Table of Contents
Management accounting is a branch of business that may be described as a career or specialization involving decision making and provision of the financial report in an organization. It is important that a careful analysis is carried out, since decisions are made under conditions of uncertainty. One single decision can have an everlasting effect on business premises some of which can even lead to the closure of the business. It supports the need for having a management decision making. A management accountant is provided with all the objectives of an issue arising within the business and has to provide an account of it. It is mainly involved into the provision of information dealing with accounting issues by managers within institutions and organizations. It improves the decision making process within an organization since it equips managers with better management ideas. In some instances, it may be used in allocating scarce resources. Information that aids managers in controlling the firm may also be provided through the management accounting. It is an important feature in today’s organizations. Management accounting systems should be developed since they are more consistent than human beings. The main aspect of it is that it focuses on the future rather than the past. It involves carrying out of a thorough research and analyzing the results. It extends to strategic management, performance management, and risk management. As a result, a management accountant will prepare and present decision-driven information to the managers of the institution. The role of a management accountant is difficult to define clearly in any institution since it is a collective thing that has to involve many people. However, it requires an individual who will provide the required information in time.
Sources of Information
In an institution, there are many sources of information for managers in order to evaluate it and plan for the future. Information may be obtained from such areas as the treasury, marketing, valuation, marketing, past experiences, and current market trends. Data may be discrete or continuous depending on the organization. It may also range from the sample to the population data. In case of the population, people are interviewed and a report with findings is generated.
The main source of information that aids the management accounting is the production line of the organization. Most companies are rated by the amount of services and goods they produce. In most cases, if the production is low, then the returns or profits of the institution will be low. In case the management wants to expand the company, then information from this field has to be considered. It may range from the capacity it can handle in terms of current production rates of the organization. When a report is generated by the production manager, a wide range of decisions can be reached from the resulting information. Such information may be used by company managers and owners while determining the effectiveness and efficiency of the companies.
Other departments will also provide reasonable information. For instance, the sales department may be considered. It will give a detailed analysis of all sales that the organization has made within a particular time frame or the one requested by the management. Information in this department may range from gross sales and returns to discounts offered to customers.
The economic resources that the organization owns can also be a good and reliable source of management information. They may include labor, machinery, capital, raw materials, and manufacturing overhead. Raw materials may be described as main economic resources that a company uses for its manufacturing and production. It is the work of management accountants to review information concerning the best possible raw materials. It includes their availability, cost, and how often they will be required. This evaluation ensures that the organization acquires the best possible resources. Labor is another company’s valuable economic resource. It is through labor that raw materials are converted into important consumer products and goods. In short, labor may be described as a productive activity for economic gain. Labor has to be provided for the existence of the production in the company. It is for this reason that it has to be considered before any decision concerning the future is made.
It has to be available and effective if the company intends to make any reasonable progress. Machinery will improve the efficiency if it is properly and effectively utilized by an institution. That is why, machinery has to be analyzed and evaluated before making any decision. The cost of buying and maintaining machinery can be very high and can lead to the company’ losses. However, all this can be turned into profits through good management accounting.
The economic market has to be considered prior to generating any management reports. The market demand and supply of a particular product or service should be studied before coming to any conclusions. Every manager or owner wants to get the analysis of the market before embarking into any decisions. There is no need for a company to increase production in a market that is over flooded with the product. That would be a poor decision since there would be little or no buyers at all. It is also important to consider and analyze how the market reacts to the products and services of the company. If the reception is poor, then measures should be taken to improve the products. The market demand is also an important aspect that needs to be considered.
Data may also be gotten from the workers within the company. They are the source of most information within an organization. Production levels will definitely become low if workers have a poor attitude. A meeting should be organized if workers appear to be low on morale. An inquest should be able to generate information that can be of high importance to the organization.
How the Data Is Used to Make Management Decisions
Data from the economic market should be keenly considered. It can make or destroy a business. In case of low demand, the company will have to lower its product levels or else risk the losses for the business. In the real world, there is not a single business that has an intention or goal to experience a loss. Every business owner or manager has his or her mind focused on making as much profit as possible. If the demand is high, then managers will be prompted to consider increasing the production. When customers appear to be responding negatively to the company's products, then management accountants should try to investigate and find out if anything is wrong with the products. It may be as a result of high prices that may be evaluated and lowered in order to suit both the company and the customers’ needs. Also, the low quality of the product might be an issue. It will prompt the company to improve the quality of the products and services. When the labor is poor, a manager should consider motivating workers who are the main providers of labor. It may be achieved by rewarding the most active staff members and also by offering other incentives to reward them. In case of the competitive market, a shrewd company management should come up with marketing strategies that will improve its competitiveness. Generated data helps the management to make the best possible decision concerning issues like the management of the company resources.
Such an issue as high market demand should be considered as well. When the organization learns about high demand, the most likely action is that it will try is to increase its production in order to cater for the deficit in the market.
Management accounting is an important aspect of any business that deals with the better use of the organization’s resources. The possibility of the organization overspending on a certain resource is very low. It is due to the fact that there will be the adequate knowledge about most resources that the organization requires. Since it involves studying the market trend, it is highly unlikely that the organization will experience losses on issues arising from overproduction. As a result of this, efficiency and quality of the production are greatly improved in terms of the cost performance. Management accounting also plays a huge role in motivating the staff. Most notably, managers will be motivated in the reasonable business. It is also clear that most problems within the organization have to be solved through management accounting. It will involve stating a problem, developing a framework to diagnose the issue, collecting data about it, coming up with alternative solutions, and then developing an action to solve it. The management should then sit back and monitor the progress of the effect of the solution. If it does not work according to the plan, alternative methods should be tried.
Data resulting from the management accounting greatly influences the decision making process within the organization. All that is needed is the awareness of what is going within and outside the organization as it can help in gathering very important data. It is for this reason that the management accounting is such an important field in any organization