Management Accounting and Control - Coursework Example

? Management accounting and control Introduction Organisations usually comprises on different decisions, in fact the entire productivity and efficacy of an entity relies with the fact that how effectively is manages its operations and funds. Finance is all about managing and utilizing the funds of an entity from different angles and to assess them with different provisions organisations have to undertake different decisions in total (V.S.BAGAD, 2008, pp.52). Managing the funds and increasing the shareholder’s equity is not the only provision and lawsuit of an entity but it mainly depends on certain things. Organisations have to undertake number of decisions in order to stay in the business and among different decisions; the name of financial decision is one of them, in fact the most ones as well. Financial competitiveness is the thing on which the entire productivity of an entity depends upon. There are number of decisions that come under the ambit of financial management and managing the things accordingly is important for the companies. Decision making is one of the most important provisions for the entity as a whole and there are certain methods that could be used for the decision making purpose. The main perspective of this assignment is to give answers relating to different things in total. There are four different questions which needs to be answer here and all the questions are different in nature and in concepts as well. The concept of the same lies in decision making, centralization and some of the management accounting as well. Let’s start the questions each one by one. Ans-5 Budgeting is considered as the non-beneficial activities holding under the boundaries of an organisation. Budget set down the process to allocate the funds and manage all the resources that will be used potentially (WELSCH, Glenn A., 1976, pp.82). However at the present time, the predictions for the future scenarios is more than rigid and high deficiency in communication between higher level management and the department of budget making is a key concern while preparing budget. Though, there are some advantages that can be extracted from the budgeting process but on the same time the line of problems stand all along the same. Below are some of the problems in budgeting that reflects negative impacts towards organisation include: Time-consuming and Costly: Apart from strong IT infrastructure and several models, budget is a prolonged and expensive method. To perform budgeting process, the average time is required to be around five to six month depends on the size of the firm. The budget not only engage the timings of many people in which approximately 30% time serve by higher management and officials. Substandard in providing value: The result by means of budgeting process is truly unreliable in terms of providing value to organisations. For instance, one company extracted meaningful results from this process whereas on the other side the entire process is of no use and will be influenced on the performance. The reforms are highly claimed onto the budgeting process in which the vital concern is to drop off the staff’s timing on non-beneficial activities. Budgets make planning inflexible: To revise the budget is typically intricate enough. According to latest researches reveal that around 25% of the entities revise their budgets in every fiscal year. Some surveys also reveal that the higher management of an organisation serve almost one to two hours in each month in order to discuss numerous strategies. Budgets promote non value-added costs: The budget of a company is largely dependent on the last year conclusions. Due to insufficient time offered to evaluate and point out the main reasons of cost which ultimately ensuing to raise the massive quantity of ravage. Compromise in customer satisfaction: Every business is wanted to convince the consumers from their products and services. But in this case, the organisations would like to meet the defined sales targets by satisfying the customers to purchase their products and assure that the slow-moving inventory is really a lot. Penetration of de motivation: The newly employees are highly motivated and tend to capitalize on their performance in order to achieve rewards and appreciation. But afterwards they become well aware from the system exist in an entity and learn to go with the flow of system. Therefore, it is indicated that the employees will only focused to attain lowest amount of work except if they have been paid by extra compensations for further effort. Strengthen the Reliance culture: In budgeting environment, the only way to get success and survival for the employee is to obey the orders that heading for meeting the budget. Budgets contradict strategies: According to a latest Fortune magazine cover story, about 70% of the organisations are considered as deprived in the implementation of the strategy which reflects a substantial flaw towards the competency of management performance in huge budget. Unethical practices become more viable: In order to get inducements and attain stipulated goals, the people do their full effort by neglecting the activities which are not included under the sphere of ethical practice. These practices may cause unethical promotion and drive the reputation of president as well as an organisation in hazard. There are number of advantages and disadvantages have been identified in this particular scenario, according to which this is impossible for the companies to link up the things all along. In spite of all of the problems, organisations still require to use budgeting techniques to initiate their things, because this is the method which has its own recognition and importance in a broad nutshell. Budgeting gives a fair idea about the current and forecasted performance of the companies as well and on the behalf of the same, organisations can take number of decisions in total (SHAH, Anwar, 2007,pp. 170). Most of the organisations would like to initiate the stance of budgeting in order to compare the performance of which they predicted and what they have in result. If the actual expense of a company surpasses from the budgeted expense, then a sort of budgetary deficit would be found while in the case of its opposition, then it would be budgetary surplus. Management takes effective and timely decisions on the basis of budgets and they are the one which could be quite vital for the companies as a whole. If the advantages of budgeting would be considered, then it would always be higher than that of the disadvantages in total. Organisations are well aware with the fact that budgeting always gives them a sort of prosperity to them as far as generating net income is concerned, by mitigating both direct and indirect expenses all together. Ans-6 Organisation is usually considered to be a collection of individuals who work together for fulfilment of specific objectives which might mainly be considered to be profit maximization in most cases. Organisation is, in a way, basically a platform which is used to ensure completion of purposes or targets one might have, although mostly the use of the word organisation denotes a larger size where other terms like partnership firms and sole proprietors usually serve the purpose of some of the smaller sized businesses. There are numerous ways to ensure the running of any organisation, a most basic part of which includes the following of specific structures to suit different natures and different scope of work carried out by the organisations (PAMELA S. TOLBERT, Richard H. Hall, 2009, pp. 96). Structures of an Organisation There might be various structures that an organisation follows for effective operation of any organisation. Amongst them mainly used are Functional structures, Divisional structures, matrix structures. These different structures are all widely accepted structures which are used for specific instances (PAMELA S. TOLBERT, Richard H. Hall, 2009, pp. 102). Functional structure is used mainly when the products being offered by the organisation are standard as well as large volume services being offered for a low cost. This is possible because of specific specialized tasks being performed by specific departments. Divisional structures are best suited for organisations where the operations are divided into various divisions whether on the basis of geography for example operations in various countries or on the basis of any product line for example retail and corporate divisions of a bank. Similarly a combination of both the forms as discussed before is the matrix structure which is a complex structure following both the structures of functions and divisions. Divisional Structure Divisional structure of an organisation groups the positions into departments geographically, on the basis of products or even on the basis of customers. In this specific structure all the divisions operate individually as autonomous bodies being linked in a special way but placing little or no reliance on each other (NILANJAN SENGUPTA, MOUSUMI S. BHATTACHARYA, R. N. SENGUPTA, 2006, pp. 200). It is important to note here that due to little reliance factor on other divisions each division has to be equipped with a variety of skills in order to ensure smooth running as separate bodies and to ensure focus on achieving the target of their own specific division. Adoption of the divisional structure as the detail suggests might be necessary where the demands either of the customer, region or the products is so unique that works carried out for the purpose are totally different from the other operations. It is often appreciated that any task which requires individual and specific attention should be performed separate from the rest of the tasks, similarly according to the divisional structure any division that requires separate efforts should be carried out in a way that has no influence of other operations. Examples might include niche market coverage which demands separate divisions like that or retail and corporate customers which both need individual and different sort of attention thus the purpose might be best served with the creation of divisions. Evidence of Success Success in this case is often observed due to the flexibility gained in the procedure due to the separate representation of each division which deters failure in the sense that even the worse of performances of an individual division does not affect the performance of the other divisions or operations of the organisation (R., Jones Gareth, 2010,pp. 175). By having this advantage, the divisional structure is very popular and widely applied in various industries successfully. Given this fact that the failure does not affect other operations has absolutely nothing to do with the benefit of the use of brand of one of the divisions inside the organisation and thus the win-win situation for those following the said structure. Similarly another advantage of the structure under examination is that it gives full ground to the division for being responsive to the specific requirements of the customers, region or the product line and thus gaining competitive edge over some of the competitors who might not be using the structure as mentioned. Progressing on the success of this structure, the ability to react to the market environment or change (e.g. technology change) is much more likely to be effective in this structure since the objectives and targets are so well determined and all resources are dedicatedly assigned with the task of meeting the ultimate objectives. Thus the individual focus helps this structure to maintain balance between different activities being carried out in the organisation. Problems with Divisional Structure Apart from all the positives as discussed, apparently there are some short comings of the structure as a whole. Above all the other disadvantages, most people believe that the wastage of resources and skills being separately deployed in each of the divisions give rise to an avoidable cost which can be reduced by using central services as well as have better ideas and experience sharing over various issues which might prove to be very fruitful for organisations as a whole (R., Jones Gareth, 2010,pp. 189). Duplication of resources clearly mean less efficiency and a visible chance of cost saving. This cost saving, if done, might be used to attract customers, focus on the region or even fund the product line which again was the purpose of the creation of the creation of the divisional structure. It is thus clear that achievement of any objective can be done using different approaches however, the best approach being followed needs to be constantly assessed so as to ensure that the cost embedded in the structure might always yield such benefits that outweigh its costs thus ensuring the ultimate objective utilizing the resources to the best possible extent. Equal emphasis is laid on how well the structure is utilized along with the selection of the structure as the most suited one, this way the individual targets along with the bigger picture of the whole organisation’s purpose is served making sure that if financially a hit is being absorbed it is giving an advantage in form to the organisation. Ans-7 According to a major consensus, organisations always try to find their ways to enhance the productivity. Organisation is basically referred to a place which is in the view to enhance its productivity from different means. There are number of methods which could be used in enhancing the productivity and profitability of a company as a whole (WATSON, Tony J., 1994, pp. 142). In order to increase the recognition of the products, organisations usually have to consider number of strategies to operate as well as entering in a market. Decision making is an important activity for an organisation, in fact quite important for the long term productivity of the company as a whole, on which the entire pillar of the organisations depends. Usually upper management and officials are held responsible to take decisions about the company as a whole and there are number of techniques and methods that could be used for the same. Among a number of methods, the name of transfer pricing is one of them which has its own significance used specifically to make the environment of a company centralized which would be beneficial for the company. Transfer Pricing and Centralization Organisation is basically a place wherein people belong to different demographics and mindset work together for the achievement of a single and pre specified goal. This is a true and obvious fact that organisations always work for the integrity and to enhance the productivity (DEMSKI, Joel, 1994, pp. 217). There are number of methods, which could be used by an organisation in total and among these methods, the name of transfer pricing is one of them. Transfer pricing is basically a profit allocation method used specifically to attribute to the net profit of an organisation. It is acted upon net profit and tax administration as a whole. Transfer based prices and pricing are basically the changes made according to the controlled between legal entities. This particular method would be used for different purposes in total and it could be used for different departments as well (DEMSKI, Joel, 1994, pp. 192). Transfer pricing is the name of dividing the work according to the experience and qualifications in total. With the help of this particular method, organisational officials could get all sort of added advantage in making and managing the work accordingly. With the help of transfer pricing, the ability of the managers to centralize the stance of decision making and completing the work would certainly enhance accordingly. Vancil in the year 1964 stated his argument in the favour of Transfer Pricing and according to his statement, “In order to make decentralization work, the division managers must be given all sort of responsibility for the operations of their business” (DEMSKI, Joel, 1994, pp. 254). According to the argument post by Vancil in total, it is not easy for the management officials to give all sorts of responsibilities to the managers, as there is certain decision, in which the involvement of upper management should be there. According to Vancile, managers are allowed to commit some mistakes while delivering the work accordingly. In order to make the company centralized, in which every manager has the chance to furnish their view accordingly and on the behalf of that, sufficient decisions and actions could be taken all along. Divisional managers have the ability to influence over any of the decision in total and to accomplish the same thing; they are allowed to give their feedbacks too (DEMSKI, Joel, 1994, pp. 274). Transfer pricing is the best strategy which could be used to centralized the network of work and enhance the productivity of the company as a whole. Divisional managers have to think strategically and economically as well, in order to give their feedbacks about a particular thing in total and with the help of the tool of “Transfer Pricing”, achieving the same is possible. There are number of advantages and disadvantages associated with the same strategy and number of advantages also associated with centralization as well. Centralize decision making could be used accordingly, but sometime this particular thing could endanger the situation of the company as a whole. Ans-8) Organisations always strive hard for economic prosperity and there are number of things which accounts for numerous things in total. Unfortunately, there is no single definition of the term “Organisation” exist in this world as every author has had defined this particular concept in somewhat different manner. According to a major consensus of people and organisational officials, organisation is a place which has number of departments and every department is held responsible for increasing the shareholder’s equity as a whole (CHADWICK, Leslie, 1997, pp. 119). All the departments are quite important for an organisation and the applicability of every department is essential. Among number of departments which work in an organisation, the name of accounts department is one of them. Accounts department is an important department of an organisation that deals with the day to day functions of an organisation as a whole. Accounting is the name of recording and interpreting the financial data as a whole. There are number of streets that have its way in the accounting subject and among number of things, the name of management accounting is one of them, in fact quite important as well (CHADWICK, Leslie, 1997, pp. 135). Management accounting is a branch of accounting that deals specifically with the management of the company as a whole. Management accounting is a thing through which an organisation can take number of decisions in total. Management accounting is the name of accounting which specifically used by the management in order to take different decisions in total. There are number of methods comes under the ambit of management accounting which predominantly are Project Evaluation Technique, Binomial tree and many more which used specifically used for the purpose of taking effective and timely decisions in total (MICHAEL W. MAHER, Clyde P. Stickney, Roman L. Weil, 2011, pp. 426). All the big organisations of the world, like P&G, Unilever and Microsoft used the strategies and proposed methods of management accounting merely to enhance its recognition and productivity at the same time. It is a common consensus that the practical implication and application of management accounting is far more different than that of theoretical description of management accounting and this is the main theme of this part. This argument about management accounting is somewhat right from the standpoint of the companies as in some organisations and places; the practice of management accounting is totally different than that of the theoretical description of the same. Among number of authors, Scapens is one of them, who argued that there is significant and big problem of management accounting is the wide gap between the management accounting practice and theoretical implications. If critically sees that then this argument is quite right as the theories which had been studied in the classrooms in academic are totally different than that of the practical implications. In academics, teachers would not consider practical implications through different models and structural difference which should be applied on the practical implication in order to enhance the productivity of the students. Resultantly, when the same student comes in the industry, then they lag behind in physical implementation and application of the same in total. Lots of students, who are great in academics, found and envisaged different problems in applying the relevant techniques over the management accounting which would be equally beneficial for the companies in enhancing the financial efficacy. This is not at all right that management accounting theories have nothing to deal with the practical approach always, as the applicability of the same could be found in different regions. Authors, other than Scapens have found that there are number of ways in which the theoretical knowledge is more than enough for the companies as whole. Conclusion In every organisation, the assessment of financial health is considered as one the core element which could decide in setting goals and evaluate the stance of company’s present standing. The status of strong financial health is enormously important and challenging task for any organisation in order to win the confidence over stakeholders and drag the organisation’s name in top list of most reputable and economically viable companies. This may require to spend long time to create the own financial plans and then practical implementation will help the company to get in business track and accomplish desire objectives while make sure that in case of any gratuitous turn out will not lead the organisation towards financial risk. There are numerous tools that are used to measure the financial health and the financial analysis method is one of them. The assessment of organisation’s planning, budgeting, resources and projection is highly dependent on financial analysis to keep away the company from any possible financial crisis. The main perspective of this assignment is to give answers relating to different things in total. There are four different questions which needs to be answer here and all the questions are different in nature and in concepts as well. All of the answers have been given with great efficacy and dependability and it is found that the stance of budgeting and other things are quite important for the things in total and centralized functions are also quite important for the companies as whole and it leaves a positive outcomes over the companies. Bibliography CHADWICK, Leslie. 1997. The Essence of Management Accounting. Routledge. DEMSKI, Joel. 1994. Managerial uses of accounting information. Florida: Springer. MICHAEL W. MAHER, Clyde P. Stickney, Roman L. Weil. 2011. Managerial Accounting: An Introduction to Concepts, Methods and Uses. Cengage Learning. NILANJAN SENGUPTA, MOUSUMI S. BHATTACHARYA, R. N. SENGUPTA. 2006. MANAGING CHANGE IN ORGANIZATIONS. PHI Learning Pvt. Ltd. PAMELA S. TOLBERT, Richard H. Hall. 2009. Organizations: Structures, Processes and Outcomes [With Access Code]. Houston: Prentice Hall PTR. R., Jones Gareth. 2010. Organizational Theory, Design, and Change. New delhi: Pearson Education India. SHAH, Anwar. 2007. Budgeting and budgetary institutions. New York: World Bank Publications. V.S.BAGAD. 2008. Management And Finance. Pune: Technical Publications. WATSON, Tony J. 1994. In search of management: culture, chaos and control in managerial work. London: Routledge. WELSCH, Glenn A. 1976. Budgeting: profit planning and control. Chicago: Prentice-Hall. Read More