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The following report is regarding the management accounting techniques and procedures that can be applied to the processes of Nokia in order to optimize the utilization of resources and to make the processes used by the company more and more efficient.
NOKIA AND ITS OPERATIONS
Nokia is a multinational corporation, headquartered in Keilaniemi, Espoo in Finland. The corporation is engaged in the business of manufacturing of mobile devices and it is currently moving towards internet and communications industries. Nokia has achieved tremendous success all over the globe in the recent past due to the innovation and durability of the mobile devices it produces. Nokia is a highly successful corporation due to its innovation. It has been the pioneer corporation in the production of the modern day mobile phones. Consumes from all over the globe prefer the mobile devices of Nokia due to their durability and Nokia's record of producing successful mobile phone models. The global revenue of the company in accordance with the financial data for the year 2009 was EUR 41 billion, and its operating profit was EUR 1.2 billion. This revenue and operating profit suggest that Nokia has the potential to become the leading corporation in the business of manufacturing of mobile phones all around the globe. The revenue of the company is significantly higher than those of other companies in the same industry (Nokia Annual Report 2009).
Nokia's operations are constituted of the production of communication devices. Nokia produces mobile devices for the complete range of market segments. Nokia produces mobile devices which are spread over a wide range of affordability and utility. Nokia produces communication devices that fit the needs of all the market segments. Apart from the production of mobile devices, Nokia also offer internet services such as; messaging, music, games and application through its platform which is named Ovi.
The main competitors of Nokia are:
LM Ericsson Telephone Company.
Samsung Electronics Company
Other companies in the Communication Equipment Industry.
WHAT NOKIA DO:
The main business of Nokia is the production of communication devices and the industry has become highly competitive in the recent past. There are a number of other corporations that threaten the survival of Nokia in the industry as the leader of the market. Therefore, in order to maintain the stability of Nokia in the market, Nokia has utilized its competitive advantage positively. The competitive advantage of Nokia is the mobility of its workforce. The operations of the company do not get hampered due to the remote availability of the company's workforce. In this manner, the workers of the company remain connected to their workplace even if they are away. Apart from the mobility of its human capital, Nokia has also utilized its pioneer status in being innovative and in satisfying its customers through a wide range of communication devices.
Management accounting is the division of accounting that is used by the strategic core of an entity to make decisions that can help the strategic core manage the entity in a more economical, effective and efficient manner. Management accounting is used to derive relevant information which ultimately becomes the basis for the decisions made by the strategic core of an organization (Hoque, 2005). Management accounting is solely used by the management of the company therefore it is used for internal reporting of an entity rather than for the public disclosure (Weetman, 2002). Contrary to financial accounting, management accounting considers the future prospects of the business rather than the representation of the performance of the entity in the past. Management accounting does not present a historical view, but it provides possibilities for the future of the business (Lucey, 2003). The information required to carry out procedures of management accounting are provided by the management information systems.
The procedures used in management accounting are entity specific therefore any procedure that helps the management make better decisions is adopted rather than the application of standardized procedures as those of financial accounting (Atril, 1994).
According to Chartered Institute of Management Accountants (CIMA), management accounting is the process of accumulation, analysis, communication and evaluation of the information used by management to ensure the appropriateness of controls within the entity and the optimum utilization of its resources (CIMA, 2009). Management accounting is a tool used by the management to ensure realistic monitoring of the performance of the entity and to seek improved ways to enhance its performance.
According to American Institute of Certified Public Accountants (AICPA), management accounting helps the management in three core areas in an entity which are:
Strategic management is a function of the strategic core of the organization which designs long term decisions and reviews the effectiveness of implementation of those decisions. Performance management is the practical implementation of the long term decisions designed by the strategic core of the organization. It is also important for an entity because the success of a business depends upon the effectiveness of the implementation of the designed strategy. Risk management is a function that evaluates the controls within an organization against possible risks in different functions of the organization. Management accounting helps the management evaluate the risks and identify effective controls against those risks. Thus management accounting helps an organization in a number of ways (Coombs, 2005).
Management accounting is highly important for the success of an entity. Management accounting is used by the management of an entity to create a balance between the costs of carrying out the business and the effectiveness of the performance of the entity.
MANAGEMENT ACCOUNTING TECHNIQUES FOR NOKIA
The management accounting techniques that I would recommend to Nokia in order to enhance the efficiency of its operations are;
Capital budgeting and Decision-making.
Nokia can easily track the deviations of its actual performance from its anticipated performance by conducting the variance analysis. Variance analysis is important for Nokia because of its highly competitive business. Due to globalization, competition all around the globe has been increasing and it has caused vigorous fluctuations in the demands for communication devices all around the world. Therefore, in order to monitor the market situation on a regular basis and in order to make decisions in accordance with the most up to date information, Nokia should conduct variance analysis on a regular basis (Debarshi, 2011).
Inventory management in terms of management accounting is the evaluation of the turnover of the inventory and to calculate an order quantity that ensures the optimum utilization of resources of the entity. Inventory management is the most important aspect of business for a manufacturer, therefore in case of Nokia, inventory management possesses utmost importance. Management accounting techniques regarding inventory management are used to calculate the turnover of inventory, requirement of inventory on annual basis, average inventory and buffer stock. Calculation of annual requirement is used to design budgets for the future financial periods and for making decisions regarding the placement of orders. An entity engaged in the business of manufacturing can make the most of management accounting techniques by calculating Economic Order Quantity (EOQ). This calculation helps an entity lower the cost of placement of frequent orders. Nokia can also use inventory management to ensure the end-user satisfaction along with cost savings.
Decision-making and capital budgeting
Decision making and capital budgeting can help Nokia enhance the process of long and short term decision making. This management accounting technique is used to evaluate the requirement of an entity in order to optimize its performance, thus it helps an entity make better decisions and improve its processes. Decision making techniques lead to capital budgeting. Budgeting includes decisions regarding allocation of resources to the processes where they can be utilized at their optimum potential.
STRENGTHS AND WEAKNESSES OF THE ANALYSIS
The strengths of this analysis were the acclimatisation of the management accounting concepts with the processes of Nokia. A manufacturing entity can make the most of management accounting techniques because an entity with manufacturing business in such a competitive environment needs to make significant decisions on a regular basis, and management accounting helps the management make effective decisions by presenting true and fair view of the internal performance of the entity.
The main limitations of this analysis can be the disability of an entity to maintain complete information regarding its performance. Management accounting techniques are effective only when the management possesses complete information regarding the actual costs incurred for the performance of its processes and other information regarding the utilization of resources.