The Process of a Management Accounting - Essay Example

? Management via Accounting Management accounting is the process through which information concerning the economic activity in an organization is measured and reported, in order for managers to utilize it in planning, performance evaluation, as well as, the control of operations. It can also be said to be a combination of accounting finance, as well as, management with the aim driving a business that is successful with leading edge techniques. The system of management accounting in most cases feeds into the system of financial accounting. The system of product costing is particularly used to assist in determining the amounts in the inventory balance sheet, and the income statement cost of sales. The information gathered in management accounting is mainly financial in nature, as well as, dollar dominated, although in most cases, systems of management accounting collect and report information that is non-financial as well (C?adez? & Guilding, 2007). This essay is a review of the operations of management via accounting in modern enterprises, as well as, an analysis of the way in which management via accounting can be utilized to maintain low fuel costs while ensuring safety. Management accounting emerged as an activity that was significant for the first time during the initial revolution of industries, in the enterprises and industries that were leading in those days. As such, financial accounting led to the rise of management accounting, which has its origin in its European merchant stewardship role of trading venture that began in Italian Renaissance, as well as, tax records that have apparently been required by governments for the duration that they have existed (Abdel-Kader, 2011). In the book The Visible Hand by Alfred Chandler (1977), he argues that the history of American business can be categorized into two phases that are separate, one representing the market economy which is what economists characterize as perfect completion, and the other phase represents managerial capitalism. The new structure of line-and –staff, after it has been merged with the new process that is continuous of producing, as well as, analyzing accounting and information that is statistical, allows information and plans in the enterprise to flow up and down (Chandler, 1977). Some of the ways that management via accounting enables managers to deliver economic, efficient, as well as, effective outcomes in a line-and-staff structure, is by Lowering Internal Transaction Costs This involves the lowering of the transaction costs internally through the routinizing of the units transactions. With the use of the modern technology the great volumes can make it possible for the costs of transactions to be lowered. Regardless of whether the program priorities are long-term or short-term, the management planning aspect is a vital success and productivity contributor. Every management needs to identify a course of action the organization should take from the alternatives that are available. In order for the transaction management to be operational, as well as, of value more application case studies are required. Through specialization as a result of economies of scale, production shifts to where it is relatively cheapest (Hurt, 2013). Reducing the costs for information on markets and supply This happens through linking the administration that produces units with that of buying, as well as, distributing the units.The price marketing system is the device of coordination that caters for allocations. The price that makes a balance between the demands of consumers and the supply by the producers is achieved through market interaction. This market interaction is what is basically referred to as the invisible hand. A consumer’s demand, on one hand, for a commodity highly depends on the price of that commodity to a large extends (Needles, Powers & Crosson, 2011). More rapid cash flow and payment Through the management systems companies promote specialization that is suitable for sustainable development. The more rapid cash flow and payment to and from customers and suppliers have seen the modern enterprises replace the small traditional enterprises. These business enterprises have as a result become powerful and rich possessing the power which affects a country’s economy directly. The management of the company plays an impact that is significant to the resources allocation. The company; Determines the objectives line items necessary Determines each line’s financial amounts in line with policies Determines the overhead, surplus, as well as, the profit margins Determines the revenue anticipated from fees, grants, contracts, gifts and so on (Roos, 2011). In conclusion, even though all these aspects are critical ways that management via accounting enables managers to deliver economic, efficient, as well as, effective outcomes in a line-and-staff structure, thelowering of the transaction costs internally through the routinizing of the units transactionsaspect is the most important among them. This is because in the strategy is formulated to ensure that there are checks and balances in the market for demand and supply. Chandler indicates that before the modern enterprises arose, the small firm that was personally owned was a single unit, charging an economic function that was single, as well as, operating a single line product in a particular location. The activities were thus coordinated, as well as, controlled by the market and the pricing systems which are in contrast to the modern business enterprises that have administrative offices tasked with handling a variety of products and services, as well as, operate various economic activities in diverse areas. Ryanair management via accounting Management via accounting in Ryanair was founded in 1985 and is now one of the leading low cost airlines. Under Michael O’Leary, the chief executive, Ryanair currently flies over 1600 routes in 189 destinations transversely over 29 countries in Europe, as well as, in Northern Africa. Its aircrafts are exclusively Boeing 737 and it has close to 410 of them currently. The airline reported for the year ending 31 March 2013, € 4,884 million Total Operating revenues, € 4,165.8 million Total Operating Expenses and € 569.3 millionProfit after Tax (Ryanair Holdings, n.d.). The airline operates its business managed as a single unit of business with a single fleet of aircraft deployed through a single route scheduling system. The uniformity of its fleet of aircrafts is designed to enable economic, effective, and efficient delivery of flights that are low cost. For the airline to be able to achievethe low cost strategy, it ensures that the flights are as full as possible so as to deliver profits (Creaton, 2004). Since the fares of this airline have to be low, the critical focus of the management is poised at reducing the costs of operation wherever possible while at the same time ensuring that there is no compromise on safety. For instance, the management could negotiate for lowest-cost contracts with the airports, as well as, make use of the staffs’ time as efficiently and effectively as possible through reducing the check-in time they require by incentivizing the passengers to print the boarding cards for themselves (Wright, 2013). Additionally, through increasing the time it would take to reach a certain destination average sector length by decreasing the speeds is also a strategy that is effective in the cutting of fuel costs. Fuel represents approximately 47 percent of the cost base of Ryanair, which is higher in proportion compared to most of the other carriers due to its cost structure that is low. Flying slower within parameters that are safe enables the Ryanair aircrafts to make more savings. It represents €80 million to €100 million in its annual saving (Calder, 2013). The other strategy employed by Ryanair is increasing the seat capacity of their aircrafts. This ensures that the revenue deficit that would otherwise have been lost is somehow compensated by the additional seating capacity. Replacing more aircrafts with the new fuel-efficient generations would make Ryanair less vulnerable to the high prices of fuel. Additional expansion of destinations would link back directly to capacity management. There is also to for improvement in staff verses customer interaction. There has been numerous complaints concerning staff training, as well as, that is inadequate against Ryanair. Therefore the airline needs to employ improvements on its information and booking. The low fares offered by Ryanair are aimed at stimulating demand, especially forms leisure, as well as, business travelers who are conscious on the fares but might have otherwise used other forms of transportation that are available or would have failed to travel altogether. The airline sells its seats on a one-way basis eliminating all travel minimum stay requirements on scheduled Ryanair services, in spite of the fare. The fares in Ryanair are set on demand basis for particular flights, as well as, in reference to the remaining period to the departure’s date of the flight, with flights with higher demand levels charging higher fares as the date of departure approaches (Adams & Creaton, 2004). The other strategy of Ryanair is deliver the best customer service experience as it strives to be punctual in take offs and landing at the destinations. This is achieved by focusing strongly on service executions, as well as, operating from airports that are not congested. Ryanair also provides point-to-point services frequently on short-haul routes to airports that are secondary and regional in and around centers with major populations and travel destinations. The short-haul routes make it possible for Ryanair to provide frequent services while eliminating the frill services necessity otherwise expected by longer flight customers. Point-to-point flying enables Ryanair to make direct nonstop routes thus avoiding the costs of through service for customers who are connecting, plus the transfer of baggage costs, as well as the passenger assistance costs (Creaton, 2007). In conclusion, Ryanair prefers to use the secondary airports with transportation that is convenient to major population centers or regional airports. Secondary, as well as, regional airports are mainly uncongested unlike the major airports and can thus be expected to higher on time departure rates, turnaround times that are faster, fewer delays on the terminal and more airport access that is competitive and handling costs. The management of Ryanair believes that its operating costs are amid the lowest and strives to control four of the major expenses that are involved in the running of major scheduled airlines which are the aircraft equipment, the productivity of the personnel, the service costs of customers, and the airport access, as well as, handling costs. References Chandler, A. D., 1977. The visible hand: The managerial revolution in American business. Cambridge, Mass: Belknap Press. Abdel-Kader, M. G., 2011. Review of management accounting research. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan. C?adez?, S., & Guilding, C., 2007. An empirical assessment of an integrated contingency model of strategic management accounting. Cost and Performance Management in Services and Operations. Hurt, R. L., 2013. Accounting information systems: Basic concepts and current issues. New York, NY: McGraw-Hill. Roos, S.-A., 2011. Principles of management accounting: A South African perspective. Cape Town, South Africa: Oxford University Press. Needles, B. E., Powers, M., & Crosson, S. V., 2011. Principles of accounting. Mason, Ohio: Cengage Learning. Creaton, S., 2007. Ryanair: The full story of the controversial low-cost airline. London: Aurum. Creaton, S., 2004. Ryanair: How a small Irish airline conquered Europe. London: Aurum Press. Ryanair Holdings., n.d. Annual report and financial statements - Ryanair Holdings. Dublin: Ryanair Holdings plc. Adams, R., & Creaton, S., 2004. Ryanair. The London Review of Books, 26, 17, 30. Wright, O (2013, May 17). ‘Join Ryanair! But we’re only paying you for nine months a year’ The Independent, pp. 3. Calder, S. (2013, August 1). ‘No baggage, slow flights, cheap planes… how Ryanair keeps its profits sky-high’The Independent, pp. 9. Read More