Management Accounting-Response Control - Essay Example

MANAGEMENT ACCOUNTING RESPONSE CONTROL By Student Name Course code + name Professor name University name City, State Date of submission Management Accounting Response Control Management control is a process that is oriented towards the verification of the status of the planned objectives, the efficiency and the efficacy of the entire organization through the resource analysis, the costs and the revenue that is being generated from such an organization. It must be noted that the management control is not viewed as an exclusive administrative responsibility but instead as a process that involves the relevant levels of responsibility in regards to the numerous functionalities of the organizations (Seyferth, 2007). In order to make the organization perform better and have a basis of evaluation, different elements are used in the process of constituting management controls. Different structures are established detailing the personnel tasked with various responsibilities in the control process, the tools used includes; analytical accounting, general accounting, budgeting, income statement analysis and reporting. Then, there are procedure structures that show how best the activities of the organization can be coordinated optimally to yield the expected results. By having such an elaborate process, then the organization will ensure that inefficiencies will, in most cases, be avoided (Seyferth, 2007). The sequence through which the management control works starts with planning, in this phase, all the objectives of the company must be clearly stated and defined. That is, the specific results that the company expects to attain at the end of a certain period. The second phase is programming, in this case, the program is prepared in order to attain the set objectives. In preparing the program, the external and internal restraint factors to the company must be taken into consideration. Then, the next phase is result checking, in this case, it is determined whether each and every unit of the company has achieved the overall objectives that they were assigned. After checking all of the results, the shifting analysis is carried out. In this case the objectives and the results are looked into and analyzed to establish the reasons for the recorded management performance scenario (Seyferth, 2007). The last phase is the implementation of the corrective action. This is carried out in order to align the organization with the objective that is sustainable, manageable, attainable realistic and time bound. For the project of management to work best and thus placed within Computer Solutions Limited reach, then, there is need that the project is completely diffused into the system and culture of the company. There is also need that there should be enough resources in the computer solutions that will be critical for the whole system to yield the required results. Analytical and General Accounting General accounting is the sum total of the financial and economical records that have been prepared to determine and present the results of the fiscal year of the organization. That is, both the accounting period of the year and the working capital (Talluri, & Ryzin, 2004). The fundamental aims of general accounting are to inform the owners of the organization and other stakeholders like the relevant authorities, clients, supplies, the treasury officers and other interested parties on the economics of the company and its financial situation, General accounting is also intended to work out the balance sheet for the entire accounting period. The analytical accounting calls for a detailed book keeping analysis and checks in order to determine how and where the costs originate and also, it looks into the possible ways of reducing such costs such that the organization is able to realize more revenue and profit. It also determines where most of the Computer Solutions Limited revenue comes from. And lastly, it evaluates on how the profit margins of the organization should be established. Retrospectively, general accounting is considered to be necessary for Computer Solutions Limited and other organizations as they will minimize chances of fraud and increase efficiency and accountability within the organization. That is why, it is very necessary that Computer Solutions Limited should be able to integrate the aforementioned accounting strategies within the management functions of this case (Talluri, & Ryzin, 2004). Production Costs and Productive Factors Productive factors are those through which the activities of a company are carried out. They are categorized into; First, durable productive factors, these will include the tangible assets, equipment, computer systems and plant, it also includes intangible assets for example patents, accreditation and trademarks. It must be mentioned that the amount of the productive factors that are consumed in the production of a specific service or product are called production costs. Specific costs can be directly attributed to a given identified product or service. The general costs are those costs that are distributed to the entire production process. They refer to the indirect costs of an organization. This means that the general costs cannot be specifically or directly attributed to a product. The production cost of Computer Solutions Limited or any other organization can be categorized into specific and general costs (Seyferth, 2007). In terms of variability, the costs of production can be divided into fixed costs and variable costs; Fixed costs, also called capacity costs, are costs that are incurred for the productive factor acquisition in the quest of the organization to ensure that there is a defined production capacity (guarantee a specific production of level). These costs do not have any degree of variance especially in the short run when production is dined within a certain range of volumes of production. Variable costs are capacity costs that an organization incurs in order to attain a certain defined volume of production. Variable costs vary according to the volume of production (Seyferth, 2007). Cost Configurations The key cost configurations are direct costing and full costing. Direct costing considers only the variable costs. This costing system is used in the evaluation of the economical convenience and efficiency of the company in the short term. The indicator of the result is the immediate contribution margin, that is, revenue less the variable costs. It should be understood that full costing takes into considerations all other costs by adding fixed general costs and advanced direct costing. Responsibility Centers The responsibility centers will deal with costs and revenues. In this case the responsibilities are to minimize the costs and maximize the revenues of the organization; Computer Solutions Limited. Management Process Control The management process control is headed by a qualified controller and is implemented annually through phases. They are preventive controls, concurrent control and the final control Preventive controls are affected in the budget of the organization, through the budget, the course of Computer Solutions Limited is decided, and this means that the company cannot engage in incurring costs that have not been catered for within its budget allocation (Seyferth, 2007). The final control is responsible for the control cycle disclosure and the communication towards top management and responsibility centers. The individuals tasked with the final controls are responsible for the budget preparation. Concurrent control is responsible for the transmission and reporting of the information towards the responsibility centers and the top management. Differential Analysis In the field of company control systems, it is necessary to make choices on the different possibilities that take place within the organization. This calls for the analysis of the costs and revenue in order to choose the best course of action (Seyferth, 2007). Control Issues Discovered By Valerie First, there is lack of clear responsibilities; it has been noted that Computer Solutions Limited has a staff of 150 individuals. The information masked is that of the specific responsibilities of these individual employees or the divisions that they work under. It has also been mentioned that John is the Managing Director and immediately below him, are the finance directors, directors, the director logistics, the sales director and the director in charge of customer care. The directors have not indicated whether they have any meeting with the staff to offer them directions and hold them to account on their respective responsibilities. It has also been noted that it is John who does the accounting work by personally preparing the spreadsheet although there is a finance director. Under social control theory, this is an internal problem, the works can remain without clear work responsibilities, idle around not because that is what pleases them or what they are fond of but instead because the internal controls are weaker and have allowed them to behave as such. Second, there is the problem associated with the lack of proper books of accounts; it has been noted that Computer Solutions Limited does not maintain proper books of accounts. The only available form of information is presented on spreadsheets. This is information that does not seem to reconcile and also, it is quite complicated in its nature. Third, there is lack of proper record keeping. This, in social control theory, is attributed by lack of stringent measures from the government and other related authorities. If there were tough conditions and consequences meted on those individuals and organizations like Computer Solutions Limited, then the company would be keeping proper books of accounts as both a state requirement and that of generally accepted accounting principles and the underlying financial reporting standards. Fourth, it has been found that there is weak system of internal control; it has been mentioned that the employees of Computer Solutions Limited find less work to do whenever Mr. John is out of office. It is worth mentioning also that stock is being placed in an office where virtually all employees’ have access to, thus, the office rarely gets locked and the members of staff utilize the stocks. This opens a window of opportunity for unfaithful and fraudulent members of staff to perpetuate their fraudulent activities. The employees of Computer Solutions Limited find themselves idling around and only pretend to be busy immediately John arrives in office. This is an internal problem whereby the employees have developed a culture that they must be supervised in order to perform work. Fifth, there is possible lack of designated staff duties; Valerie noted that the customer care representative had many staff who sat idle most of the time playing computer games. The managing director has all along believed that the staff is doing an excellent job. They all conglomerated around the office doing nothing productive with an aim of earning an extra income for the extra time spent in office. Sixth, there is a loophole on the employee model of Payment; the sales team earns an income like the permanent members of staff who work in office. They are reluctant and thus, they secure less number of contracts. Seventh, there is segregation of duties; Valerie noted that the finance team does all the work that relates to sales, they collect all the sales orders and raise the relevant invoices, it has been noted that the paper work done by the finance team was incomplete, the information was missing or a different one had been inserted. Eighth, there is poor debt collection strategies deployed by relevant personnel of the company; it was noted by Valerie that the raising of invoices to goods sold on credit was done after 30 days. The terms of credit sales on the Computer Solutions Limited stands at 30 days. This is a worrying trend for the organization given that it collects debt after a 60 day period. Most financial analysts and expert argue that the debts of a company should be collected as soon as possible and delay repayment of any credit. Solutions to the Above Problem There is a need for clear schedule of responsibilities detailing the roles and scope of duties of each and every director and the members of staff for Computer Solutions Limited. By defining responsibilities, each member can be held to account for any form of inefficiency that might result within his line of responsibility. The finance department is a key organ of the company. The department through the finance director should be strengthened by bringing on board qualified and experienced personnel (Talluri, & Ryzin, 2004). Computer Solution Limited needs to maintain proper books of accounts in compliance with the generally accepted accounting principles and the financial reporting standards. The preparation of the financial statement that will portray the state of financial affairs that reflects a true and fair view is only possible if proper books of accounts have been maintained from where the final financial statements of accounts will be generated. Computer solutions limited need to carry out reconciliation of its statements to ensure that they tally. This will go a long way in saving the organization from incurring certain costs that are fraudulently perpetuated by certain individuals who might be having malicious intentions of obtaining an illegal financial advantage by taking opportunity in the weaknesses in the organization (Seyferth, 2007). Computer Solutions Limited should put in place a good and strong system of control that is capable of preventing and detecting any form of fraud perpetuated or errors committed so that corrective measures are taken. The employees should as well be allocated work with a timeline to deliver results. The stock control should be carried out detailing the amount of units that come in and the units that go out. The difference will give the stock in store as at that particular time (Talluri, & Ryzin, 2004). The company should have a schedule of staff duties. To allocate individuals different times that they should be on duty so as to avoid any extra staff not needed hence reducing the costs that the organization incurs towards the Valerie noted with concern that the sales team were remunerated handsomely. From the sales, the bonus was little amount. Computer Solutions Limited should pay the sales team based on performance. This means that the amount of salaries that the sales staff are paid should be deducted and the bonus paid on any contract secured increased. By doing this, the sales team will work hard to secure more contracts knowing that with more contracts the amount of income will as well be more. This is likely to enhance the growth of the organization and reduce the amount of costs that the company incurs in terms of wages (Talluri, & Ryzin, 2004). Computer Solutions Limited should have segregation of duties for its employees. This means that the personnel responsible for placing orders should be different from the one raising the invoices and the one collecting the cheques. This will ensure that there is accountability and efficiency. The chances of fraud will be minimized. This will ensure that organization gets more revenue through proper accountability. Computer Solutions Limited should consider reducing the number of credit days from the current 30 to 10, and raise the invoices immediately a customer is issued with the goods. This will increase the cash flow of the company and the computer solutions limited will enjoy the high present of its cash than getting that in the future. The increased cash can be used by the company to expand and increase its profitability. 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