Management Accounting in Business - Essay Example

? Management Accounting Management Accounting Managers, nowadays require information for most of the managerial functions in a company. This information comes from a number of sources, for example, economic analysts, financial analysts, sales and marketing persons and the company’s accounting system. The information they obtain adds value to the performance of the company through a number of ways. The first one is that the information is used in planning and decision making. Decisions that arise are used in improving the overall financial performance of a company, for example, increasing sales. The decisions also help in reducing cost that a company incurs in day to day activities. The second one is by assisting the management in controlling and directing the operations of the company. A company that has well organised activities achieves efficient use of resources, (Chandler, 1977). The third one is that the information motivates employees and managers to achieve the targets set. The targets are set in a participatory manner and, therefore, every worker has their views taken into consideration. The fourth one is by measuring the performance of every aspect in the business, for example, employees, managers and departments. The last one is that the competitive position of the company is gauged. This ensures measures can be taken to increase the company’s long-run competitiveness over others in that particular industry. The business thus controls a large portion of the customer share which ensures high profits. Management via accounting is so crucial today because managerial accountants are important members of any management team. Managerial accountants play an important role of providing strategic decisions as well as day to day decisions. The decision making process is complex and requires specialists from management accounting as well as other financial disciplines. The day to day operations would be very expensive and tiring if management accountants do not plan them in advance. This is what makes management via accounting very important in modern business enterprise. These enterprises use the accounting and statistical information to ensure the smooth running of business activities. Business activities that are well managed lower the internal cost of running a business. It also ensures intensive use of resources in the business thus avoiding wastage. The business is also sure that customers pay for their goods and services in time and that suppliers deliver stock and are paid when due, (Capa Centre For Aviation, 2013). Management by using accounting is a field concerned with the efficient use of data from accounts. The managers of a company or business organisations use this information to help them make decisions that assist them to better manage and control resources, with the end goal of increasing the profitability of a company, (Kieso, 2005). The use of accounting data to manage a business is often confused to be financial accounting. This is not true because of several aspects that are related to management accounting information. The first aspect is that management accounting information is forward looking. This means that managers use data to plan for the future and determine how they can control situations that seem will be bad for the company. Managers can also use this data to improve situations that appear will be favourable to the company. For example, if managers predict a certain good sales will increase by 50%, they can employ more sales staff to increase the sales to 60%. This is an example how management via accounting can serve as a good tool to increase the profitability of a company and ensure that it becomes a multi-national business. Other managers use historic information to make decisions that will affect the company. This approach might be accurate but not as effective as that from management via accounting, (Dameri, 2013). The second aspect that mangers use from management accounting is the assurance with which a plan made using management accounting data is likely to be true. This means decisions made are more accurate and, therefore, the most favourable decisions can be made. It is common for managers to make decisions but in the end achieve results that are very different from what they expected to achieve. The cause of such a discrepancy is the source of information managers used to arrive at that decision. If all managers managed their businesses via accounting such differences would never arise, (Wolcot, 2011). The third aspect of management via accounting that make it to be different from the rest is also important noting. Management via accounting designs information for managing a company that is used by managers only. Other management approaches, for example, financial accounting, contain data that used by a variety of business stakeholders. These stakeholders include shareholders, public regulators, financial journalist, creditors and financial institutions, (Rajan, 2010). In addition, a company is compelled by law to produce financial statements that are audited by a recognized firm of auditors. Contrary to this, management information used to manage a company is not in any way required by law to be published to the public. This makes management via accounting very different from other management such as strategic management. The fourth aspect of management accounting is that makes it a better management tool is that it can be highly relied for making important decisions. Such important decisions are include those that affect finances and workers. The ability to control these aspects with a high degree of assurance ensures that the performance of the company is high. High performance in terms of financial stability attracts investors into the company. High investment levels drive the growth of a company from a national company to a multi-national company, (Corkrum, 1997). The last aspect of management accounting is the fact that it is reared towards the needs of the managers. These needs include managing workers, managing finances and making decisions. This information given to managers is usually prepared using management information systems of a company that are very reliable and accurate. In addition, the preparation of management information does not use financial accounting information such as balance sheet and cash flow statement, (Weygandt, 2005). Line-and-staff structure is the term used to describe the different functions in an organisation. These activities include marketing, selling goods and services and public relations. In line-and-staff structure, management via accounting enables a company’s top management to deliver economic effective and efficient results in three ways. The first reason is because decisions that are made are achievable. For example, if a company decides to increase its sales by 10%, the line and staff structure comes up with plans that can be achieve with the lowest cost possible. The second reason for using line-and-staff structure is because they maximize profit. Efforts of workers are directed to areas that can earn profit to the company. The third reason is because the management allocates duties to workers depending to their capabilities. This ensures a worker performs what he or she is best at, (Maccarthy, 2013). The most important approach in line-and-staff structure is that which tries to balance the workers capabilities and the duties they are allocated. This ensures good decisions that are important to the business can be achieved with the available staff members. In addition, this ensures that, the staff works together to achieve the set goals and targets, (Creaton, 2004). Management via accounting can be used by the management of Ryanair limited to ensure efficient and effective utilisation of fuel by expanding the number of destinations in the world. For example, the top management can start flying to other destinations in South America and Africa. These counties have the young markets that are growing very fast. People are therefore travelling to various destinations to trade. The company can also start direct fright to various destinations. The frequent landing and taking off is not fuel efficient. The fright time is also reduced when companies have direct flights saving them time to do other profit earning activities. The company can also invest more money in the maintenance of the planes. Well maintained planes have economic utilisation of fuel and other lubricants. In addition, maintained planes take less time to reach their destinations, (Anthony, 1984). Margin of safety is the point at which a company needs to spend money until the point at which it has neither made a profit or loss. At this point, the company is said to be in a financial crisis because any slight financial requirements will drive the company into a loss. Ryanair Company can ensure that it does not reach this point by managing its finances very well by taking various measures. The first measure is regulating unwanted expenses, for example, internet use, telephone calls and workers claims. The second measure to avoid this situation is by ensuring the company reinvest profit every year. Investing profit increases the profit of a company to the extent that it can meet its expenses comfortably. Finally, managers can ensure the margin of safety by constantly monitoring the financial situation of the company, (Emmanuel, 1985). Regular monitoring ensures discrepancies from the actual plan are corrected. In conclusion, this paper has tackled a number of factors that are important in management via accounting. The first issue this paper has comprehensively addressed is the description of aspects of management via accounting that are employed by modern businesses. A company that uses such aspects of management accounting has a competitive advantage over other businesses. The second issue the paper has clearly outlined is the ways in which managers use management via accounting to achieve efficient and effective use of resources in a line-and-staff structure. For example, allocating workers duties according to their abilities helps them do activities that they are best in. finally the paper has outlined how an aeroplane company can use management via accounting aspects to ensure maximum utilisation of fuel. The company can, for example, achieve this by flying to more destinations in the world or taking direct flights instead of having to frequently take off and land along one destination. ReferencesTop of Form Top of Form Bottom of Form Bottom of Form Anthony, R. N., Dearden, J., & Bedford, N. M. 1984. Management control systems. McGraw-Hill, New York. Bartlett, R. 2013. A practitioner's guide to business analytics: using data analysis tools to improve your organization's decision making and strategy. Springer, Berlin. CAPA CENTRE FOR AVIATION. (2013). 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Maccarthy, B., & Pasley, R. 2012. Decision Making and Decision Support Within New Product Development. Aurum Press, London. Mancini, D., Vaassen, E. H. J., & Dameri, R. P. 2013. Accounting information systems for decision makin. Springer, Berlin. Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. 2005. Managerial accounting: tools for business decision making. Hoboken, NJ, John Wiley & Sons. Read More