Cost and Financial Management Accounting

Question: Discuss about the Cost and Financial Management Accounting. Answer: Introduction The Flexible Budget Variances reveals the variances in direct materials, direct labor and variable and manufacturing overheads. Apart from this, the price variance and efficiency variances are also worked out (Horngren, 2011) The variances in acrylic pile fabric, acrylic eyes, plastic joints and polyester fiber filling can be understood from the production process. The cutting of fabric according to the different requirements of size and shapes generates fabric waste and increases the production time. The fastness of the color of the fabric is also tested which leads to the returning of the off-color fabric. With reference to acrylic eyes, the optical grade eyes are attached to the plastic rivets in such a way that they do not fall our or give a stand out variance. Though dark brown color eyes are purchased from vendors, the shades of the eyes may differ from vendor to vendor and defective eyes have to be replaced thus leading to variances from the standard budgets? The polyester fillings are then done by the machines is the separate parts are attached together. But if these parts are not fitted properly then it has to be removed and replaced (Don et. al, 2006). Direct Labor variances arise due to the fact that the machines might sometimes require maintenance and there are possibilities of rework to be done during the production thus increasing the actual labor hours and generating variances (Don et. al, 2006). Variable selling expenses includes the advertisement and sales promotion expenses. There are retail and wholesale selling outlets and also catalogue sales . Since the retail selling outlets have proved to be unprofitable, the estimated selling expenses have also increased. Manufacturing selling and administrative expenses variances are caused as a result of a number of factors. As there are accounting problems and also problems in meeting the demand supply gap, the costs associated with the smooth production and distribution outflow is bound to increase and thus lead to variances (Vanderbeck, 2013). New Incentive Compensation Plan Advantages The New Compensation plan is intended to promote teamwork and participation and the performance is measured against the companys master budget and standard cost system that rewards managers fairly for their individual contributions. The percentage of bonus is fixed for different levels of managers which act to boost their confidence and achieve the desired results. Disadvantages The bonus for the purchasing manager is dependent upon the net materials price variance, which could also be zero if the variance is unfavorable and the same is the case with the production manager whose bonus is dependent upon the net of several variances. Role of Budget in Performance Evaluation Budgets help in the planning of the future expenses and reviewing the historical spending pattern also helps the company in making decisions about the requirements of external financing. These budgets also help in tracking the spending variances and the excessive variances also require the owners to review the standard costing and budgeting process to ensure a more accurate forecast of the financial needs (Maher, 2005). Recommendation to the Incentive Plan The Incentive Plan has focused on the Management Incentives. It is essential that the managers focus on long term wealth creation for shareholders and so Employee Stock Option Programs and Schemes offered to managers helps them think from within the shoes of a shareholder (Drury, 2011). Hence incentive plans are not just targeting the monetary wealth of the managers but also improve performance by promoting ethical behavior and serves in the best interests of the organization. Apart from this, there can also be lump sum bonuses designed for the salesperson which are periodic and released upon the completion of a specific sales quota. This is a kind of forced incentive to help the salespersons achieve sales which they might have otherwise not reached. Thus there should be an optimal mix of the various incentive plans after weighing the advantages and disadvantages of each plan. Balanced Scorecard The Balanced Scorecard is an optimal combination of the financial and non-financial factors that guide the company performance. The vision and mission of the company has to be translated and viewed from four different perspectives namely financial, customer, internal processes, growth and innovation. The core competencies and employee commitment, market share and alignment are a few other factors considered while formulating the balanced scorecard. The various factors to be considered under each of these perspectives are discussed hereunder: Financial Perspective The objective should be profit animation and increasing returns to shareholders. These numbers are measured by the results on the financial statements and the quarterly results announced by the company. The initiatives to be taken to achieve the same could be strategies for cost reduction, exploring new markets and increasing the customer base eventually leading to higher profits. Customer Perspective The objective here is to improve the market image of the company. A company is not just known by the results and the profits it delivers but also by the strength of the management in dealing with crisis situations. The ethical standards followed by the company and compliance with regulations increases its reputation and makes it branded as a good company (Quast, 2011). The targets in this area can be to ensure fair business dealings that help the company stay away from litigations and such other issues. The success of the same is measured by the increasing market share of the company and the customer feedback and rankings achieved by the company. Internal Business Perspective As this is a hard core manufacturing oriented business, efforts should be taken to reduce the abnormal waste generated during the productions and set up processes to control and help in smooth functioning (Quast, 2011). As consumer demands are ever changing, the processes should be able to cater to these requirements. The targets and initiatives to be taken in this area are to be updated with the technological advancements and employ it to the fullest to ensure that the company achieves the desired outcomes (Lanen et. al, 2008). Conclusion As there is continuous production and demand there has to be continuous updating of the systems and processes also to be in tune with the changes. Thus a company should focus on attending such meetings, conferences where such changes in the industry are discussed and then take steps for the implementation of the same to provide the best to the consumer always. References Don R. Hansen Maryanne M. M. (2006). Cost Management Accounting Control. Ohio: Thomas South-Western Drury, C. (2011). Cost and management accounting. Andover, Hampshire, UK: South-Western Cengage Learning. Horngren, C. (2011). Cost accounting. Frenchs Forest, N.S.W.: Pearson Australia. Lanen, W. N., Anderson, S Maher, M. W. (2008). Fundamentals of cost accounting. NY: Hang Loose press. Maher, L. (2005). Fundamentals of Cost Accounting, Maher. McGraw-Hill Quast, L. (2011). Creating Incentive Plans That Actually Incent Employees, retrieved September 28, 2016 from https://www.forbes.com/sites/lisaquast/2011/09/19/creating-incentive-plans-that-actually-incent-employees/#2bc7d274486a Vanderbeck, E J. (2013). Principles of Cost Accounting. Oxford university press