Tuesday, May 5, 2020

Management Accounting Tools And Techniques †MyAssignmenthelp.com

Question: Discuss about the Management Accounting Tools And Techniques. Answer: Introduction Management Accounting refers to the process to analyze different business costs and operations for the preparation of financial reports, records and financial accounts so that they can aid the managers in the decision making process for achieving the organizational goals and objectives (Hilton and Platt 2013). In other words, management accounting is considered as a backbone of the accounting system of the business organizations. In this situation, it is essential to mention that the main aim of management accounting is to provide the organizational managers with necessary information as this information helps in creating corporate value. In the practice of management accounting, organizational managers use different types of approaches of management accounting for the extraction of necessary information for decision-making process and all these techniques are considered as major tools for the accounting operations of the companies (Ward 2012). Thus, this particular report sheds ligh t on various modern approaches ofmanagement accounting in the business organizations. Moreover, this report also aims in the analysis of the applicability of various modern techniques of management accounting within the business organizations. In this context, it needs to be mentioned that the organizational accountants play an integral part in the introduction and implementation of the differentmanagement accounting tools and techniques within the organizations (Parker 2012). This report also covers the roles of accountants in the introduction and implementation of management accounting tools and techniques. Theoretical Framework Theoretical Framework is considered as a major part of any research program as the main objective of this part is to test the relevant theories related with the topic. As per the above discussion, the main aim of this research program is to make an analysis on the various modern techniques of management accounting. There are many techniques of management accounting widely used all over the world. Among all of them, five mostly used management accounting techniques are Activity Based Costing (ABC), Target Costing, Balance Scorecard, Profitability Analysis, Budgeting and Total Quality Management (TQM) (Drury 2013). In this context, it needs to be mentioned that certain similarities are there among these approaches of management accounting along with certain similarities. In case of similarities, the major aspect is the increase of efficiency of the business organizations. It implies that the implementation of these management accounting techniques help the companies in reducing the tot al cost of the companies by reducing the operational expenses. Budgeting is a major modern technique of management accounting that helps in the improvement of the cash flow. Most importantly, all these techniques provide the management of the companies with important business information that aid in the decision-making process (Scott 2015). These are the major similarities. At the same time, there are some major differences among these techniques of management accounting. Differences can be seen between the functions of ABC and target costing. ABC involves in the identification of activities in the organizations so that cost can be assigned to them with sufficient resources and products. At the same time, target costing involves in the determination of life cycle costs of the products for maintaining the quality of the products (Bobryshev et al. 2014). Thus, it can be observed that there are differences. On the other hand, the approaches of balance scorecard and profitability analysis are totally different from each other. Management of the companies use the technique of balance scorecard as a performance metric for the identification and improvement of different internal functions of the businesses in order to get expected external outcome. On the other hand, profitability analysis is the process of analyzing the financial ratios so that the actual fin ancial performance of the companies can be measured along with their growth rate. In this aspect also, difference can be seen between these two techniques of management accounting. After that, it can be observed that budgeting and TQM is two different techniques of management accounting (Bobryshev et al. 2014). Budget refers to the qualitative plan used by the management of the companies for the selection of business activities in future period. At the same time, TQM refers to the continuous process to reduce or eliminate different errors in the process of manufacturing and supply chain management (Hopper and Bui 2016). Hence, the above discussion shows that there are many differences and similarities in the above-mentioned modern approaches of management accounting. For this reason, it is required to analyze and evaluate these techniques along with their applicability. Methodology: Description and Applicability Activity-based Costing (ABC) In this particular organization, the application of ABC can be seen. As per figure 1 in appendix, it can be observed that there are five steps in the process of ABC. The first step involves in the identification of cost activities for the completion of products. It implies that the main aim of this step is to obtain understanding of all the activities needed for the manufacturing the product. The second step is the assignment of overhead costs to the identified activities in step 1 (zkan and Karaibrahimo?lu 2013). Usually, some of the major activities are purchase of materials, running cost of machines and others. The third step involves in the identification of cost drivers for each cost activity. For this reason, it is required to gather cost information. The fourth step involves in the calculation of predetermined overhead rate for each of the cost activities and it needs to be done by dividing the estimated overhead costs. According to figure 1, the last step in ABC is the alloca tion of overhead costs (Tsai et al. 2014). Target Costing Along with ABC, the use of target costing can also be seen in the organization. According to figure 2 in appendix, certain steps involve in the process of target costing in the companies. In the fits step, market research is conducted for determining the need of the customers. After that, based on the market research, the desired selling price is set for the determination of target cost (Cooper 2017). Companies can get target cost by deducting desired profit from the selling price. After the determination of target cost, the focus of this process turns to the design and production of the products. In this process, the managers are required to consider the costs in every level of manufacturing process. Lastly, after the achievement of target cost, the manufacturing and selling process begin. It needs to be mentioned that there is a flow of information in every step of this process that helps the management in the decision-making process (Huang et al. 2012). For the applicability of ta rget costing, organizations are required to follow all these steps. Balance Scorecard Balance Scorecard is considered as another major modern approach of management accounting and it is a major managerial tool for monitoring the performance of the companies. According to figure 3 in appendix, four perspectives can be seen in balance scorecard; they are Financial, Internal Process, Customer and Organizational Capacity. In the financial perspective, organizational managers use to monitor the performance of the companies based on certain financial parameters; they are Return on Investment, Net Profit Margin and others (Taylor and Baines 2012). For this reason, emphasis is provided on the financial information. The next perspective is Internal Process. It is related with the vision of the companies and the customization of the products as per the demand of the customers. For this perspective, the managers are required to put focus on the operations. The next perspective is organizational capacity that is related with the efficiency and innovation of the companies. The las t perspective is customer perspective. In this case, the managers of the companies use to gather customer related information in order to find that whether they are satisfied with the products and services of the companies or not (Kaplan 2012). Profitability Analysis In the modern era of business, Profitability Analysis is considered as one of the major tools of management accounting. It needs to be mentioned that the profitability analysis of the companies solely based on the analysis of various ratios. Different types of ratios can be seen; like profitability ratios, liquidity ratios, debt ratios and efficiency ratios (Dilshad 2013). Ratio analysis provides the management of the companies with different financial information required for decision-making process. Most importantly, the organizational managers become able to compare the financial results of the companies for several years with the help of these ratios. Another major aspect is growth rate. With the help of ratio analysis or profitability analysis, organizational managers can measure the growth of the business. Thus, from the above discussion, it can be seen that the profitability analysis provides the managers with necessary financial information for better decision-making (Medjoud j, Laifa and Aissani 2012). Budget Budget is considered as an important tool in management accounting. With the help of budget, the management of the companies uses to forecast the financial results and financial position of the companies for future period (Hofstede 2012). According to figure 4 in the appendix, it can be observed that there are different types of budget in the companies; they are sales budget, capital budget, SW budget, production budget, material budget, labor budget, overhead budget and cash budget. Thus, it is required for the financial managers of the companies to develop all these budgets so that the actual performance of the companies can be measured against the budgeted figures. Often, it can be seen that the companies face certain difficulties while measuring the actual performance against the budgeted performance. In order to avoid this issue, it is required for the management of the companies to make periodical revisions in the developed budget. On the other hand, the companies can develop s hort-term budget for bringing efficiency (Tudor and Mutiu 2012). Total Quality Management (TQM) TQM is considered as one of the most important modern approaches of management accounting and the main objectuve of this approach is the reduction of the cost of the businesses. In the process of TQM, information technology plays an integral part as it plays an important part in the maintenance of quality of the products. It implies that the process of TQM helps the manufacturing organizations in producing high quality of products with a low cost (Oakland 2014). Major roles of TQM can be seen in the organizations in solving various quality related issues like manufacturing defect, errors in machine, slowness of machines and others. Business organizations can get necessary competitive advantage with the implementation of TQM as it reduces the amount of wastes and increases consistency in the production process. As per figure 5 in the appendix, there are three major aspects of focus on the customers, effective process of planning, effective management process, process of improvement an d total participation (Sallis 2014). Role of the Accountants The accountants of the business organizations have some major responsibilities in the introduction of new tools and techniques of management accounting. It implies that the accountants need to bring and implement some additional aspects before the introduction of the techniques of management accounting. They are discussed below: It is required for the accountants of the companies to implement stewardship accounting. It implies that it is the responsibility of the accountants for designing the framework for cost and financial accounting. It is required to have effective financial regulation for the introduction of new management accounting techniques (Goretzki, Strauss and Weber 2013). In order to implement the new management accounting techniques, there is a need for short-term as well as long-term financial planning. It is the responsibility of the accountants of the companies to do the necessary financial planning for strategic management accounting, formulation of corporate strategy, market research and others (Paulsson 2012). Effective Management Information System (MIS) is required for the effective implementation of various management accounting techniques in the companies. It needs to be mentioned that the accountants of the companies play an integral part in the establishment of MIS in the companies. It is expected to maintain an optimum capital structure for the implementation of different management accounting tools and techniques in the companies. In this particular process, the management accountants of the companies help in raining sufficient amount of funds for the overall benefits of the companies. At the same time, they also have the responsibility to maintain a proper debt and equity mix in the company (Hiebl, Feldbauer-Durstmller and Duller 2013). It needs to be mentioned that the management accountants have a pivotal role to play in the management team of the companies. In addition, the efficiency of the management team is required for the effective implementation of various modern management accounting techniques. Thus, the management accountants have the responsibility in bringing the efficiency of the management. Conclusion From the above discussion, it can be seen that the main aim of this reports is the analysis and evaluation of various modern techniques of management accounting. The above discussion shows that there are six major modern techniques of management accounting; they are Activity Based Costing (ABC), Target Costing, Balance Scorecard, Profitability Analysis, Budgeting and Total Quality Management (TQM). The above discussion shows that there techniques of management accounting have both similarities and differences. According to the above discussion, it can be observed that the business organizations can avails major advantages from the implementation of the modern techniques of management accounting. The contribution of the techniques of management accounting can be seen in the fields of strategic cost management and strategic business development. Most importantly, it needs to be mentioned that all these modern techniques of management accounting provide the organizational managers with important financial information for the process of financial as well as strategic decision-making process. It implies that all this information helps in the enhancement of the corporate value of the companies. Thus, as per the above discussion, it can be concluded that the above-discussion supports the provided statement that is the modern techniques of management accounting provide financial information for effective decision-making and enhance the organizational value. References Bobryshev, A.N., Uryadova, T.N., Lyubenkova, E.P., Yakovenko, V.S. and Alekseeva, O.A., 2014. Analytical and management approaches to modeling of the accounting balance sheet.Life Science Journal,11(8), pp.502-506. 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