Importance Of Management Accounting

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Management accounting is extremely beneficial for any business leader. It is futuristic. The tools and techniques of management accounting give a lot of insights through which proper decisions can be made by maximizing the profits and minimizing the costs of the company. With the help of management accounting, managers will be able to do three major tasks – Planning, Controlling and Decision Making (Reference 20). These three are the most important tasks for any organization in order to run successfully. Looking at the current situation of Fonterra, there is a lot of scope for it to improve and do even better. Moreover, applying management accounting concepts will actually give a clear road map of what steps should be taken.
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Budgeting is a key managerial accounting aspect that helps managers to properly allocate their cash and stay within the spending limits. The budget is generally made for the whole year and later the actual spending is compared to the budget made. As the dairy prices are not stable at this point in the market, Fonterra should focus on making their Budget accordingly keeping the volatile dairy prices in mind. This will keep them well prepared for any difficult situation in the future. Preparing the budget will also give Fonterra an idea of where it needs to focus more. For example, in the current situation as there is surplus of milk, it should slow down its production a little and find ways to store the existing milk so that proper balance is maintained. This means it needs to concentrate and spend more on the budget for storing the milk. As a result, planning for the budget also helps identifying the areas which needs more attention. Thus resources are properly allocated which also helps in avoiding …show more content…
Many companies have highs and lows in their cash flow. It depends on the kind of the business they are into. Fonterra should study previous year’s cash flows and recognize what time of the year do they usually have high sales and high cash flow. This information can be beneficial to know when is the perfect time to borrow money or invest in something new. This will also help them maintain enough cash flow to cope up with a sudden change in the market like the current scenario when the dairy prices are at an extreme low level. In my opinion Fonterra should now think of the future. They should concentrate on increasing their market share by focusing on exporting to more countries. For example, china has been one of the biggest markets for dairy exports for New Zealand. It should use this as an advantage and not let any other country enter the china market. They can achieve this by providing the most competitive price with the best quality. For this, Fonterra should also focus on setting its production units at countries in Africa and Asia where cheaper labor is available which will decrease the overall cost of its dairy

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