Management Accounting In The New Paradigm Of Service

Preparation of basic master budget

Discuss about the Management Accounting In New Paradigm Of Service.

The report is prepared for analyzing and evaluating the new project of manufacturing facility undertaken by Schopenhauer Pty Ltd. Growing uncertainty and volatility in the current market for alternative generation is the primary concern of manager of company for which it is seeking to undertake such an investment in new manufacturing facility. Organization will be enabling to manufacture the product in house for which they are required to assemble it from outside (Alsharari et al. 2015). Moreover, the process of assembling is labour intensive that will be somewhat automated under the intended manufacturing facility. Undertaking new project will have considerable impact on budgeted value of sales, revenue and costs.

With the implementation of new manufacturing facility by Schopenhauer Pty Ltd, there will be change in direct and material cost. The various budgets is prepared by employment of flexible budgeting system and some of the budgets that have been prepared by organization incorporates direct labour budget, cost of goods manufactured statement, production budget, direct material budget, cash collection from debtors account, budgetary income statement and purchase budget. There is a likelihood that direct labour and material cost would reduce by 25% and increase in fixed manufacturing overhead by 50% resulting from increase in production capacity. In event of any cash shortage, company will be relying on external borrowing for which they are entitled to pay borrowed cost along with interest amount.

When looking at the sales budget, it can be seen that the budgeted sales revenue has decreased initially from $ 12523500 in the month of April to $ 112711500 in month of June and thereafter it increased to $ 15028200 in month of July. It is depicted from the production budget that the budgeted production volume has increased considerably from 17920 in month of April to 33120 in month of July. The budgeted direct labour cost has witnessed a considerable increase from $ 1433600 in month of April to $ 2263200 in month of May and further to $ 2469600 in month of June as indicated by direct labour budget.

The purchase budget depicts the figures of budgeted production volume, budgeted sales volume and budgeted direct material purchase. There is increase in budgeted sales volume 34500 in the month of April to 41400 in the month of July. However, the budgeted sales volume declined in the initial months of operation. In addition to this, the volume of budgeted production has increased from 17920 in the month of April to 28290 in the month of May and further to 33120 in the June month. Furthermore, the budgeted direct material purchase has increased significantly from $ 4086760 to $ 8689870.

Manufacturing Overhead Budget

Now, looking at the direct material budget, the cost of direct material budget has increased from $ 4426240 in April month to $ 6987630 in the month of May and further to $ 8180640 in the month of June.

Organization has also prepared manufacturing budget overhead that reveals there is consistent increase in total number of labour hours worked. It is depicted from the figures that the total direct labour cost has also increased significantly to $ 20698467. Other manufacturing cost has increased by fewer amount $ 9242412 in month of May to $ 9642336. The total budgeted manufacturing overhead has increased from $ 51530977 in month of April to $ 57016218 in the month of June.

Total amount of cash that has been collected from debtors has initially increased from $ 96436000 to $ 112711500 and thereafter it has reduced to $ 103193640. In addition to this, the cash payment for selling and administration expenses has initially reduced to $ 22459500 and thereafter it has increased to $ 26080965 respectively. Looking at the cash budget, it can be seen that cash flow from operating activities has increased initially to $ 23137820 and has reduced drastically to $ 5818422. The amount of closing cash balance has increased to $ 35754583 as against $ 23633005 in month of June.

Furthermore, the decision of making investment in the project is analyzed by looking at the figure of net operating income that is deduced from computation of income statement (Schaltegger and Zvezdov 2015). The total amount of net operating income stood at – $ 3089351. Since the operating income is negative, it is not viable to make investment in new manufacturing facility.

Conclusion:

From the above analysis of the new manufacturing facility that seeks to be undertaken by Schopenhauer Pty Ltd, it can be seen the net operating income generated by the project is negative. Therefore, it can be inferred that it is not worthy to undertake investment in new manufacturing facility.

The overall performance of organization and behaviour of employees is significantly affected by preparation of budget. Any organization generally relies on suing two types of approach for preparation of budget that involves participatory budget and imposed budget. Under imposed budget, the preparation of budget is the responsibility of senior management who are entitled to set the parameters for decision making (Smith and Driscoll 2017). There is little involvement of middle or lower level managers in the decision making of budget. However, there is no effective utilization of human resources despite the fact that they form an important source of input in budgetary preparation. One of the disadvantages of imposed budget is that they lead to much budgetary slack and results in occurrence of waste and efficiency if there is no proper scrutinization of the budgets (Lindholm et al. 2014). There should be carefully reviewing of the budgets before the outcomes are accepted.

Purchase Budget

Under participatory budget, there is active involvement of employees from different department with the intention of providing advantage in terms of performance and benefits of employees. The participatory budget has the implications on employees in terms of communication between employees, achievement of gaols and motivation. Since employees at all levels participate in the budget preparation, flow of communication and involvement is enhanced. An organization is able to design budget by determining and setting realistic targets when there is increased employees participation. Any undesirable behaviour on part of employees can be well addressed if the organization adopts the approach of participatory approach (Cinquini and Tenucci 2016). Employees at individual level are able to set their budgetary goals as they are motivated from such participation.

It can be well inferred from the analysis of the two types of budget that the participatory budget helps in addressing the behavioural concerns of employees. This is so because implementation of this particular approach helps in facilitating the communication flow between employees at different levels. A budget is capable of producing favourable outcome when preparation of budget incorporates input from all employees, staff and upper and lower level management. Employees experiencing any issues relating to the behaviour within the organization can seek for the employment of participatory budget that would lead to better decision making (Nørreklit 2014). When the budgets are prepared by seeking the information from subordinates, there will be facilitation of framing realistic objectives that will be achieved accurately. This is so because if the information are sourced from subordinates, they are able to provide with the facts and figures about day to day operations of business. Therefore, it is desirable on part of organization to employ participatory budget in the preparation of budget as it would involve wide range of employees from all the departments and helps in setting realistic budgetary goals.

References list:

Alsharari, N.M., Dixon, R. and Youssef, M.A.E.A., 2015. Management accounting change: critical review and a new contextual framework. Journal of Accounting & Organizational Change, 11(4), pp.476-502.s

Charifzadeh, M. and Taschner, A., 2017. Management accounting and control: tools and concepts in a Central European context. John Wiley & Sons.

Cinquini, L. and Tenucci, A., 2016. Challenges to management accounting in the new paradigm of service (pp. 49-71). CRC Press.

Lindholm, A., Laine, T.J. and Suomala, P., 2017. The potential of management accounting and control in global operations: Profitability-driven service business development. Journal of Service Theory and Practice, 27(2), pp.496-514.

Maheshwari, S., 2014. Management Accounting And Control. Vikas Publishing House Pvt Ltd..

Nørreklit, H., 2014. Quality in qualitative management accounting research. Qualitative Research in Accounting & Management, 11(1), pp.29-39.

Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, pp.45-62.

Schaltegger, S. and Zvezdov, D., 2015. Expanding material flow cost accounting. Framework, review and potentials. Journal of Cleaner Production, 108, pp.1333-1341.

Smith, D. and Driscoll, T., 2017. Key skill sets for management accounting. Strategic Finance, 98(12), pp.62-64.

Soderstrom, K.M., Soderstrom, N.S. and Stewart, C.R., 2017. Sustainability/CSR research in management accounting: A review of the literature. In Advances in Management Accounting (pp. 59-85). Emerald Publishing Limited.

Sungatullina, L. and Sokolov, A., 2015. Management accounting of production overheads by groups of equipment.

Zaleha Abdul Rasid, S., Ruhana Isa, C. and Khairuzzaman Wan Ismail, W., 2014. Management accounting systems, enterprise risk management and organizational performance in financial institutions. Asian Review of Accounting, 22(2), pp.128-144.

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order