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Different Types of Planning Tools Used in Budgetary Control- Aston Martin

University: Icon College of Technology and Management

  • Unit No: 5
  • Level: Undergraduate/College
  • Pages: 19 / Words 4679
  • Paper Type: Assignment
  • Course Code: ACC202
  • Downloads: 53
Question :

This assessment will cover following questions:

  • Generate an in-depth understanding of management accounting systems.
  • Aston Martin is British sports car manufacturer. Explain the benefits and limitations of different types of planning tools used in budgetary control.
  • Compare how Aston Martin are using management accounting methods to respond to financial problems, that are Benchmarking, Key performance indicators (financial and non-financial KPIs), Balance score card, Activity based costing (ABC) and Financial governance.
Answer :
Organization Selected : Aston Martin

INTRODUCTION

Management accounting refers to the application of professional knowledge, techniques and concept in collecting the accounting data in a systematic way. On the basis of these data management of the company develop plans and approaches then according to that controlling the operations of the business, take effective decision, optimising the use of resources, revelation to management and safeguarding assets (Siverbo, 2014). It is a profession that consist of partnering in management decision procedure, observe the planning and manage the performance of management system. It is essential for business to concentrate on all the business operations in order to arrange activities in systematic way. To better understand of this assignment selected organisation Aston Martin, which is a British independent manufacturer of luxury sports car and grand tourers. The company was founded in 1913 by Lionel Martin and Robert Bamford. It is mainly dealing into Auto mobile and luxury products. In this report consist of role of management accounting and different systems with requirements. Along with discuss about different methods used in management accounting as well as set a range of techniques. In addition, apply planning tools in management accounting with merit and demerit. At the end identify financial problems and sort out through different techniques.

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TASK 1

P1. Different types of systems of management accounting and their application

Management accounting is linked with various provisions which is following by the different business entities with aim of forming strategic judgements. It is a part of accounting which is applied by the manager to gather, evaluation and determine the financial data effectively to maintain the profitability. The role of the management accounting to actuation the firm's strategy as well as management activities.

Management accounting system is a set of strategy and approaches that is applied by business to recognise all the opportunities or arise risk to make decisions towards best resources and utilise funds within an organization. Through these system Aston martin can arrange all the records and transactions of the business. Every company wants to effectively run manufacturing activities and respond to all the risk that arise during to procedure. Such as, Aston Martin use several types of accounting system to evaluate the efficiency of business (Granlund and Lukka, 2017). There are discussed different types of management accounting system:

Cost accounting system: This system is applied by the management in respect to evaluate costs which is connected with the operational activities and increase the productivity. The essential requirement of this to recognise the not relevant cost of manufacturing procedure and reduce unnecessary cost from the procedure due to produce different items. Such as, Aston Martin can apply cost accounting system to determine all the expenses that belongs from the production activity. It is required for firm to arrange all the expenses and deduct eradicable cost that impact on the income calculation procedure. The management use this system to identify all the cost like variable and fixed cost.

Price optimization system: This system is used by the different business entity who produce and sell out different types of products. So for this require to set effective price framework to attract customer regarding to their firm. This system help to set right price for each product and concentrate on the set of prices of items and services to sell out the products. In the context of Aston Martin apply this system to set right price structure of different luxury cars to fulfil the requirement of all the customers and enhance the profitability (Kastberg and Siverbo, 2016).

Inventory management system: It is a system that is utilised by company to keep all the records of stock at different level of manufacturing. To produce goods require raw material, finished goods as well as unfinished goods. This system mostly used by the manufacturing company to know requirement of materials at each level and arrange inventories as per the requirement. It supports to business in stock predication, automatic recording, materials tracking inventory alerts. The essential requirement of this system in Aston Martin to assemble the car require various parts which is required in sufficient manner and track by the this system to make effective decision for further procedure.

  • LIFO: The meaning of this method is last in first out means organisation can sell out those products which are coming in last.
  • FIFO: It means sell out those products firstly which are manufacturing earlier in the business and mostly manufacturing organisation use this method for selling products.
  • AVCO: It means calculate average cost and combine the price and units which is manufactured by the business.

Aston Martin can be utilised FIFO method the supports in manufacturing activities of different cars. It is essential for all the business entity to collect all the relevant information of each products that keep secure from damages.

Job costing system: This system defined as a set of methods and logical procedures that collect, arrange and process data in regard of labour cost that helps in prepare of reports to take effective decision. As per the cost arrange all the resources con sign particular contract where mention all the terms & condition in order to meet with customer requirement. The essential requirement of this system to make predication for individual unit cost or report in respect to supply luxury cars. It is essential to maintain the record regarding to all specific jobs or contract. Aston Martin use special rules that are utilised for various kind of job and supports in predication (Hirsch, Seubert and Sohn, 2015).

P2. Methods for preparing accounting reports

Management accounting report is a procedure of producing various management accounting reports that consist of numerous data and information regarding the performance of an organisation. These reports are produced by the manager in respect to analysis the efficiency and according to that make decision. The main reason to produce these reports to record all the detailed information of each department and know inner information. The manager of Aston Martin prepare different types of reports such as:

Inventory management report: This report produce by the manufacturing organisation to collect detail information of each level of production. In this report mention in which stage required more inventories to produce products. The main purpose to create this report to enhance the profitability and including all the relevant information of stock. The manager of Aston Martin keep proper record through this report and help to reduce all the wastages at each level of manufacturing. It maintain all the information like raw material, finished goods etc.

Budget report: It is important report which is mostly produced by every organisation in order to predict future activities and associated risk. This report defines financial success of a firm which is utilised by the management to compare the situation of business to enhance the profit margin. In this report include all the expenses or income that based on the estimation and according to that Aston Martin follow all the activities and spend more. Additionally, it supports a manager to offer best worker incentive, cost deduction and negotiate the budgets that supports to maintain the profitability (Chandar, Collier and Miranti, 2012).

Performance report: It is a kind of the report which is produced by the manager to identify the performance of overall organisation and each staff member. This report supports to business and encourage for the effective work. As a result they getting reward regrading to work. To offer reward require to analysis the performance of company and their employees. The manager of Aston martin can evaluate all the business operations and make key strategic decision in context of future of a business. Through this report people are rewarded for the commitment and complete task on time. As a performer laid off that enhance staff member's morale and work accordingly.

Account receivable report: To conduct the business activities require to conduct deal on credit so for this require to produce accounts receivable report. Through this report record all the information regarding to creditors in credit period of time and creditors will pay the amount on time. Through these fluctuations spare balance that belong for certain period of time will enable a manager to recognise all the defaulters and take action against them. Such as Aston Martin is a manufacturing organisation that manufacturer different luxury cars and sale out directly to suppliers on credit or on cash. There are set limit of credit period like 30, 60 or 90 days. Thus, it is essential for management to produce this report and collect all the payments on time (Horton and de Araujo Wanderley, 2018).

M1. Benefits of systems with their applicability

System

Benefits and application

Inventory management system

It is mainly applied by the business to track all the activities of manufacturing to estimate that in which stage require more stock. The main functionality is Aston martin can arrange systematically all the records of stock and place order effectively. It is beneficial because this system make possible for the organisation to purchase raw material and other manufacturing resources.

Cost accounting system

The main advantage of this system to calculate cost of different raw material which is utilised in the business. These are connected with the production activities. Additionally, it is applied in Aston martin to track the record of direct & indirect cost of operations.

Price optimization system

It supports to Aston Martin to set the price of items which is produced within organization. In addition, this system advantageous to determine the prices as per the competition, customers and other essential market and business facts.

Job costing system

It is beneficial to perform all the activities to deduct and enhance labour units circulation for various activities in the manufacturing procedure and services supply to people as per the work. It is applied by Aston martin to determine the cost of various aspects.

D1 Integration of accounting system and reports in organisational procedure

Different types of system as well as reports are integrated with the procedure of business to enhance the profitability of business in continuous manner. The accounting system are utilised to recognise and measure the efficiency as well as reports to keep all the transactions in appropriate way. Such as Aston Martin company apply the inventory management system to know requirement of material at different level. On the basis of this system produce inventory management system to track available stock and place accordingly. Cost accounting system as well as job costing system helps to company to maintain all records in regard of all the expenditure and particular job which is integrated with reports and smoothly run organisational procedure (Fiondella, Maffei and Spanò, 2016).

TASK 2

P3. Calculation of cost with distinct costing techniques.

Marginal Costing technique: It is a costing system which is used by companies to determine the cost of all the additional units which are produced in last accounting years. With the help of it the additional cost of making pizzas could be determined by Aston martin.

Note: DL in the income statement stands for direct labour and DM stands for direct material.

Absorption costing technique: It is a type of costing which is applied by the organisation to calculate profit where production units are recovered from the sales of same units.

M2. Diverse management accounting techniques

To calculate the net profit of the organisation apply different techniques in effective manner. These techniques are marginal and absorption costing technique. These are helping to make financial report in proper manner and help to analysing all the business activities in proper manner and know the actual position of the business.

D2. Financial reports that accurately apply and interpret data

Financial reports are important part of any business that supports to analysis actual financial position of the business. On the basis of these report the organisation can take right decision to attain profit and losses by running a business. It supports to arrange profitability through different techniques such as marginal as well as absorption costing method (Teittinen and Järvenpää, 2013).

TASK 3

P4 Advantages and disadvantages of different types of planning tools

Budget: It is a document which is produced by the organisation to predict and forecast the situation in future in regard of income and expenditure for particular period of time. It supports a business to attain net profit through predication the cost of business. Budget is also defined as quantitative statement where consist of fixed as well as variable cost that change as per the situation. Aston martin can produce budget on the basis of last year activities and apply modification in present activities.

Budgetary Control: It is a continuous procedure where business can follow the guidelines of budget and according to that control the business activities known as budgetary control. Companies are producing several types of budget to analysis the actual performance of Aston Martin.

Variance Analysis: It is quantitative examination method which is applied to know differences between actual and planned activities. It is applied by the business to maintain control for certain period of time. These changes are based on the market condition, results of the business. It is applied in Aston Martin in order to know all the differences.

  • Advantage: It is effective tool which s applied by the manager to identify all the differences in between standard and planned activities. Variance analysis utilised by management to recognise all the differences.
  • Disadvantage:The main drawback of of this tool that it take more time to for the determination and that correct all the actions in proper manner.

Flexible budget: This budget is based on the organisation situation and according to that apply all the relevant changes in the business operations (Prencipe and Dekker, 2014).

  • Advantage: The main advantage of this budget that there are applied modification as per the situation of the business and prepare budget to forecast all the profits.
  • Disadvantage: Due to have not expertise people do not apply modification as per the changes in the management and take more time to reproduce of the budget for the organisation.

Capital budgeting: It refers as a procedure which is utilising by the business to recognise all the related options to make invest and choose best one for investment activities. There are discussed various kind of techniques that is applied to use for the business procedure such as:

  • NPV:This method is mainly based on the present value as well as net cash flow as per the investment project. The main reason to apply this method to effectively analysis of investment project in a common manner in the mind of any experienced business person.
  • ARR:This technique is mainly applied by the business in order to analysis the average rate of return and achieved them through investment activities which is applied by an organisation.
  • Pay back period: It is type of the capital budgeting where analysis two project investment and calculate he pay back period according to that company make the decision for investment in proper manner.

Advantage: Through this method an organisation easily accomplish all the long term goals in proper manner and search out all the relevant options which is advantageous for the business. As a result people take interest in the business activities and increasing them through investment alternatives.

Disadvantage: To apply this method required to require higher cost in effective manner and outcomes may be uncertain and huge losses based on the particular techniques (Serena Chiucchi, 2013).

M3 Use of planning tools and its application for preparing and forecasting budgets

To analysis all the business activities for future time period and related risk require to apply planning tools in order to generate more profits. These are supporting to business to set all the financial plans with the help of standard costing, capital budgeting, variance analysis and many others. These tools are playing effective role in different departments and help to increase the profitability of business. In the context of Aston Martin these tools are applied by business to to set future goals and receiving them in span period of time.

TASK 4

P5 Organizations are adopting management accounting system to respond financial problems

Financial problem is a situation where money is causing different issues in order to operate various activities in business operations. Poor budgeting and ineffective utilisation of finances in business leads to generation of one of the most stressful situation for businesses is poor finances or crises. A effective management system helps in identifying these issues and also leads to resolve such issues. Financial issues faced by Aston Martin are as follows-

Reduced Income: A decline in revenue graph is one of the financial issues which generates huge amount of financial crises for Aston Martin. As requirements of funds for various operations are huge. Non-availability of finances leads this organisation to have some unaccomplished objectives. Aston Martin is facing this situation because the organisation is working with its vintage model and which is not competitive in the modern world (Leotta, Rizza and Ruggeri, 2017).

Poor Cash Flow Management: As cash flow management helps to manage inflow and outflow of funds in business. Poor cash flow management leads business in a situation where finances are not managed in such manner so that all the requirements can be met in the most productive manner. High amount of errors in cash flow statement leads to poor predictions and leads to miserable cash flow management.

Ineffective decision making: This is one of the major cause for rising financial issues in Aston Martin organisation. As decisions whether monetary or non-monetary taken in business effects financial position and poor and mismatch timing in decision making in the organisation is causing financial crises.

Improper management of employees: Cost of employing and holding employees in Aston Martin organisation is increasing day by day and is becoming an huge issue to manage finances in this department.

In order to resolve the financial problems management accounting methods used in Aston Martin organisations are as follows-

Benchmarking: It is a process through which performance of business organisation is compared with other business or as per industry set standards. Best performance in the industry is set as benchmark and all the organisations make their attempt to achieve those set benchmarks. Through benchmarking required finances and earnings are set for Aston Martin organisation and this helps in identifying the variations. Identification of variations in actual and required are resolved with actions to manage effective financing. Through this technique identify the problem of decrease income of company.

Key performance indicators: KPIs in business organisation measures the effectiveness of a function within an organisation and are especially important for a core functional area and accounting is one of them. Tracking the KPIs in a business organisation financial performance of business can be improved and managed. Through this internal and external indicators are set and analysis of issues are made in more appropriate manner. Through this failures are analysed and corrective actions are taken so that improvement can be made in financial operations of Aston Martin organisation. Through this tool identify the problem of ineffective decision making that impact on the financial and non financial activities (Schaltegger, Viere and Zvezdov, 2012).

Balance score card: This is one of the most effective management practices used as a performance matrices so that required amount of improvements can be made in internal functions of Aston Martin. As finances are one of the important part and internal departments needs to manage them. This will results in minimising various financial issues that arises internally or externally to business. To identify the financial problem of poor cash flow management.

Activity based costing: ABC is cost analysis method through which cost involved with each activity in the business is identified. Allocation of cost needs to be made on actual basis and all the cost whether direct and indirect is allocated to each activity. Each task in Aston Martin will be provided with cost involved and provide a basis to earn a required amount of profits on that cost.

Financial governance: It is a method through which Aston Martin organisation collects, manage, monitor and controls all the financial information. All the financial transactions are tracked so that management of financial performance of business activities can be done. This will also help in resolving various issues that will take place in financial management of business. To sort out the improper cash flow require to record transactions which is related to cash and follow the budget to control activities and reduce unnecessary cost to generate more income.

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Comparison between Jaguar Limited and Aston Martin

Management accounting techniques

Aston Martin

Jaguar

Activity based costing

The manager of the organisation are applied activity based costing to sort out the problem of Poor cash flow management to all the activities of a business.

The organisation has been applied this management technique to analysis several operations to face the problem of less fund arrangement and resolve it.

Key performance indicators

The financial KPI is applied by the business to resolve the financial problem of Ineffective decision making regarding to monetary and non monetary activities. The purpose of evaluating the expenditure that may take place anytime for future (Novas, 2017).

Through this technique a manager can identify all the activities then evaluating those expenses that could not be predicated and may impact on the operational activities of an organisation.

Financial governance

It is utilised by the management of the firm to respond the financial issues of educed income due to increase of expenditure in manufacturing. It is applied to take guidance and according to that follow the particular principles or rules.

The manager of jaguar are applying the financial governance of mismanagement of records that create problem so for this require to apply cost accounting system to manage cost effectively. Additionally, follow all the rules and legislation as per the requirement.

Benchmarking

As per the this technique the manager is conducting deal and sort out the issue of Reduce income as compare with other organisation of same industry and help to compete with the competitors and apply proper changes in it.

Administration of an organisation is applying benchmarking in order to trade with the issue of less profitability and according to that direct the managers to search all the problems and prepare all the strategies as per the requirement and comparing with competitors.

Balance score card

The management is applying the balance score card in order to collect information of staff members efficiency and provide rewards to attach with the people which help to reduce problem and provide higher outcomes.

The manager of an organisation apply this technique to provide proper compensation to all the staff members and reduce engagement to deduct operations.

M4 Management accounting can lead to sustainable success

Management accounting is utilised by every type of organisation whichever small, medium or large but it helps to arrange all the activities properly which should be taken with the reason of sort out the all the financial problems. It is applied by the organisation to analysis all the records and record transactions in appropriate manner to enhance the productivity. The aim of apply the management accounting to take effective decision in Aston Martin and transactions are using to make right decisions. Thus, it supports to organisation to over come from all the financial problems and find out all the appropriate solution to get success for longer period of time.

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D3 Planning tools for accounting respond by solving financial problems

Standard costing, flexible budget, variance analysis and capital budgeting techniques such as NPV, IRR, ARR etc. are the planning tools which are using by Aston Martin company in order to know the financial problems and get solution of such problems. For instance, managers are spending money on different items which is not important for organization due to which it is facing problems (Kober, Subraamanniam and Watson, 2012). Manager of such organization has decided to use the planning tools which provide all relevant financial information in order to solve financial errors. By solving such problems organization can make profits effectively and maintain the productivity also.

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CONCLUSION

As per the above report it is discussed that management accounting supports a business in planning, decision making procedure. It helps to collect data after that utilise for the operational activities. Different organisation use different system of this accounting in order to manage activities and according to that take important decision to run business smoothly. Along with produce management report which provides detail information of different procedure in detail manner. To calculate the net profit apply cost techniques and know actual position of the business. To forecast the situation of business in future apply different planning tools like variance analysis, operating budget. At the end recognise all the financial problem that raise during to financial period and resolve by management accounting system.

REFERENCES

  • Chandar, N., Collier, D. and Miranti, P., 2012. Graph standardization and management accounting at AT&T during the 1920s. Accounting History. 17(1). pp.35-62.
  • Fiondella, C., Macchioni, R., Maffei, M. and Spanò, R., 2016, September. Successful changes in management accounting systems: A healthcare case study. In Accounting Forum (Vol. 40, No. 3, pp. 186-204). Taylor & Francis.
  • Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms: Reviving contextuality in contingency theory based management accounting research. Critical Perspectives on Accounting. 45. pp.63-80.
  • Hirsch, B., Seubert, A. and Sohn, M., 2015. Visualisation of data in management accounting reports: How supplementary graphs improve every-day management judgments. Journal of Applied Accounting Research. 16(2). pp.221-239.
  • Hoque, Z., A. Covaleski, M. and N. Gooneratne, T., 2013. Theoretical triangulation and pluralism in research methods in organizational and accounting research. Accounting, Auditing & Accountability Journal. 26(7). pp.1170-1198.
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