Cases on the implementation of management accounting in a company. Automation Tips
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Upload date: 08 September 2016
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Description:
Task 1 on the topic “Direct costing system”. Cost-volume-profit ratio analysis.
Goal: based on analysis, be able to make informed decisions on the advisability of increasing or decreasing costs, production volumes, prices for manufactured products, and reflect the obtained data in financial reporting forms.
The following data per unit is available: price - 500 rubles. (100%); variable costs – 300 rub. (60%); marginal profit – 200 rub. (40%); fixed expenses - 70,000 rubles.
The company produces 400 units. products per month. The production department suggests replacing some components with new ones. This will entail an increase in variable costs by 20 monetary units. per unit of production. However, improving the model can increase the demand for these products, and therefore increase their production volume to 450 units.
Will these innovations be justified?
Task 2 on the topic “Organization of accounting for certain types of costs.”
Goal: to be able to correctly evaluate inventory items when they are disposed of, distribute overhead costs and transportation and procurement costs, draw up and calculate estimates, and determine the optimal quantity of the order size.
Determine the optimal order quantity
Indicators Order size (units)
100 200 300 400 500 600 800 1000
1. Average stock in units (1/2 order)
2. Number of purchase orders
3. Annual inventory holding cost
4. Annual cost of order fulfillment
5. Total relevant costs
Additional data: the annual need for raw materials forming this reserve is 40,000 units; storage cost of 1 unit. stock - 600 rubles; costs for one delivery order (stationery, postal, telegraphic) - 1200 rubles.
Task 3 is presented using the example of a fictitious organization – OJSC “Dream”. The solution to the proposed problem requires knowledge in the field of marginal accounting.
When solving a problem, students must not only use the studied material and techniques, but also be able to analyze the results obtained to make the right management decision.
All amounts in the work are conditional and are given for 4 cases.
The OJSC Mechta company produces products A and B.
The estimate for the coming period is as follows:
Parameter I
case II
case III case IV case
Sales price of product A (rub.)
10
15
15
8
Selling price
products B (rub.)
5
10
5
5
Share (coefficient) of marginal income (%) for A
40
60
40
60
Share (coefficient) of marginal income (%) for B
60
40
60
40
Complex fixed costs in the amount of CU 100,000. distributed by the company among products in proportion to the number of sales.
The same number of sales of products A and B are planned, but a profit from the sale of product A is expected to be 14,000 USD. and loss from the sale of product B in the amount of CU 2,000.
The company decides to make changes to its operations and considers three options.
1. It is expected that the price of product B will be increased by 25%. This takes into account that price elasticity in a given price range is the same. In other words, the elasticity of demand is unit.
2. It is expected to make changes to the technological process, in which fixed costs will be reduced by 12.5%, but variable costs will increase by 10% for each product.
3. The option of combining the first and second sentences is being considered.
Your task is to give recommendations on the choice of the proposed options and explain the decisions made
A financial management consultant, starting a project related to the establishment or optimization of a management accounting system, diagnoses the existing management system and analyzes the existing management cycle. It is worth noting that the full management cycle consists of the following key stages: setting goals, making decisions and planning activities, execution and implementation of plans, control, analysis, formation of management influence and adjustment of plans and goals.
In practice, it is typical for many Russian companies to violate or skip certain stages. The most common errors encountered in the management cycle are the following: there are no measurable goals, the organizational structure does not correspond to reality and is not adjusted to the needs of business management, the accounting system covers only part of the company’s areas of activity, the analysis is carried out on inaccurate and untimely data. In such conditions, the last two stages of the management cycle - the formation of managerial influence and adjustment - are carried out without systemic support, but only on the basis of the experience and intuition of senior managers of companies.
In this article, we will identify the main success factors that make it possible to create an effective management accounting system for enterprises, which will serve as a source of reliable and timely information for making quality management decisions. The particular value of the article lies in the practical case devoted to the technical aspects of automation; in particular, it describes the rules and sequence of integration of management and accounting.
The material will be useful for companies that are planning to optimize their existing management accounting system or are just starting to set up and implement such a system.
FACTORS FOR SUCCESSFUL IMPLEMENTATION OF MANAGEMENT ACCOUNTING
It is well known that management accounting is a system for collecting, processing, accumulating and providing accounting information used by management personnel for planning, control and decision-making on company management.
The main goal of management accounting in any sector of the economy is to provide company executives and managers with the necessary information on-line for decision-making and effective management of the company.
The main tasks of management accounting, solved within the framework of the set goal:
- registration of data on economic activities and provision of operational reports in the sections required for managers at various levels;
- determination and assessment of costs and income for specific products (services, works), responsibility centers and for the company as a whole;
- managing product costs to make decisions on pricing, production volume, and assortment optimization;
- researching cost data, identifying trends in their behavior, analyzing the cost structure, deviations of actual costs from planned ones and providing information in a form convenient for planning and control;
- planning of financial flows, income, costs and results, which is carried out in accordance with accounting formats and regulations in order to ensure comparability of data for control and analysis;
- generation of final reporting to analyze the compliance of the actual values of target indicators with the planned ones in the context of responsibility centers and for the company as a whole.
Successful solution of this kind of problems within the framework of construction (optimization) and implementation depends on many factors. In practice, all factors can be divided into three interrelated groups
- Methodology. The results of implementation depend on how effective the methodology used is. If there is no methodology, the expected result will not be achieved, because... there will be no streamlined algorithm for achieving it, and employees will have to engage in experimental development and research. This means that deadlines and budgets will not be met, and implementation results are unlikely to be achieved.
- Implementation technology. During the implementation process, regardless of the methodology, organizational, technical and other difficulties are encountered. These difficulties in themselves do not relate to the methodology, but without solving them the result cannot be achieved, so they also need to be given attention; this requires developing procedures for monitoring and adjusting deadlines, budgets and meeting the requirements of the implementation project, as well as personnel management in the team. This group of factors also includes the incentive system for the project team as part of the implementation technology.
- Software and hardware solution. Management accounting includes a huge amount of information. In large and medium-sized companies, it is impossible to build management accounting only “on paper” without using automation tools. The use of such tools involves the restructuring of the entire management system, interaction with suppliers, partners and clients, and the implementation of an ERP system.
IMPLEMENTATION STAGES
Implementation projects in the field of financial management (operational management) in Russian companies should begin with budget planning. Thus, following the management cycle, you can consider all areas of company management. This sequence of implementation will give the best results.
During budget planning, the following is developed:
- financial structure;
- budget structure (including basic forms: budget on profits and losses, cash flow, financial position (balance sheet));
- accounting policy;
- The planning process;
- financial and economic indicators.
The area of budget planning differs from the area of management accounting in the process of generating management reporting, while the financial structure, reporting forms, analytical sections, and accounting policies are the same.
For an integrated approach to company management, implementation should begin with the development of a strategy and key performance indicators. Integrating strategic and operational management using such indicators makes it possible to make a company more efficient, because it achieves goals (effective) and at the same time spends resources strictly within budget (economical).
The last stage of implementation may be the optimization of the personnel incentive system. Any socio-economic system consists of people. In the modern world, no one will work “under pressure”, so management will not give full effect without a personnel incentive system developed in accordance with the principles of effective management.
Developing a strategy, key performance indicators and personnel incentive system is a separate topic for discussion.
Many Russian companies use the same implementation algorithms, but the content of the stages is different in each case. This depends on the specifics of the industry, on the type of company, but even within the same industry and the same type of company, problematic issues can be completely different. The degree of elaboration of accounting in the company, the level of competence of employees and management’s awareness of the importance of management accounting are also important.
Let us consider in detail the stages of implementation of management accounting.
Pre-project research. Many Russian companies already use elements of management accounting, but, as a rule, accounting principles are not defined or recorded. As a result, companies have several reporting options using different accounting methods. This leads to the fact that it is impossible or very difficult to compare planned and actual data.
Regional companies sometimes use their own report formats, which violate the basic economic principles of calculating a particular indicator. For example, the income statement shows income and receipts, expenses and payments, and balance sheet figures can also be found here. All this makes it difficult to analyze such reports and make management decisions.
In addition, some reports for management are extremely detailed and take up several pages. As a result, difficulties arise in analyzing the information presented.
To identify all the nuances, the implementation of budget planning, and therefore management accounting, should begin with a pre-project study. This is a very important stage and should not be neglected. It will help you identify the strengths and weaknesses of accounting and understand what needs to be done.
In the technical aspect, the implementation of management accounting is also not an easy process. The following problems can be identified: the use of a large number of accounting databases, types of accounting systems, the lack of a necessary set of analytical data, late entry of primary documents, as a result, maintaining double, triple accounting, making mistakes, etc. At the stage of pre-project research, information flows are presented from the “as is” position, then the desired scheme is developed according to the “as it should” principle. Moreover, one should strive to ensure that primary documents are entered by one specialist only once and in one information system in such a way as to satisfy the needs of all accounting systems existing in the company.
Integration of management accounting and budget planning. You must ensure that the following conditions are met.
The developed list of analytical sections is complete and can not only be planned, but also obtained after the fact. A situation often occurs when the plan contains a maximum list of analytical indicators, but in practice it turns out that obtaining analytics either requires double accounting or is labor-intensive and ultimately not practical. Some indicators will have to be abandoned, some will require additional calculations, but in most cases this can be solved in an organizational and technical way. It is necessary to involve the accounting department in the development. If the operational functionality of the accounting database allows obtaining analytical information, then the collection of such data is included in the accounting regulations. If the functionality does not allow, but the database configuration allows, then improvements are included in the implementation project with the obligatory writing of technical specifications.
The developed management accounting policy meets the goals of maintaining management accounting for the company. It should provide:
Completeness, timeliness and continuity of reflection of all facts of economic activity;
Reflection of these facts based on their economic meaning, not form;
Coincidence of reporting data with actual balances in warehouses, cash registers and current accounts.
The developed management chart of accounts (MCA) reflects:
Management reporting format;
The relationship between management, financial and tax accounting;
Accounting object;
Specifics of production (mass, custom, etc.);
Method of maintaining operational records.
Description of the rules for obtaining factual information for management accounting. In large and medium-sized companies, the source of data for management accounting is operational and accounting. Therefore, it is necessary to create rules to achieve consistency between the accounting and management charts of accounts. This procedure is performed for each account and analytical indicator.
As a result, requirements for the accounting and operational circuit are formulated; they may relate to the formation of an accounting chart of accounts, finalization of standard transactions and primary documents, and filling out directories.
The chart of accounts compliance rule implies that the preparation of management reporting requires additional calculations and period closure, which are performed in accordance with management accounting policies.
The correspondence of accounts and analytical indicators is subject to regulation for the purposes of subsequent automation. Additional calculations and period closure are also recommended to be regulated; for this purpose, certain forms of documents and procedures for a detailed description of the source and receiver of information are used.
Description of the process of obtaining management reporting. At the diagnostic stage, the process of obtaining management reporting was described “as is”. After developing the accounting system, the process of obtaining management reporting should take on the “as it should” look.
The description of the process of obtaining management reporting includes determining the sequence of actions (tasks), indicating those responsible for completing tasks, and deadlines for implementation. The degree of detail of the process for automation purposes can be different; only the reference points of its passage can be indicated in the description.
Automation of management accounting. The automation stage is preceded by the selection of a software product that will meet all the company’s requirements: it will take into account the specifics of its activities, have the required level of performance, etc.
To implement a management accounting system, we use our own development, which has demonstrated its effectiveness in companies of various profiles. This software product is developed on the 1C platform; it can be linked to the customer’s accounting systems or implemented separately. In the latter case, the primary factual data gets into our software product through exchange, and the database with this kind of information is not one of the 1C products. In this case, the receiver is a standard accounting chart of accounts or a specially developed chart of accounts for these purposes.
Automation is carried out strictly on the basis of regulatory documents developed at the stages of production at the user level without programming elements. Thus, there is no need to draw up additional technical specifications to configure our system.
Automation is performed according to the following algorithm:
setting up a management accounting model (creating and filling out classifiers, a management chart of accounts, setting up reporting forms);
setting up the translation of primary factual data;
setting up documents for processing received actual data (for example, eliminating internal turnover), initial data entry;
setting up the process of generating management reporting.
If the accounting circuit needs to be modified for the purposes of the management circuit, all customization work must be completed before the system is launched.
Putting the automated system into operation. End user training must be provided before the system is launched. Training should be carried out by a project team that is the bearer of the accounting model and understands the software product.
Launch into trial operation must be performed on a previously prepared test example. At the same time, the system runs the entire process of generating management reporting, and based on the results of such testing, various inaccuracies are eliminated.
The launch into commercial operation is already taking place on real data. The “run-in” of the system can be completed when the implementation goals are achieved.
PRACTICAL CASE “RULES FOR OBTAINING FACTUAL INFORMATION FOR MANAGEMENT ACCOUNTING”
The rules for obtaining practical information are discussed using the example of a distribution group of companies engaged in the sale of equipment. Automation of the management accounting system was carried out using the software and methodological complex “INTALEV: Corporate Management 7”.
Evidence sources
Sources of factual data for management accounting of a group of companies are:
operational accounting database on the 1C: UPP 8.2 platform regarding information on the movement of goods and non-cash funds, as well as purchased services and wages;
accounting database on the 1C: Enterprise 8 platform regarding information on taxes, loans and borrowings, other income and expenses.
The general diagram of data flows is shown in Figure 1.
Translation of data from the operational circuit into the management circuit is carried out using the software product “INTALEV Corporate Management 7” (KM7).
Cross-cutting elements are the FRC (financial responsibility centers) and the organization.
Compliance of accounting and management charts of accounts, analytical data
Translation of actual data from the accounting chart of accounts to the management chart of accounts for exchange purposes is carried out on the basis of the “Fact” scenario according to the rules, an example of which is given in Table 1.
Data in the accounting chart of accounts for exchange purposes is transferred by exchanging data between the operational accounting database and the KM7 information base on the 1C: UPP 8.2 platform.
When transmitting data from the operational circuit to the management circuit, the correspondence of the analytical data of the accounts is established using a mechanism for highlighting additional properties of objects.
Table 2 shows the correspondence between the analytical data of the management and operational contours.
Table 3 shows the rules for determining end-to-end analytics (measurements) of the management chart of accounts for the financial responsibility center.
REQUIREMENTS FOR THE OPERATING CIRCUIT
The requirements for the operational circuit should help meet management's need for reports sufficient to analyze the situation, both in individual companies of the group and for the group as a whole.
In this case, the following conditions must be met:
the accounting chart of accounts (BPA) must reflect the methodological principles necessary to obtain actual data and analyze their deviations from the planned ones;
The management chart of accounts (MCA) must contain all the analytical data necessary for reporting.
To carry out plan-fact analysis, it is necessary that information about planned and actual indicators be in a single information space. To do this, a translation procedure is carried out, i.e. transferring operational accounting data to management accounting.
To correctly transmit data to the management circuit, it is necessary to have the ability in the operational circuit to identify the analytical data required for UPS.
The information reflected in the transactions and registers of the operational circuit is translated into the management circuit, or more precisely into the management chart of accounts.
In turn, postings to the UPS are sources for reporting and plan-factual analysis both for individual companies of the group and for the group as a whole.
Setting up the translation of primary actual data
The CFO classifier is a cross-cutting element of different types of accounting. To compile it, the “Division” parameter is used, which must be indicated in the document or be an analytical indicator in the accounting entry.
When carrying out operational accounting, for the correct subsequent translation of data, it is necessary to indicate the department in the documents.
To configure the system for data broadcasting, you must complete the following steps before starting the broadcast.
Group the 1C directory “Fixed Assets” in such a way that you can highlight objects related to the warehouse, IT sector and management.
Specify “CFO” as additional properties of elements of 1C directories “Nomenclature groups”, “Counterparties”, “Individuals” with links to elements of the “Categories” classifier.
Provide as additional properties of elements of the 1C directories “Cost Items” and “Other Income and Expenses” links to elements of the classifier “BDR Items”.
Add links to the elements of the classifier “BDDS Items” in the additional properties of the elements of the 1C directory “Cash Flow Items”.
Provide links to the values of the directory “Financial Responsibility Centers” as additional properties of elements of the 1C “Divisions” directories.
Add to the “Sales of goods and services” documents the “Agent” field of the “1C Directory “Individuals”” type, the value of which will be transferred from the commercial proposal for the transaction.
Add the “Final buyer” attribute to the “Sales of goods and services” document and the “Warehouse” attribute to the “Sales” register to separate “virtual” shipments.
The considered example demonstrates the importance of technical aspects in the process of automation of a management accounting system. Compliance with these rules will allow companies to avoid mistakes at the stage of system implementation and take into account technical subtleties that contribute to obtaining reliable and timely information.
LITERATURE
Dobrovolsky E., Karabanov B., Borovkov P., Glukhov E., Breslav E. Budgeting: step by step. - M.: Peter, 2014.
Fedoseev A.V., Karabanov B.M. The battle for efficiency. - M.: Alpina Publisher, 2013.
To provide top management and shareholders with timely and relevant financial information, it is possible to finalize the company’s financial and organizational structure in accordance with industry rules and build a budget management system taking into account the generation of management reporting. The implementation of the project will improve the reliability of management accounting and reporting, as well as achieve flexibility in the budgeting system. A hotel company shares its implementation experience.
When developing a management accounting system, we started from a whole set of goals. The company's shareholders needed timely information for comparison with industry performance. The reporting provided to management had to comply with international accounting and reporting standards for the hotel industry - USALI (Uniform System of Accounts for the Lodging Industry). Also, with the help of the accounting system, we wanted to ensure the delegation of responsibility for achieving strategic KPIs to the managers of the Central Federal District. In addition, we needed a tool that would make it possible to model the financial consequences of management decisions.
At the same time, it was necessary to solve operational problems:
- regulate the budget process (develop unified normative and reference information, reporting forms, rules for its preparation and submission deadlines);
- control the execution of approved budgets;
- provide managers of the Central Federal District with feedback on the execution of operating budgets;
- achieve timely preparation of budget execution reports.
- reliability of management accounting - 95 percent;
- submission of financial plans for approval - 1 day;
- presentation of management reporting - 1 day;
- savings in the estimated operating costs of providing centers due to strengthening financial discipline - 3 percent;
- deviation of actual budget indicators from planned ones - no more than 1/2 percent.
We have created a flexible budgeting system that can be seriously developed in the future. And our immediate plans include the introduction of a mechanism for authorizing contracts and a forecast balance.
Thanks to the fact that I prepared the methodological basis (the regulation “Budget management and management accounting at JSC River Park”) and the requirements for automation myself, I was able to significantly reduce the cost of the project (the contractor was hired only for programming work). This also allowed us to speed up its implementation - we implemented this tool in less than a year.
I considered the achieved results worthy of presenting them to the judgment of my colleagues, and decided to become a nominee for the National Award “Financial Director’2013”. When I applied for the award, I really hoped to win, and my expectations were met!
COMPANY DOSSIER
River Park, Novosibirsk
Year founded: 1974.
Field of activity: hotel business.
Basic facts: in 2007, rebranding was carried out and the hotel began to welcome guests under the River Park Hotel brand. By 2013, a complete renovation of the hotel was completed. The hotel has 316 rooms.
Cases are complex tasks developed based on real business situations. After downloading the cases, you must examine the situation, understand the essence of the problems, propose possible solutions and choose the best one. Our cases are based on real factual material or are close to a real situation.
Each case has the following structure:
- Initial data for solving a problem, taken from real practice or close to the real situation. Source data is presented in Excel in the form of downloads from 1C accounting registers, or disparate information collected from various divisions of the organization - reports from the production service, commercial service, technical service reports or statistical data on the general economic environment. Your task is to learn to compare this disparate information, consolidate it and make a decision based on a systematic analysis of this information.
- Each case includes tasks from various disciplines - you need to know accounting according to Russian standards, accounting according to IFRS, financial analysis, investment analysis, enterprise economics, financial management in order to solve the problem entirely.
- Each case includes calculation tables that you will need to fill out as you solve the problem. These tables will give you a roadmap and show you which direction to take. For example, you will have a blank balance sheet (statement of financial position) that needs to be completed. Or there will be a table with coefficients that need to be calculated.
- Of course, each case includes answers. Detailed answers with justification for making a decision - why it is necessary to do this and not otherwise. The answers include fully completed calculation tables with reporting prepared on the basis of downloads from 1C and financial ratios calculated on the basis of these reporting.
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The case presents the following situation. IFRS reporting was prepared for your company by one of the auditing companies. This service seemed expensive to the management of the enterprise and it was decided to shift this task onto your shoulders. Now, on your own, you will need to understand the historical data and IFRS reports that the audit company left behind, compare them with the data for the reporting period and understand which amendments need to be repeated and which ones should be recalculated. The task includes restatement of the value of fixed assets based on an independent valuation report, recognition of leases, calculation of an allowance for doubtful debts, recovery of intangible assets from expenses and restatement of deferred taxes. |
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You are the CFO of a small company and your shareholders want to expand the business. They think it’s better to sell a minority stake to a partner and expand the business with this money, take out a loan or purchase equipment on lease. However, financial statements for the last year are not yet ready. The production service provided a report in which, to expand the business, you can use several alternative options for purchasing equipment, the terms of purchase of which are different. Several banks offer you a loan on different terms, and in order to sell a share to a partner, you need to understand whether he gives a fair market price for this share or not. |
Each program on our website contains a mini-caseAfter downloading the program, you receive the “Account Analysis” report from 1C, which is close to the real situation. Using the data from this report, you can test the program and hone your financial analysis skills. For example, by downloading the “Cost Analysis and Optimization” program, you get a practical example on which you can track the behavior of costs in situations close to reality - identify costs that are not related to the business, identify fixed costs that have increased or decreased. Using a practical example, you will learn how to conduct analysis and provide management with the necessary information. |
Our cases meet all the criteria voiced by Jamie Anderson, a professor of strategic management in the Netherlands.