Management Accounting and its Roles and Principles

A Brief Presentation on Management Accounting
Management or managerial accounting is used by managers to make decisions concerning the day-to-day operations of a business. It is based not on past performance, but on current and future trends, which does not allow for exact numbers. Because managers often have to make operation decisions in a short period of time in a fluctuating environment, management accounting relies heavily on forecasting of markets and trends.

1. Management Accounting Presentation By IMRAN BUTT

2. Management and Financial Accounting Financial Accounting Standard Financial Statement: (e.g. Cash Flow, Balance Sheet, Income Statements) For external users for assessing company’s health: (e.g. Stockholders, Investors) Focus on past data. Follows Generally Accepted Accounting Principles (GAAP). Audited . Management Accounting Specialized data products. For internal users making smart decisions: (e.g. managers, general managers). Focus on future trends. Does not need to follow GAAP. Not Audited. May include more detailed info. May include nonfinancial info.

3. Principles of Management Accounting Effective management accounting implementation can develop decision-making in companies, it comprises of four basic principles. Influence: Communication provides insight that is influential. Relevance: Information that is relevant. Value: Impact on value is analyzed. Trust: Stewardship builds trust.

4. Definitions Management accounting is the procedure of recognition, measurement, gathering, examination, preparation, explanation and communication of information that helps managers in particular decision making within the framework for organization’s growth and achieving its goals. It is the process of preparing management reports and accounts that give correct and on-time statistical and financial information needed by managers to make day-to-day and short term decisions for the benefits of the company.

5. Role and Principles of Management accounting Managerial accounting covers all fields of accounting designed at informing management of business operation parameters, which include reports of budgeting, trend analysis, sales forecasting, product costing, constraint analysis and many more on daily, weekly or monthly basis. Cost accounting: Cost accounting comprises of methods for evaluating the costs of products, processes and projects, in order to report the accurate costs and amounts on the financial statements, while supporting management in taking decisions.

6. Role and Principles of Management accounting Inventory Management Systems: Inventory management system is the method of supervision and controlling of the orders, storage and use of parts that a company uses in the manufacturing of the products it sells. Job Costing: Job costing is an order-specific estimation procedure, used in conditions where each job is different and is performed according to customer’s requirements. Price Optimising: It is the utilization of mathematical procedure by a company to find out how buyers will react to different prices for its products and services through diverse channels

7. Costings Absorption costing Absorption costing is a cost accounting process for valuing inventory. Absorption costing comprises or "absorbs" all the costs of manufacturing a product including both fixed and variable costs. ABC Corp. produces 100,000 sponges per month: 1) Labor charges per unit= $0.5 2) Material charges per unit= $0.25 3) Monthly rent = $30k => per unit => 30k/100k = $0.3 4) Monthly Insurance = $4 => per unit => 4k/100k => $0.04 Total Absorption Cost = $1.09 per sponge If ABC Corp. produces 200,000 sponges per month: 1) Labor charges per unit= $0.5 2) Material charges per unit= $0.25 3) Monthly rent = $30k => per unit => 30k/200k = $0.15 4) Monthly Insurance = $4 => per unit => 4k/100k => $0.02 Total Absorption Cost = $0.92 per sponge

8. Costings Marginal costing The increase or decrease in the total cost of a production run for making one additional unit of an item. Marginal Cost of production = Change in total production costs / Change in total Quantity produced ABC Corp. produces 100,000 sponges at $1.5 each. The total cost of manufacturing 100,000 units is $150,000 If ABC Corp. decides to produce 100 extra units of sponges at $1.5 each. Then the total cost of producing 100,100 units is $150,150. Hence, the Marginal Cost is $150 ($150,150- $100,000)

9. How is Management Accounting integrated into an organisation Cost centres Price setting Decision making Departmental budget Central budget

10. Benefits of Management Accounting Determining the goals Reduce Costs Increase Efficiency Maximizing the Profitability Increase Financial Returns

11. Conclusion In this present multifaceted business world, management accounting has become an essential part of management, which is determine to guide and advise the decision makers of the company at every step. Management accounting not only increase efficiency of the management but it also increases the efficiency of the employees. As it is clear that management accounting is necessary in decision-making for those businesses which has the passion to continue being successful for generations. Based on the information given by these methods, the owner of the company can move forward, bring innovations and take risks without fear. Proper management accounting should be implemented in the organization which should has the ability to evolve according to the changing business strategies with respect to market.

12. Bibliography www.investopedia.com www.accountingcoach.com www.businessdictionary.com www.wikipedia.com