Strengths And Weaknesses Of Managerial Accounting

If the operation have not reordered all the goods they need, this can lead to irritated customers and lower revenue for the operation.

Lowering the inventory would likely result in decreasing the currently unacceptable levels of customer service by removing that estimation buffer. Thus, without the reengineering of the production processes, the attempts to change the inventory levels may fail.

This causes more trade debt, which means a higher the tax penalty. Furthermore, age of payables has increased from 98 to 154 days, nearly tripling over the last four years. This is damaging to the image and trustworthiness of the company, even causing issues from the bank trusting them with grant of loan. Having a large amount of inventory can conclude additional problem involving cost of capital, maintenance cost, aging inventory and the cost of space or storage. This therefore proves the poor management skills that are required to operate a booming and profitable business.

The customers, wholesalers and retailers may order in large quantities with the expectation that they will receive a greater allocation of products that are in short supply. The impact on the supply chain is significant as the forecasted demand is greatly, and unrealistically, increased with these inflated orders. Eventually orders disappear and cancellations pour in, making it impossible for the manufacturer to determine the real demand for its products

The raw materials sit idle until they are ready to ship out which leads to large cost of holding

Keeping accurate records of raw materials versus works’-in-progress helps a company realistically plan a sales strategy. For example, within the field of product development, there has been a “growing interest in hedging operational risk using financial instruments” to determine “risk aversion and multiperiod inventory” (Sun, Levi, Sim & Chen, 2007, p. 828). The outcome of inventory analysis can determine if a business model is high-profit or risk averse (Sun, Levi, Sim & Chen,

Invoices are accounted for as spent as soon as the work has been performed. Another inadequacy with

With this company the inventory management ratios further indicate that there may be an issue with inventory and inventory controls. The inventory turnover ratio is lower than the industry average and the days’ sales in inventory are high. A company wants to turn inventory quickly to reduce storage costs, and

Managerial Accounting reports are primarily used by supervisors, line managers, process owners, as well as executives, to gain a better understanding of the current financial and operational health of the organization. (Internal)

(5) Whether the goods were manufactured, processed or adapted to the special order of the custom

3) Even if EOQ system is in place there is necessity to physically count the inventory periodically in order to ascertain the accuracy of the system.

an entire storewide inventory is not needed as often. If the cycle counts are above a certain

For instance, the concept of cost estimation which assists in estimating future expenditure as the expenditure depends on the cost of the respective activities can be applied in the setting of a budget which is simply an estimate and schedule of all costs required to be assigned to an activity. One can make an estimation of the resources required for an activity by applying the cost estimation techniques. Since there are limiting factors to each activity such as scarcity of resources for activities, the concept of constraints can be applied together with the concept of cost volume profit analysis to ensure that maximum benefits are driven from the scarce resources and the number of activities that are available. This facilitates the allocation of resources that most equitable and profitable. The theory of constraints is also applicable in the process of setting up budgets. In setting up budget one considers the amount of resources that are available and cannot therefore set a budget plan that exceeds the amount of resources that are available. This implies that the budget is constrained by the amount of

SF does not want the product overproduced, provide timely reporting of product sales in order to avoid this problem. For this reason, the company's inventory becomes a serious problem.

to ensure that an organization will have the necessary financial resources to function throughout the year, budgets must be created. In the budgeting process money is allocated to various departments of the organization for a specified time period. In most cases budgets are created on an annual basis, typically just before a new fiscal year begins. To create a budget management must look at past business performance, prior-year sales, revenues, expenses, and other overhead operating costs. These costs are typically carried forward in order to predict the future of the business. Ultimately all of the information and planning results in a budget. In most cases different departments within an organization will have different budgets based upon their needs but they will all be incorporated into an overall corporate budget.