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 support 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 organisations are done by making comparison among other companies.
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 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 arise 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.
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).
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 provide 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 have to 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 analyse 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 provide 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 changes. KPI technique will solve the problem which is arises due to problem in the financial statement.
Actual performance compare with standard performance which provide the gap and it is indicated that the opportunities of 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:
There are number of additional benefits to a company like INWIDO to implement the concept of accounting system such as it reduce 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 company 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 raised fund in company and distribute the same to make operation effective.
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.
- 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.