|Assessment Details and Submission Guidelines|
|Unit Title||Managerial Accounting|
|Assessment Title||Individual Assignment|
|Purpose of the assessment (with ULO Mapping)|
Students are required to develop their understanding of the purpose and use of management accounting systems (MAS) and its usefulness in aiding managers make informed decisions. You are to critically evaluate the literature (using journal articles) to analyse the practical use of MAS by contemporary companies, in terms of their relevance to the real-life companies’ decision-making by managers and achievement
of business goals (ULO 1, 3 & 4)
|Weight||30% of the total assessments|
|Word limit||Not more than 3,000 words. Please use “word count” and include in assignment.|
Individual Assignment Specifications
This assignment aims at developing your understanding of the purpose and use of Management Accounting Systems (MAS) and its usefulness in aiding managers make informed decisions. You are to critically evaluate the literature (using journal articles) to analyse the practical use of MAS by contemporary companies, in terms of their relevance to the real-life companies’ decision-making by managers and achievement of business goals.
Assignment Task: You are required to conduct a literature search and critically review a specific MAS in this assignment.
Choose ONE of the MAS studied in this unit from the list below, and answer the questions that follow:
Choose one peer reviewed journal article (from any country) on the: Use of your chosen MAS in a real-life organisation (i.e. a case-based empirical study). The article should be published between 2000 – 2020.
Choose your article only after you have accessed and reviewed several relevant articles, and then choose the best article that will answer the questions below.
The report should include the following components:
This report includes the major uses and applications of the managerial accounting which is an important function of the internal stakeholders. The accounting system assist the company to take rightful decisions in financial background. Budgeting is one such system where the managers prepare the budget for the financial year for all the functions carried out. The implementation of the budgeting system has been found to be very effective for the company to increase its competitiveness and the growth in the market. Therefore, it is implemented in the rubber product manufacturing plant in Ural. This company have managed to implement it successfully. The budgeting system is therefore, puts the company in a competitive position.
The objective of this report is to focus on the budgeting systems, a type of managerial accounting system. The accounting system is important to take decisions for the various functions where finances are involved (Lavarda et al, 2016). To maintain a better competitiveness in the market, the organization is supposed to reduce its production and manufacturing costs so that it can generate effective revenue. Therefore, all the functions should be defined under some budget. This will help the company to assess and evaluate the areas where the financial resources are effectively used and where they can be improved. The report uses the example of the rubber factory to discuss the implementation of the budgeting system. The report is divided in two parts and the first part discusses the application and importance of the budgeting system in the companies. In the second part, the research article is used to showcase its implementation needs in the company and if the implementation is done successfully. With the help of this report, the contemporary organizations can also be suggested the use of the budgeting system as they are suffering competition as the core problem in the business.
1. Features of the budgeting system
Planning: the process of planning needs meticulous studies and decisions for taking diligent decisions. Planning is not possible until the organization has a budgeting system. The budgeting helps the organization to plan for the new projects (Heupel and Schmitz, 2015). These projects will use financial resources of the company therefore, it will have to prepare the budget for all the existing functions and then they plan for new projects.
Organizing: when the organization have an effective budget, it can organize the tasks properly. Organizing of the man force and the resources, a defined budget is highly essential. Therefore, it cannot be ignored for the organizing and allocation of the resources.
Goal orientation: for the constant growth, the organizations tend to take different goals every now and then. These goals are difficult and set and orient if there is no proper budgeting. The budgeting will help in taking decisions for the new objective. Moreover, the tasks that are less important can be postponed and budgeting helps in this identification.
Risk detection: the comparison of the financial budgets can help in the determination and identification of the risks (Kamenska and Vesela, 2016). These risks are then rectified by taking steps of risk mitigation. For example, some organizations set a risk budget that is used for the mitigation of the resources.
Improves industrial mobility and flexibility: industrial mobility and flexibility are ensured only when the company is expanding properly by taking right expansion steps. These are supported by budgeting because it set resources and budgets that will be used in the expansion of the resources. Therefore, it is very useful for the manufacturing companies that are constantly threatened by competition.
2. Benefits of the budgeting system:
Budgeting is very helpful for the management to plan and take decisions according to the need of the customers and the market also. Some of the major benefits of the budgeting system are defined below:
Evaluate performance: the employee’s performance has to be appraised in the form of incentives and this is not possible without a budgeting system. The management can support to increase the performance of the employees by setting period of the bonuses for which they will perform effectively. Therefore, it is an effective use of the budgeting system where the extra proper incentives can be decided.
Bottleneck analysis: constraints in the business are so common but they should be mitigated efficiently. This is possible with the use of the budgeting system where the management can set a budget to either expand the budget to reduce the bottleneck or to shift other process that cause the bottlenecks.
Planning orientation: the management is required to focus not only the short-term goals but also the long-term goals. Therefore, budgeting will give a proper roadmap for the future plans of the organization (Afanasiev and Shash, 2016). Moreover, budgeting is not always about succeeding in the set goals but it shows that the organization is thinking to enhance its competitiveness in the market. Therefore, they can be improvised if the goals are not achieved in a certain budget.
Assumptions review: the financial reports of the company can be compared with the previous years to identify where the company can make decisions to create changes to rectify the risks and issues that are impeding the growth of the company.
Profitability review: the budgeting system helps the company to review the profits of the company that are not possible to define on every day work. Thus budgeting supports in deciding to stick to the process or use it in other processes.
Cash allocation: the budgeting system is very useful for allocating the cash. This provides an insight about where the money can be used which will help the company to strengthen among the competitors and to sustain in future (Ellul and Hodges, 2019).
Funding planning: the new operations required for the development of new projects will require funds. These funds are planned with the use of the budgets where all the processes are properly defined first and then the remaining are then used in the new projects of the company.
3. Budgeting system in decision making
All the decisions in the organization should depend on the specific and highly reliable aspects. Thus decision making is a very rigorous process that is helped by the budgeting system.
The companies that do not use the management accounting system tend to be less competitive that those who uses the budgeting system. Therefore, it is needed that companies use the budget system for their successful outcomes. The PCB manufacturing company of Australia is identified as a company that requires the use of the budgeting system in the company. The company is a manufacturer of the electrical components. The need of the budgeting in the companies is to ensure that they have enough savings to further expand the business while smooth running of the existing operations and projects. The company is very efficient in the manufacture of the devices but in the current time, many competitors have entered into the same market. The company has to decide for new ways to strengthen itself. This is possible when it will move along with the budget it prepares. The budgeting system will be helpful for the company to understand the risks and how they can be mitigated. Moreover, the allocation and use of the resources to reduce waste and save the revenue for expansion is also an advantage of the budgeting system that the company should use. Apart from it, the company should use the budgeting system because it is facing the problem of high employee turnover (Ostaev et al, 2019). The employees tend to leave the place if they do not get proper wages according to their efforts. Therefore, the manager of the company should define a proper budget for the incentives and bonus for the employees so they do not feel exploited in the company. For all these reasons, it will be beneficial for the company to prepare a budget using the budgetary system and to ensure effective expansion of the company.
Research article use is: “Improving the system of budgeting at industrial enterprises”.
1. Implementation of the budgeting system
The implementation process is difficult because it requires the involvement of all the internal stakeholders. The rubber manufacturing industry felt that the implementation of the budgeting system is required to enhance the efficiency of the company. The budgeting system will encourage the managers to effectively plan for the financial resources and how to use them efficiently in the company. The implementation of the budgeting system was done by the company by planning the events that they had to undertake in the coming future. The financial needs of the for the future events were estimated by the managers first. The operating budget created by the company was used by the managers to carry out the operations. This included all the expenditures that would occur in operating the business activities. The implementation of the budgeting was done by effective planning of the and monitoring the performance of the company. The objective of the company is to be more innovative than before, to use the energy properly, to attract more customers, etc. These activities were possible only if the company prepares an operating budget. The preparation of the budget was done by focusing on the parameters such as customers and the suppliers. After this analysis, the company defined the targets of the sales and production. All these data were collected together and the operating budget was prepared. In this way, the company effectively created the budget by effective implementation of the budgetary system.
2. Features of budgeting fulfilled
The industry’s aim was to reduce the expenditure on the processes so that the income can be generated and more customers can be attracted towards the use of the product. For these reasons, the company started the use of the budgeting system. The features discussed shows that the budgeting system is effective in the planning and decision making process. In this, the company can define the expected budget for the future events. Thus the company created the operating budget that will act as a guiding report for the use of the resources and finances in operating the activities. Therefore, the company used the budgeting system and it was a great success for the company. The evidence that the company was successful at preparing and using the budget is the results of the research article. The result of the research shows that the company reduced overall 30% of all the expenses after creating a proper and planned budget. The surplus stock in the company was used up first before stocking it up again. The company identified the areas where unnecessary cost is incurring so that it can use the budget efficiently. The company also determined the use of the free area with the help of the budgeting system. Therefore, it rented out the free storage area so that the company can increase its overall revenue. All these evidences show that the company planned properly and took decisions for these new operations that helped the company to reduce their overall expense by 30%. Planning and decision making were features of the system that were successfully achieved.
3. Use of the budgeting system for the internal users
The company effectively implemented the budgeting system successfully and achieved the goals that the company set before the implementation of the system. The internal users are the managers, employees and the leaders who use this data and the budget to act accordingly. The company is divided into some units and all the managers and the employees of the unit are involved in the planning for the final report of the company. The managers identified the needs of the redundant positions of the employees (Berland, Curtis and Sponem, 2018). Therefore, the budgeting system was very helpful to the use of the managers. The purchasing directors of the company got assistance from the use of the budgeting system where they developed ways to reduce the expenditure, described the overall activities, and thus increased the income. All the employees were effectively using the budgeting system to plan the staff where the redundant employees were reduced to decrease the cost. The budgeting system helped the employees to reduce the complexities existing in the system. They improvised the quality of the rubber as their objective was to increase the customer number. The major problems were detected by the internal stakeholders and they all were solved with the use of the budget. The company devised the budget so that the operations could be optimized. Therefore, it can be deduced that the company’s objective to implement the budgeting system was effectively achieved and it helped the employees, managers and the directors. These people effectively helped them to plan and solve the overall complexities that existed in the company.
4. Use in the contemporary organizations
The contemporary organizations are operating and functioning in very competitive and dynamic market. Every organization tries to be very efficient in their operations to ensure they are effectively working. The contemporary organizations need to choose out of the modern budgeting systems. These budgeting systems help the organizations to identify all the complexities in the organization that should be solved for better performances are identified using the budgeting system. Therefore, the organizations and specially the contemporary ones are required to use the budgeting system. The system is very effective therefore, it should be used by them. The current and future needs of the company are assessed and then they are operated efficiently. The rubber industry used the features of the budgeting system to determine how company can reduce and solve the complexities. Two important examples that can be used by the contemporary organizations are shown below.
The customers are the base to enhance the company’s growth. They should be effectively connected so that the company can properly maintain its reputation and it can sustain for longer in the market. The company successfully connected with the customers by increasing the quality of the products they manufacture. This is possible with the assistance of the budgeting system (Yuzvovich, Korogodina and Azisova, 2018). Contemporary organizations can use the budgeting systems so that they can also enhance the quality of the product. This can be done by managing the resources, reducing the cost and by considering the quality of the product. Therefore, contemporary organizations can also enhance the quality for the products and they can become more competitive in the future and increase their sustainability.
Secondly, the organizations need to be more effective in the creation of the extra funds for the expansion of the business. The expansion of the business is required because the competitiveness is only possible when the organization is making extra financial resources and reducing the cost of the operations. The rubber industry is effectively using the budgeting system. With this system, the company analyzed ways to reduce the cost of surplus stocks. They used the stock first and then restocked the storage. The company rented the extra storage place so that funds can be created. The funds will help the company in the times of the crisis. Therefore, this lesson can be taken by the contemporary organizations. These organizations will use the budgeting system to identify how they can reduce the stock and storage (Setyawan and Gamayuni, 2020). They can be further used to rent the place so that extra finances can be created. Therefore, these lessons can be taken by the contemporary organizations so that they can become more competitive and sustainable.
It can be concluded from the report that the companies are stranded in the competitive market and they can increase their competitiveness. The managerial accounting system used by companies assist in making rightful decisions by planning efficiently. There are so many benefits and features of the budgeting system that will help the companies to identify their current positions and to increase the future operations by successful implementation of the budgeting system. Moreover, the rubber industry was successful in achieving the objectives that were set by the company with the help of the budgeting system. Similarly, other organizations such as contemporary ones can use the budgeting system and can use its advantages to increase their personal growth and sustainability. All these conclusion define that the accounting systems are highly beneficial in the competitive world and they should be used efficiently.