i. The GlaxoSmithkline has improved the performance of its management accounting system by simplifying and improving the flow of financial and operational information across the organization . This has led to greater participation and involvement with the operational side of the business. In turn, that led to an increased ability within production departments to make more effective and timely decisions.
ii. Management Account has been changed over decades most companies were concentrating on cost determination. They were focusing on the valuation of stock and the overheads allocation.
GlaxoSmithKline’s finance team in Cape Town had moved into simplifying and improving the flow of the information. Which was important because with the valuable information would help the managers to make correct decisions and the production departments to make effective and timely decisions.
All the mentioned above has the following impact on management accounting :1-Reducing cost and waste
2- Increasing the robustness of the manufacturing process while maintaining the highest quality in its production line
3- The company’s management accountants now have more exposure within production departments.
This due to having the right people with the right knowledge and attitude in place is crucial when it comes to achieving growth and sustainability.
19113529654500i. Break Even Chart :ii. Profit Volume Chart :
1- Profit volume chart (PVC) & Brek-Even Point (BEP) :A profit-volume chart is a graphic that shows the earnings or the losses of a company in relation to its volume of sales. The Companies usually use it to establish their sales goals, to analyze any new products whether it will be profitable, or estimate the break-even point. Break-even chart does not directly show the amount of profit. The effect of cost and revenue on profit at different levels of activity can be represented in PVC which will highlights the loss area at each levels of activity below the BEP and the profit area at each levels of activity above the BEP. The profit curve cuts the vertical axis below the zero profit even when there are no sales the fixed cost must be paid and, consequently, the area below BEP represents loss . Profit volume chart represent the following information:
2- Break-Even Point
3- Profit at a given level of activity
One of the purposes of the profit volume chart is to Identify the minimum volume of activity that the company should attain to avoid incurring loss. It’s also determine the minimum volume of activity that the company should achieve to achieve its profit goals. Moreover its helps to appraises the effect of cost factors on profit.
Break-even analysis is a method used by production and accounting management defines the point at which total costs of production are equal to total revenues. The break-even chart is a graphical illustration of the costs at different levels of activity that shown on the same chart as the difference of sales with the same variation in activity. It has been defined as, “a chart which shows the profitability or otherwise of an undertaking at various levels of activity and as a result indicates the point at which neither profit nor loss is made.”
Break-even point represents the following information:
1- Sales value and Profit/Loss
2- Break-Even Point
3- Margin of Safety
One of the purposes of BEC is to provides the management a clear-cut information which helps them to take accurate decisions .it’s as well gives the management the correlation between Profit and Cost. Which present the result of changes in cost and selling price due to the change in variable cost and fixed cost .It’s also helps the production department to choice the most profitable product to earn more profits.
Based on the above we can summaries that the purpose of BEC are the following :Decision in regard of buying or making.
Decision related to production planning.
To control the cost
To understanding of the performance of profits and its relation to output.
(C) Limitations of Break-even analysis:
There are various costs that do not fall into a fixed or variable cost categories as they possess the features of both types.
Unrealistic assumptions, BE works on the basis of the assumption that all output is turned into sales revenue.
One product and One price , most businesses are selling more than one products with different prices in different markets and to different customers.
Break even analysis ignores all other factors further than costs and revenues.
break-even analysis ignore the reaction of the competitors that they may change their products or prices.
BEA ignores the time element as we all know that over a long periods all costs may changes.
The BE does not consider that technology, the methods of production may change . Its also ignores the possibility of any increase or decrease inventory level .Question 3 :Standard Costing:
Standard costing is one of the method to record accounting transactions at the expected costs and analyze any differences between the standard costs we recorded and actual costs. Standard costing is a tool that will help management account in controlling the costs.
Standard Costing represents the following information:
The standard cost
The actual cost;
The difference between them (variance).
Balanced Scorecards :It is a performance management tool which combines financial and non-financial measures to give a more holistic snapshot of the company performance. It helps the organization to choose the right aspect to measure so that they reach to their goals.
After the business strategies of the organization is developed, the company should tracked through the Four Legs of the Balanced Scorecard which are , Customer Leg, Financial Leg, Internal Business Process Leg , Knowledge, Education, and Growth Leg .
Real-time Inventory Management:
Real-time inventory management is a method which allows customers and employees to see the availability of any products at the exact time when the information is needed so they can make a decision.
It is a modern management accounting methods which has made a great changes in process management. It is the process of only focusing the attention of the management on the processes. Unless the company has changed the process, why would they expect the results to be changed.Question 4 :Question 5:
Elements of an effective control system :
An effective controls will led to generate accurate data ; information. Accurate information are important for any effective managerial decisions. Any inaccurate information will divert the management efforts and energies on problems that do not exist or which have a low priority and would fail to alert managers to serious problems that do require attention.
There are many problems that need immediate consideration. If it’s didn’t reach to the management in a timely manner, then it may may become useless and the loss may occur. Therefore all controls must ensure that data reaches to the decision makers whenever they need them so the expressive response can follow.
The business environment and the economic environment is extremely dynamic . Technological changes very fast. A inflexible control system would not be suitable for a changing environment. These changes highlight the need to have a flexibility in planning as well as in control.
When the controls are consistent with the values and culture of the company, they can work in harmony with policies and therefore will be easier to enforce. The controls become an combined part of the organizations environment and they will become more effective.
Any cost of any control system must be balanced against the benefits that company will get from it. The system must be achievable and reasonable to operate. Hence the benefits received must be greater than the cost of implementation of the control.
Problems may encountered as a result of introducing Cost control system to an organization