The internal business function responsible for the collection and reporting of financial information for the reasons of internal business use is referred to as management accounting information. This often relates to the labor used in the production of goods and services for the consumers and the cost of materials. The effectiveness and efficiency of business operations and the means to earn profits is aided by this financial information.
The different types of management accounting information to be used by a travel and business company would include;
Cost allocation reports
This is the main function of management accounting and it shows the extent of capital expenditure for each specific each type of economic input and resources and the proper allocation of the resources to services or cost to goods. The cost allocation methods range from; process costing, job costing, activity based costing and throughput costing.
Budgets
The preparation of budgets by travel businesses is for the determination of the extent of expenditure for each of the existing business function. The common types include; standard budgets, master budgets, and flexible budgets. The master budget is inclusive of all the financial expenditures of the company, the flexible and standard budgets are specifically used during the production process of the company.
Flexible budgets are those that allow for particular variance range in the process of production. The more flexible budgets allow for unexpected increases in the buildup of extra inventory for the sales in the future or the increases in consumer demand so as to exclude them as the unfavorable variance in the production budget of the company.
Whereas, standard budgets assist in the creation of a particular dollar amount allowed by the company for each of the production function. The occurrence of favorable variance is when the company`s expenditure on its production processes is low and when there is an unintended huge expense in the production process arise the unfavorable variance.
Forecasting
The development of economic forecasts is for the purposes of determination of the potential sale of goods and services to the respective customers under particular market conditions. They include; present value calculations, decision tree, and other statistical forecasting.
In business decision making tools that assists the management is a forward looking model provided for by the merging of the management accounting information with strategic business objectives. The strategies evaluate the rising prices, costs, market share and their impact on resources. Therefore, Buffalo Event Management Co. will be required to determine the appropriate response to attain profitability levels.
Management Accounting Triangular Structure
The three primary attributes of strategic management accounting includes the behavioral, technical, and cultural aspects. Behavioral metrics stimulates stimulate actions to achieve the company`s organization`s strategic goals, technical aspect provides an enhanced understanding and provides information on the event stated.
Strategic Triangulation of Management Accounting
Quality, cost and time (QCT) is what the primary strategic elements of Buffalo event management Company is based. The company Buffalo has to use the factors of the day and evaluate the relative importance to the customer numbers and the market demands. The company`s demand on the products for the day will be dependent on time and cost yet maintaining quality in food.
The convergent thinking of the company managers have their ideas explored and based on the strategic pricing on the meal. This 10% reduction on meal prices does no good to the company as they fail to increase customer numbers hence creative thinking to restore the company`s position is of the essence.
The day`s accounting information for the company included cost elements; labor costs for the direct preparation of food, expenses food related, costs of food ingredients, overheads in food preparation, serving cost of food, and the administration costs.
These costs incurred during the two day event as illustrated and their variances show depict the uncertainties in the market hence proper adjustments in the implementation of the resultant laid out strategies have to be considered by Buffalo management Company.
The direct cost of food reduces from £20 to £18 which is a result of the reduction in the number of guests in attendance that also require minimal effort. In addition, direct food expenses, direct food ingredients, and food preparation overheads increased to £18, £38, and £12 respectively.
It is therefore proper for the management to adequately plan for the uncertain occurrences for the events such as overstating budgets over the market prices this while considering the relevant market price variance parameters.
As the management accounting is important since it provides information to managers it is as well important in the decisions made afterwards by the respective management. Therefore, management accounting information as a decision making tool will assist Buffalo Event Management Company in making;
Relevant cost analysis
This assists the company in determining the food to be sold and how it will be sold. The decisions made that particularly arise from cost analysis aid to determine whether Buffalo Company should discontinue certain operations or other product lines so as to cater for the deficit in guest numbers.
Activity-based costing practices
Buffalo Company should determine the type of customers it need to serve and this is after considering the food to offer. The decision on the type of customers would enable the event management company to focus on the most profitable customers.
Make or Buy Analysis
The decision of the company to pride itself in making high quality standards of food with their philosophy being using what nature provides by cooking food from natural products and not for the artificial and processed ingredients limits the company to plan with certainty prior to events. This is due to the dynamic product prices in the market.
Employing the data
The managerial accounting information is an important aspect to the company since the budgets, balanced scorecards, and financial statements projections will provide the company a platform with which future projections can be made under justifiable facts compiled as data.
Comprehensive Management Accounting Decision Model
The aspect of decision making is a complex network of interrelated decision variables. The key approach to tackling with the rising complexity is the development of models, both descriptive and mathematical for the resolve of stimulating the relevant variables. This therefore stands out as the one approach suitable in simplifying complex relationships by dealing with important variables based on limiting assumptions.
It is important for Buffalo management event Company to extensively analyze and evaluate the information provided that will help ensure tentative steps in covering the costs for the uncertainties yet to occur such as the minimal turn-up of guests.
The accounting information and the data will be used to create cash forecast for the following four months that is as follows;
All income forecast is to be increased by 5% month on month. Therefore income; daily 4 course meal charge for the 2 days will be = £149.95 (exclusive of V.A.T). Therefore for a month = (15 × 149.95) = 2,249.25 × tax (20%), therefore = (2,249.95 × 80%) = £1,799.96.
Daily accommodation = £105, hence a month (105 × 30) = £3,150 × tax (20%), therefore = (3,150 × 80%) = £2,520.
The company Buffalo Event management has an increasing income from £4,319.96 to £5,000.9 which shows a 15.76% increase. The revenues to be earned over the period of the first four months with respect to the respective assumptions show a slow but growing improvement in the company`s profitability.
References
ADAMS, S. J. (2003). Using management accounting information: a decision case approach. Mason, Ohio, Thomson/South-Western.
ATKINSON, A. A. (2012). Management accounting: information for decision-making and strategy execution. Upper Saddle River, N.J., Pearson.
BHASKAR, K. N., & HOUSDEN, R. J. W. (1985). Accounting information systems and data processing: a management accounting perspective. London, Heinemann published in association with the Institute of Cost and Management Accountants.
HEINEMANN, P. (2008). Power bases and informational influence strategies a behavioral study on the use of management accounting information. Wiesbaden, Deutscher Universitäts-Verlag. http://dx.doi.org/10.1007/978-3-8349-9635-0.
