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Management accounting system - Essay Example

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In the simplest sense a cost management system (CMS) is a set of methodical procedures designed at generating cost estimates that are precise enough to match actual costs (businessdictionary.com). It is specifically designed to identify, measure information that will be beneficial to internal and sometimes external stakeholders of a company…
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Download file to see previous pages A cost management system for Skytop would provide information to make life easier for all involved.Cost accounting system will assign costs (costing) to specific products (meals, room per night, gaming machine round, etc.) and services (cleaning, room service, meal preparation, etc.) and other cost objects as identified by management. This in-turn will satisfy the financial reporting requirements then management decision-making essentials. For example the General Manager gets to know the actual cost of a room to make the pricing decision; the HR Manager is informed of the actual cost of each staff (salary, benefits, etc.) for HR related decisions; the Marketing Manager would be able to find out actual profit (revenue from the campaign minus the actual cost of the campaign) generated by a specific marketing campaign; the respected owners will be informed of the actual cost of keeping a hotel and would be able to make related decisions.
Operational control system on the other hand will provide accurate and timely feedback concerning performance; the activities that should be performed and evaluation of those activities (controlling). Furthermore it concentrates on finding scope for improvement and aids in the planning process. In other words helps planning realistic budgets (uses information from cost accounting system as well) and accordingly enables performance control. For instant all managers will be able to compare budgeted costs to actual costs, understand the difference and thereby use the information to find means of improvement e.g. cost cutting, hire new staff, changing the menu policy, etc. The owners too can conduct performance evaluations of the management, measure actual return on investment and assess hotel’s growth in financial and non-financial terms. b) Type of information required For efficient function of the system the management will be required to gather variety of information both financial and non-financial. The sources of this information could be from both internal (within the company) and external sources (external environment for comparison purposes). The internal information from within the company which are financial such as cash flows, labor charges, material costs etc Also non-financial information such as time records (labor hours, meal preparation time), stock levels, quality measures, customer feedback ratings, etc. The external information from the environment would typically include global competition, growth of the hotel industry, advances in information technology, advances in the food preparation, customer orientations, new product development, total quality management, time as a competitive element, and efficiency. Depending on the budgetary control system and the reporting system that is used these information would be required regularly on daily, weekly, monthly and even yearly basis. c) Key cost drivers A cost driver is an activity or factor that originates costs. Activity based costing which is considered to be the most realistic and accurate method of costing requires identification of cost drivers. Thus, ‘Number of rooms’ night’ and ‘number of stays’ is two of the key cost drivers that are widely used in the hotel industry (Pavlatos & Paggios, ...Download file to see next pagesRead More
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