Management Accounting Practices and Budgetary Control

LO 1: Applying a range of management accounting techniques in Whites Cleaning

A white cleaning is a small and medium sized organisation providing cleaning services in Oxford. The company is efficient to provide efficient cleaning services to the corporate clients. however, in the recent years, the company faced the challenges including managing the labourers in the organisational and managing customer service at vary short notice the company failed to manage the employees and as a result there was high turnover rate of the employees at the organisational workplace which in turn hampers the smooth working progress in the workplace (Hashim and Piatti, 2016). It also affects the quality of customer’s services negatively as due to labour shortage in the organisation, it becomes difficult for the organisation to manage the contracts at short notice and provide good and efficient services to the clients. It is necessary for the organisation to analyse the management accounting and resolves the existing issue by reallocating the organisational resources and capabilities so that the company would be efficient to fulfil the customer’s preferences at short period of time. For assistance with such organisational challenges, consider seeking business dissertation help.

Sales:

As per the sales analysis, the company is successful to manage the actual contract and there are 140 contracts where the employees can support the customers with efficient services. Total sales volume from cleaning contracts and deep cleaning is £155300. It is important to analyse the financial performance and cost of the production of the services to identify the profitability in the organisation.

Calculating cost:

Manufacturing cost:

Under the manufacturing cost, both the costs for delivering the deep cleaning and cleaning contracts services are considered where the labour cost and the manufacturing unit cost are considered to identify the cost to serve the customers in the organisation (Šiška, 2016). The cost structure will be developed further.

As pert the, Cleaning contrast, direct labour cost is £8 per hour and each cleaning requires 3 hours to complete. Hereby, for 140 contracts, total hours required is 420. Total labour cost is 420*8= 3360, cleaning material costs £4000. Total cleaning contracts cost 4000+ 3360= 7360

As per the table above, Deep cleaning takes 100 hours at £8.5 per hour and thus total cost for deep cleaning is 100*8.5 = 850.

Cleaning martial cost is £5000 and thus total cost for deep cleaning 5000+850= 5850

Indirect expenses:

Apart from the manufacturing cost, there is indirect expenses, which are also necessary to run the organisation successfully and in this regard the indirect expenses include Depreciation of vehicles and equipment, equipment maintenance, supervision costs and security, insurance , additional selling expenses and administrative expenses which will be evaluated in case of White Cleaning service (Messner, 2016).

Total cost including manufacturing and indirect expenses is 129000+ 5850 + 7360 = 142210

Income statement:

The gross profit margin of the company has been calculated as a marginal costing technique, where all the cost including manufacturing cost and indirect cost. As per the calculation, the company’s profit margin is £13090 after deducting all the costs of serving the customers. In this regard it is necessary for the company to reinvest the amount and increase the sales volume so that the profit ration can be maximised further.

Reference List

Hashim, A. and Piatti, M., 2016. A Diagnostic Framework to Assess the Capacity of a Government’s Financial Management Information System as a Budget Management Tool. Documento de trabajo IEG, 1.

Messner, M., 2016. Does industry matter? How industry context shapes management accounting practice. Management Accounting Research, 31, pp.103-111.

Miller, G., 2018. Performance based budgeting. Routledge.

Šiška, L., 2016. The contingency factors affecting management accounting in Czech companies. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 64(4), pp.1383-1392.

LO 2: Explaining the use of planning tools used in management accounting

Capital budget, operational budget and financial budgeting are different budgetary control, which helps the company to estimate the revenue and expenses over a specific period of time. Capital budget is the process to evaluate the potential expenses and investment in the company. The organisation Whites Cleaning aims at analysing their potential to run the organisation efficiently by developing capital budget, where they can identify and analyse the cost structure and evaluate the investment for better performance (Henttu-Aho, 2016). It is necessary in this regard to utilise the capital budgetary mechanism for analysing the existing investment and invest more in near future to serve the customers efficiently. It is essential for the company to identify project lifeline and cash flows to manage the process of capital budgeting and develop financial planning for more investment and manage expenses in serving the customers across the market. Additionally, operational budgetary is also another effective way to estimate the income and expenses and it further helps to forecast the future profitability of the firms (Miller, 2018). In this regard, Whites Cleaning is efficient to utilise the operational budgeting process to identify the cost of serving the customers. There are different direct and indirect costs associated with providing cleaning services to the customers. It is necessary for the company to estimate the total cost to identify he profitability over a period of time. It further helps Whites Cleaning to take effective initiative for controlling cost so that it would be possible to make the profit margin effective in long run.

The above mentioned budgetary control mechanism has advantages and disadvantages for the company where it provides a scope to set effective price for the services, forecasting the capital budgeting and sales growth, conducting capital budgeting and procurement management and enhance flexibility to utilise and reallocate the organisational resources for better performance management. It is also effective for developing effective strategic decision for the company and reallocates the resources to enhance the organisational capability to serve the customers efficiently (Anessi-Pessina et al., 2016). Blame for the outcomes, making strategic decision on the basis of only financial outcomes and lack of efficiency in expense allocations are the disadvantages of using budgetary control system in the organisation. In this regard pricing strategy plays a crucial role for enhancing the sales volume and profitability of the firm and in this regard, the budgetary control provides a scope to set appropriate price for the organisational services. According to the market condition, supply and demand for the services and cost of serving the customers, the company can set effective price that can attract the customers as well as maximise the organisational profitability in long run (Ferry, Coombs and Eckersley, 2017). In this regard, the competitors in the Cleaning service also set effective price that represent the service quality and duration of serving each customers (Ho, 2018). The company Whites Cleaning also needs to set proper providing which would be affordable for the customers as well as helpful to generate profitability in long run. Hereby, it is necessary for the organisation to set proper providing to retain the customers and deliver high quality cleaning service within proper time.

In order to develop effective strategic planning, it is necessary to identify the external market and internal strengths and weakness of the company. In this regard, Whites Cleaning has the financial strength and the services of the company are effective to strengthen their customer’s base. However, there are some weaknesses for which the company fails to sustain in the competition. The major weaknesses of the organisation are lack of strategy to manage employees, tackling the customers with short time notice, lack of efficiency of the staff, poor management of the organisational operational activities (Hashim and Piatti, 2016). On the other hand, as per the porter’s five forces strategy, there is high competition in the cleaning industry, where the firms are efficient to serve the customers timely. The firm lacks proper capabilities to serve the customers and there is lack of efficiency to generate profitability due to lack of retention of the customers. It is necessary to utilise the planning tools to mitigate the problems in the company and utilise the organisational capability for better management of human resources at Whites Cleaning and meet the customer’s requirement within proper time.

LO 3: Comparing the strategies of organising management accounting system at Whites Cleaning

The organisation Whites Cleaning is suffering through management issues, where lack of employee retention and the poor customer’s service are the major problems in the company. It is necessary for the company to identify the problems to develop financial governance in the organisation in order to resolve the existing issues and develop proper strategic planning to maximise the organisational objective (Pelz, 2019). The major success factors of the organisation Whites Cleaning are efficient services within effective short time, project management, and other initiatives at the firm including human resource management so that the existing issues can be resolved properly. The major issue of the company is lack of potential and efficiency to serve the customers within short notice period due to lack of official staff present in the organisation (Šiška, 2016). In addition to this, there is another issue, which is related to human resource management as lack of strategic planning, poor incentive and salary structure increase staff turnover and thus there is no presence of quality and efficient staff who can manage the customers by providing proper services, required by the consumers. In this regard the governing body needs to restructure the organisational structure and improve innovation and technological creativity to improve staff retention and deliver quality services to the customers within effective time (Hopper and Bui, 2016). It is beneficial for the organisation Whites Cleaning to recognise the financial issues and restructure the organisational policies and practice for better management of the employees. in this regard, financial governance is the way to collect, manage, monitor and control the financial information where it includes the way through which company can track their financial transaction, mange the organisational performance and control the data, control, disclosure and operational activities in the organisation. In this regard, the company needs to utilise the finance and improve the analysis and evaluation for financial data management and enhancing innovation so that it is possible to resolve the existing issues (Kengatharan, 2016).

It is important for the financial accountant in Whites Cleaning to have proper skill for managing the financial issues and utilising the organisational resources to achieve future success. Identifying the expenses is mandatory, where the financial accountant can review the costs of serving the customers with high quality cleaning service and conduct effective cost analysis for managing the financial problems in the company. In addition to this, the financial accountant needs to have proper problem solving skill and decision making skill in the organisation so that it is possible for reviewing the existing problems and develop effective decision to manage the organisational activities sustainably (Messner, 2016). Resource reallocation expertise and creative solution building are other skill, through which the accountant manager at Whites Cleaning can develop effective solutions for serving the customers within effective time by hiring efficient staff in long run. The skill of developing organisational vision and creating the financial planning are also mandatory for the accountant, who can identify the financial strength of the company and reallocate the resources for better management and hiring the skilled workforce so that they can serve the customers within short notice (Hiebl, 2018).

The management accounting system is effective for the organisations to develop effective solutions and utilising organisational resources after proper income statement and financial account management. There are other competitive brands in the market who are also serving the customers efficiently in the cleaning industry and the firms also utilise the financial account management in order to develop proper budgetary control plan and income statement to identify the organisational potential and maximise the performance of the company in long run. Through using the management accounting system, the company can reduce expenses which are major benefit to manage the cost of providing the cleaning service to the customers (Chiwamit, Modell and Scapens, 2017). The company also can make effective business decision, where reallocating the resources for hiring the efficient staff and developing staffing strategy to maximise customer’s value by delivering high quality cleaning services. In this regard, the management accounting system is effective for resolving the financial problems, where the Whites Cleaning can mitigate the financial issues and secure future sustainable development by serving the customers efficiently within proper time and short notice. Forecasting the cash flows and reducing the problems at the workplace are also possible where the company Whites Cleaning can hire efficient workers and develop their incentive structure and salary to retain them for long run and resolving the problem of high labour turnover. Through financial analysis, Whites Cleaning can identify the existing problems and utilise the organisational capital for resolving the problems for improving heir management style, restructuring the existing policies to hire the skilled workforce and deliver high quality cleaning services to all the customers in a cost effective way (Grossi, Reichard and Ruggiero, 2016).

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Reference List

Anessi-Pessina, E., Barbera, C., Sicilia, M. and Steccolini, I., 2016. Public sector budgeting: a European review of accounting and public management journals. Accounting, Auditing & Accountability Journal.

Chiwamit, P., Modell, S. and Scapens, R.W., 2017. Regulation and adaptation of management accounting innovations: The case of economic value added in Thai state-owned enterprises. Management Accounting Research, 37, pp.30-48.

Ferry, L., Coombs, H. and Eckersley, P., 2017. Budgetary stewardship, innovation and working culture: Identifying the missing ingredient in English and Welsh local authorities’ recipes for austerity management. Financial Accountability & Management, 33(2), pp.220-243.

Grossi, G., Reichard, C. and Ruggiero, P., 2016. Appropriateness and use of performance information in the budgeting process: Some experiences from German and Italian municipalities. Public Performance & Management Review, 39(3), pp.581-606.

Hashim, A. and Piatti, M., 2016. A Diagnostic Framework to Assess the Capacity of a Government’s Financial Management Information System as a Budget Management Tool. Documento de trabajo IEG, 1.

Henttu-Aho, T., 2016. Enabling characteristics of new budgeting practice and the role of controller. Qualitative Research in Accounting & Management.

Hiebl, M.R., 2018. Management accounting as a political resource for enabling embedded agency. Management Accounting Research, 38, pp.22-38.

Ho, A.T.K., 2018. From performance budgeting to performance budget management: Theory and practice. Public Administration Review, 78(5), pp.748-758.

Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management Accounting Research, 31, pp.10-30.

Kengatharan, L., 2016. Capital budgeting theory and practice: a review and agenda for future research. Applied Economics and Finance, 3(2), pp.15-38.

Messner, M., 2016. Does industry matter? How industry context shapes management accounting practice. Management Accounting Research, 31, pp.103-111.

Miller, G., 2018. Performance based budgeting. Routledge.

Pelz, M., 2019. Can Management Accounting Be Helpful for Young and Small Companies? Systematic Review of a Paradox. International Journal of Management Reviews, 21(2), pp.256-274.

Šiška, L., 2016. The contingency factors affecting management accounting in Czech companies. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 64(4), pp.1383-1392.