Management Accounting - Coursework Example

? Answer 5 Within the accounting profession be it financial and management accounting, the accountants deal with several transactions on a day to day basis whether in a commercial or an industrial enterprise. Whether the business or organization is small or big, accounting is of great consequence with regards to effective and efficient management and administration. As time passes on, the roles of the accountant keeps changing. In addition, they become more diversified enabling the roles of the accountant to be viewed in varied forms of activities. Management accountant hence applies several forms of concepts and practices in the process of budgeting. In this context we can comfortably say that knowledge and insights from budgeting are helpful in designing budgetary systems and setting of budgets for organizations (Wildavsky & Swedlow 2001). The ability to effectively formulate budgetary systems and set budgets through insights from budgets is very important for any given form of organization. This is because such tools can be used in the setting of standards of performance, motivating the stakeholders of the organization and providing the tools used for the measurement of results which are direly needed in the fulfillment of the organizational goals. The process of budgeting normally begins from a zero based perspective (Wiseman 2010). The organization starts from zero and determines the need of each department and program. This approach tends to provide a more accurate budget as opposed to an allowed incremental increase each year. Budgets are meant to be conservative hence there needs to be an overestimation when it comes to the expenses while the revenues require to be underestimated. This is for the sake of flexibility required in the system hence assisting in the design of a budgetary system. Insights from the knowledge of budgeting plays a critical roles in supporting the strategic plans of organizations where many factors like technology needs, capital improvements, overhead needs, planned giving and capital campaign revenue and borrowing funds. These are key components when it comes to formulation of budgeting systems and setting of budgets (Wildavsky & Swedlow 2001). Annual budgeting is a must for organizations as technology in form of software and hardware becomes more sophisticated. Budgeting and budgeting systems for technology requires that the organization realizes and sets budgets for the replacement of computers. Taking care of such grand company costs requires that there is a plan ahead to save on costs which may otherwise go to a waste if there are no proper budgetary systems and accurate budgets set (Wildavsky & Swedlow 2001). Knowledge from budgets is useful in the determination of funding required for capital improvements and this is important for organizations across the divide (Seal & Garrison 2009). Knowledge from budgetary costs are applicable in the realization that utility costs are not a constant factor despite the fact of impossibility of prediction of fluctuations and in establishing budgetary systems and setting of budgets, the economic conditions of the time are much applicable. Budgets in the are used in the formulation of budgetary systems through an in depth look at the expenses by the organization (Wiseman 2010). Borrowing though not considered as a part of any financial strategy in the organization. The use of borrowed funds helps organizations be in the position of undertaking a lot in terms of the organization growth. Generally, budgeting involves a complete process which ranges from identification, collection, summarization and communication of financial and non-financial information of a given organization. In managerial accounting process the budgeting system helps in the planning of the course of action that can be undertaken by an organization to help in seeing through future transactions (Wildavsky & Swedlow 2001). The budgets and knowledge of budgets enables corporations to formulate some form of common goals for the sake of the future of the company (Wiseman 2010). Insights from budgets are able to give an action plan by helping a business in the allocation of resources while evaluating performance and formulating plans. Insights from budgets help in the formulation of budgetary systems which contains critical elements in an organization showing how money is spent within a company both in the short and long terms. After the formation of such systems and through the allocation from budgets, organizations are able to accomplish goals for growth and sustainability with the finances in hand as the main objectives of a budgetary systems being coordination, resources allocation and the general planning for the sake of operations effectiveness and efficiency (Wiseman 2010). Furthermore a management accountant would find the knowledge from budgeting helpful in budgetary systems and setting of budgets since such knowledge facilitates planning as the companies use the knowledge from the systems established for the planning for the growth of the business as well as their development (Seal & Garrison 2009). This happens through the specification of the opportunities presented by the system and the investments that should be undertaken and their costs. Secondly, there is the coordination aspect as the systems tend to motivate the managers to coordinate and keep the costs of the company at manageable levels. Without a budgetary system the management will not be in the position of telling exactly how much the company needs in money terms for the implementation of their actions. This leads us to the resource allocation perspective since this is one of the major aims of an organization, to allocate their resources effectively and efficiently (Wildavsky & Swedlow 2001). In this manner the company will surely come up with effective budgets, budgets set to incorporate all the requirements and necessary items. This allocation is done as the capital for operations are set aside. Thanks to the insights from the knowledge of budgeting. Lastly there is the aspect of performance review that is derived by the management accountant from the insights of budgeting (Seal & Garrison 2009). This manager will use the budgeting system of the company to determine if the company is operating efficiently. Answer 6 In the traditional management accounting approach, it is practically impossible to determine the direct costs of products or services provided. This is largely as a result of direct labor being made an activity base during the time when the overhead cost allocation systems were put in place. At the time the main component of manufacturing cost was direct labor hence a high correlation between direct labor and the overhead costs as may have been mentioned (Wickramasinghe & Alawattage 2007). As a result of this the direct labor became a basis upon which the allocation of overhead costs ought to have been undertaken. The traditional models of cost conduct the application of resources to respective products in two major ways. These are the direct costs i.e. material and direct labors are directly attributed to the product while other resources are arbitrarily allocated to the product. These are done on the basis of direct labor hours, labor dollars or machine hours. Such applications do not integrate in the process sales, marketing and administrative costs (Gregoriou 2012). Another problem that the traditional approaches to management accounting practices is that they exhibit inaccurate and inefficient performance measurements most so on businesses which operates in a non-conventional way. Traditional management accounting approaches have the problem of being useless when it comes to the provision of long range of products and services hence they require custom designs at such times. Another problem is the fact that the traditional systems are designed basically for the sake of satisfaction of the entire financial requirement to be applied when valuing inventory hence not advisable for use in measuring performance, operational control and product costing purposes (Gregoriou 2012). A good system is one the product cost brings together the expenses incurred in relation to that product throughout the organization. The traditional approach has the tendency of reporting costs and how utilization of the resources reflects the many essential traits where many controversial issues about the any outcome are discussed (Wickramasinghe & Alawattage 2007). The weaknesses of traditional management accounting approaches has been due to the change witnessed in the external business environment which has resulted into developments in the tools and techniques applied in management accounting. The challenges as witnessed or problems as presented by the traditional accounting approach. For instance; the inappropriateness of absorption costing and the criticism of the standard costing have resulted into a mistrust of the traditional accounting approaches in delivering accurate accounting results (Seal & Garrison 2009). The solution of the problems exhibited by traditional accounting approaches is the modern forms of accounting such as the activity based costing approaches and the throughput approach. In the case of the ABC approach, it concentrates on the activities that the business is engaged in which the traditional approaches ignored. Such activities have in the past been organized into separate functions. This is the essence of the development of the ABC costing system after the realization that the traditional approaches like absorption costing used to employ labor hours as their basis of their absorption overheads. In addition, such approaches did not provide any useful information about costing drivers by responding to the questions as to what the causes were for the overheads which were incurred (Wickramasinghe & Alawattage 2007). Generally the modern approaches identified as the solutions to the challenges caused by the traditional techniques gives an allowance to the organization to determine the actual costs associated with each product and service produced by the organization without giving room to the organization structure (Seal & Garrison 2009). They try to define the activity of the organization in terms of how they add value to the organization; this is exhibited by the ABC approach. This makes it easy to identify which activities in the organization are able to add value to the business while the ones which cannot add value are also separated from the rest. This enables the organization know areas of the organization to invest most of the organization resources such as time, effort and money and hence the minimization on the areas where costs are wasted (Wickramasinghe & Alawattage 2007). The modern approaches as solutions to the problems associated with the traditional approaches have several merits. One is their ability to reorganize the inherent complexities that have been faced by businesses in the past. This is because the lack of such reorganizations has in the past caused businesses a series of cost drivers among which many of them are transaction based as opposed to volume based which the ideal case should be. The complexities are found to arise due to the facts that businesses now have more complex product range and business environments which are more volatile and unpredictable. The modern approaches are on record to provide more meaningful analysis of costs which presents the organizations with a better platform for making organizational decision s such as pricing, product mix, and design and production decisions (Seal & Garrison 2009). In addition, the modern approaches like ABC are concerned all overhead costs which even involves the costs of non factory floor functions as opposed to just floor factory functions which the traditional approaches were used to. They help in the identification of the causes of increase of the costs and hence help in reducing of such costs (Gregoriou 2012). They are also used for the conduct and analysis of customer profitability. The modern approaches also have a division of roles in their enactment. As one approach serves the strategic analysis mode, the other approaches can hold onto the short term perspective since they also mostly act on totally different basis though within the modern perspective. The documentations of the applications of the modern approaches are well laid down as opposed to those of the traditional approach which were scanty and based on baseless assumptions which made it impossible to have accurate resolutions to problems (Gregoriou 2012). Answer 7 In the analysis of the differences that exists of management accounting between countries, there are the main determinants that are responsible for and are key drivers that are impacting on the variations (Burke 2006). Among the most renowned factors are culture and the differences those results due to the difference in cultures of various countries. There are also other factors such as academic and institutional backgrounds as well as the economic situation within the countries in question which leads to divergent impacts in any form of management accounting systems (Ahrens 1996). Culture as an influence in the difference of management accounting as applied in different countries can be defined as a system of values that are collectively held as explained often by the HOFSTED framework that is frequently applied in the explanation of variation among nations (Burke 2006). This framework developed five dimensions which include power distance, uncertainty avoidance, individualism and collectivism, masculinity vs. femininity and finally we have the long vs. short term orientation. The argument presented according to this framework is that some countries like the Japanese are more committed to their organizations than those from other countries like America since they embrace aspects of lower tendencies towards individualism (AHRENS 1999). In discussions relative or skewed towards economic literature some more special attention is paid to financial culture of the country in question. This is because one will find that some countries are more of shareholder and stock market oriented while some countries like the ones embracing the communist ideology embrace more of stakeholder driven form of businesses hence a difference in the way they conduct their management accounting practices and procedures. In the varied contexts seen, culture is a great determinant of the national differences in management accounting practices. This concept therefore needs to be handled with the due care that it deserves whenever it appears as a factor that influences management accounting since it would dictate how accounting practices are handled in each and every country (Burke 2006). The other group of factors and as already mentioned above revolves around education, occupation and management accounting institutes. This is because respective educational and institutional frameworks in different countries are highly variable. In some of the countries and through studies, management accounting is based on a professional environment while in others it is taught as one of the disciplines at the university as opposed to being considered a fully fledged professional course as situation which forthrightly skews a way in which it is viewed (AHRENS 1997). Again, in some countries the interest of the management accountants are represented by institutes who define how the practices are conducted in the application of the management accountant concepts. In other countries such interest are highly educational oriented without a well established institutional framework to govern the affairs of the operations and practices. These two approaches in terms of institutional protection and lack of it in other countries makes the practice in the countries quite different (AHRENS 1999). The governing of the profession in other countries in form of institutes render the consideration of the systems in those countries sophisticated with the others less stressful in their application of the concepts (Chapman 2007). In the countries where the concept is considered a discipline just like any other discipline, management accounting is based on ever arising new ideas and concepts from the field of academia while on the other countries the study of management accounting is given the practical research aspect (Ahrens 1996). Differences among countries are also based on the qualifications that an individual ought to have before they are qualified to apply for any accounting jobs. This is important as it defines the way in which the individual will apply the concepts in handling management accounting issues and problems. While in some countries the route towards the accounting practice is through a university degree, in some countries apart from the degree one is required to have doe a professional course in accounting. This is different from the degree and the degree in this case does not necessarily need to be business or economics oriented (AHRENS 1999). The other influencing factor of the variations is the economic background of the country in question. This factor gains its influence due to the continuous fluctuations that exists in the economy affecting different countries in varied ways. This makes the economic situation in a given country be an influence in a given country management accounting practices (AHRENS 1997). For example, defending on the economic variable that a country has to deal with, there will be an influence in terms of consideration towards this factor. Economic influence may also present itself in the scenario where one country is dominated by the economic power of another country in which case the dominated country will be forced to apply the aspects of the dominating country in terms of management accounting practices; this varies in the intensity and degree of responsiveness adopted by the less influential country (Ahrens 1996). The practices of difference differ in many aspects depending on the country and the factor of influence. While in some countries the practice will be geared towards the provision of financial reports to groups which are non-management, the assumption may be that there is s difference in both the management groups and the objectives (Burke 2006). While in some countries the objectives of management accounting is the provision of information and participation in the management process in other countries management accounting is for ensuring that rational managerial decisions are made in the efforts to ensure controls, plans and government of organization affairs (Chapman 2007). All the mentioned above influences depending on the depending on the category of the country whether in UK, U or Germany will have an impact on the form of management accounting system to be used in handling the organization’s affairs (AHRENS 1997). Answer 8 Parallel or interacting investments are investments in ventures which entail investment decisions as well as finance decisions which interact with each other. The argument is derived from the theory of the blade which presents and argument that investments and savings are quiet interactive with finance or spending decisions. These actions are all geared towards the making investment decisions that are not different from those that may only involve a single personality in the making of such decisions. Finance and investment decisions have for a long time been composed only of the three major areas of spending a situation which has greatly compromised the other areas of investment decisions (Smith 2004). Therefore, under interactive or parallel investment, one is able to study a variety of applications which range from business or corporate finance and investment. Others are government or public investment or personal finance and investments (Smith 2004). This is despite the clear fact that finance and investments are very distinct and have clear separate lines between them. Interactive finance and investments decisions are based on the facts that the investors under such categories of investments are concerned on where the money they are likely to invest is going to come from (Seitz 1990). This prompts for budgeting on the schedule to raise the money and from what finance sources or instruments to use. Under interactive investments, the decisions made do not reflect single handed decisions as a wide consultative program is sought. In the interactions questions such as how much money is needed for the investment will be asked, the time span upon which such money is needed will as well be required and the variations in the sources among which the cheapest source of financing will be used (Peterson 2012). In all the parts of such an investment decision risk as a key component is included before a decision is arrived at. The interactive investments and the investment decisions therefore bring on board with it some recognizable key characteristics: - this investment is strict on the total amount to be invested. Then the second aspect is trying to find out the allocation that exists between the consumption as exhibited currently in the firm and the much to be retained for reinvestment. Another key characteristic is the probability of the existence of the optimal rate of re-investment among which we will try and seek to know the specific assets required for purchase. Finally, the interactive or parallel investment will require that there is an evaluation of performance of the investments and the assets (Friedl 2007). Individual investments programs on the other hand are always directed towards exploits suited to meet individual investment needs. This is due to the facts that building such investment capabilities as an individual’s, the individual is able to create them a more secure and sustainable future giving the individuals the freedom to live a life they want and how they would want such a life. Unlike interactive investments which are varied, individual investments are such rigid that they have specifics that fit the scenario in the greatest sense (Seitz 1990). This attracts professional advice on the varieties that may exist which posses all the individual needs. Any form of individual investment does not portray in any way the need for a third party decision when critical actions are undertaken because it is between the person and the investment they are geared to undertake (Friedl 2007). They will bear the costs alone hence no need to worry where the money is going to come from as they already had the idea before they made the decision to invest. They therefore know it clearly well where they are to get the money and how much. In the event they had a return, they as well reap it all by themselves again as there is no one except in scenarios when they brought on board personally recognized beneficiaries of the returns (Smith 2004). Therefore, a conclusion that a system of parallel and interactive investment is the best source of analysis and decisions for mangers is true. This is because in the approach by the models make a constructive link of science and the economy through the support of the decisions based on capital budgeting a situation which contributes to the formation of markets (Drake & Fabozzi 2002). The models use the concepts such as mediation to help realize the means of how to involve capital spending decisions which helps to align the same with the investment decisions to be made. Under interactive investments budgeting decisions and approaches are formulated by the firms and are made operational in their respective contexts. This depends on the structure of the firm and it as well helps in closing the gaps that may form to cause harm to the investments put under risk (Friedl 2007). Despite the approach being one of the best in handling financial, budgeting and investment decisions, there are a variety of challenges if not problems and they are found largely to fall under the financial specialists and not the general managers. The challenges are realized when trying to present a definition to the concept of capital budgeting of which a problem with the model adopted by the net present value is presented (Peterson 2012). The influence under such investment processes have the habit of largely concentrating on the higher levels on the integrated firms than the diversified firms. Among these are the distinguished three stages in the resource allocation process of which we have the definition of the source, impetus and authorization. The implications of the approach towards the capital budgeting theory are several but the most basic is that the delays are likely to be as a result of the diverse nature of the situation and required developments of the same (Drake & Fabozzi 2002). References Ahrens, T, 1996, ‘Styles of Accountability’, Accounting, Organizations & Society, 21 (2/3), pp. 139-173. AHRENS, T, 1997, ‘Strategic interventions of management accountants: everyday practice of British and German brewers’, European Accounting Review, 6 (4), pp. 557-588. AHRENS, T, 1999, Contrasting Involvements: A study of Management Accounting Practices in Britain and Germany, (Amsterdam: Harwood Academic Press). Burke, L, 2006, Management Accounting Decision Management, Burlington: Elsevier. Chapman, CS, 2007, Handbook of management accounting research. Vol. 2. Amsterdam: Elsevier. Drake, P, & Fabozzi, FJ, 2002, Capital budgeting: theory and practice, Wiley: New York, NY. Friedl, G, 2007, Real options and investment incentives, Springer: Berlin. Gregoriou, GN, 2012, Best practices in management accounting, Palgrave Macmillan: New York. Peterson, SP, 2012, Investment theory and risk management, John Wiley: Hoboken, N.J. Seitz, N, 1990, Capital budgeting and long-term financing decisions, Dryden Press: Chicago. Smith, W, 2004, A better investment climate for everyone, World Bank: Washington, D.C. Seal, W, & Garrison, RH, 2009, Management accounting (3. ed.), McGraw-Hill Education: Maidenhead. Wickramasinghe, D, & Alawattage, C, 2007, Management accounting change: approaches and perspectives, Routledge: London. Wildavsky, AB, & Swedlow, B, 2001, Budgeting and governing, Transaction Publishers: New Brunswick, N.J., U.S.A. Wiseman, B, 2010, Budgeting, Weigl Publishers: New York, NY. Read More