8.

Analyze three different planning tools used in management accounting supported by

Examples to demonstrate advantages and disadvantages of them in forecasting and

Controlling budgets.

The planning tools of management accounting are used by organisations to enhance the
productivity of the businesses. These tools help organisations to forecast, plan and eliminate
problems and threats to accomplish the goals and aims and to remove problems related to
finances in early stages of planning. There are various types of business tools used based on
accounting information, cost accounting, mathematics, forecasted information and miscellaneous
works. Management information system, cost accounting and cash flow analysis tools are
analysed below through the reflection of their advantages and disadvantages.

Management information system

For the effective functioning of the organisation communication in the organisation is necessary,
management information system is designed so that the every worker in the company can access
the data and information of the organisation to fulfill their duties efficiently.it usually deals with
the planning and control of the department, plant or organisation.

It helps in forecasting, controlling budget and improving the quality of work, product or
department by providing information for affective decision making. It reduces the size of the
information and data which nullify the analysis of the large data for managers and make it easier
to control information and use it for forecasting future needs. It makes it possible to aware every
department about issues and problems and connect the decision makers. It provides the link
between marginal planning and control with excessive storage, processing of data and reduction
in costs. Hence, management information system process, save, asses and controls data and
information which helps in decision making for budgeting and forecasting.

This system is costly to install and maintain and managers and worker should be equipped with
the specific set of the information to use it efficiently for making decision making and
controlling forecasting. MIS can be sometimes inefficient in budgeting and forecasting as the
presence of useless and unimportant and excess information can delay or confuse the work of
budgeting and forecasting. The managers and planners may have to learn skill to understand
specific information. However, management information system is effective for the use of
information but it require and special set of skills for it use and may cause delays in forecasting
and budgeting due to excess information. https://bizfluent.com/list-6856619-disadvantages-
management-information-system.html

Cost accounting

The cost accounting represents cost data department, process, branch and good wise. The actual
cost data is compared to the forecasted data, to assess the reasons between the two which in turns
helps in improving productivity of the organisation by nullifying the issues and barriers.

Costing method vary from company to company, and companies are not sure how to assess what
the costs interprets and how they should manipulate the cost accounting system according to
their need until they have some standard and similar organisation. This system need plenty of
work and continues adjustments are needed to done for forecasting and budgeting. This tool is
not considered effective for finding liabilities of tax, which infers that this tool is no able to
provide assessment of true cost of the company. The workers need to have high skills to deal
with data and forecasting and budgeting. Therefore, it is effective tool of planning but it does not
eliminate the uncertainty of risks and misuse of accounting for budgeting and forecasting.

The cost accounting can be mold according to the required need of the business in comparison to
other accounting systems. Use of this tool make it easier to look and control costs of labor.
According to the type of the organisation or business wages are get from jobs, departments,
contracts and orders which means that the managers can select how they will do forecasting and
budgeting and will assess the productivity and performance of the organisation. Hence this tool
helps managers to view and analyse data for forecasting and controlling budget through three
different dimension, calculation, reports and accounts.
https://www.investopedia.com/ask/answers/041515/what-are-main-advantages-and-
disadvantages-cost-accounting-method.asp
Cash flow analysis

This analysis is used to evaluate and find the transactions of money from a duration to the other
duration, though the need of this transaction and variation of cash between to duration is also
analysed. It helps in assessing the movement of money and cash from works of the organisations.

Cash flows helps managers to forecast cash gaps before these gaps put barriers in front of the
business and make sure that the managers have enough time to cover this barrier so that they can
look for alternatives. It helps in efficient forecasting short of cash before ahead and locating
delay in payments. This also makes organisations to analyse their client, if they are affecting
their base lines and also contributes in assessing and tracking the expenditures without any
manual effort.it also helps in forecasting which run through expected business outcomes and
asses their effect on business. However, cash flows are effective to forecast future demands and
managers can change it as the requirements and cash flows are a great aid for controlling and
forecasting budget. https://www.creditsafe.com/gb/en/blog/credit-and-risk/advantages-of-cash-
flow-forecast.html

Cash flow unforeseen the external factors that affect the budgeting as an external factor can have
a major effect on the forecasting which is not being considered while forecasting like increase of
competition in market, alteration of cash flow by the regulation or technology. The managers
use selective and limited information and estimates for cash flows which may depict the false
cash flow for future which in turn affect budgeting. The uncertainty and volatility in business
environment is unenviable for example market values, regulations and market competitions can
change in no time which will affect the forecasting and will fail the cash flow. However cash
flows are used effectively for costing but they are not accurate as they include the probabilities of
estimates. https://www.robcarol.com/disadvantages-cash-flow-forecasting/
 9. Using specific cases as examples, compare how different organizations use

management accounting systems effectively in dealing and preventing financial

problems.

10. Evaluate how planning tools support the organization in solving financial problems and

lead organization to a sustainable success.

Instruments of Derivative financial are utilised at Virgin Airline for the management of financial
problems. The difference of time among derivatives mature date and present market value
elevates to margin exposure and solved through the use of instruments and agreements which do
not comprise any margin need or which need cash margin in reference to the market to market
value. The Virgin Airline finance their working capital through retaining profit and revenues
before head. The major financial problems subjected to the organisation related to liquidity are
occurred due to productivity, cash flow timing and capital investments. These issues are resolved
by doing changings in fleet, cost base and network in reaction of the volatile external parameters
and the organisation made sure that required credit lines are provided to achieve capital.

Virgin Airline make use of cost reduction policy to acquire its aim and to compete in the market
of airlines. This policy use five strategies, which are contraction of the facilities, commonality of
fleet, guidelines of the routes and expenditures at airport, management of workers costs,
outcomes and management of marketing charges. The airline gained capacity and reduced it’s
the average age of the airplanes by acquiring Boeing 787-9 which resulted into preservation of
maintain costs.

. The financial risk management policies outline our approach to market risk (including foreign
currency risk, interest rate risk and fuel price risk), counterparty credit risk and liquidity risk.
Group Treasury carries out financial risk management within the parameters of the Board
approved policies and controls are in place to maintain operational compliance with key
reporting requirements in respect of the Group’s financing arrangements. Our operations are
particularly sensitive to economic conditions in the markets in which we operate and, following
the outcome of the UK referendum to leave the EU, there remains uncertainty as to how this will
affect the UK economy. A global or UK economic slowdown may adversely affect the demand
for business and leisure travel, and cargo services, which could result in a material adverse
impact on our financial performance. We produce a regular trading revenue forecast, which is
reviewed by the Executive Management Team and appropriate actions are taken.

The airline has to face the problem of increase in due to the variations in the rates of interests on
cash and debt, its net effect is calculated . The net exposure to movements in interest rates is
calculated and managed with a view to reducing the impact of any potential rate increase. The
mix of fixed and floating rate products are managed to reduce exposure and where necessary the
Company will utilise financial instruments approved under the financial risk management
policies. There is a considerable exposure to adverse movements in the price of jet fuel. The
Company aims to protect the business from significant near term adverse movements in the jet
fuel price, while maintaining an element of price participation when fuel prices are favourable.
This is managed with a combination of fixed price supplier contracts and financial instruments
approved under the financial risk management policies.