Strategic Management Accounting John Wiley & Sons

Question: Discuss about the Strategic Management Accounting John Wiley Sons. Answer: Introduction Organization is complex set of activities in which various functions are performed to achieve certain goals and objectives. There are two parts which has been taken into consideration for completing this essay. In this report a complete study has been prepared to identify the best suitable cash receipt plan in case study. In the starting, complete analysis has been made to depict which plan would be better for Triple F Health club. With the increasing ramification of global changes, it is observed that there are several companies are incorporating offshore companies in order to enhance their business functioning at global level. Global competition put great impact on domestic business. There are several big companies in different sectors such as Tesco, ITC, Virgin media and Tata Consultancy who provide their products and services at very low cost by accepting cost leadership strategy in their business plan. In addition, it is evaluated that these companies are accompanied with high d eveloped technology and due to its high level of productions they could offers their goods and services at very low cost. These types of global business practice put negative impact on the business functioning of global company. Nonetheless, in the recent survey it is also observed that clients are more inclined toward buying imported products and services. Productivity of business is the main effective factor to win the market. It is related with optimum use of given level of resources. These companies mainly focus on two strategies namely cost leadership and product development to win the particular market. There are several companies such as Tesco, ITC, Virgin media and Tata Consultancy who have been following cost plus pricing strategies to win the market. Ideally, cost leadership strategies helps companies to set up price of their products. According to researchers it is observed that if companies want to penetrate the market then they have to use effective pricing strategies. It could be observed with the recent example that Reliance communication penetrates the data connection market by providing its services and data connection packages at very low cost with a view to give tough completion to its rivals. Therefore, it could be inferred that global competitions has resulted into several benefits to clients and various problems to businessmen throughout the time. Body context In this part an adamantine study has been prepared over the various stages of management and how company could make effective changes in its business functioning to increase efficiency of its value chain activities (Cox, et al. 2014). Strategic role of management accountants, contrasting with tradition role In the earlier time management accountant were associated with managing accounting and clerical work of organization (Huang, et al. 2013). As of now with the changes in economical environment management accountant is also known as corporate account. Ideally, the management accountant of big companies are more inclined toward preparing budget, handling taxes matters, managing assets to determine compensation and benefits packages and helps in determining strategic planning. Management accountant are efficient in financial computation and other accounting information. Therefore, they help organization to make effective capital budgeting decision for choosing project investment plan. Ideally, they help in calculating NPV, IRR and profitability index of project so that best suitable investment plan could be prepared by top management department of business. In addition to this, there are companies such as Tesco, ITC, Virgin media and Tata Consultancy who appoint management accountant to prepare their annual report with the assistance of CFO of company. Management accounting information for variance analysis Variance analysis needs to be performed by management department on annual basis. The main purpose of this report is to identify the fluctuation in cost and price of products and services offered in market. Accountant provides information related with administration cost, variance explanation, cost associated with particular time period, adjusting entry in particular account and bifurcate each and every factors in significant manner. Nonetheless, it is fact to say that accountant prepares the primary books and ledger of accounts which is accompanied with all the monetary transaction. Therefore, he is efficient in evaluating all the possible changes in cost, and market factors in determined approach (Morden, 2016). Flexible budgeting for better determination of overall results Management accountant is the person who is proficient in handling all types of work such as posting entries, preparing financial statement and preparing inventory management of company. Being an accountant of company he knows the trend of company in context with external environment. Therefore, accountant helps financial manager to decide the project escalation amount which could be added on after making situation analysis of prepared budget. Woolworth Ltd had to face problem of availability of financial resources due to changes in price of raw material changes in price. At that Time Company did not have project escalation for proposed budgeted plan which results into increment in cost of capital for the time being in force. Information of working capital management Working capital is the amount of difference between current assets and current liabilities. Management accountant has all the internal and external resources of company and helps CFO of company to reduce the operating life cycle of company. It is done with a view to reduce the blockage of amount. Management accountant prepared estimation of cost of productions and required amount of capital that will be engaged in the business operation. In virgin media it is observed that annual report of company is prepared by financial manager of company with the association of its management accountant (Konijeti, et al. 2014). Strategic cost management Strategic cost management is accompanied with process and activities which are engaged with a view to manage the cost of organization in determined approach. It is feasible fit between organizations objective, skills and resources and its external changing factors. In simple words, it could be defined as long term plan to control the cost of productions and simultaneously company improve its position in the given market segment. Strategic cost management could be applied in services and manufacturing organization so that cost effectiveness could be maintained (Pawliczek Rssler, 2016). Life cycle cost management It is the cost management which is used to elect particular projects in organization. In this management process is used to determine the cost-effective option between several activities. This cycle cost management helps organization to determine the best suitable project cost investment plan. It could be understand with the practical example that if a company has two projects then it could identify which project is best for organization by using life cycle cost management plan. In order to give a practical example of life cycle cost management of organization two projects have been taken (Galliers Leidner, 2014). Year PV @10% Project A Pv of Inflow of project-A Cumulative Cash Inflow A Project-B Pv of Inflow of Project-B Cumulative Cash Inflow B 0 0 -40,000 0 -40,000 -40,000 0 -40,000 1 0.909 10,000 9,091 9,091 10,000 9,091 9,091 2 0.826 10,000 8,264 17,355 10,000 8,264 17,355 3 0.751 10,000 7,513 24,869 5,000 3,757 21,112 4 0.683 5,000 3,415 28,284 40,000 27,321 48,432 5 0.621 5,000 3,105 31,388 40,000 24,837 73,269 Total Cash Inflow 31,388 73,269 Net Present Value -8,612 33,269 It is identified that project A would be providing negative result to organization. Therefore project B would be accepted by organization in its business functioning (Wood, et al. 2016). Target costing It is costing technique which is used by organization to set up particular cost for organization for determining product life cycle cost, price point, and setting target cost by subtracting desired profit margin from competitive market price. It could be understood by an example that given below (Lowe De Loo, 2014). Lets just suppose a firm is having total cost of its products $ 30000 then in order to reduce its total cost company could implement internal control system and inspection process to reduce by products of company. Kaizen costing It is the costing system which is used to reduce the present level of cost of products. It is developed or defined by yashihuro as maintenance of cost level and reduce it to the desired level by making efficient efforts. This could also be understood with its practical approach (Soltanizadeh, et al. 2016). Particular Practical details Cost of production Expected- $ 4million and Actual- $ 5 million Issues Frequently production stops, not achievement of set targets and low productivity Analysis Work load is more and supply chain management of company is not efficient Implementation Planning and set up of benchmarking in each cost system process, personal lay out design review, training development program Results Semi target achievement, reduction in process system cost, low labor turnover Business process reengineering It is process to make changes in inbound and outbound activities of organization. It involves the radical redesign of core business process to attain improvement in productivity and efficiency of business functioning. It could be defined with the example that if a company wants to reduce the time involvement in its value chain activities then it could do it by adopting enterprises resources planning in its inbound and outbound activities. It will result into automation in its existing business activities (DRURY, 2013). Activity based management It is a method of identifying or evaluating process activities of organizations that a business performs and finding itself in tough situations. In simple words it could be said that if company is having problem in value chain activities then management department of company could either manage that problem or would go for eliminating that part of problems. Ideally, management department of organization is more inclined toward mitigating the problem in particular area to make improvement in existing process system (Huang, et al.2013). Benchmarking It could be defined as course of action or standard which is require to be achieved by organization. There are several organizations which use benchmarking to make improvisation in their value chain activities. However, benchmarking should be done in the same group mapping companies otherwise it may result into de-motivation in corporate team (Gibassier, et al. 2015). Companies name Benchmarking companies Tata Maruti Suzuki Wes farmer Woolworth Virgin Media Vodafone Quality cost management It is elaborated that quality is the prime concern if company want to sustain its business for longer time period. Quality cost management is the process of management in which value chain activities are completely supervised by management department. It is an integrated system that anticipates needs and wants of clients. It helps in determining the level of quality that is required to be maintained by organization. Cost of quality consists of prevention cost, appraisal cost, external failure cost and internal failure cost. The failure of quality cost management could be understood by the recent example of Apple phone. It was evaluated that Apple introduced its new I Phone- 6 which had several quality problems such as bending, hanging and slow process system. It is found that if management department of company had implemented quality cost management program at the earlier time then this type of problems would have avoided in significant manner (Potter, et al. 2013). Case study Tripe F health club has been providing physical fitness activities to its clients. Now with a view to increase its cash receipt, organization want to make changes in its existing cash receipt plan. There are following answers having been given to determine whether the changes made in existing fee structure is beneficial for the organization or not. Will triple- F health Clubs new membership plan and fee structure improve its ability to plan Cash receipt is a specialist account that is used to evaluate all types of receipt for organization. in this case study cash receipt of Triple F health club will be accompanied with two factors annual cash fees and hourly court fees. It is evaluated that Triple F health is more inclined toward promoting annual plan for their clients. Annual cash receipt will increase the cash inflow of organization and helps organization to sustain with its clients. On the other hand hourly rate is fluctuation in nature and uncertain as well which could either be available for the company in future or not. Now company has changes its annual receipt plan to attract more clients and also given offers to its existing members to renew their old membership. Triple F health will see the following benefits if it makes changes in its existing annual fee structure Annual fees will bring certain amount of inflow in advance which will increase liquidity position of Triple F health. Hourly rate structure will vary as per the season, clients choices, their hours spent in clubs and their inclination toward accepting offers. These fluctuations are not predictable and certain. By having new annual cash receipt Plan Company would be fetch more money from market. Key factors which should be considered by triple F health club in its evaluation There are several factors which should be considered by triple health club Nature of business, seasonal plan, competitors strategies and clients inclination toward physical fitness activities Financial factors are also need to be evaluated such as existing fees structure, capacity of club and contribution per unit of organization with its existing members. After analyzing each and every factors company need to use profitability analysis with its existing cash receipt program and its proposed program then only organization could identify which option is best suitable. Type of financial analysis Triple F health club could indulge in adopting profitability analysis to identify whether the changes made in existing fee structure is acceptable or not. This analysis will provide the revenue, profitability ratio and price volume ratio and breakeven point. Therefore, Triple F health needs to use these analyses to identify the profitability of company after making changes in its existing fee structure. Existing annual fee structure of Triple F health Particular Club-1 Club-2 Club-3 Club-4 Members 2000 2000 2000 2000 Individual 600 600 600 600 Student 400 400 400 400 Family 1000 1000 1000 1000 Annual fees Individual 45 45 45 45 Student 30 30 30 30 Family 100 100 100 100 Total annual fees Individual 27000 27000 27000 27000 Student 12000 12000 12000 12000 Family 100000 100000 100000 100000 Variable cost 83400 83400 83400 83400 Contribution 55600 55600 55600 55600 Fixed cost 50000 50000 50000 50000 Profit 5600 5600 5600 5600 PV ratio 40 40 40 40 Breakeven point 25 25 25 25 PV ratio= Contribution/ total sales *100 Breakeven point= Fixed cost/contribution per unit Proposed annual fees structure will result into increment in cash inflow by given amount New Club receipt fees Members 2000 2000 2000 2000 Individual 1000 600 600 600 Family 1000 1000 1000 1000 Annual fees Individual 300 300 300 300 Family 500 500 500 500 Total annual fees Individual 300000 180000 180000 180000 Family 500000 500000 500000 500000 Variable cost 960000 816000 816000 816000 Contribution 640000 544000 544000 544000 Fixed cost 50000 50000 50000 50000 Profit 590000 494000 494000 494000 PV ratio 40 40 40 40 Breakeven point 25 25 25 25 Conclusion Strategic management accountant is the key person who handle all accounting and financial matters of organization. The main role of management accounting is to perform certain level of task such as ensuring company financial security, handing essentially all financial matters and assist in overall business functioning It is the forward looking way by merging organizational strategic objectives with management accounting information. As per the research of London based retail store Tesco reflects that by strategic management accounting company monitors competitors products pricing and their market share. Afterward, Tesco use information to reduce clients prices and maintain to provide quality of products. Tesco has also enhanced its loyalty card technique to track clients choice of action, their value and belief in context with offered products. Strategic management accounting of Tesco evaluates the organizations up stream cost structure and helps company to determine to redefine its pricing strategies. 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