MANAGEMENT ACCOUNTING Essay Example | Topics and Well Written Essays - 1750 words

MANAGEMENT ACCOUNTING - Essay ExampleIf the situation is wholeowed to continue, the company would continue to build its warm hooey stocks and incur inventory cost on them. The suppliers would start demanding payments for the raw material and in the long-term, this would lead to higher working capital requirement.Finished stocks firearm the sales are close to budgeted figures, the undefiled stocks consent increased by 46% compared to budget. The increase in finished stocks means that the production of finished goods was more(prenominal) than sales. In planning for production, the previous stocks that the company already had may not have take been into account. Another possible reason for increase in finished stocks could be return of goods from customers that bought the goods in previous budget period. If the finished stocks are allowed to continue to increase, the company would incur unnecessary inventory cost. After a certain(a) stage, this would become unsustainable as finis hed goods would stay in inventory with inventory turnover decreasing and leading to higher working capital requirement.Debtors The outstanding receivables have increased by 50% compared to budget with sales same as budgeted.... Bank The bank fixings turning negative means that the company has apply up all the money in its account and now has a loan from the bank to the amount of ? 39,000. If this is allowed to continue, the bank would keep charging interest leading to pooh-pooh profitability for the company. For any new payments to be made, the company would need to draw more credit from the bank or would need to pass on all money received from customers to the suppliers. The companys cost of capital would increase making investments in some projects less lucrative. Creditors The liability to creditors has decreased by 77% compared to budget. The decrease in the creditors component means that the suppliers have been paid off a higher percentage than budgeted. Because the raw mate rial stocks have increase and the creditors component has decreased, it means that all previous credit from suppliers has been repaid and a larger proportion of purchases during this budget period have been paid off as well. If this is allowed to continue, the company would be effectively paying its suppliers before getting money from the customers leading to high working capital requirement for the company, in turn leading to necessity of face lift more money for the company. B) Procedures that could be put in place to control the various elements Raw material stocks In order to reduce the raw material stocks in the short-term, the company needs to be stricter on the re-order level of the raw materials. If not already defined, the re-order levels for all raw materials needs to be defined with the procurement department and strict adherence must be ensured in placing to new orders. No new orders for raw materials should be made until the stock quantity reaches the re-order level.