Management Accounting Techniques

Topics: Management accounting, Cost accounting, Management Pages: 13 (4217 words) Published: November 4, 2014
1.0 Introduction
For the recently research from the chapter1-introduction to managerial accounting (n.d.) has shown that the Institute of Management Accountants describes managerial accounting supports the decision making process through planning and controlling operations. Planning primarily appears in the budgeting process and Controlling occurs when managers compare actual performance with budgeted amounts to identify differences and then act upon differences that appear to be significant. For example, manufacturing companies use management accounting techniques to assess their operations such as budgeting, variance analysis and breakeven analysis. These methods help organizations to plan, direct and control operating costs and to achieve profitability. Furthermore, Management Accounting Practices (MAPs) can be dividing as 3 topics which are risk management topics, Performance management topics and performance measurement topics. Besides, risk management topics can be defined as the ability to evaluate the strategic, operational, and financial risks and ensure that these are adequately measured, managed and controlled as well as establishing appropriate governance. For instance, this includes internal control evaluation and risk reduction strategies and governance activities. The ability to set performance targets and implement appropriate systems to support decision-making and monitoring of performance towards the achievement of these targets are belongs as the performance management topics. Moreover, the performance measurement topics defined as the ability to evaluate performance consistent the organization’s established strategy and targets. Below are a number of distinctions between financial and management accounting can be made which are as follow: Source: Figure1-1 Comparison Of Financial And Managerial Accounting, n.d. *

In addition, the types of decisions made by managers rely substantially on accounting information like management accounting practices. We are further discuss the 5 MAPs at below such as ABC, TQM, JIT, standard costing and budgetary control which used by manufacturing industry. Because of the financial accounting information does not provide enough detail for internal decisions, it must be broken into more detail of the individual products or services provided by a company. “Not only do managers need to know the cost of a product or service, they need the costs broken into smaller components so they are able to perform ‘what-if’ analyses and forecasts for the future” stated by (chapter 1-Introduction To Managerial Accounting, n.d.). For example, some types of decisions which managers often make include pricing products, dropping a product or product line, buying new equipment to replace old, evaluating the performance of managers or divisions of a company, or making rather than buying a part or product. So, the two primary functions of managerial accounting are planning and controlling. Both of these help managers accomplish decision making.

2.0 5 management accounting practices:
2.1 Activity Based Costing (ABC)
An Activity Based Costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods. Williams et al. (2010) defines ABC as “an overhead allocation method that uses multiple overhead rates to track indirect costs by the activities that consume those costs.” Indirect costs, such as management and office staff salaries are sometimes difficult to assign to a particular product produced. For this reason, this method has found its niche in the manufacturing sector. Besides, ABC is used to identify the cost of a product or service within the activity. ABC is perceived to be a better method for costing a product or service based on the use of resources required to produce the product or service. ABC costing is usually used in...
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