: Strategi1 SUNDERLAND BUSINESS SCHOOL Module Titlec Management Accounting Module Code: APC309...

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: Strategi1 SUNDERLAND BUSINESS SCHOOL Module Titlec Management Accounting Module Code: APC309 Individual assignment Hand in Date:- 8 th April 2013 General Information Weighting – 100% of the marks for this module This is an individual assignment of 3,000 words (+/-10%), excluding appendices and bibliography. The word count MUST be shown on the front of the assignment. There are TWO questions to be answered in this assignment. Each question carries a maximum mark of 50%. All of the learning outcomes for the module are being assessed in this assignment. The learning outcomes are shown in the section entitled “Marking Guide”, which is further on in this document. The University’s policy on cheating collusion and plagiarism will be applied to this piece of work. You are required to produce a report which answers the following TWO questions: Question 1 You have been asked to advise two entirely different businesses about the benefits and problems associated with what is termed the “traditional approach to budgeting and budgetary control”. One of the businesses operates in a very stable and static market place, where there is little change in either products or demand year on year, whereas the other business operates in a very dynamic, rapidly changing, innovative environment. If your findings suggest that the traditional approach is inappropriate for one or both of the businesses, please suggest and discuss some alternative approaches. The “traditional approach” typically involves the following processes: a) Development of assumptions and plans about the factors influencing next year’s budget in advance of the budget year starting; b) Approval of the budget before the commencement of the budget year; c) Once the budget year has started, there are monthly comparison reports which compares budget and actual performance on both a monthly and cumulative basis; d) Action being taken (where necessary) to correct large variances or differences. Question 2 XYZ Limited is a medium sized manufacturing business which makes and sells products to a range of industrial customers who use XYZ’s products in their own products. The working capital of XYZ is typical of a manufacturing organisation in that at any point in time they have cash, trade receivables, inventories of raw materials, 2 work in progress and finished goods and trade payables. The Managing Director of XYZ Limited believes that all parts of the working capital cycle could be improved and has asked you to produce a report which discusses how each part of the working capital cycle could be improved and which critically evaluates the implications of the improvements on XYZ and other connected parties (for example trade receivables and trade payables). 3 Guidance: Students are encouraged to be inquisitive and innovative in their approach as to what should be included in this report. The following may be of some use in providing guidance as to what could possibly be included, although this is in no way meant to be prescriptive. The aim of the assignment is to help you understand how key areas of strategic management accounting are applied in practice. This will include investigating topics from throughout the course linked to the above issues. Some of the principles, concepts ad models will be more relevant to your chosen approach than others and so it is likely that different students will formulate different approaches to the problems. This is normal - it is not expected that all of the course content will be used in the analysis - concentrate on that which you feel is most important. As part of your work you might find it helpful to briefly explore the underlying theory behind the key areas of investigation that you identify before applying them to report. With a total of 3,000 words you do not have a lot of room for long introductions so assume you are writing to a sophisticated audience who has a working knowledge of strategic management accounting and is well versed in business theory. Numerical example for illustrative purposes may be of use but should not be the main thrust of the work. If used they should be to provide evidence to support your findings from your other analysis of position and policies. If other sources are used remember to reference everything! Please avoid relying too heavily on descriptive sections reproducing information available from course material or the set text. It is your own logical, evaluation of the situation, the interpretation of course material and presentation, with critical analysis, of a coherent strategic plan that will attract high marks. 4 Marking Guide The learning outcomes for this module assessed by this piece of work are Knowledge 1. Critically evaluate a range of key strategic management accounting models and concepts. 2. Critically understand of specific analytical skills in key areas within management accounting at local and international level 3. Critically understand of the role and limitations of management accounting theory. Skills 4. Applied the key management accounting concepts and methodologies in order to contribute to successful decision making in an organisation. In light of this the assessment criteria in the grid below will be used when assessing your work. 5 ASSESSMENT CRITERIA Criteria Fail (

David · Accepted Answer

SOLUTION 1: 
Introduction 
The first part of the paper discusses about Traditional Budgeting and how now-a-days 
traditional budgeting is not suitable for modern business. The essay will provide a short 
introduction about traditional budgeting, how it can be effectively used, and limitations of 
traditional budgeting, alternatives of traditional budgeting.  
A budget is a business plan for the short term generally for one year (Atrill & McLaney, 
2007, p304). It is generally shown in financial terms and it is formulated to fulfill strategic goals. 
Budgeting is quite important as it helps in operational planning, evaluation of performance, 
communication of goals, formulation of strategies, and control of cost which assists the 
organization to attain its overall goals. But it is not fit for modern business. The terminology 
“modern business” implies a business which is working in a global economy and practices all the 
modern tools to survive in a highly competitive environment. In the present scenario of 
information technology, it is not possible for a business to compete internationally without 
continuous innovation, updated information and controlled activity. In the subject of 
management accounting, budgeting is considered as a vast and significant concept. There are 
different ways of budgeting. The essay will concentrate on traditional budgeting and its operation 
in modern business.  
Traditional Budgeting 
Strategic Planning Process in a company involves budgeting. It lists down the objectives 
of business, targets and decides the activities needed to accomplish these goals. It is prepared on 
the basis of last year data, decisions, uncertain estimates and forecast. It is generally called as the 
planning of one year which list down the targets for the business and at closing of period; such 
targets are compared with actual results. The variances obtained are reported to the budgeting 
team which in turn uses them as a significant piece of data for current year budgeting. 
Traditional budgeting results in boundaries for operations of business and sets targets for its 
employees, which motivates employees to work more and earn reward for achievement.  
How traditional budgets can be effectively used? 
Budget can be called as the exhaustive numerical strategy for the purchase and usage of 
financial and other sources over a fixed future time period. The action requiring preparation of 
budget is called as budgeting. Budgetary Control can be called as the use of budgets for 
controlling the activities of organization. Budgetary control system is considered as one of the 
important instrument for planning and control.  The success of the organization is dependent on 
how effective planning is. Process of budgeting involves comparison between budgeted figures 
and actual figure. Most of the time, comparison between fixed budgeted figures and actual 
budget is made without flexing it.  Therefore, this results in a problem with employee of the 
company. It appears that the concentration is on the dollar amount not on the volume of the 
goods manufactured.  For example, the manufacturing target of the company is 2,000 units with 
fixed cost of $20,000 and variable cost of $60,000.  It implies that the total budgeted cost is 
$80,000.  Now, it will be compared with the actual figures without observing the volume. 
Presuming that the actual cost spent is $90,000 and the volume is 2500 units.  If $90,000 is 
compared with $80,000, it appears that the expense is more by $10,000, which is incorrect. Since 
the actual cost should have been spent for 2,500 units is $20,000 fixed and $75,000 for variable, 
therefore the flexible budget for actual volume should be $95,000. After comparing it with 
$90,000, which shows that $5,000 is the savings and there does not exist overspending of 
$10,000.  It implies that overspending cannot be considered as negative thing.    
The company should focus on comparing the actual figures with the flexible budget not 
the static budget. The work to be completed in future shall also be taken into account.  The 
estimates shall be reviewed regularly and revised if needed, if the estimate is for lower work to 
be done the budget will be lesser in amount, but if the work is in accordance to the capacity of 
the company then the budget will be rational, which will not generate problem for departmental 
head to work more when their budgets have been achieved, if they would have been made on 
impractical estimate.   
The standard cost system can also be used by the companies for the purpose of control, 
they fix standard for every activity and then that standard rate is multiplied with actual activity 
carried on to make comparison with actual dollar cost.  For example, the standard cost to 
manufacture one unit is $20 per unit and the company manufactures 5,000 units, the standard 
cost estimated for actual production is $100,000, then the comparison shall be made with actual 
cost incurred, it the actual cost spent is $90,000, it implies the company has saved $10,000 and if 
it is $105,000, it represents extra spending of $5,000. 
Limitations of Traditional Budgeting 
Traditional Budgeting is always demotivated for the high cost involved and the longer 
duration taken for its preparation. These two disadvantages are always considered by the modern 
business firms which need a long working of financial managers and spend high cost on the 
company. In addition to this, there are various other aspect on which budgeting is demotivated.

: Strategi1 SUNDERLAND BUSINESS SCHOOL Module Titlec Management Accounting Module Code: APC309 Individual assignment Hand in Date:- 8 th April 2013 General Information Weighting – 100% of the marks...

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