Management Accounting And Financial Management Accounting Essay

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A.G.Barr is one of the most popular Scottish drinks companies. It was established in 1875 by Robert Barr. The company produces soft drinks, juices and water. IRN-BRU is the biggest brand and is part of the culture of the Scottish Nation (A.G.Barr p.l.c, Website). In 2012 the company agreed to merge with Britvic, to create one of the Europe's largest soft drinks companies (BBC News, 2012). Financial statements result shows that profit on ordinary activities before tax and exceptional items increase by 6.2%, dividends and sales rise by 10% and 6.6% respectively over the prior year (Final Results, 2012). The company has now been in the business of making, moving and selling soft drinks for over 130 year.

There is important information that assists the managers to consider how to gain more profit and to protect from any barriers in the future.

The processes of costing and pricing are very vital and are being considered carefully by the managers of A.G.Barr, because there are masses of similar products in beverage industry. The process of costing keep timesheets by workforce, records on jobs to which materials are product and machine hours spent on each product (Seal, W. B., Garrison, R. H., & Noreen, E. W., 2006).  It is unequivocal that process costing related with Activity Basis Costing. Moreover, planning and making decision is functional for their company. Planning is the part of budgeting that helps the director to plot for future operation. They evaluate the unexpected circumstances in the next year that might change and what steps they should take now to respond to these conditions. Additionally, managers are important to take decision and to get the right choice. These decisions are like to invest new product or machine or to acquire new business. Moreover, A.G.Barr wants to have something different from other competitors and it attracts their customers by selling unique products, like Irn-Bru. The firm's main aim is to sustain their competitive advantages. Investment appraisal is the suitable method that assists making-decision and competitive advantage. Finally, A.G.Barr could monitor the performance through Variances. Monitoring of performance is upgrading performance and could be realistically successive, when management is correctly knowledgeable about their recent performance.

Successful companies, like A.G.Barr, are always looking at a way in which they could develop and change. Company could be achieving this through Activity Based Costing, Budgeting, Variances and Investment appraisal.

Activity Based Costly allocates product, service and identifies what main activities are performed in each function of company. Through the combination of people, technology, labor flow, methods and raw materials, A.G.Barr would be having a brilliant quality products and service. There are 4 stages that managers could be implementing the ABC. Firstly, they identify the activities are performed in each purpose across the business. Then, recognize the cost driver associated with each activity and calculate the cost rate per cost driver unit. Lastly, allocate costs to products by mutuality the cost driver rate by volume of cost driver units consumed by the product. (

Through budgeting, managers forecast future problems and prevent them before they occur. The director of budget department can control the direction of is decide by funding or not to certain parts of the company. For instance, they offer more money to exploration department to find a unique product but limit on the carriage department. The difference between budgeted and actual figures is termed a variance. Variance analysis represents the variation between what was and what should have been. Managers create timesheets of machines hours and employees. They should investigate major variances to identify their causes, thus catch a corrective action. They are focused on areas where variances are exceptionally great and this system is known as Management by Exception. (Weetman, P., 2006) 

Investment decisions are the mainly challenging issues faces by A.G.Barr management. The main purpose of company is maximizing profit through investment and maximizing of sales. In 2006, A.G.Barr decides to acquire Strathmore Spring water (, 2006). There are easy methods to examine the investment such as payback and accounting rate of return (ARR) and more complicated techniques like net present value (NPV) and internal rate of return (IRR). Before company is taking an action, manages are responsible to do research. They examine the Annual Reports, Financial Statements and Customer lists. This research would help them to check if the investments considered would maximize profits in A.G.Barr.

All these procedures that A.G.Barr can follow will be very beneficial for the company.

ABC could help the company to identify areas that need assistance from procedure improvements. Beverages are basic product and consumed every day. There are comparable products in the industry so A.G.Barr has a lot of powerful competitors. In order to build the competitive advantages, A.G.Barr could diminish the price if it is potential through the knowledge accurate costing of products. ABC helps the managers to provide better understanding of the impact on cost and profit of choice on whether or not discontinues products. Furthermore, our company is important to use ABC because it helps them to plan, control and make-decisions easily. (Bright Hub, 2011)

The line managers that prepare the budgeting in A.G.Barr achieve a lot of benefits. There is a control mechanism of the whole business and the directors are able to concentrate allocation of resources in the most efficient way. Managers can identify areas of responsibility and to delicate responsibilities without loss of control. (Peter,2009)  It also encourages them to anticipates problems before they arise giving them time to reflect on alternative ways of overcoming them when they appear. For example, to arrange an overdraft before the cash runs out. Variances analysis help the accountant assist managers of A.G.Barr, to carry out the appropriate investigations and to recognize the reasons for the variances. (Weetman, P., 2006).  For instance, if the A.G.Barr has favorable variances it means they use high quality materials, less waste (recycle) or changed the design of the bottle or cans. If the company has sales volume adverse that means they sold fewer soft drinks than expected. This means the raise in selling price and competitor like Coca Cola have lower price than A.G.Barr. Thus, the directors will take a corrective act and the workforce will become more efficient.

One of the most important decisions that managers take, is the selection of the best investment. In A.G.Barr there is a lot of probability to replace their old machines. Through the investment the directors of A.G.Barr indentify the project which is less risky. Also, they have the opportunity to calculate the length of time taken and to recover the initial investment of the project (Payback). Besides, they can observe the differences between the present value of the cash inflows from a project and the initial amount invested in the projects. (Proctor, R., Burton, N., & Pierce, A, 2006).

On the other hand, all these procedures might give negative aspect in A.G.Barr.

ABC data could be easily misinterpreted and A.G.Barr must use this method carefully when they are making-decisions. Managers need a long period to collect the data to prepare ABC and it is very complex when they identify the overall activities that influence costs (Bright Hub, 2011). A primary limitation of ABC is that it is not possible to spread some complex cost such as the chief executive's salaries as per products usage basis. Managers might provide poor quality of source data if they feel threatened.

A.G.Barr because is a large public company, budgeting could be a very complex process indeed, co-ordination of which is far beyond the limits of one person. Thus, it gives approximate estimations and cannot measure exactly. It is based on assumptions that often turn out to be inaccurate. Moreover, the results might de-motivate the workers and feel that the budgeting figures are very high to achieve. (Peter,2009)  It can lead A.G.Barr to make decisions that might be detrimental for the firm. For instance, an over- ambitious sales budget will lead to terrible impact like giving discount to increase volume. The main aspect with variances analysis approach to project monitoring is the amount of the time it takes to establish actual costs. Also, when managers indentify the problem, sometimes it is too late to obtain corrective action. Nevertheless, it does not mean that the adverse gives only negative and favorable gives only benefits. If A.G.Barr shows favorable material price, it doesn't mean it will have positive effects because might have adverse sales variance.

Investment has limitation especially with inflation. If there is a rise in inflation could cause serious damage to organization's financial management. For example, $100 in a year from now will not buy the same as $100 today. Payback period and ARR do not take into account the time value of money, which is a negative aspect since it, could lead directors to take mistaken decisions, i.e accept an investment. A.G.Barr finds it complex to obtain the estimation of cash flows due to uncertainty. Finally, ARR focuses on profit and this makes it less reliable than cash based methods. Hence, when a capital investment is made, it is difficult to reverse. (Proctor, R., Burton, N., & Pierce, A, 2006). 

Management accounting plays a key role in A.G.Barr, and assists managers to make important and timely management decisions. They are responsibly to anticipate and be equipped to face a range of ethical dilemmas. In conclusion, managers should use the techniques with concern and make a decision based on the potential success of the company. A.G.Barr as a trustworthy firm is better to fail on papers rather than in real life.