Role of Management Accounting in Planning

In the management accounting system, the management team in the finance department of the organisation provides adequate information and data to all the employees regarding the financial position of the company, yearly turnover and research and developmental investment in the workplace, where informing the employees with appropriate accounting information is efficient for the managers to share the organisational activities and vision for deciding an efficient organisational planning to aid their management and performance of the control functions (Otley, 2016).

The inventory management system is effective for the organisations to develop financial statement about the stock of the capital goods and other organisational products and through which it s also possible to calculate the organisational production unit and the sales unit in a particular financial year. The cost accounting system is designed to represent the various stages of production and it is effective for analysing the cost of the production in the organisational production house (Maas, Schaltegger and Crutzen, 2016). In this Job costing system, for example, the cost related to fixed activities and variable activities during production as well as the employment cist are also included in the management accounting system. During the B2C and B2B system, it is possible for the manufacturers to develop the effective price that the customers are also willing to pay for the organisational products and services. Setting price and generating profitability are the major objectives of this system of management accounting.

The managers and the leader of the organisation such as Crest Dairy utilises the budget report in order to restructure the incentive for the employees. Accounts receivable aging report can be utilised in the organisation Crest Dairy to analyse the internal collection process and develop effective strategic planning for future success. The managers of Crest Dairy can compare different ways of production and manufacturing and Inventory and manufacturing report hereby provides a scope to manage const control system and improve the efficiency of producing the organisational products and services. The organisation Crest Dairy can analyse the revenue and estimate the cost of the production of the organisational products and services through developing the job cost report and in this regard it would be beneficial for the organisation to develop the report in order to list the cost do that it is possible to calculate the revenue of the firm in a financial year.

The management accounting system is beneficial for the organisation in the recent years to formulate the financial strategy where it is possible to forecast the sales and develop effective budget and income statement in a particular financial year. The financial statement in this regard helps the company Crest Dairy to develop effective strategic planning in each financial year in order to enhance the net profit of the firm, gross income and earnings per share which fulfilled the economic responsibility of the organisations (Messner, 2016). Explaining the financial consequences of decisions is also effective for the leaders of the companies where it is possible for the management team and the elder to take effective decision such as merging with other company, designing new organisational facilities and laying off large numbers of employees for achieving the future objectives of the firm. Monitoring the expenses is also effective to list down the cost structure and predict the future profitability of the firm. Managing accounting is beneficial for monitoring the expense, where the organisation Crest Dairy can create statics, and flexible budgetary system as well as monitor the operating expenses, which have direct impacts on the bottom line profit of the firm. Maintaining profitability is another benefits of management accounting where the firm can utilise the management accounting toll for managing long run profitability of the company., the fir Crest Dairy can utilise the movement accounting tolls an techniques in order to conduct break, even Analysis and determine the production level, sales objectives and overhead costs to calculated expected profitability in a particular financial year.

The accounting information is effective to design and compel the past and present performance of the organisation Crest Dairy where the leader and the management team develops the record, reports and financial statement to resolve the specific problems in the organisation (Hopper and Bui, 2016). The management accounting and reporting are also necessary for the firm Crest Dairy in order to manage the stakeholder and ensure the effective return on inventive so that they can improve trust and loyalty among the stakeholders including the shareholders and employees to lead the firm efficiently. The organisation Crest Dairy can utilise the management accounting system and reports to manage cost and maximise profitability and it further influence the leader to develop effective financial statement so that it would be possible to achieve future aims an objectives of the organisation.

Task 1: Demonstrating an understanding of management accounting system

Refer to PPT

Task 2:Applying a range of management accounting techniques

Calculating cost

Unit cost:

Total cost of production:

Total sales unit is 4800 units

Total income is 960000

Gross revenue is (960000-556750) = 403250

Preparing income statement using marginal cost and absorption cost

Income statement of Crest Dairy by marginal cost calculations:

Income statement of Crest Dairy by absorption cost calculations:

Absorption method:

Profit reconciliation statement:

Management accounting reporting

Calculation of Variances:

Break-even-point (BEP) analysis in quantity and in value:

The price of the products is £200

Total cost of production is £556750

Break even quantity: £556750/ £200 = 2784

As per the break even analysis, it has been seen that, the price of each unit in the organisation Crest Dairy is £200, where the firm is able to sell their products to the customers. In order produce the organisations the total cost in that particular year for the production of 4800 units is £556750. In this context, if the organisation needs to be stabilise and cross the breakeven point where the revenue would be greater than the cost of the production, the organisation Crest Dairy needs to sell at least 2784 units products at the price level £200. After that, if the organisation is able to sell more than 2784 units dairy products in the market, that would be the profitability of the firm. Hereby, the organisation has the capability to make the production efficient and maximise the revenue and sales volume for achieving future organisational growth through improving their profit volume. As per the financial analysis, in the month of December, it has been analysed that, the organisation is efficient to make profitability and improve their revenue by managing the cost of production and it further influence the organisational management team to develop effective financial strategic planning to expand the business in near future and gain high competitive advantage in the dairy industry.

Task 3: Explaining the use of planning tools used in management accounting

Explaining the advantages and disadvantages of different types of planning tools used for budgetary control

Budget is the estimation of the revenue and expenses over a specific financial period of time and budgetary control is the mechanism where the income and spending are compared with planned income and spending so that the plans can be developed well in near future (Honggowati et al., 2017; Dekker, 2016). There are different type of budgetary control through which the firm Crest Dairy can develop the income statement and calculate spending and revenue in a particular financial year.

Capital budget is the process where the organisation may determine and evaluate the potential expenses and investment in the production sites of Crest Dairy. The expenditures and the investments include projects such as building new plant or large investment in product diversification. Project lifeline and cash flows can also managed through the process of capital budgeting and it is also effective for the organisation Crest Dairy to improve financial understanding and develop effective financial planning.

Operational budgeting is also another effective way to estimate the income and expenses and in this regard forecasting the sales revenue during a given financial period of time is possible (Hiebl, 2018). Itis alsobeneficial for the organisation Crest Dairy where the leader and the board members can list down the operational expenses, cost of production, variable cost and absorption cost as well as their expenses related to operational activities in the firm Crest Dairy.

Financialbudgeting is another important budgetary control mechanism, where the firm Crest Dairy can manage the assets of the company as well as manage cash flows, income and expenses. The financial budget is mandatory for reviewing the total cost and expenses as well as manages the company’s asset in a particular financial year. In this regard, revenue and profitability of the firm can be predicted by the leader at Crest Dairy in near future.

Additionally, master budget is the combination of all the factors and tractions which has happened in a particular financial year and in this regard the master budgetarysystemincludes the operating expenses, income and cash flows, assets and incomestreamsand sales activities through which the leader an develop financial report of the company Crest Dairy in each financial year.

Cash flow budgetary system is also beneficial or the companies through which the financialproblems can be mitigated where the company can manage their cash and it further provides an opportunity to improve the company’s asset management practice in the financial year.

There are certainadvantages and disadvantages of managing the budgetary control system in the organisation and the advantages are such as price setting, forecasting, capital and credit procurement and flexibility (Chiwamit, Modelland Scapens, 2017). The budgetary control system is beneficial for the firm Crest Dairy to forecast the organisationalperformance and the cash flows which are important to develop the financial report and predict the future spending and revenue in long run. Future prediction and restructuring the organisationalstrategic planning are mandatory for the organisationin Crest Dairy. Through the management accounting system and tools, it is possible for the organisationCrest Dairy to develop financial report and manage the stakeholders for effectivestrategicdecision making behaviour, the stakeholdersincluding the shareholders can have clear and conciseview abut the organisational vision and strategies as well as the financial performance from where they are also able to analyse the rate of return on investment successfully in long run (Usenko et al., 2018). Price setting is another effective advantage of management accounting, where the organisations try to analyse the market condition and evaluate the competitor’s price range so that they can also set the pricing of the organisationalproduct. Restructuring the product providing is effective for the organisations to improve pricing strategy and review the market condition for successfulexpansion of the business. Additionally, effective strategic decision making practice can be developed well, where the stakeholders can be empowered well in the organisational workplace as well as they can improve their understanding about the organisationalperformance and in this organisational context, the financial report of Crest Dairy will be beneficial for all the stakeholders where they can contribute positively in developing effective organisational decision for achieving future sustainable growth.

Capital and credit procurement is also another benefit of management accounting system where the tools and techniques of managementaccounting are effective for the venture capitalist, banks and suppliers and shareholders to manage the monetary decision of the firm and they can utilise thefinancialstatement for improving the organisational performance by restructuring the organisationalstrategies and practice (Granlundand Lukka, 2017; Pelz, 2019). In addition to this, flexibility is also another advantage of management accounting system, where the leader and the managementteam of the company Crest Dairy can manageorganisationalperformance flexibly where growth opportunity of the firm can be utilised well throughorganisational resources allocation and improving performance. There are certain disadvantages of management accounting such as blame for the outcomes, making decision on the basis of only financial outcomes, lack of efficiency in expense allocations (Soderstrom, Soderstromand Stewart, 2017). In the recent era of globalisation, there is high competition in the dairy industry and in this regard financial managementsystem needs to be strengthening in order to develop strategictactic for the firm Crest Dairy to gain high competitive advantage. In this regard the managementaccounting tools and technique such as generating income statement, budgetary control, budget and balance sheet and cost analysis areeffective for the company Crest Dairy to analyse the current position of the business and evaluate the profitability and salesvolume of the firm in a particular financial year (Messner, 2016). Additionally, it is also effective for the organisation to predict the future income generation and organisationalperformance and the managementaccounting system also provides a scope to the business leader and the board of members in Crest dairy to develop effective strategic planning and reallocate the organisationalresource for better engagement and enhancing performance of the company in long run.

Task 4: Comparing the strategies of organisingmanagement accounting system at Crest Dairy

It is essential for theorganisationCrest Dairy to develop effective strategic planning for management accounting and in this regard, the strategy of identifying the key performance indicator is effective through which it is possible for theorganisationalleader and the managementteam to identifysuccessfactors such as products and services, project management, other initiatives at the firm (Axand Greve, 2017). For performance improvement, it is mandatory to identify the performance indicator and through develop effective strategic planning of managing performance indicator, it is possible for the organisationCrest Dairy to improve their performance and secure future sustainable development. Apartfrom that, organisational structure with appropriate governing body is necessary and it is one of the effective ways to manage the financial issues at the workplace. Corporatehierarchical structure of the organisation through CEO, leader, Board members and management and employees are effective where the CEO and the board members are efficient to manage the managers and employees to achieve future success. In this regard, the governing body needs to have the skill of planning and reporting, technologicalefficiency, operationsmanagement and decision malign skill where creativity and innovation of the board members would be beneficial for the organisation Crest Dairy to mitigate the financial issues and manage the organisationalactivitiesefficiently in long run. In addition to this, the skill of competency, accountability, integrity and credibility management are also effective for themanagement team to develop effective strategic planning for Crest Dairy and secure future sustainable development.

Skill to prevent financial problems

It is necessary for theorganisational leader and managers at Crest Dairy to improve their skill to manage the financial accounting and reinvest the capital in the research and developmental activitiesso that the dairy firm can run their production unit efficiently. Inthis regard, identifying the expenses is mandatory, through which the leader can reduce the variable cost as well as fixed cost at the production sites. Increasing the spending awareness is also necessary skill, where the leaders raise concern about the spending during the production, so that the resources can e managed and utilised well (Weetman, 2019). Resourcereallocation is another skill, whichis required in order to have successfulutilisation of the organisationalresources allocation, where the employees can utilise the resources and improve their performance as well to maximise the organisational production activities (Hopperand Bui, 2016). Developing organisational vision and creating the financial planning through budgetary control mechanism are necessary for the organisation to manage the financial issues and improve the efficiency of the firm Crest Dairy in the market. In this regard, cutting the unnecessary budget, improving the cash inflows and reducing cash outflows as well as restructuring the spending planning and reallocating the organisational resources are mandatory through which the organisational leader at Crest Dairy can enhance their performance and efficiency to establish the brand sustainably.

Evaluating the benefits of management accounting system in the organisational context

According to the national accounting standard, the management accountingtools and techniques are effectivefor the organisation to improve efficiencies in organisational business operations and management where the information related to financial factors, investment and cash flows are effectivefor the firm Crest Dairy to analyse the performance of the company in the market (Quattrone, 2016). The advantages ofthe management accounting system of the company Crest Dairy are such as,

Reducing expenses is the major benefitsofutilisingefficientmanagement accounting tools, where Crest Dairy leader can emphasise on reducing operational expenses and improving the cost efficiencytechnique in order to manage the economies of scale, where the leaders would be able to produce a huge unit of dairy products at lower cost.

Makingeffectivebusinessdecisions is another advantage, where the firm Crest Dairy can develop effective decision for the benefits of the business, where the leader and the managers can develop the financial reports and develop proper strategy to expand the business through moreresearchand development (Maas, Schaltegger and Crutzen, 2016).

Increasing the financialreturns is also another advantage where the firm Crest Dairy can forecast the budget and income statement and it is possible for the company to analyse customer’sdemand, potential sales a customer pricing which are effective for the establishment of the firm in the market.

Evaluating adapting management accounting systems to respond to financial problems

It is essential for the organisations to identify the market opportunities as well as threat at the market so that the organisation can mitigate the financial issues and secure future sustainable development. In this regard, the organisationCrest Dairy needs to focus on different ways to manage the financial problems at the workplace and improve the efficiency of the firm in achieving the future success. Forecasting the cash flows is one of the effective managementaccountingsystems, through which the company Crest Dairy can improve their financialstrategies and mitigate the existing financial problem. Though the firm is able to generate revenue, it lacks to strengthen their customers base which is major obstacle for the firm to expand the businessstrategically (Otley, 2016). In order to identify cash flows, it is necessary to list the cash outflows and inflows which indicate the managers about the firm’s profitability and this further provides a scope to the organisationalleader to develop effectivestrategy for more researchanddevelopment activities for improving the production unit so that the firm can achieve future sustainable growth.

Reference List

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