Management accounting often involves predicting a future outcome.
Management accounting is mainly focusing on future outcomes and results. It is used by the management to plan and forecasts the actions that are to be taken. The information collected is used for making decisions regarding the future.
Management accounting is another name of cost accounting.
Management accounting is concerned with that form of accounting that aims to eliminate, manage, and control unnecessary costs to increase the profitability of the company. It is thus referred to as cost accounting.
Management accounting can significantly influence employee behavior.
Management accounting guides the employees regarding the future course of action and monitors their activities over time. They undertake to resolve the issues that they face during work and provide the benefits and incentives so that they are satisfied at work. Hence, management accounting influence employee behavior.
E1.22 The nature of management accounting systems
The statement “Management accounting systems provide managers with all the information they need to make decisions” is true. This is because the different kinds of management accounting systems like inventory management, cost accounting management, etc. provide complete details of the information that management may require for decision-making purposes.
The statement "Management accounting systems need to be flexible enough to provide information for financial statements" is true. One of the objectives of management accounting systems is that they need to be fast and flexible to look into and fulfill the needs of the business, which includes trend analysis, special reports, etc. that are useful information for financial statements (Ward, K., 2012).
The statement “Management accounting systems may draw on data that are internal and external to the organization” is true. The management accounting systems use data for both internal and external sources to gather data so that they can prepare various reports and take accurate decisions.
The statement “Management accounting systems are concerned with the quality of products produced by the organization is true. These systems monitor the costs that are relevant for improving the quality of the products. It helps in continuous improvement and providing high-quality products and services which increases the profitability of the company in the future.
The statement "Management accounting systems need to produce information that is objective and verifiable" is false. This is because the information in the management accounting systems may be based on estimates where it will be a subjective one. Also, it may not necessarily be measured in monetary terms (physical measures can be used; hence it is not always verifiable.
E1.23 Differences between management accounting and financial accounting
The ten activities given are dividing into the duties in the following way:
Management accountant (Cadez, S., and Guilding)
Estimating the depreciation expenses for a factory equipment
Monitoring the effects of the quality improvement program
Estimating the cost of a prototype for a new product being produced
Preparing a profit forecast by product line
Preparing sales forecast
Preparing a report on customer satisfaction
Preparing a balance sheet
Preparing an income statement
Preparing cash flow statements
Assisting in auditing
Estimating the cost of goods produced
Monitoring the effects of the waste reduction program
None of the above
E1.24 The role of the management accountant
From a job advertisement the following key roles and duties of a management accountant are identified (Malina, M.A. ed., 2017):
Preparation of reports, budgets, financial statements that are used both internally and externally
Controlling and forecasting of income and expenditures
Helps in carrying out and fulfilling the requirements of various kinds of auditing
Following and complying with all the tax-related matters.
Managing different kinds of systems and policies related to financial matters that exist in the organization.
Helping to obtain finance for new projects by following correct procedures of negotiating.
Helping in reporting of various matters in the organization and assisting in making business and strategic plans.
Preparing and accurate interpretation of the records and reports of the organization
Maintaining adequate proper records regarding all the contracts and leases undertaken by the organization.
Helping the company in creating the monthly budgets regarding expenses and overseeing how they can be controlled.
Helps in deciding the cost of the product by considering all the factors like cots, competition, availability of substitutes, profitability.
The identified roles and duties reflect the major processes and techniques used by the management to improve value. This is because the reports that are prepared by the management accountant on the profit and loss, checking procedures and processes, monitoring of activities, etc., help in increasing the efficiency of the organization and its business. Forecasting and preparing budgets help in analyzing the variances so that accurate and correct decision is taken by the management. They prepare various reports like the inventory reports, performance reports, determining the product costs, etc. which help the management in taking decisions that add value to the organization (Moorthy, M.K., Voon, O.O., Samsuri, C.A.S.B., Gopalan, M. and Yew, K.T., 2012). The techniques used by the management accountant is useful in making analytical decisions that can bring value to the firm.
E1.25 Management accounting information
While deciding on how many cleaning staff to employ by the manager of the discount department, he must consider the requirements of the organization. He should consider the area to be cleaned and the time that would be available for the cleaning purpose. He should see the efficiency of the staff based on past experiences. He should also take into account the cost-benefit analysis based on the situation in the organization.
When the local council is deciding whether to add a “green waste” recycling service, it must consider whether the idea is feasible or not. He must analyze the cost of setting up such a service and the effect it will have on the cash flows. It should also look into the constraints that would come up in the way while setting up and implementing a green waste recycling service. Also, the environmental benefits it will bring to the organization that will increase the shareholder's value should be taken into account.
The CEO of the football organization should consider the different problems that would come up when he is contemplating the changing of the timing of the football season to start and finish a month earlier. He should organize meetings and discussions with the entire football team and take their views on the same. He should make a detailed analysis of the constraints that they will have to face and whether the cost involved is within their capacity. He will have to look into the weather forecast and about the interest of the audience if the match is organized one month in advance.
The director of nursing at a local hospital should analyze the cost along with the benefits which are involved in two options, i.e. to employ short-term staff or full-time employees to bear up with the increase in patients. He should make a trend analysis and cash flow analysis in the future of the selected option. While deciding, he should also take into consideration whether the increase in patients is one-time or the patients have started increasing permanently requiring the expansion of the hospital services.
E1.26 Major influences on management accounting
The statement "Growth of the manufacturing sector in Australia has led to widespread development of management accounting techniques" is true. Over the years there has been an increase in manufacturing sectors in Australia which has led to the development of new techniques to carry out the activities of management.
The statement given in the question is false. The management accountants do not have to learn how to provide their services to employees at all levels of management. The supervisor or the managers or team-leaders at the respective levels will guide the employees based on the services provided by the management accountant.
The statement management accountant has a major role to play in customer satisfaction is true. This is because of the objective to survive in the long-run of any organization is maximum customer satisfaction to improve profitability. Proper cost control measures are taken by the management accountant and focusing on improving the quality of the products to satisfy customers.
The statement that the advances in information technology have changed the way that many businesses conduct their operations and the way management accountant supplies information to the managers. Through IT, various reports can be prepared easily which helps in presenting complex information more simply.
E1.27 Management accounting information
While the marketing manager is considering whether or not to launch a new product, he must analyze the cost involved and the profitability expected from the product. Proper steps should be taken to check the demand of the product in the area where it is launched and the availabilities of close substitutes for the product. The competitors for the new product and their strategies should also be studied in detail to make correct decisions. The manager should also analyze based on life-cycle costing, i.e. the costs that the organization has to bear over the life span of the new products.
Travel agency before increasing the staff by one-third should properly understand the cost involved in it and the benefit it shall bring to the organization. Based on the current situation (Covid-19 pandemic), the travel business has reduced drastically. So, the travel agency should consider whether increasing staff will be profitable or it would be beneficial to improve the efficiency of the existing staff. The agency has to make a complete and accurate cost-benefit analysis of the situation.
A production team manager should first consider the situation in which the customer order is required and the value that the customer holds in the organization. If the customer is an important part of the organization and has a major contribution in the generation of revenue and the order is required for some emergency purpose, then the team manager should try to work overnight instead of delivering the customer order next week. This will increase the trust and satisfaction of the customer in the future also.
While considering a site for the new store by the fast-food chain, it must analyze the constraints that would come up. It should check the location of the new store and whether there will be increased demand in that area by comparing it with the previous location. It should compare the extra cost which will be incurred in the new store and the benefits that will be obtained out of it. There should also be different feasibility studies before starting a new store at another site.
E1.28 Management accounting information
For discussing how the management accounting information may have contributed to the management of the company, I have selected the annual report of BPH Ltd. The following management accounting information was useful:
The information about the net profits earned by the company helped the management in deciding the number of dividends that will be paid to the shareholders for the relevant year.
The information regarding the operations, principal activities, and state of affairs of the company received by the management accounting systems has helped the management in deciding the areas of improvement and the future course of action that can be taken to increase profitability.
The information about the shareholders and the value of shares held by the company has helped the management in deciding whether to increase the shareholder's wealth or carry out some buy-back programs that would be beneficial for the company in the long-run. It will help the management of whether to finance a new venture internally or go for external sources.
The information regarding the results of the financial statements has helped the management in deciding about the employee policies, political donations, the expenses to be made in the research and development activities, etc. to manage the operations effectively and efficiently in the long-run leading to an overall increase in profitability.
E1.29 Management accounting system design
Contingency theories in management accounting imply that contingency theories describe the factors based on certain situations and displays or shows that the management accounting systems, in reality, is contingent upon factors. It gives the management accountant the power and discretion to make correct and accurate decisions (Otley, D., 2016). The contingent theories if implemented can be changed by the managers as per the demand of the situations.
The two context-specific factors that shall be taken into account while designing the management accounting systems are as follows:
The structure and the size of the organization
The level of market competition and the qualifications of the management accounting team members.
E1.30 Evolution of Management accounting
The term management accounting began to be used because:
the role expanded to include information related to planning and controlling
From the mid-1980s to mid-1990s, management accountants:
became more interested in waste reduction because of emphasis on the environment
From 1995 onwards, management accounting:
added a customer focus because managers were sick of hearing about costs
By the 2000s, management accountant was increasingly concerned about environmental issues because of:
c) efficient and effective management of environmental issues offered opportunities to enhance both customer and shareholder value
Over time, the management accountant has increasingly become:
c) A part of the management team, providing strategic advice.
References for Strategic Management Accounting
Moorthy, M.K., Voon, O.O., Samsuri, C.A.S.B., Gopalan, M., and Yew, K.T., 2012. Application of information technology in management accounting decision making. International Journal of Academic Research in Business and Social Sciences, 2(3), p.1.
Cadez, S., and Guilding, C., 2012. Strategy, strategic management accounting, and performance: a configurational analysis. Industrial Management & Data Systems.
Malina, M.A. ed., 2017. Advances in management accounting. Emerald Group Publishing.
Ward, K., 2012. Strategic management accounting. Routledge.
An Atkinson, A., 2012. Management accounting.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, pp.45-62.