Introduction to Management Accounting

Questions: 1. Discuss the role of management accounting in an organisation.2. Discuss the different methods of dealing with overheads when pricing products in a manufacturing firm. 3. Provide an analysis of two of the modern techniques in management accounting An example of a modern technique would be JIT, making references to practical applications.4. Discuss the objectives of budgeting. Answers: 1. Role of Management Accounting Management accounting is a method through which the provisions relating to the accounting information is used for the enhancement of the financial and operational policies of the business enterprise. It is used for the purpose of management decisions making and the financial reporting procedures in the business organization (Kaplan 2015). The following are the differences between the financial and managerial accounting in a business organization. Aggregation financial Accounting takes into account the entire business performance of an entity. However, management accounting operates on a more detailed level considering factors like the profitability, product line as well as the customer and the geographic region(Weil 2013. ). Efficiency - Financial Accounting relates to the financial condition of a business enterprise. In addition, it can be noted that the management accounting refers to the issues in the financial information and the methods through which the organization is solving them. Proven information - Financial Accounting deals with the reporting of facts in the accounting statements of a business entity. In this regard, it can be said that management accounting deals with the operational policies of a business rather than concrete financial facts.(Salako 2016) Reporting focus - Financial Accounting deals in the development of financial statements in and outside the company. Management accounting deals in the development of operational reports, within the financial operations of a company. This is an essential distinction between the financial and the management accounting. Management accounting has been playing an essential role in the process of re-innovating every aspect of the internal operations of a business enterprise(Weygandt 2015.) . Standards -- The financial accounting system is only concerned with the development of financial reports of a business entity (Parker 2012). In this regard, it can be noted that the management accounting is concerned with the development of the financial reports of a business entity. The standards have to be set as per the needs and the wants of the organization. Time period -- The financial accounting of a business entity have to be concerned with only with the past financial statements prepared in the operational policies of a business entity Management accounting concerned with the issues relating to the development of the financial and the operational policies of a business enterprise. Therefore, it deals with the future time period of the operational strategies of an entity. Valuation - The financial accounting shall address the valuation of assets and the liabilities of a business entity. In this regard, it can be said that it is involved with impairments as well as revaluation.(Demski 2013). However, management accounting is concerned with the value of these items in the operational policies of the business enterprise. , 2. Major methods of overhead allocation The following are the major methods in allocating the overheads. Job- order costing - Small and medium business enterprises generally use job-order costing. In this regard, it can be said that these business enterprises have to allocate overhead costs based upon a pre-determined rate. The job order costing is usually done by dividing the total estimated overhead costs by an allocation-based chosen in a company. The labour costs have to be changed as per the changes in the labour costs of an organization (Otley 2013.) The job order costing has been effective in evaluating the job order received fromm Process costing - Companies using the process costing method have to assign costs to certain products. The processing departments have to be used on the basis of the operational costs of an organization.(Roncalli 2013) . Te process costing method is the most appropriate method in determining the operational processes of a business entity. The process costing method is the most suitable procedure in the case of the manufacturing entities having an impact on the operational processes of a business entity. This method is used in assessing the production expenses of a business enterprise(Weil 2013. ) .This would reducing the operational expenses of a business entity. Activity based costing -- This method shall not facilitate the business enterprise in the case of external reporting. This method would only be appropriate in the case of internal reporting to stakeholders of the business entity(Chenhall 2015). As such, it can be said that activity based costing has been essential in pre-determining the allocating expenditures of the organization. The activity - based costing is suitable to all kinds of expenditures in the organization. Activity - based costing has been essential for the business entity to improve the operational processes of the business enterprise. (Roncalli 2013). The Activity based costing has been essential for the business enterprise in re-innovating the internal operations of the business enterprise. This shall help the business enterprise in determining the operations of the business enterprise in the case of the activity-based costing of the business entity. (Deegan 2016). Variable costing - The variable costing method specially emphasizes on the production levels of the business entity in determining the operational expenses of the business entity. Tthis would assist the business enterprise in changing the operational procedure to achieve maximum profits.(J. K. Weygandt 2015) In this regard, it can be said that the brand has been effective in determining the operational expenses of the business entity. The variable costing procedure has been effective in determining the operational expenses of the business expenditure. The variable costing has been effective in determining the expenses of the business entity. The variable costing method assesses the production expenses and makes the budget accordingly. 3. Management Techniques in Management Accounting The following are the two main tools that are an essential part of the modern management techniques in the modern management techniques Balanced Scorecards An essential part of the modern management techniques is the balanced scorecard that combines the financial as well as the non-financial measures to assist the organization in achieving business growth. The annual compensation offered to the management of the organization is dependent on the balanced scorecard method.(Otley, Readings in accounting for management control 2013.) In this regard, it can be said that the balanced method have certain limitations. There have been negative consequences associated with the balanced sheet method. However, calculation of bonus amounts in when offered to the employees of the organization is a complex procedure. As such, the business organization has to be careful in using the balanced score- card strategy. Incorrect use of the balance score- card shall be essential for the employee in analyzing the performance of the employee and achieving growth. The balanced score card in the business organization have been effective in determining the operational policies of the business enterprise. The balanced score card assists in classifying the expenses as per the fixed expenses and the variable expenses of the business enterprise.(Salako 2016). This has been instrumental in reducing the workload of the operational department in a business organization. Real time inventory management The real time-inventory management had a considerable impact on inventory management.(Baiocchi 2014). The real time inventory management system in the organization, business have been able to track each item throughout the production as well as the distribution procedure in the organization. This inventory management system has been useful for the organization in dealing with a huge amount of inventory. (Demski 2013) The real time inventory management system has been an essential innovation that facilitates the financial operational of the business enterprise. The real time inventory management shall assist the management of the organization in creating effective policies for the management of the organization. The real time inventory management has been effective in creating the operational policies of the business enterprise(Roncalli 2013). The inventory management has been effective in maintaining the inventory levels to meet the supply demands of the organization. However, the real time inventory levels have been operating in the same product and the service line. The real time inventory management system is an essential part of the global market. The manufacturing and the service department are the essential user of the real time inventory system in the global market. 4. Budgeting Objectives Budget is the guideline and the framework, which determines every expenses that has been incurred in the operational activities of the business(Kaplan 2015).It shall assist the business entity to make a pre-determined marketing plan and as well as inherent financial position of the business entity. The following are the objectives of budgeting Providing structure - A budget establishes the framework under which the expenses of the organization is to be allocated. Thus, the daily business functionalities are executed under the pre-determined objectives of the budget. The expenses of the production and the operation are restricted within a limited period, through which the organization is expected to deliver the expected results. The structure have been providing guidelines and the regulation through which the organization is expected to execute the operational activities in the existing financial year(Chenhall 2015). The structure reflects the guidelines that would represent the existing trends of the operational policies of the business enterprise. The budget guidelines has stated the existing expenses schedule of the organization and thereby identifies the discrepancies in the operational processes of the business organization(Blankespoor 2013) . Following the budget structure prepared in the beginning of the year, the budget plans its business functionalities accordingly. Cash Flow prediction - The cash flow of the existing year is determined with the help of a budget. This is particularly useful in the case of companies having a irregular sales revenue throughout the year. This is an essential feature of the budget of an organization and shall assist the business enterprise in delivering the expected results as per the pre-determined objectives of the enterprise (Blankespoor 2013).The prediction of cash flow in every year shall assist the business entity in controlling the expenses as well as achieving financial stability. It has been mentioned that the budgets have generally served the organization in predicting the future cash flows of the organization. The Cash flow levels in the organization shall reflect the inherent ability of the business organization to pay off the short term loans. In addition, the cash flow represents the inherent financial strength of the business organization. Allocation of resources - The budgeting process is use in the process of decision making in the case of allocation of resources. According to Kaplan and Atkinson (2015), the purchase of fixed assets in the organization can be decided upon the pre-determined budget of the organization. This is particularly useful in the case of the manufacturing industry where there are different aspects to the production and the distribution process in the organization. stated that the allocation of resources has been a particularly essential feature of the budgeting process in the organization (Baiocchi 2014). The resource allocation has been important in saving time and resources of the business enterprise. The budgeting technique has been essential to ensure smoother business operations. stated that the budget help decide the amount of variable expenses in the business entity (Deegan 2016) Model Scenarios - The budget helps in determining the model scenario or the path through which the business organization can follow to attain the pre-determined goals and the objectives of an organization. The financial results of the organization have to be achieved as per the model scenario developed in the organization.(Kaplan 2015). The model scenarios in a business organization shall address the needs of a business entity. In addition, it shall enable the errors in the operational policies of the business entity. Performance assessment The performance of the organization shall be assessed as per the budget developed in the existing financial year. As such, it is an effective tool to monitor organizational performance for the management of the organization, thereby, leading the organization towards the growth. The budget has been effective tool for the business organization to achieve growth of the organization.(Baiocchi 2014) . Thus, the performance assessment shall deal with the operational policies of the business enterprise. References Baiocchi, G. and Ganuza, E. " Participatory budgeting as if emancipation mattered." Politics Society, 2014: 42(1),. pp.29-50. 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