Management Accounting on British Telecom

TASK 1

1. Explanation of management accounting and the essential requirements of different types of management accounting systems

Management accounting system is applied in the BT for collecting, processing and communicating various managerial information that helps in management plan and in formulating company strategy.

Essential requirement: As should be clear by now, the various processes of management accounting system is the process of creating and using cost, quality, and time-based information to make effective decisions within the organization. Many people in the organization play a role in this process. The internal audit department has the responsibility of ensuring that controls are followed and operations are efficient. So the application of system of management accounting in organization is very significant as it ensures achievement of targeted performance. Different types of management accounting system are as follows:

Cost accounting:

It is a framework used to calculate the company's products profitability evaluation of inventory and estimation of their cost. The cost of producing a product and availability of products is determined for preparation of financial reports. For example ABC costing system is based on activity costing and Hybrid costing system is based on combination of features. With the help of these accounting methods British telecom company is able to control the cost of company and became the largest telecom company in united kingdom.

Inventory accounting:

Inventory accounting is the type of accounting that deals with evaluating and accounting of company's assets. Stock of company typically involves goods like unprocessed goods, in-progress goods and finished goods that are ready for sale. It involves determining the changes in the value of goods. Depreciation obsolescence and changes in the demand and supply are estimated. BT controls number of big subsidiaries. It provides fixed line, mobile, broadband and digital television Wi-Fi services to it's consumers. Recently company has removed the usage of huawei equipment in order to continue with it's policy (Leitner, 2013).

Price-optimizing systems:

Price optimization is system is a systematic mathematical analysis used by business organisations to define how customers respond to prices for its services and products through different channels. It helps to choose prices that will help management to achieve its objectives. This system aims to provide customer satisfaction while optimising price of product and services. In BT, minimum data tariff is charged by company to increase their customer using this system.

Job Costing System:

A job costing system combines process of collecting information about various cost related with a specific job or task. Output of this system used to report cost data and information to customer under an agreement where costs are incurred. In BT this information is also used to determine correctness of an organisation's forecasting system, that helps to determine prices that ensureo profitability of company. The information can also be used to assign invariable costs to manufactured goods.

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2. Benefits of management accounting systems and their application within an organizational context

All the management accounting systems includes both budgeting and planning activities, which are very beneficial for the BT because it help it manage the business activities in better way. These system maximize the results for BT because they systems a systematic way to analyze financial and non financial items. There are various management accounting system which support the accounting of qualitative aspects of business as well. Such a cost accounting system is used to control cost

3. Different methods used for management accounting reporting:

Performance report: these reports are mainly generated to assess performance of whole business and the employees who are working in the company. In British Telecom such type of reports are generated by the managers to analyse that business is performing well or not. It helps them to make appropriate strategies for the betterment of the organisation. Main role of them is to guide the management to assess that employees are giving their full efforts to accomplish the tasks successfully or not. While planning for incentives these reports guides executives to distribute it in all the works according to their performance and potential.

Job cost report: Costs that are related to each job which is performed by companies are recorded in such type of reports. All the tasks that are performed according to the specification of clients of British Telecom are recorded in this report by the managers of the company. It is very beneficial for management because it helps them to analyse the overall cost of the jobs and activities that are operated by the company. It is very important for the service sector companies to generated such type of reports so that expenses that are made while performing jobs can be analysed for them separately (Modell, 2014).

Inventory management report: It is a summary of items that belongs to business, industry or organisation. It provides comprehensive accounts of the stocks or supply of various items that are served by British telecom to its consumers. It defines full information regarding goods that is held as stock and future requirement of goods. This acts as a tool that provides an analysis for better decision making. It reduces complexity in supply chain management and helps in anticipating correct demand in future that will help to enhance profitability.

Accounts receivable report: It is a report that consist information regarding unpaid consumers and unpaid creditors by range in date. The report is the primary tool used by collection department of British telecom organisation to determines payments due date. Having a accounts receivable report brings collecting of payments on time and reduces chances of bed debts in future. This will help in developing best and cost effective method for collection of funds and reduces cost and makes organisation profitable.

Management Accounting reporting is integrated within organizational processes:

Reporting under management accounting system cover all aspects of organization and integrates all activities and significant process to achieve overall performance of organization. All processes of a business organization are interlinked with each other to optimize its different activity costs.

TASK 2

1. Costing Method:

Absorption costing: According to this method net profit is calculated by considering the fixed manufacturing overhead that are absorbed by cost of product which are manufacture by Conway Ltd.All the fixed industry or business costs that is involve in production process are considered as product cost so net profit for a year is determined easily.

Marginal costing: This is also one of the effective costing technique that help to evaluate net profit that includes marginal cost or variable cost of units for making an additional unit of output. The main reason of using this method is that fixed cost for the period of production are completely written off against the contribution.The basis for ascertaining cost in marginal costing is the nature of cost, which gives an idea of the cost behaviour, that has a great impact on the profitability of the firm (Nielsen, Mitchell and Nørreklit, 2015).

TASK 3

1. Different planning tools used for budgetary control with their advantages and disadvantages

Budget: Budget refers to estimation of cash inflow and outflow or receipts or expenditures over a particular period of time. It is simply used by business organisations to reserve or allocate funds for different functions or processes after a short comparative analysis of expenses, incomes, and profits of previous years.

Budgetary Control: It is a type of management control under which a systematic comparison of actual expenditures and incomes is conducted with predetermined expenditures and incomes to assess the appropriateness of such planned figures of income and expenses.The budgetary control process helps to track and administer budgets determined for activities and processes. This is simply done by analyzing the difference between actual and expected results to decide how effectively budget is followed in organizations. In BT, it is used by top managers to recognise variances in budgets and interlink these variances with performance to formulate the best policies and strategies to reduce these variances.

BT needs to manage and control budgeted figures and standards of various processes and activities to achieve sustainability in growth and to enhance profitability. The company should prepare a systematic plan to control the budget that is required to ensure that functions and activities are carried out efficiently. Following are the major tools used by business organizations to establish budgetary control, as follows:

Contingency tools: This budgetary helps to recognise and allocate sensitive and risky factors that can affect an organisation's performance, growth, results, and functions in the near future. In BT, this tool provides assistance in evaluating and analysing financial position in terms of net and gross profitability conditions and performance of various activities and functions of the company. BT is required to evaluate and analyse such factors and to formulate appropriate and effective strategies in order to solve them as soon as possible (Senftlechner and Hiebl, 2015).

• Advantage: Contingency tools help to identify potential and additional resources in case any complexity or difficulty arises in functions or processes concerned with existing or already identified resources.
• Disadvantage: Use of this tool is time-consuming and costly.

Forecasting tools: This tool is used by business organizations to develop a framework for future events and happenings with the help of present and past changes in scenery and trends. For effective results of forecasting tools, reliable and relevant data should be used by organizations from internal and external sources. BT management or other relevant personnel can use this tool for assessment of future trends that can affect the company in the future in a negative manner.

• Advantage: It helps identify any future uncertainty or opportunity that can affect business decisions.
• Disadvantage: Practically, it is hard to predict future events, so reliable estimates cannot be made.

Scenario planning: This tool establishes a structured and organised path to frame or formulate a framework for strategic planning of a business organisation. It helps to develop a base for assuming potential impacts of the business environment in an organisation. BT should use this tool to identify or recognise potential happenings that can affect the functions or business segments of the company in the near future.

• Advantage: It is a very flexible tool because it can be modified as per the aroused circumstances.
• Disadvantage: Practical implications of this tool are very time-consuming.

2. Different planning tools and their application for preparing and forecasting budgets:

From the above discussion, it is clear that different planning tools help management in BT to manage processes related to planning and preparation of budget. These tools provide a framework for the preparation of a blueprint for the company to manage all activities that are directly or indirectly helping to determine the company's performance and growth. Management can apply these tools to identify opportunities and possible threats. For smoothness of planning process, these budgetary controls play a vital role (Wickramasinghe and Alawattage, 2012).

TASK 4

1. Comparison of organizations adapting management accounting systems to respond to financial problems:

For comparison purposes, two organizations, Ever Joy Enterprise and Parkwood, are selected to evaluate how management accounting system responds to financial problems:

To establish a proper management system, various management accounting tools are used by business organizations (Soin and Collier, 2013). These tools ensures organizations achieve its objectives and sustainable success. Following are the major management accounting tools used by organisations, as follows:

Ratio Analysis: It is most popular accounting tool which includes a systematic evaluation of an organization's financial information and it helps to analyse different factors which determine company's financial and operational performance. Ratio analysis describes company's liquidity, efficiency, solvency and profitability conditions through different metamathematical formulas called as ratios; this ratio interlinks different factors to measure performance. This analysis is generally used by management and accountants to compare results of different processes of company. With the help of ratio analysis, BT assesses their current performance to formulate strategy.

Benchmarking: Benchmarking refers to collection of activities to develop standards or criteria to compare an organization's performance. basis of these standards can be time, quality and cost invested by the company on any product. main goal of the organisation is to assess its actual performance to make significant decisions. Adoption of appropriate practice is required to improve performance of the organization. This tool helps manageable in selection, planning and overall completion of various project. BT by setting benchmark achieves its targets and goals.

Key Performance Indicator (KPI): It is an analytical tool which assists in identification of performance in comparison to business targets. It describes ways to achieve business targets in efficient way. KPI are classified in two parts: low-level KPI and high-level KPI. A low-level KPI emphasizes workers and staff in department such as administration, marketing and sales, where the complete performance of the organization is measured through high-level KPI. In BT, KPIs are used to enhance efficiency of specific function and solve particular task issue.

2. Evaluation of planning tools to respond financial problems

In BT manager adopts various management accounting systems to shorten out different financial problems, such as when the company is facing problem of working capital requirement, managerial personnel in the organization have adopted Contingency tools, Forecasting tools and Scenario planning to identify main reason for the problem of working capital requirements, which ultimately help the managers to increase efficiency in working capital management (Ward, 2012).

Conclusion

From the above conclusion, it has been concluded that management accounting helps to evidence, summarize and investigate all the necessary financial transactions that happen within an organisation during an accounting year. Different types of planning tools, such as scenarios and contingencies,  are used to develop effective budgets. manager uses different accounting tools that are helpful in resolving financial problems that benefit to increase profit and performance. The above-mentioned presentation concluded that management accounting is an effective methods that helps manager of company in order to get useful information about operation so that effective decision-making are made. Various types of systems, such as cost accounting, inventory management, etc. are used to control and reduce cost and mismanagement of resources. Different reports, like performance reports and job cost reports, are used by manager in order to evaluate and measure performance and control cost involved in specific job.

References

Books and Journal:

• Lavia López, O. and Hiebl, M. R., 2014. Management accounting in small and medium-sized enterprises: current knowledge and avenues for further research. Journal of Management Accounting Research. 27(1). pp. 81-119
• Leitner, S., 2013. Information Quality and Management Accounting: A Simulation Analysis of Biases in Costing Systems (Vol. 664). Springer Science & Business Media.
• Modell, S., 2014. The societal relevance of management accounting: an introduction to the special issue. Accounting and Business Research. 44(2). pp. 83-103.
• Nielsen, L. B., Mitchell, F., and Nørreklit, H., 2015, March. Management accounting and decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No. 1, pp. 64-82). Elsevier.
• Senftlechner, D., and Hiebl, M. R., 2015. Management accounting and management control in family businesses: past accomplishments and future opportunities. Journal of Accounting & Organizational Change. 11(4). pp. 573-606.
• Soin, K., and Collier, P., 2013. Risk and risk management in management accounting and control.
• Ward, K., 2012. Strategic management accounting. Routledge.
• Wickramasinghe, D., and Alawattage, C., 2012. Management accounting change: approaches and perspectives. Routledge.

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