Question

LO4: Compare ways in which organisations could use management accounting to respond to financial problems

P5

Compare how organisations are adapting management accounting systems to respond to financial problems.

M4 Analyse how, in responding to financial problems, management accounting can lead organisations to sustainable success.

Answer 1

1) Management accounting is wider than only the preparation and reporting of financial information. The Managerial Accounting could be used by managers to support strategic and operational decisions. The cost accounting system makes an estimation of the cost of goods and services, and the cost of organizational units, such as departments. Managers may require information regarding the product costs for a range of strategic and operational purposes including controlling operations, setting prices and decisions making about the continuation of a certain product.

　

Although these are management accounting uses, but the product cost data can also used for valuation of the inventory on a manufacturer’s balance sheet and cost of goods sold on the income statement, which are used for the financial accounting. Additionally, management accounting also includes analyses of non-financial resources such as sales and manufacturing performance data, and a range of techniques for managing costs and several other company resources.

　

Managerial Accounting plays a vital role in this process using the planning and control systems. Long-term plans are required to be linked to the budgeting system, to produce annual budgets that support the strategies of the company. In the same way, performance measurement systems can be used to compare actual outcomes to budgets and other targets that may focus on the goals of the company. Thus by this way management accountant tailor information for the formulation and implementation of their organisation’s strategies

2) Management accounting has several benefits. These benefits often coincide with the ability for organisation to enhance operations and overall profitability. The management can also create a competitive advantage by developing cost. The benefits along with their application within an organisational context are discussed as below:

1) Reduce Expenses: Management accounting benefits organisation to lower their operational expenses. They use management accounting information to review the cost of economic resources and several other business operations. This information permits organisation owners to better understand how much money it costs to run the business

2) Improve Cash Flow: Budgets are a vital part of management accounting. Organisations often use budgets so they have a financial road map for future business expenditures and thus save the money of the organisation through careful analysis of necessary and unnecessary cash expenditures

3) Business Decisions: Management accounting provides a quantitative analysis for several decision opportunities. The organisation can review each opportunity through the prism of quantitative analysis to assure they have a proper understanding relating to business decisions.

4) Increase Financial Returns: Organisation can use management accounting to improve financial returns. Management accountants can prepare financial forecasts relating to potential sales, consumer demand, or the effects of consumer price changes in the country's marketplace thus can be ensured that the production of goods or services are as per the consumer demand at current prices

5) Increases Efficiency of the organisation: Management accounting contributes in striving for enhanced performance by comparing and evaluating, thus motivating the employees of organisation to strive for better performance

6) Flexibility and freedom: Management accounting system is of flexible nature and are not required to be made yearly, monthly, or weekly. Thus, the organisation gets enough time to prepare a perfect report