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Financial Stability And Performance Assignment
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Introduction
The financial stability, as well as the financial performance of an organization, intends to play one of the most effective roles in enhancing the organizational operoseness of the companies across the time being. The management accounting system is known as the essential part of an organization as it helps in enhancing the economic as well as the financial status of the company to operate in the most productive and efficient ways. The company is selected for the overall conduct of the assessment is Verdant Leisure. The company is known to be operating as one of the most effective growing companies across the boundaries of the United Kingdom. The company is being required to efficiently operate upon the management accounting system. The report has been significantly divided into two different sections. The first of the section will demonstrate the understanding of the departments operating within the Verdant Leisure with the evaluation of the management accounting system. However, the further section of the report includes an effective understanding upon the usefulness of planning of the different tools being used by the organization in context to the management accounting functions and possibilities. Explanation of the advantages, as well as disadvantages to different types of planning tools, will be evaluated well on the basis of budgetary control. Moreover, the current report will focus upon the ways the organization has been using the management accounting process in response to the financial problem.
LO1: Demonstrate an understanding of the management accounting system
Explanation to management accounting and essential to its type
Management Accounting System
Management accounting additionally is being referred to as the managerial accounting that is being characterized in order to let it get produced for giving of monetary information as well as the assets to the directors of Verdant Leisure to act accordingly. The management accounting system is known to be used internally in the organization, and hence, it is one of the important factors that intends to make it different from the system of financial accounting process (Shahzadi, Khan, Toor, and ul Haq, 2018). Moreover, the major aim being developed by the management accounting is to be efficient enough in utilizing the measurable information of the system and to undertake the superior and exact choice on business exercises, controlling, and advancement functions.
In context to the financial accounting function being operated by Verdant Leisure, it is being introduced based on the accounting data in order to get it used for the use of managing financial working ability in the firm. There were several members of the legislative administrative organization after the beginning of the new government changes being made in the year 1900. There are several of the new rivalries being known to be implied in order to help the business to be in cooperation with the unfamiliar people in the market (Chand and Sharma, 2020). Accordingly, in the earliest times, it has resulted that the organization was in need of having a greater focus upon the development in the financial revealing strategies to get stronger capital structure.
Principle goals of the management accounting are listed below:
- Arranging and strategic policies plan
These goals include anticipation of the data accessibility, confining, setting objectives as well as policies deciding upon the elective blueprint. It helps in enhancing the ways in the most significant ways (Hertati et al. 2020).
Management accounting is being introduced on money-related data to the administration. The budgetary data is being specialized well in nature. There is the need of formulating the data of money aspects of Verdant Leisure in the most productive ways.
Advantages of management accounting are listed below:
- Encourages the company to expand and increase profit
- Ensures the planning of the organization to perform in a successful way
- Making a decision without adequate knowledge leads to creating major risks
Activity-Based Costing (ABC)
Activity-based costing is being referred to as the costing method that is being assigned to overhead and indirect costs which are related to the services and products. However, it is known as the accounting method of costing that leads to recognizing the relationship between the overhead activities, costs, and manufacturing of the products (Caglio and Ditillo, 2021). In context to the business functions being operated by Verdant Leisure, the use of the ABC framework provides the company with the details of the cities of the items that are being involved in the reproduction of the goods and services of the company. This leads to the evaluation of the understanding upon the cost the Verdant Leisure have been operating with to dispose only at the time production to be resumed and the cost that are to be consistently needed to be renewed (Burritt et al. 2019).
Advantages of Activity - based costing is being listed below:
- Helps in expansion of cost pools that are used to get assembled for overhead costs
- Creates a new bases for assigning of overhead costing to the costs that are connected to the products that has the higher price functions and capacity
- ABC alters the nature of several of the costs that are not incurred directly
Different methods used for management accounting reporting
Management accounting is referred to as the process of preparing the management reports of an organization as well as of the accounts that lead to assist the managers in the provision of accurate and timely information in reference to the financial status. The strategies being used by Verdant Leisure in order to be effective and efficient in the decision making. Verdant Leisure is one of the most successful growing companies that have been effectively operating across the boundaries of the United Kingdom with the elevation of the methods of management accounting reporting functions (Hoitash and Hoitash, 2018). The list of the methods of management accounting reporting being used by Verdant Leisure in their operations activities of the company is being mentioned below:
- Analysis of Financial Statement
The analysis of the financial statement is being defined as the attempt being made by Verdant Leisure to identify the significance and meaning of the data based upon the financial statement. The process helps in the efficient forecasts to be made of the prospects for the better future earnings of Verdant Leisure. It is the responsibility of the accounting managers of the organization to be efficient enough in analyzing the overall cost and sale being made by the activities and function of the company (Rikhardsson and Yigitbasioglu, 2018). The managers of the accounting must keep track of the sum of sales of the services being made by the company over the specific time period.
The process of providing the information to the company in reference to the cysts of the managers leads to enable the management for controlling the figure costs and hence, they are known as the cost accounting process. The overall costing of the individual products and services of the Verdant Leisure is being computerized according to the labor, raw materials, overhead and if any additional charges get included (Amani and Fadlalla, 2017). The reports are to be developed by one of them in charge of the sales department in order to ensure that all the sales of the company are being reported and are kept securely in reference to the weeks, days, months or years.
Budget is known as one of the other factors that get operated well by the managers and leaders of Verdant Leisure. The budgets are known to be prepared as the internal part that enables the managers to have a better companion to the actual results of the organization with the estimated budget of the company. However, it also helps in efficient measuring of the performance level over a specific period in the most productive ways for better making of sale of the products and services. The monetary of the company is to be used according to the budget being made upon one of the activities of the functions of the company (Latan et al. 2019). All the desired activities and functions of the company to be operated with the listing of the budget necessary.
LO 2: Range of management accounting techniques
There is the involvement of several of the management accounting techniques to be used by Verdant Leisure in order to be productive enough with the functions and functioning of the company in the most appropriate manner. Management accounting or managerial accounting is referred to as the process that uses formation, decision making, business execution, and risk management. This function of the verdant Leisure leads to the inclusion of both analyses of financial and non-financial measures. It is important for Verdant Leisure to note that management accounting is generally to be considered to be having a separate practice from the functions of the financial management such as the controlling team budget. There are lists of some of the effective fundamental techniques to be used by Verdant Leisure in order to be productive enough in managing the management accounting are being listed below:
The term activity-based costing is the process where the accounting approach is to be assigned for the costs to the activities that are based upon the resource usage. However, the activities are supposed to be related to the services, products and projects (Jariya and Haleem, 2021). All of the activities are supposed to be based and are to be operated with the list of cuts on the initial works and abilities
The cash flow analysis is the process that is known to be based upon the movements of the cash within the organization from one period to another that leads to finding it out through the analysis (NGUYEN and NGUYEN, 2021). Besides all of the other factors, the reason behind the cash balance as well as the changes is being operated in between two of the periods that also gets found out. The analysis helps in studying cash from operations as well as the involvement of the movement of the cash in one of the initial period aspects.
The fund flow analysis is one of the analyses that lead to finding out the movements of the funds from one period to another period of the company’s initiative. Moreover, this is one of the analyses that are supposed to be operated in the most useful ways in order to understand whether the funds of the company are being used in the most proper form (Chandrarin and Zuhroh, 2021). The overall fund and cash of the company are supposed to be used not in one of the years when they are to be compared to the previous operating year of Verdant Leisure. The overall working capital leads to operating on the shaving of greater changes as well as all of the funds from the operations and are to be get finds out through the use of fund flow analysis process.
The marginal costing technique is being defined as one of the managerial costings that lead to being fixed for the selling price, greater use of the scarce raw materials, selection of the best sales mix, and resources. There are some of the productive different factors such as the making or bringing of the effective decisions, rejection or acceptance of bulk order and order of the foreign products for the sale of Verdant’s services (Liu and Wen, 2017).
Calculation on cost with the technique of cost analysis to prepare an income statement
Income Statement for the XYZ Small tools company
For the year ended 31 December 2020
Using the Absorption costing method
£
Sales 295,700
Less: Cost of goods sold (105,000)
-------------
Gross Profit 190,700
Less: other Expenses:
Rent & Rates 24,600
Marketing 15,000
Lighting & Heating 4,600
Staff Salaries 86,400
Transport 2,300 (132,900)
--------------
Net Profit 57,800
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Income Statement for XYZ Small Tools Company
For the year ended 31 December 2020 (Using Marginal costing)
£
Sales 295,700
Less: Variable Cost of goods Sold (105,000)
--------------
Product Contribution Margin 190,700
Less: variable Non-manufacturing Expenses:
Variable selling expenses 5,000
Variable supervisor expenses 15,000
Other variable expenses (such as energy exp.) 1,000 (21,000)
-------------
Total contribution expenses 169,700
Less other expenses:
Rent & rates (fixed) 24,600
Staff salaries (fixed) 71,400
Lighting & Heating 3,600
Marketing 10,000
Transport 2,300 (111,900)
------------
Net Profit 57,800
LO 3: Usefulness of planning tools used in management accounting
The management system leads to the inclusion of several of the planning tools that are supposed to be applied by the business organization such as by Verdant Leisure. The organization has been initially using the planning tools in order to operate the overall betterment of the individual events and functions of the business in a productive and efficient manner. These are some of the effective planning tools that lead to having better tools that help the owners in affective forecasting, elimination of threats, and system planning. All of these factors lead to assuring upon the aim that will be efficiently accomplished and creates financial problems that are supposed to get removed at the initial working stage.
There is the involvement of several of the planning tools that are being used in the management accounting process and hence, all of the planning tools are being mentioned below:
Cash in context to the business of Verdant Leisure operates as one of the most crucial issues of the business as it gets related to the working capital requirements. The shortage of cash that leads to affecting the suitability of the entity delivers more affection towards the business functions of the Verdant Leisure (Taipaleenmäki, 2017).
The use of variance analysis within the organizational activities of the Verdant Leisure is being described to be explainable as the set to some of the analytical arrangements that eventually gets available for the business are supposed to be get compared of for the pre-budget standards that operate against the real outcomes in the sale of the company (Ruiz and Collazzo, 2020). The variance analysis is being referred to as the tool that is useful for both the financial and non-financial aspects. The analysis operates with the high popularity to determine the efficiency of the operations of the Verdant leisure as well as the accordance upon the budgeting of the organizational practices.
- Investment appraisal technique
In consideration of the process of evaluating the suitability of the capital project by the individual commercial organization, Verdant Leisure must ensure the adoration of the investment appraisal techniques. For instance, Net Present Value leads to having a greater response to information about the current value of the profit that has the expectation of generating upon the investment options. Similarly, the payback period creates information to be shared about the period that is required for the projects to be generated on an amount of investment back (Balzli and Bregnard, 2018).
Explaining the advantage and disadvantages of different types of planning tools used for budgetary control
The advantages and disadvantages of the cash flow budget are being mentioned below:
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Advantages
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Disadvantages
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With the evaluation of the cash budget, a diversified and advanced strategy might get to be made for the functioning of the future cash shortages.
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The cash flow budget is supposed to be based on the estimation in order to get it suffered from the accuracy problems into the working activities of the Verdant Leisure
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Cash flow budget leads to enable upon the better resource distribution in reference and among the different departments of the Verdant Leisure’s workplace
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In most of often, times adoption of the cash in the workplace of the Verdant Leisure eventually becomes problematic due to lack of several of cooperation among the staff working
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The advantages and disadvantages of the variance analysis are being mentioned below:
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Advantages
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Disadvantages
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The variance analysis tool is highly effective in context to performance evaluation for the elimination of the individual problems being associated with the Verdant leisure
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Financial adat, as well as the detailed market departments of Verdant Leisure, is being required of applying the variance analysis tools to enhance the functions and possibilities of the company over the time
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With the use of variance analysis tools, the business of Verdant Leisure will be effective enough on having better control on the unnecessary expenses the company operates on
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The knowledge of the financial items are being required of using the variance analysis tools in the most effective and productive manner
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- Investment Appraisal Techniques
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Advantage
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Disadvantage
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Profitability and suitability of the capital projects get initiated and evaluated correctly with the use of investment appraisal techniques
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It demands heavy knowledge in order to get used to the data analysis skills
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Investment decision focuses on the time value of money to estimate upon the successful results of the time factor.
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Results of the appraisal techniques are known to be based upon the economic factors
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LO 4: Comparison of ways organization may use management accounting to respond to financial problems
The system of management accounting intends to play one of the most crucial and significant roles in context to the financial aspects and functions of an organization. However, in context to the overall conduct of the research, it has been concluded that Verdant Leisure being one of the most suitable growing companies in the current global situation has got involved in the use of the management accounting system (Gomez-Conde et al. 2019). The management accounting system has been getting used by the company in order to eliminate the risk as well as develop some of the effective measures to run the functions of the business in the most effective and prominent ways. The list of some of the ways being Verdant Leisure have been operating with the use of management accounting to have a greater response to the financial problems of the organization are being mentioned below:
Identifying financial problems
In the process of the identification of the financial problems, Verdant Leisure needs to be productive enough in identifying some of the effective financial problems with the use of the management accounting system. The use of benchmarks, key performance indicators, and budgetary targets are some of the effects that lead to the identification of the problem if any in context to the organizational financial aspects (Rikhardsson and Yigitbasioglu, 2018).
Financial governance
The term financial governance leads to exaggeration upon the ways the company has been managing, collecting, monitoring, and controlling the financial information. The financial governance of Verdant leisure includes how companies track the financial transactions, control the data and manage the performances.
Management accounting skills
The skills of the employees in any of the departments create a greater affection to the organizational functions. The skills-based on management accounting helps in the enchantment of the skills the employees have been operating with in order to run the financial aspects and functions of the Verdant Leisure (Latan et al. 2018).
Effective strategies and systems
In general, individual operating organizations around the time have been found to be operating and managing upon the effective strategies and systems to be used. It is one of the major responsibilities of the staff as well as of the managers of Verdant Leisure to ensure upon the strategies and systems of the management accounting to be enhanced and operated well.
Conclusion
From the above report, Verdant Leisure has focused upon the financial stability and performance of the organization, the use of the management accounting system intends to play one of the most significant roles. The report has been successful enough in explaining the ways and types of accounting systems Verdant Leisure has been using in context to the various departments of the organization for the better elimination of the problems being associated with the company. From the research, it has been concluded that Verdant Leisure has been working harder in context to be developing upon the financial as well as upon the economic factors of the company in order to be responsive enough to operate across the UK boundaries in the most successful ways. However, the further section of the reports has the strongest aspects to make the readers aware of some of the effective facts related to the management accounting system. There are several uses of the statistical data in the report in order to make the readers aware of the facts related to the subject topic of the report. Moreover, the overall report has been explained well with the use of effective and suitable sources and diagrams in order to demonstrate a better understanding in context to the individual heading of the report.
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