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INTRODUCTION TO MANAGEMENT ACCOUNTINGProvision of financial and non-financial information to managers for cost accounting , planning and control and decision making

Management accounting can be subdivided into : - Cost accounting -Management accounting for decision making What is management accounting ?Cost accounting is concerned with the ascertainment of cost of manufacturing a product or giving a service and the way in which costs can be controlledCost Accounting Management accounting is concerned with the provision of information to people within the organization to help them make better decisions and improve the efficiency and effectiveness of existing operations.

Management AccountingA cost and management accounting system should generate information to meet the following requirements. It should: 1- allocate costs between cost of goods sold and inventories for internal and external profit reporting; 2- provide relevant information to help managers make better decisions; 3- provide information for planning, control, performance measurement and continuous improvement.Function of Management AccountingFinancial AccountingManagement AccountingUsersExternal persons who make financial decisionsManagers who plan for and control an organisationTime FocusHistorical perspectiveFuture emphasisRequirementsMust follow GAAP and prescribed formatsNot need follow GAAP or any prescribed formatsReportReports are published annually or half yearly. Reports are prepared daily, weekly, monthly or quarterly depending on needs. SubjectPrimary focus is on whole organizationFocuses on segments of an organizationPrecisionInformation must be reasonably accurate for external partiesEstimates and approximations are more useful than accuracy for speedy decision making process.Differences between Financial accounting and Management AccountingPlanningHelps to formulate future plans by providing information to assists in deciding what products to sell, in what market, etc.Setting goals and developing methods in achieving them.ControlAid control process by providing performance reports which compare actual outcome with planned outcome for each responsibility centers.

Role of Management AccountantOrganizingRepresents the design and implementation of the accounting system for better defining and consolidating the relations between centers to assure effective performance.MotivatingBudget and performance reports produced have an important influence on the motivation of personnel of the organization.CommunicationAid communication function. Installing and maintaining an effective communication and reporting system. (Eg. Who are responsible for carrying out plans/budgets, what expected of them during the budget period).To ensure coordination between managers of different department.

RelevanceRelevance is a key factor because of the flexible nature of managerial accounting information that can take any form management chooses. AccuracyEven though managerial accounting is based on estimates and projections, information must be as accurate as possible if it is to be of value. Sound judgement and experience should underlie any development of subjective dataTimelinessThe concept of timeliness simply means that information should be as current as possible because old information will not be representative of present or future conditions.CHARACTERISTICS OF USEFUL INFORMATIONUnderstandability.Information presented must focus on the users of such information and hence should be clearly understood. Typical users of accounting information will not be trained accountants, so any preoccupation with technical jargon will adversely affect the use of the information.ReliableInformation made available to managers are reliable in that they are free from error or biasness and accurately represents the events of the organization.CompleteInformation that does not omit important aspects of the underlying events that is measuresDecision Making Model 1. Identify objectives 2. Search for alternative courses ofaction 3. Gather data about alternatives 4. Select alternative course of action 5. Implement the decisions 6. Compare actual and planned outcomes 7. Respond to divergencies from planPlanning processControl processIdentify objectives specify the goals or objectives of the organization so that it can provide a direction or some guiding aim to enable the managers to assess the desirability of one course of action over another.Search for alternative courses of action search for a range of possible courses of action or strategies that might enable the objectives to be achieved.Gather data about alternatives assess the potential growth rate of the activities, the ability to establish adequate market share, the cash flows for each alternative activity, etc.Select appropriate alternative courses of action select alternative that best satisfies the objectives of an organization and those showing the greatest benefits after consideration of other qualitative factors.Implement the decisions the alternative courses of action selected should be implemented as part of the budgeting process.Compare actual and planned outcomes prepare performance reports comparing the actual outcomes (actual costs and revenues) and planned outcomes (budgeted costs and revenues) at regular intervals.Respond to divergences from plan take corrective action so that actual outcomes conform to planned outcomes, or the plans may require modifications if the comparison indicate that they are no longer attainable.The Decision Making processPrior to the 1980s : many organizations in Western countries operated in a protected competitive environment. Barriers of communication and geographical distance,and sometimes protected markets, limited the ability of overseas companies to compete in domestic markets. There was little incentive for firms to maximize efficiency and improve management practices, or to minimize costs, as cost increases could often be passed on to customers.Changing competitive environmentDuring the 1980s: Manufacturing organization began to encounter severe competition from overseas competitors that offered high-quality products at low pricesBy establishing global networks for acquiring materials and distributing goods, competitors were able to gain access to domestic markets throughout the worldPrivatization, intensive competition and an expanding product range created the need for organizations to focus on cost management and develop management accounting information systems that enabled them to understand their cost base and determine the sources of profitability for their products, customers and marketsDuring the past decade the use of information technology (IT) to support businesses activities has increased with the development of electronic business communication technologies (e-business, e-commerce or internet commerce) These developments are having a big impact on business:Consumers are becoming more discerning when purchasing products or services because they are able to derive more information from the internet.Cost saving from streamlining business processes and generating extra revenues from adept the use of on-line facilities.

The Impact Of Changing Environment Of Management Accounting SystemsA products life cycle is the period of time from initial expenditure on research and development to the time at which support to customers is withdrawn. Intensive global competition and technological innovation combined with increasingly discriminating and sophisticated customer demands have resulted in a dramatic decline in product life cycles. To be successful companies must now speed up the rate at which they introduce new products to the market. Being later to the market than the competitors can have a dramatic effect on product profitabilityChanging product life cyclesTo compete in todays competitive environment companies need to become more customer driven and make customer satisfaction the top priority.To provide customer satisfaction organizations must concentrate on key success factors that directly affect it. The key success factors are cost efficiency, quality, time and innovation.Organizations are also adopting new management approaches in their quest to achieve customer satisfaction. The new approaches are continuous improvement, employee empowerment and total value-chain analysis.

Customer Satisfaction And New Management Approaches Customersatisfactionis the top priorityKey success factors :Cost efficiency ,Quality, Time , InnovationContinuousimprovement Total value-chainanalysisEmployeeempowermentKey Succes Factors :Cost efficiency keeping costs low and being cost efficient provides an organization with a strong competitive advantage.Quality customers are demanding high quality products. Companies are focusing on total quality management (TQM) where all business functions are involved in a process of continuous quality improvement. It focuses on delivering products or services of consistently high quality in a timely fashion.Time organizations seek to increase customer satisfaction by providing a speedier response to customer requests, ensure on-time delivery and reduce the time taken to develop and bring new products to market.Innovation companies must develop a steady stream of innovative products and services and to adapt to changing customer requirements.

Total value chain analysis- Increasing attention is now being given to value-chainanalysis as a means of increasing customer satisfactionand managing costs more effectively.Continuous ImprovementTo compete successfully companies must adopt a philosophy of continuous improvement, an ongoing process that involves a continuous search to reduce costs, eliminate waste, and improve the quality and performance of activities that increase customer value or satisfaction.Management accounting supports continuous improvement by identifying ways to improve and then reporting on the progress of the methods that havebeen implemented.Employee empowerment Allowing employees to take such actions without theauthorization by superiors has come to be known asemployee empowerment. It is argued that by empowering employees and giving them relevantinformation they will be able to respond faster tocustomers, increase process flexibility, reduce cycle timeand improve morale. The use of information technology (IT) to support business activities has increased dramatically with the development of electronic business communication technologies known as e-business, e-commerce or internet commerce. These developments are having a big impact on businesses. For example, consumers are becoming more discerning when purchasing products or services because they are able to derive more information from the internet on the relative merits of the different product offeringsIMPORTANCE OF INFORMATION TECHNOLOGY E-commerce has provided the potential to develop new ways of doing things that have enabled considerable cost savings to be made from streamlining business processes and generating extra revenues from the adept use of on-line sales facilities (e.g. ticketless airline bookings and internet banking). The ability to use ecommerce more proficiently than competitors provides the potential for companies to establish a competitive advantage.One advanced IT application that has had a considerable impact on business information systems is enterprise resource planning systems (ERPS). The number of adopters of ERPS has increased rapidly throughout the world since they were first introduced in the mid-1990s. An ERPS comprises a set of integrated software applications modules that aim to control all information flows within a companyInternal Management Reporting is a financial data or other information accumulated to be communicated to another within the business entity.The information assists others in the managerial decision making process.Examples expenses report, capital budgeting analysis, other reports designed to guide management rather than inform outsiders.

NATURE AND PURPOSE OF INTERNAL MANAGEMENT REPORTINGImplementing solid internal management reporting is one of the most important steps a company can take to effectively accomplish the following major goals:Manage the business day to day creates tools that managers can use to make good decision based on relevant and accurate information, presented in a timely fashion.Align the incentives of employees with the organization as a whole. Give employees goals that are integrated with management reporting, so that their progress is measurable, actionable and rewarded.Create and manage a solid controls environment. Help managers become comfortable with the multitude of signoffs that they must complete throughout the year.

GOALS OF INTERNAL MANAGEMENT REPORTINGhttp://www.cengagebrain.com/content/drury05662_1844805662_02.01_chapter01.pdfTopic 1 Introduction slide ( i-Learn )http://www.slideshare.net/budakmathUiTM/chapter-1-introduction-24438827?related=1

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