statement.

Advantages and disadvantages of different planning tools of budgetary control.

Planning tools are methods used by different type of organization to take appropriate measures and for analysing performance of various aspects. These resources provide extensive information about resources used in different kinds of activities. The Alpha Limited Company uses various kinds of tools such as:

  • Cash budget- This can be described as a budget that contains information on projected cash invoices and pay-outs for a given period (Grabner and Moers, 2013). Different types of operations such as income collection, loan receipts etc. is included in these cash outflow and inflow. In general, this budget is a form of budget that helps to prepare the potential cash situation of corporations. In the context of above company, they prepare this budget to manage activities regards to cash management.

Advantage- This allows companies to ensure an accurate position in liquidity from time to time.

Disadvantage- The major limitation is that the estimation by which companies cannot expand.

  • Capital budget- It is budget that is correlated with the calculation of businesses' lengthy-term investment. Different forms of activities such as the purchase of land, construction etc. are covered under lengthy-term investment. In addition, this budget provides a mechanism for vast properties to be acquired and sold. In Alpha limited, this budget is prepared and information is used by finance managers to take further actions.

Advantage-It helps to pick projects that favour businesses. This becomes possible by evaluation of different projects under techniques like ARR, NPV and many more.

Disadvantage- It is quite costly to prepare this budget which is not possible for small businesses.

  • Operating Budget-It provides information for the estimated revenue and costs of an organization for the future period (Halbouni and Nour, 2014). The projected cost and profit of each expenditure is included in this budget. This budget is prepared in the above organization for an assessment of each operating activity. It has below mentioned benefits and drawbacks:

Advantage- It helps to handle current and future expenditures effectively.

Drawback-False estimates of future revenues and expenses may sometimes lead to large losses in businesses.

Various kind of planning tools and their application for preparing and forecasting of budget.

The planning tools include various budget forms like the cash budget, operating budget and the capital budget, etc. In the preparing and projection of the budget, all these contribute a key role (ter Bogt and Scapens, 2014). Therefore, these forecasting instruments are financial framework that makes the detailed prediction of future revenues and expenditures in a systematic structure.

Role of management accounting in solving financial issues.

Financial issues- There are different types issues that ruins the smooth conduct of business operations. Such financial difficulties are caused by a lack of funding in businesses to carry out various activities and procedures on time (Bjørnenak, 2013). In this regard, it is their obligation to identify options to sort the issues. There are different types of strategies for minimising impact of these financial issues on company’s performance. Herein, underneath some types of monetary issues are mentioned that are as follows:

  • Lack of sales revenues- This is defined as a sort of problem in companies that evolves because of low sales. It means businesses do not sell more products under this issue. This leads to a decline in total revenue and problem arises in enterprises. Sainsbury’s plc face the issue and cannot generate more income.
  • Increased expenditures- This is a problem in enterprises which occurs due to a lack of control over total expenditures. In a wide manner, the primary reason of this issue is that funds are poorly managed and allocated for various activities. In the Tesco plc context, their costs increased significantly that resulted in declined sales.Worried for Relationship Management Assignment? Get our experts Help Now!

Identification of financial issues:

  • Benchmarking- Benchmarking is described as the system of assessing goods, services and procedures against organisations recognized as rulers (Ashraf and Uddin, 2015). It provides a sense of how company measures up with similar groups, even though they have a distinct set of customers. Due to this actual issues can be identified. In Tesco company, this technique has been applied to find out monetary issues in their operations.
  • Activity based costing- It is defined as a type of method aligned to cost allocation process for various activities individually. The objective of this approach is to minimize the overall cost. They use this method in Sainsbury to determine the real issue of increased costs.

Financial governance- This serves as a monitoring strategy to identify the real defect levels. It is a sort of approach that systematically collects financial details from companies in order to identify the real defect (Arunruangsirilert and Chonglerttham, 2017). In the aspect of both of companies, this approach can be useful for managing financial issues by providing needed amount of financial information on time.

Comparison:

Basis

Sainsbury’s

Tesco

Financial issue

They face the issue of an inadequate sales outcome. They do not have proper source of funds to run different activities and events. Consequently, they are not able to sustain in competitive environment.

There is a larger spending problem for the corporation. As a consequence, they cannot handle their aggregate available resources and obtain reduced returns on investments. This issue is impacting their overall performance.

Accounting system

To address the problem, the above company applied a price optimization system. As a result, they have reworked and laid their price techniques at a stage that can generate higher revenues with the aid of this accounting system. Due to this their sales revenue increased and the problem has been solved.

They used cost accounting to solve the problem of increased costs. This allowed them to control total costs and to improve efficiency. This helped them in order to sort those activities whose cost is higher. Thus the problem fixed successfully by the implementation of this accounting system.

Management accounting to solve the monetary issues.

There are different types of systems that contributes in providing alternative to solve issues. (Brandau and Wömpener, 2014). All these tools help to solve problems in less time and cost. As in the above-mentioned company, Sainsbury and Tesco have resolved financial issues using the cost accounting and price optimization system.

Planning tools to solve financial problems.

Besides the MAS, planning tools are also crucial to sorting monetary problems. It is possible as administrators can estimate future numbers of revenue and expenses using these forecasting methods (Goretzki, 2013). They different tools like a cash budget, a master budget etc. as with Alpha limited company's aspect.

CONCLUSION

According to the project report mentioned above, MA's role has been stated to be too wider or how well all accounting systems are used by firms. The reports end with different accounts, like cost accounting, asset control and MA reports, like the progress report, the expenditure report, etc. The measurement of the financial statements, the BEP measurement and many more are calculated in further part of the report. The cash budget is also conclused on the role of distinct plan tools such as the cash budget.

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