Question

LO3 Explain the use of planning tools used in management accounting

P4 Explain the advantages and disadvantages of different types of planning tools used for budgetary control.

M3 Analyse the use of different planning tools and their application for preparing and forecasting budgets.

D3 Evaluate how planning tools for accounting respond appropriately to solving financial problems to lead organisations to sustainable success.

Answer 1

Use of planning tools used in management accounting:

• financial planning
• Financial statement analysis helps the management to assess the rate of growth of business concern through comparison of financial statements
• Cost accounting i.e, comparison of two costs helps management to understand the reasons responsible for difference between costs
• Fund flow analysis and cash flow analysis
• Budgetary control and decision-making

Advantages and disadvantages of budgetary controls

advantages:

• Defines goals,plans of the Enterprise and fixes targets.
• Secures better coordination among various departments.
• In case of any deviation helps the management to find responsibility.
• Reduces cost of production.
• Budgetary control promotes consciousness among employees and bring economy and efficiency.
• Facilities centralised control.

Disadvantages:

• Difficult to prepare.
• Involves heavy expenditure that a small company cannot afford.
• Budgets are prepared for future period which is always uncertain.
• Success of budgetary control depends on support of top level management.

Some different kind of planning tools are return of capital employed, ratio analysis, fund flow and cash flow analysis, analysis through trends, graphs and diagrams.

Proper usage of planning tools with support from top level management helps the entity in maximizing profits through proper and sound financial planning.

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Answer 2

Compare and contrast three planning tools used in management accounting, indicating how effective you judge each to be and why. Your judgements should be supported by evidence