Issues in Management Accounting - Assignment Example

Issues in Management Accounting Name Institution Introduction Modern business environment is increasing competitively and dynamically. This has increased concerns for developing a reliable system of management accounting. Managerial accounting has a responsibility that concerns provision and use of accounting information to managers within the organizations as argued by Smith, (2007 p.76). There are various strategies laid down to effectively advance the role of the management accountants as strategic partners in the organization and develop business practices concerning decision making. According to Chadwick (1998 p.106), management accountants contributes in issues concerning risk management, this involves designing framework program to identify, measure, manage, and report risks to the achievement of the organization. The manager applies professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in a way that will assist the organizations management to formulate policies, plan and control of the operation of the under taking (Hopwood, 2008 p.7). As argued by Ward (1992 p.28-9), there business benefits that comes with integrated business strategies along with other management accounting tools, firms needs to identify kind of business they are operating in. essentially identify products or services, type of customers, geographical markets and delivery channels. It is important for management to match the strategic business unit with the some of the related business unit strategy. A strategic business unit is normally a departmental organ that has distinct external market for product and services that are different from other SBU. An example of this can be a property agency, the property sales line on the Lamma Island is one specific SBU, which differs from those of the property line sales from the urban distinct village (Botten, 2007 p.47-9). Basing on the arguments made by Botten (2007 p.55), business strategy is aimed on how well it will compete successfully in the market. It remains important that the company should focus on the specific strategy, this can easily be identified if clear measures concerning cost, efficiency, profit returns on the invested venture, risks of the venture among many other elements, involved in the chosen strategy. The management target has to be aimed at elevating the company above the breaking even cost level. Collier (2003 p.12) notes that the company can achieve all these through inclusive and extensive consultation advice, derived from efficient experts support involvement in the strategy lay out. This ensures that the firm can comfortably settle its expenses effectively and spare part of its capital returns for growth development and sustainable create a vibrate business. While working on developing and monitoring business strategies for a profitable results, more emphasis should be placed on relative levels and trends in real costs, prices, volume in production, the market share, cash flow and stewardship of the available resources in the venture business (George, 2009 p.301). It is important that managers objectively point out strategies that add certain perspective value to traditional management accounting, this is required to extend the role of accounting into different directions, and the system should be designed in manner that aligns costs with strategies. Involve assertions in fair and general way compare and analyze the cost structure of competitors while monitoring changes over a given time in achieving the management can come up with distinct approaches involving company’s cost product that is perceived to give value to the customers(Drury, 2007 p.201). According to Sanghera, (2008 p.26-7), the organization execution plans should be designed in manner that would be environmental friendly. Considering already visible example in the market we can as well relate with, Samsung for example, the business strategy will be to define company’s cost leadership, in relation to the group of competitors in consumer electronics like Sony and Panasonic. The management has then to measure the promotional costs involved in launching the products, this will serve a best accountability on shared cost that will translate to the pricing strategy in the long-run (Callahan, 2007 p.33). Management can strategize through differentiation too, this kind of strategy is designed to identify competitors’ product, a unique comparison over quality, and price the competitors are offering at the market is key drive in this strategy. The company will then design a product that gives real value to customers, in this case additional costs are tolerated only if they have a feature that adds benefits to the consumers, and the firm achieves its profit through the premium value on the price set (Chadwick, 1998 p.22). The business aims according to Kaplan (2006 p.11), targets at overcoming the breakeven situation, it’s common and obvious that most business formation endeavor in earning profit, these calls for situation that increases or reduce assets, the strategy might be long-term or short-term possibly aimed at making good returns. To evaluate financial sustainability, cost benefits analysis and performance driver, designed systems are used to value how well the business is performing. Compare products or services within the firm identifying their adaptability in the market, a financial extract below can best explain the products or service adaptability (Collier, 2005 p.7). Product/Service A(cost/unit) B(cost/unit) C(cost/unit) Total cost Sales $ 3,000 $ 4,500 $ 7,500 $ 1,500 Cost of sales $ 1,500 $ 3,000 $4,500 $ 9,000 Operating profit $ 1,500 $ 1,500 $ 3,000 $ 6,000 Asset Employed $ 3,000 $ 7,500 $ 12,000 $ 49,500 Return on Sales 7.5% 30% 37.5% 12.1% Analyzing the data in the table above, it is evident that product or service C has to be adopted if the company aims at limiting resources, comparing Product C to the other two it is evident that sales, operating profit, and return on assets are the best of the three product or service options. However, in real life business the situation might be complex and that we can not base decisions only on single source but involve other factors to avoid making bias decisions (Kaplan, 2006 p.69). Comprehensive implementation in management accounting In responding to the modern dynamic and sophisticated business surroundings, it calls for new strategies in management accounting practices, Smith (1997 p.99), asserts for any management strategy that emphasize on use of accounting data and other related information that may yield good results in regards to business strategies and operations. Hopwood & Chapman (2008 p.58-9) are quick to point out that these raises need for integrated framework concerning strategic financial performance of the organization measuring quality, service delivery and customer satisfaction measures put in place within a measurable time. While executing the financial related strategies, it is quite important for managers to focus also and isolate non-financial measures that contribute to the whole picture of achieving success in the organization activities (Callahan, 2007 p.176). According to Kaplan(2006 p.26) used translating vision among other strategies to explain four different perspective , to suggest devising a balance scorecard for an individual organization in identifying the key performance measures and linking financial and other non-financial measures of performance in the organizations. Normally the balance scorecard comprises set of measures that gives senior management in the firm a detailed yet a fast view of the operations in the firm business (Smith, 1997 p.62). This may include learning and growth perspective, which involves human resource measures, like employee satisfaction, employee retention, skills sets among others. On the business process views can involve financial measures such as cost, throughput and quality. Consider operating profit return on capital employed and the economic value added. Working on the strategies is important to note the existing connection of the independent perspective; this is logical connection between them, which helps in contribution of better business processes thus adding value to the customers’ demands hence improved financial performance (Kaplan,2006 p. 11). Sisaye (2001 p.49-50) argues that management accounting, involves applied disciplines used in various industries. The specified functions and principles can vary based on the activities the management chooses to adopt, take for example in banking have specialized principles some that are common concepts similar to those applied in industry, like that manufacturing based or service orientated activities. Transferring prices can be one of the concepts applied in assigning value and revenue attributes to various business units. Transfer pricing in banking is seen to be a method of assigning the interest rate risk of the bank to different funding sources and use of enterprise (Drury, 2007 p.145). This explains normal charges assigned to the business units accounting for the use of the bank’s resources when they process loans to their clients. The situation can be reversed in case; the client gets in deposits the final rewards are in terms of credit offers to the business. Since funds transfer pricing is assigned to the applicants on loans and deposits, the same concept can be applied to all assets and liability of the business segment. This again calls for management accounting entries or adjustments in the ledger accounts; with a proper record the business units are able to produce separate financial results, which are useful to both management use and investors while evaluating the performance (Larraine, 2003 p.103). A further study proves that for a better understanding the activities the activities through which a firm develops competitive advantage, in order to create shareholders value. In this it is easy to separate business system in different series of activities that can be referred to as the value chain. Houque (2006 p.202), states that for management to yeild the required results, they have to balance between invested capital and returnsoncapital. The main objective is to offer customers a level of value that exceeds their demand for satisfaction, thereby resulting to a profitable venture collected through higher profit margins. This kind activities are commonly witnessed in business dealing mainly with logistics issues, in bound logistics is a good example, here products are received and stored in the warehouse awaiting distribution to the manufacturing as required (Collier, 2005 p.74). The other process can be through operations, the whole process involving transforming input to the finished products and services. The process can be supported by creation of infrastructure in the firm; it may include organizational structure, control systems, company’s culture among other essential elements that creates the right atmosphere for business development. Providing services after sales this boosts customer experience towards the business thus creating advocacy over the business, something that may boost efficiency and business growth (Foster, 2006 p.91). Innovative practices, cost and benefits in management accounting There arguments over the accounting practitioners and educators in the late 1980s, the criticism bases on grounds that management accounting practices had changed insignificantly over the an estimated 60 years. In to days business there radical changes that have been brought about by investing well in the management accounting, the art of practice offered by the group of professionals is increasingly viewed as superfluous in many business organization. They have devoted considerable resources to develop a better, innovative skills set for managing the financial risks, however dynamic they seem to be (Heidmann, 2008 p.307). According to Callahan (2007 p.33), argues challenging and provocative measures in business accounting calls for dynamic measures to keep up the business growth and performance, techniques can be integrated in to specified strategic decisions making process, extensive use of practical in a varied context can be introduced in business strategies concerning management accounting, initially the cost of doing resource and other elements might be expensive and time consuming. But this will serve as a clear context of strategic management that yields measurable results in the long-run. It will then be continues process of analyzing, planning and control within the relevant firm. The role of managers in these cases will involve supplying the right information to the right people at the right time (Hopwood & Chapman, 2008 p.112-3). Consider a newly formed business making an entry in to the market, of course there business threats, but at the same time there are opportunities to make profits, basing on other principles competition would most likely affect the smaller businesses. However, in the aviation industry the contrary situation has taken effect, where deregulation has seen smaller airlines enter market and successfully compete with those that have a well established capital investment (Callahan, 2007 p.67-9). Another good example is derived from the United Kingdom’s telecommunications industry, previously dominated with profound monopoly, situations has turned into a fierce competition with entrance of other telephone services, has resulted into strategic costing and planning keep pressure on modes of attaining customers settling their demands for the success of business. New business entrance has implications on expanding the number of competitors without extending the market share. As the expected customer income expenditure on particular product in given time consumption is fixed within a certain range, this will trigger competition among the firms. The management accountants strategy in this case involve creation of a unique product or service that will generate revenue to elevate above the breakeven point for sustainability (Khosrowpour, 2000 p.172). According to Bennett (2002 p.48), the increased influence in many organizations has seen a great distinction between the traditional and the innovative accounting practices, this implies to the costing techniques used. Cost accounting is a central method used in management accounting, traditionally cost accounting managers applied the variance analysis principal, which is a systematic approach compared to the actual budget costs of raw materials and labor used in production period. Foster (2006 p.56) notes that the traditional management accounting for a long has been perceived to be inadequate, since if concentrates manufacturing and neglects the high costs invested in the post-conversion activities, it ignores the impact of other activities, failure in assessing the relative cost position of the potential competitors in the deemed market, the traditional cost too over-relies on the existing accounting systems. However, in the current cost accounting practice the variance analysis is no fully ruled out, and the emphasis lies on designing costs differentiation that results in producing unique products that are attractive, this creates a chance for firms to secure a sustainable cost advantage on the long run (Botten, 2007 p.200). The costing concept together with other more innovative techniques like the life cycle cost analysis and activity-based costing, which are designed with specific aspects in modern business environment in mind. For instance life cycle recognizes the fact that managers ability to influence cost of manufacturing product is at its greatest level when the product is still at designing process in the product cycle. On the other hand activity based costing recognizes, that the typical modern factory, the avoidance of disruptive events like machine breakdown and quality control failures is of far greater importance than making moves to reduce cost of raw materials. ABC costing also develops direct labor as cost driver other than activities that drives costs provision on a service or product component (Milgate, 2004 p.5). Management accounting strategies for benefits on customer Experience Customers’ satisfaction is reveled through out come felt by buyers who have experienced a company’s performance that leaves their expectation fulfilled. According to Smith (2007 p.103), satisfied customers will remain loyal for a long time, buy more, talk favorably when it regards the firms’ product, and remain less sensitive to prices among many great advocacies favoring the producing company. The management accounting has a role in developing clear strategies that boost customer value. This is possibly achieved through interplay of customer satisfaction and building good relationships with their customers (Foster, 2006 p.76). According to Botten (2007 p.3), the investment cost in developing the relationship should remain objective and targeting long term economic returns to the company, focus on creating customer value that is manageable and one which help the firm move in the same direction as customers. Essentially for profitable measures, information concern customers that are profitable, strategies on balancing on determining and splitting marketing or advertising related costs. This calls for company’s ability to effectively combine individual customers’ analysis, and formulate a speedy response to each of the customers needs. The strategy thou costly, it has benefits that are long on the performance and growth in the business (George ,2009 p.89). Creation of customer relations calls for management responsibly managing customer value. In essence all the stakeholders, in these case groups that a particular primary interests in optimizing the short and long term returns for the organization. The key stakeholders here may include board members, planner, customer relationship mangers, IT system managers and the providers among others (Sisaye, 2001 p.56). Conclusion Business management calls for clear decision making. It may be individual or group decision, but for a comprehensive and better understanding of strategies in the organization inclusive strategies that concerns all stakeholders, for a profitable venture the strategy demands for mutual relationship among the varies units within the organization. The notion of customer value is dynamic and is bound to evolve over a given period; yes this can be a source of sustainable advantage, if a manager understood in context of the customer’s extended value chain, which may create inseparable relation between the customer and the seller, this in turn reflects improved performance of the organization for foreseeable future. References Botten, N. (2007). CIMA Official Learning System Management Accounting Business Strategy. london: Butterworth-Heinemann. Chadwick, L. (1998). Management accounting. london: Cengage Learning EMEA,. Collier, P. (2003). Accounting for managers: interpreting accounting information for decision-making. New York: John Wiley and Sons. Collier, P. (2005). CIMA Study Systems 2006: Management Accounting-Risk and Control Strategy. london: Butterworth-Heinemann. Hopwood, A. G. & Chapman C. S. (2008). Handbook of Management Accounting Research. Sheffield: Elsevier. Sisaye, S. (2001). Organizational change and development in management control systems: process innovation for internal auditing and management accounting. Bingley: Emerald Group Publishing Drury, C. (2007). Management and Cost Accounting. london: Cengage Learning EMEA,. Foster, G. (2006). Cost accounting: a managerial emphasis. london: Pearson Prentice Hall. George , M. R. (2009). Management for Social Enterprise. london: SAGE Publications Ltd. Christiansen J. A. (2000). Competitive innovation management: techniques to improve innovation performance. New Jersey: Palgrave Macmillan. Heidmann, M. (2008). The Role of Management Accounting Systems in Strategic Sensemaking. Kansas City: DUV publishers. Hopwood, A. C. (2008). Handbook of Management Accounting Research. New York: Elsevier. Houque, Z. (2006). Strategic management accounting. London: Pearson Prentice Hall. Callahan, K. S. (2007). Project management accounting: budgeting, tracking, and reporting costs and profitability. New York: John Wiley and Sons. Khosrowpour, M. (2000). Challenges of information technology management in the 21st century: 2000 Information Resources Management Association International Conference, Anchorage, Alaska, USA, May 21-24, 2000. New York: Idea Group Inc (IGI). Larraine, J. B. (2003). Partnering: the new face of leadership. london: AMACOM Div American Mgmt Assn. Bennett, J. J. (2002). Environmental management accounting: informational and institutional developments. london: Springer. Milgate, M. (2004). Transforming corporate performance: measuring and managing the drivers of business success. New York: Greenwood Publishing Group. Kaplan, R. (2006). Alignment: using the balanced scorecard to create corporate synergies. london: Harvard Business Press. Sisaye, S. (2001). Organizational change and development in management control systems: process innovation for internal auditing and management accounting. london: Emerald Group Publishing. Smith, J. (2007). Handbook of Management Accounting. Newyork: Elsevier Publisher. Sanghera, P. (2008). Fundamentals of Effective Program Management: A Process Approach Based on the Global Standard. London: J.Ross publishers. Smith, M. (1997). Strategic management accounting. London: Butherworth- Heinemann. Ward, K. (1992). Strategic management Accounting. London: Butterworth-Heinemann. Read More