Role of Management accounting in management processes

Introduction

Management accounting is the way of measuring, collecting, analyzing, identifying, preparing and communicating financial information which management to estimation, planning, and hold of the organization. This assures the suitable use of resources. However, management accounting is responsible for making the financial reports for the non management groups like tax officials, and law enforcement agencies.

Role of Management accounting in management processes

The foremost task for all the managers within the organization at every level is the environmental design, preservation and execution that allows member to work proficiently and attain their collision on specific task. For fulfilling those task, the managers use management accounting. In the organization, there is a flow of new form of economic relations of individuals and organization and also the institution which are linked with one each other. All these elements will conduct a role as providers of accounting and financial information regulate using management accounting standards for most users. Management accounting information system, developed reassessed and decision support system has been introduced in this respective field to give significant part of the indispensable information. (Motevakel, 2018 )

The organization which is linked with technology development and developing changes in the system of production and are opposed with the multiplex changes. The scale of those changes are like that management can solely has enough knowledge with the environment of the organization. So it is expected that the system needs to demonstrate to help the management in recognizing problems, setting goals, spotting problems, defining the possible solution, appraising solutions, choosing the finest solution implementation and monitoring and evaluation. (Motevakel, 2018 )

Differences of management accounting and financial accounting

Financial accounting is concerned with the collection of accounting data to make financial statements. People who has the degree in this field has the certificate in Certified Public Accountant designation. Financial accounting only concern regarding about the profit and not the whole system of the function of company. This focus on making financial statements to measure internal and external stakeholder and the public. Profitability are noted through financial accounting. It helps the organization to know the exact value of the company’s asset. (Richardson)

Whereas management accounting deals with the internal process which is used to account business transactions. And those who have a training in this field has the certificate in Certificate Management Accountant. However, management accounting focuses on operational reporting to be split within an organization. It deals with the various ways to maximize profit. Managerial reports create more often or rapidly to update the managers regarding the relevant information, so they can perform their work and take actions accordingly. It is only concerned with those value products which have a company’s productivity. (Richardson)

Different models of costing could be used in operational management

The organization has its weak points and strong points, and if several organization producing similar products, their main focus is too distinct it with the other company’s products. So, they have to choose from the production methods, take decisions regarding market, rather explaining their operational substitute of competition. (Perspective and costing important in cost effectiveness analysis, 2020)

1. Product costing

This method is used to assign the cost to a manufactured product.

2. Multiple Costing

It helps in the costing of television, cars, electronics etc.

3. Services or operating costing

This is used to operate the services like Railway etc.

4. Process costing

The products which passes through different process has to determine the cost of it by reaching at each process.

5. Batch costing

Costing is done for unit, which are produced in bulks.

6. Contract costing

Costing has been made sure for jobs which includes heavy expenditure. It is also called terminal costing.

7. Job costing

In this method, cost rely on the work order separately which has its each stipulation. In this method tailor made products also falls in.

Capital Investment Appraisal

Interpretation:

Looking into the above interpretation it is seen that average payback period is having the suitable number of net present value or commonly known as NPV. The number is in positive value which is indicating that the earning that are generated from the investment is exceeding the cost that has been anticipated before. Followed by that it is seen that this investment is profitable in future as per the calculations. It is dependable on the investor to choose sides onto which investment they will be choosing that is beneficial for them and can result in good profits.

Payback period:

1. Proposal 1:

Payback Period: 1.667 years

Discounted Payback Period: 1.953 years

Cash Flow Return Rate: 36.93% per year

2. Proposal 2:

Payback Period: 3.083 years

Discounted Payback Period: 3.556 years

Cash Flow Return Rate: 25.02% per year

3. Proposal 3:
4. Payback Period: 333 years
5. Discounted Payback Period: 873 years
6. Cash Flow Return Rate: 43% per year

4. Proposal 4:

Payback Period: 2.889 years

Discounted Payback Period: 3.580 years

Cash Flow Return Rate: 23.11% per year

The above case is having investment appraisal technique that includes all the major features such as internal rate of return, payback period, profitability index and net present value. Followed by that it is seen that proposal 1 is the most profitable out of all the mentioned proposals because of the rate of return it is providing. Even the payback period is less than all the proposals that is completely showing that proposal 1 is the most relevant for the profitable purposes.

The main aim of rate of return in accounting purpose is to look into the measuring side of the expected profit that the business can be having from the investment. It is working on the total accounting profit that is coming from the investments as a percentage of that capital investment. This is defined as return on capital or return on the investment. Followed by that net present value is focusing on the discounted future cash outflow and inflow that is related to the project. It is mainly the weighted average cost or commonly known as WACC that is the main factor in all the discounts and within the future values of cash flows. In essence, this method sums up the discounted net cash flows from the investment by the minimum required rate of return & deducts initial investment to give the ‘net present value’. The company should accept the project if the NPV is positive.

Business Plan

Business plan is used to describe that how your business is going to operate, the budgets are used to foresee how an organization is going to spend the resources and utilize them to generate revenue. Budget is the operating plan for the company for coming period and it interprets the management’s plans in quantitative data (Honig & Karlsson). The variance analysis is used to determine the difference in actual and budgeted amounts which then deals in identification of reasons behind them. The company has problem with the budget control report as the number of budgeted units were not clearly mentioned in the budget which led to the over production of 1000 of units and resulted in further cost increase. The annual budget process implementation would help management in identifying their resources and project their income for the next year, also the expenses can be budgeted in an appropriate manner (Mason & Stark, 2004). The budget control report allows the management to sort out the variance one by one in terms of cost and revenues and furthermore it also shows the variance in overall figures. The company Ntech has adverse variances in almost all cost because the management was nit efficient enough to prepare and understand the importance of budget. The budget application could help company is determining the level of activity and resources utilization to maximize the profitability however due to lack of better panning, the company’s variance remained negative.

Balanced Scorecard

Balanced scorecard is a model of strategic planning and system of management that is working in the organization for the communication and accomplishment of tasks with prioritizing the projects. It is having many benefits because of which organizations are using them. Firstly it helps in designing a strategy map for the business that is having both cause and effect relationship. This is showing the business the scope for a particular even and helps in defining the objectives of the same. These strategic building an interlinked and helps in defining the outcomes of the business goals. Followed by that execution and communication in the organization becomes strong. Both the internal as well as external strategies of the business is defined with prolonging impacts. This can also help the stakeholders of the business to come forward and get an idea of where the company is currently standing in terms of its profits and benefits. The projects in the business are aligned in a better way where the initiatives are taken mostly focusing on the delivery of strategic objectives. For the key performance of in the organization it becomes vital that better information system is available that becomes viable in the working format for regular or high quality management of the work in the whole decision making process. The performance report can be designed in a better way with the help of performance report as it is having the dashboards and other systems that can be focusing mainly on the reporting of the work guiding within the strategic issues that the business is facing because of its communication and other execution of the plan. Organizations have to assure that all the plans should be executed with a well developed business plan and support system functions which are having the same goals as the business is having and make sure that the strategy of business and its operations is attained timely. A system that is well implemented such as balanced scorecard often focus on other aspects of business as well such as analytics, budgeting and risk management with all the strategic priorities with the business. This can help the business is defining relevant strategies that are focused for the organization. On the whole it can be seen that the business scorecard itself provides the basis for the organization to develop well performed channels that can be used for the stakeholders of the business as well as the management to evaluate the performance and looking into the goal achievement process regarding the same.

Conclusion

In to the concluding remarks it can be seen that business is having making important and focused goals that has to be interpreted at all levels. Followed by that it is also important for the progress of business that they should be applying management accounting and its terms with a strategic goal. This paper has discussed the difference between management and financial accounting and the main aspect that is seen in this whole scenario is the working of financials that is used by the management to forecast the future decisions of the business. For instance, if the company is having higher receivables they have to focus on eliminating the lead time so their debts in terms of liquid money can be known. Followed by that it is vital to know the appreciation technique and for that future costs should be known. There are different proposal regarding the net present and future values which is having the cost of different investments for the business. Lastly, balanced scorecard is helping the business in strategizing the methods and ways through which the goals of business can be met.

References

Dunk, A. (2011). Product innovation, budgetary control, and the financial performance of firms. The British Accounting Review.

Honig, B., & Karlsson, T. (n.d.). Institutional forces and the written business plan. Journal of management, 30(1), 29 48.

Mason, C., & Stark, M. (2004). What do investors look for in a business plan? A comparison of the investment criteria of bankers, venture capitalists and business angels. International small business journal, 22(3), 227 248.

Motevakel, P. G. (2018 ). Demand side energy management in an administrative building by considering generation optimization. Smart Grid Conference (SGC). doi:10.1109/sgc.2018.8777752

Perspective and costing important in cost effectiveness analysis. (2020). PharmacoEconomics & Outcomes News. doi:10.1007/s40274 020 7033 9

Richardson, A. J. (n.d.). The Role of the Management Accountant, 246 261. doi:10.4324/9781315673738 16