Management Accounting module – Assignment

(Warna Exporters (Pvt)Ltd.)

BSc (Hons) Human Resource Management &

Organizational Behavior (18M)

By

Dilini Piyumika Welikala

Human Resource Management Institute

Central Campus 205, De Seram Place, Colombo 10, Sri

Lanka

Submission Date – 20th of April 2022

Words - 2500

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Contents.
1) Executive Summery.
2) Company Overview.
3) Part A:

I. Compare and contrast three planning tools used in management

accounting, indicating how effective you judge each to be and why.
Your judgments should be supported by evidence.

4) Part B:

II. Using specific case studies as examples compare ways in which

management accounting is applied, the effectiveness of
management accounting in dealing with financial problems and
preventing financial problems in organizations.

5) Conclusion & Recommendations.

6) References.

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Executive Summery.
Using financial and management data, an organization can make decisions about
maintaining its future activities based on its performance. This study shows how to employ
organizational planning tools to assure financial stability and performance, as well as
business examples of how management accounting has helped avoid fraud. Here's show
how to identify and successfully solve financial problems. This report consists of two main
parts. By "A" part Company examples illustrate how effective it is to reorganize and judge
each of the three design tools used in management accounting, and why such judgments
are made. Part B compares the effectiveness of management accounting in dealing with
financial problems and preventing financial problems in businesses, using example in an
organization's specific case. Finally, In associate with the lessons I learned in the
Management accounting module, based on the selected Warna Exporters (Pvt) Ltd. outlines
the importance of the management accounting and its usable tools , its pros and cons are
mentioned.

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Company Overview.
Warna Exporters (Pvt) Ltd is the company that formed the basis of my assignment. If you look
at the history of that company it, established in 1995 warna exporters are a leading Sri Lanka
Manufacturer of household and industrial wooden brush ware with worldwide export
capabilities, employing the latest technology to produce high quality products with strict quality
control procedures, Warna Exporters are perfectly equipped to supply your brush ware needs.
Starting out as a small 10 Man team of employees, Warna has grown to a 300+ strong work
force in 20 years. Warna Exporters have the capabilities to fully manage the production
process from tree cutting and preparation through to filling and shipping orders to customers
around the globe. Timber blocks are produced from plantation grown FSC™ certified rubber
wood and can be filled with a variety of natural fibers or synthetic materials if required. Warna
Exporters have the experience necessary to supply both branded and own brand products
made to customer’s specifications as well as having the ability to design and provide
merchandising cartons and packaging to meet the varied demands of today’s worldwide
Markets. Over the past twenty years Warna Exporters developed to become an established
player in today’s global marketplace. Its dedicated workforce, led by a strong management
team, has driven the company to the high standing and respect that it enjoys from customers
around the world.

Departments.

• Brush Department.
• Wood Department.
• Mix Fibber Department.
• General Maintenance Department.
• Sawmill Department.

Vision of the Organization.

To be the leading supplier of brush - ware keeping quality standards.

Mission of the Organization.

Manufacture & Export brush – ware according to the requirements of our customers with timely
delivery keeping quality standards.

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Part A:

Compare and contrast three planning tools used in management

accounting, indicating how effective you judge each to be and
why. Your judgments should be supported by evidence.
The activity of preparing reports on the corporate operations in order to aid making short and
long-term decisions by company manager is known as management accounting. It helps
Warna company to achieve its goals by detecting, monitoring, analyzing, and communicating
information to Warna Company managers. Management accounting encompasses the all
accounting focused at alerting management about operational business KPIs.

Data collected from the company's financial data is used in management accounting. Budgets
are commonly utilized to measures of the decisions made by Warna Company. Management
accountants are using performance reports to track variations from budgeted figures. It costed
using a variety of planning techniques (Kihn and Ihantola, 2011).

Budgeting.
Budgeting is referring as the act of projecting the company's future revenue, or even the
money earned from selling goods and services, as well as what is the future expenditures, or
the money spent on paying bills during a specific time period. It allows a business to decide
whether business will be able to continue operations in future these projected revenues and
expenses (Shim, Siegel and Shim, 2011).

Advantages and Disadvantages of budgeting

Advantages of Budgeting.

A budgeting serves as a strategic action plan in Warna Company. It raises concerns about
the costs which Warna Company can bear. Due to that it enables the Warna Company to
make easier judgments.

Warna Company budget helps to assess the goals of future company performance and
policies that serve as guides when making future expenditure patterns.

A smart budgeting enables a Warna Company to maximize the utilization of all available
resources in existing market and existing capital in order to boost production and profit.

Warna Company can gain a better understanding of their financial status and make accurate
estimates of their functions and processes in order to generate higher profits.
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A budget's method is very systematic and rigorous, which enables a successful analysis and
execution of the Warna company's aims and actions.

A budget ensures that none of the resources or money are wasted by providing a roadmap
on how to put them to good use.

Disadvantages of Budgeting.

A budget is created based on assumptions and findings. Changes in the Warna business
strategy or execution will have an impact on the total budget plan prediction. As a result, the
results of a budget plan are always unclear and sometimes it is incorrect.

A budget is created based on a Warna Company's policies or an employer's ambitions.

It leads to judgments in Warna Company. However, there is no method to adjust the budget
whenever there is a need to assess the financial situation in light of market changes.

The budget preparation does not take into consideration the firm owners' demands and
wishes. It is more profit-oriented, which is more measurable whether customer's needs are
more qualitative.

Budgeting takes a long time to complete since it is a huge process.

If Warna company failure to follow a budget plan, it can lead to a lot of internal
conflicts which are eventually represented as the organization's inefficiency (Lakmal, 2014).

Pricing.
A pricing strategy is a method that used to determine the most suitable price for Warna
Company products. It supports Warna Company in shaping pricing which helps to optimize
shareholders’ value by taking consumer and market demand into account (Wu et al., 2020).

Pricing strategies.
➢ Price skimming

Price skimming entails charging the maximum price for brushes which will introduce at first to
the market. Then gradually decreasing it. The reasoning behind the skimming price approach
is that Warna want to skim off the highest market segment to which will appeal while brushes
rea still new, to maximizing profit margins earlier (Zhan and Chiang, 2020).

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 ➢ Psychologically pricing

Psychosocial pricing is the technique which puts prices down than the full amount that the
products should prices. The psychological pricing emphasized that customers will see a little
bit price reduction as a cheaper price than what it really is (Parsa and Njite, 2009). Warna
Company prices a brush at 49.99 but communicated by the consumer as 49 rather than 50,
indicating that 49.99 is a lesser price than 50.00.

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 ➢ Penetration pricing

When introducing a low price for a new brush, Warna Company uses penetration pricing.
Consumers from which used competitors’ products may switch to the less expensive offering.
Further new customers may attract to the Warna Company. Following an expansion phase of
Warna, the Warna Company's prices are frequently raised to generate profits and reflect the
growing value of the product (Sije and Oloko, 2013).

Advantages and Disadvantages

Advantages

❖ The best price is determined by focusing on target customers what they are willing to
pay for a product since it led to increase sales.
❖ Managers in Warna Company can better understand about the gross margin and costs
with the help of cost-based pricing.
❖ Managers in Warna Company can better understand about the gross margin and costs
with the help of cost-based pricing.
❖ Warna Company can use demand pricing to optimize the prices of brushes.
❖ Penetration pricing in the sense can be uses to lower the prices and can expand
market share and discourage competition.
❖ A competitive pricing strategy allows the Warna business to keep a competitive
advantage over their competitors.

Disadvantages

❖ The product is priced by managers according to the cost they incurred to produce the
product rather than what the client is prepared to pay. As a result, it may result in a
loss of sales.
❖ Products may be priced in more value due to the result of cost-based pricing strategy.
❖ Demand pricing which is used by Warna Company can result in a profit loss if they are
fails to capture for overall expenditures and price that consumers are willing pay for a
brush.
❖ Customers may stop buying if the prices start to rise, while low prices may not lead to
a profit.

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CVP Analysis.
In plain terms, Cost Volume Profit (C-V-P) analysis is the fundamental tool since it allows
Warna Company to evaluate the impacts of what changes it can be cause to the expenses
and profits of the company. Profit planning necessitates the use of C-VP analysis. In a C-V-
P analysis, Warna Company accountants acknowledge that numerous interacting variables
influence on the earnings, such as a brushes sales price, variable costs per brush, and sales
volume. The C-V-P analysis assesses the linkages between these interacting factors, as well
as the impact that changes in these variables have on the revenues of Warna Company. C-
V-P analysis can be known as an analytical technique that uses to analyses the cost and
revenue of Warna Company’s behavioral pattern, as well as how they are link with the profit
(Sintha, 2020).

This analysis divides costs into fixed costs and variable costs. It calculates the activity levels
at which costs, and revenues are in balance. C-V-P analysis is a mature model that is utilized
in management decisions including calculating brush selling prices, determining brush
manufacturing costs, selecting the best product mix. They are planning to maximizing the
utilization of production facilities (Choo and Tan, 2011). The first stage in such an investigation
is usually determining the company's break-even threshold. Break Even Point analysis is
frequently an important part of the overall C-V-P analysis system, which gives executives and
accountants with a lot of data for profit planning.

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Part B:

Using specific case studies as examples compare ways in which

management accounting is applied, the effectiveness of
management accounting in dealing with financial problems and
preventing financial problems in organizations.
Manufacturing businesses are combined with manpower and machinery. They are used to
turn raw material resources into finished goods. Some manufacturers, such as Boeing, offer
their products straight to consumers. Dell, for example, sells its products directly to consumers
and retailers. General Motor Company and Monster Beverages are both sell their products to
retailers and then sell them to consumers. In order to take this process in a proper manner,
companies are using three different inventory accounts which is accordance with the
management accounting.

Raw materials inventory can be categorized as,

Work In Progress
Finished Goods
Raw materials inventory

The components that firms utilize to make their products are known as raw materials. Many
businesses buy pre-made components and incorporate them into their final products. Dell, for
example, buys Intel chips to use in their PCs. Until these processors are installed in a
computer, they are considered raw materials.

Management accounting is focused on current performance in the company rather than

financial management. As a result it helps to examine the long term and short term objectives
of the company easily. Managers can use these information to detect budgeting issues.
Management accounting are provide financial report for internal stakeholders. As a result they
can take day to day decision without any delays. Further management accounting provides
information regarding the financial position of the company and document the relevant repots
that are utilized to solve difficult problems. Finally, customers are benefited with the better
services.

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Conclusion & Recommendations.
Management accounting is an integrated accounting system which is used by many
companies to make the information accurate and used for best decision making. In order to
achieve the company higher profits with higher customer satisfaction management accounting
is much essential. This report representing that, how management accounting is used by
Warna Company which is a famous brush company and how they achieve their goals. There
are many management accounting tools used in accounting practices. This report focus on
three main planning tools which are mostly essential for Warner Company. Based on those
result, Warna Company can use any of the three tools since they all have benefits and
disadvantages. Mangers in the company need to decide what should be used in what
circumstance. As a result, following recommendations can be provided.

➢ Collaboration with employee improve the management accounting practices of the

company. Mangers must be able to demonstrate their ability to work as a effective
team player in every instance.
➢ Mangers must aware about the accounting as well as general business skills.
➢ Use effective communication strategies. As a result, mangers can communicate and
summarize the financial information easily.
➢ Improving cost management. It lead to better control of compliance with budgets.
➢ Make sure funds are used by the company in an effective way
➢ Update all compliance regulations
➢ Use technology and information systems to enable effective financial operations
➢ Get knowledge about what expenses you can easily reduce.

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References.
Choo, F. and Tan, K.B., 2011. An income statement teaching approach for cost-volume-profit
(CVP) analysis by using a company’s CVP model. Journal of Accounting and Finance, 11(4),
pp.23-36.

Kihn, L. and Ihantola, E., 2011. Reporting Methods in Management Accounting Field
Research. SSRN Electronic Journal, 24(4).

Lakmal, D., 2014. Cost Analysis for Decision Making and Control: Marginal Costing versus
Absorption Costing. SSRN Electronic Journal, 4(1).

Parsa, H.G. and Njite, D., 2009. Psychology of pricing: A review and suggestions. Handbook
of hospitality marketing management, pp.375-402.

Shim, J.K., Siegel, J.G. and Shim, A.I., 2011. Budgeting basics and beyond (Vol. 574). John
Wiley & Sons.

Sije, A. and Oloko, M., 2013. Penetration pricing strategy and performance of small and
medium enterprises in Kenya. European Journal of Business and Social Sciences, 2(9),
pp.114-123.

Sintha, L., 2020. Importance of Break-Even Analysis for the Micro, Small and Medium
Enterprises. International Journal of Research-Granthaalayah, 8(6).

Warna Exporters, 2020. [Online] Available at: https://warnaexporters.com [Accessed 30 April

2022].

Wu, C.H., Yan, Z., Tsai, S.B., Wang, W., Cao, B. and Li, X., 2020. An empirical study on sales
performance effect and pricing strategy for E-commerce: from the perspective of mobile
information. Mobile Information Systems, 2020.

Zhang, J. and Chiang, W.Y.K., 2020. Durable goods pricing with reference price
effects. Omega, 91, p.102018.

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