Strategic Management Accounting Essay Example | Topics and Well Written Essays - 3000 words

Strategic Management Accounting - Essay Example A Ltd operates in a very stable environment wherein there is hardly any variation in the different activities of the business like sales, inventory, closing stock, demand and profit. B Ltd on the other hand operates in a very dynamic environment. There are huge variations in the different activities of business continuously for which deciding a single course of action would be very difficult. Whether in stability or dynamism, zeroing on the suitable approach of forecasting and budgeting is imperative. Initiating the suitable course of budgeting helps the management to direct its employees in the desired manner. There are many types of budgeting like the traditional, performance, zero based etc. As A Ltd operates in a non-dynamic environment, traditional approach sounds to be an apt option for it. Traditional approach of budgeting: It is a procedure of forecasting contingencies and planning to overcome those situations effectively. It starts with the: Assumptions to be considered: Dev eloping up of assumptions and plans to mitigate those circumstances- The assumptions could be mostly economic in nature. Some of the economic considerations could be in terms of inflation rate, growth rate, exchange rate, interest rate etc. For example, if there is high inflation, the demand of our product could be low (Unless our product is a necessity). This implies an inverse proportion also as in the case of high interest rate. Similarly, the demand of our product is directly proportional to growth and exchange rate of that particular region. Once these assumptions are laid out, course of action plans which should be taken to control these situations have to be well drawn out in the form of budgets. (Chandra.P, 2006) Approval of the plan: It is like succeeding in the endeavor of convincing the management to take up a particular course of action. As such, a standard path has to be outlined to prepare a successful budget report as follows: Plan Administration: Senior officials of operations along with finance executives should get involved while execution of budgets. The plan should involve all related resources like HR, Technical etc. Planning Profit: Optimum production volume and desired profit have to be ascertained by considering the unit sale price, volume, mix, and cost of production per unit, research and competitive forces of markets. Operational strategies which could be alternatively followed in place of the current plan also have to be examined and the best one has to be selected. These plans usually deal with the realities of plan execution like objective, description of plan, assignment of responsibility, costs expected, need for research and deadlines for each stage and the expected results of those efforts. Planning for contingencies: In case of any contingencies, crisis response also has to be planned to mitigate the loss. Continuous observation of warning signals has to be undertaken. Once all these rigorous efforts have been taken up, by al l the functional departments namely sales, production, marketing, HR, Research, sales etc. all these budgets would be combined to form a master budget which would be approved for implementation purposes. (Shim.J.K& Siegel.J.G, 2009) Comparison of Budgets: After the budget period commences, the actual results of all the planned budgets have to be called for on a regular basis.