ACCOUNTING FINAL 11
Businessesmake use of different managerial accounting techniques as a result ofdiffering business characteristics. For instance, capital investmentand budgeting techniques are a main characteristic of businesses attheir start-up stages whilst quality control and cost managementtechniques are mostly used by businesses in their maturing stage.Eventually, the management should use accounting techniques with thepurpose of helping the business attain short-term and long-termgoals. This is achieved through efficient decision making. This paperinvestigates the role of managerial accounting. To achieve this, thepaper offers a general overview of managerial accounting. Besides,the application of managerial accounting theories and principles inthe business world is discussed.
Managerialaccounting, also termed as management accounting, is defined as theresponsibility of finance and accounting experts in designing,implementing and managing internal systems of a business whichsupports planning, efficient decisions, and controls the valuecreation functions of a business (Clinton & Van der Merwe, 2006). In a nutshell, managerial accounting ensures that the decisionmaking procedure is effective, and this is achieved by planning aswell as controlling organizational functions. Planning is mostly usedwhen a business is making its budget, whilst controlling takes placewhile comparing real performance and forecasted amounts. Throughthis, managers aim at identifying and acting upon significantdifferences.
Roleof Managerial Accounting and the Management Accountant
Managerialaccounting aims at offering information to help organizations makeeffective decisions. Such decisions are used for the purpose ofplanning and controlling organizational operations. To a largeextent, managers make their decisions based on accountinginformation. Such decisions encompass product pricing, purchase ofnew equipment, making a product, and evaluating company or managerialperformance (Macintosh & Quattrone, 2010). Therefore, the mainroles of managerial accounting include operational control, planning,and performance evaluation (Macintosh & Quattrone, 2010).
Planningentails making decisions to enable the daily running of theorganization. The kinds of decisions made include the type ofproducts to be manufactured, the location and time of production, andthe kind of labor and materials required to attain the preferredoutput.
Performanceevaluation entails the evaluation of profitability of product lines.In this, the comparative contribution made by different managers anddivisions of the business is evaluated. In non-profit organizations,performance evaluation focuses on the efficiency of departments,managers, as well as programs.
Operationalcontrol is the other role of managerial accounting. It involvesknowing how the operations of the organizations are progressing, forinstance, work-in-process and its completion stages. Through this,the line manager is able to identify bottlenecks and maintain acontinuous production process.
Managementaccountants act as providers of operational and financial informationand as strategic partners. Their role is to manage the organizationalteam, and simultaneously report responsibilities to the finance team.Other roles of management accountants encompass planning andforecasting, carrying out the analysis of variance, as well asappraising and scrutinizing business costs. In general, they have adual responsibility to the business and corporate finance team. Someof the responsibilities in which management accountants areresponsible to both of the mentioned teams encompass operationsresearch, profitability analysis of customers, novel product costing,and scorecarding of sales management (Macintosh & Quattrone,2010). On the other hand, such functions as preparing of financialreports, financial reconciliations, and risk reporting are morehelpful to the finance team considering that they are responsible foraggregating specific financial information for the whole organization(Clinton & Van der Merwe, 2006).
Intelecommunications companies for instance, costs related toinformation technology are a major basis of uncontrollableexpenditure. It is the largest cost incurred by such companies afterproperty and compensation linked costs. Considering that informationeconomy acts as the major source of profits for telecommunicationcompanies, management accountants have a role of working directlywith the information technology department in order to offer costtransparency (Nokes, 2000). Generally, management accountants assistin driving organizational success.
EthicalIssues for the Management Accountant
Theinformation offered by management accountants is vital. As a result,they are required to observe specific ethical standards. Professionalethical standards have been developed by management accountantcorporations across the globe. According to Taicu (n.d.), theimportance of developing ethical standards encompasses:
They improve trust between the employer and the employee
They act as a guidance for management accountants who face ethical dilemmas
They offer an assurance to information users regarding information quality.
Inthe United States, the Institute Management of Accountants (IMA) isthe major management accountant corporation. IMA has developedethical standards for management accountants, which necessitateconformity to objectivity, confidentiality, competence, and integrityprinciples.
Ethicalissues for management accountants may emerge from various sourcesincluding: the need of being promoted, the need to earn quick money,personal obligations, and the expectations of the management which goagainst ethical standards. Ethical standards necessitate managementaccountants to uphold utmost principles of ethical conduct, as theyhave a responsibility to their profession, the public as well as thecorporation they serve (Taicu, n.d.)
ManagerialAccounting Techniques and Their Application within aBusiness/Organization
Managerialaccounting techniques are important as they enable organizations toset functional goals and objectives to be achieved both by managersand the personnel. The techniques can be implemented for departmentsor divisions in the organization. Through this, understandableobjectives and goals are created for every employee. There arevarious managerial accounting techniques encompassing costallocation, budgets, break-even analysis, and financial forecasts(Macintosh & Quattrone, 2010).
Budgetsare significant for any organization. However, most businesses dependgreatly on budgeting during their start-up stage. Budgets act asfinancial framework that can be used by organizations while planningfuture business spending (Macintosh & Quattrone, 2010). Thecomponents of a budget are quantities of resources, revenue and salesforecasts, liabilities, costs and expenses, cash flows and assets. Atthe start of every financial year, an organization needs to make abudget that would act as a guideline for the whole year. The budgetshould comprise of sales and revenue forecasts, profits, expenses,costs, and all other resources used by the organization.
Costallocation involves allocating production cost to every productmanufactured by the organization (Macintosh & Quattrone, 2010).This ensures that the production process is effective and continuous. For instance, a telecommunication corporation may allocate the costof a computer system to the major departments of the corporationwhere the system is used. In the manufacturing industry, overheadsare allocated to individual departments and to machine hours. Themain aim is to ensure that costs are allocated on the basis of theoriginal sources of the general costs.
Financialforecast is the third technique and it entails carrying out acomprehensive analysis of sales and economic market forecasts. It isdefined as an approximation of future financial results for anorganization. Financial forecasts use past sales and accountinginformation, and economic and market indicators and they assist inestimating the financial position of a company in a given period,typically one year (Drury, 2006).
Qualitycontrol is the procedure in which organizations assess the quality ofproduction factors. The main aspects stressed by the approach includecontrols, competence, and integrity. Controls encompass inspection ofthe products. It entails examining each product both visually and bythe use of a stereo microscope prior to presenting the product in themarket (Clinton & Van der Merwe, 2006). Products are required tomeet certain quality measures before a company can sell them toexternal customers. This implies that failure to meet such measuresputs the product at risk. Quality control stresses on product testingto reveal deficiencies and communicating the same to management.Through this, the management is able to make effective decisionsregarding releasing the product into the market. Quality assuranceaims at improving and stabilizing production as well as the linkedprocedures to minimize concerns leading to deficiencies. Qualitycontrol concerns are mostly evident in contract work given bygovernment organizations. This is the major reason as to why mostgovernment awarded contracts are not renewed. Quality control is amajor characteristic for organizations which are in their maturephase. Such organizations tend to depend greatly on quality controlin order to maintain their product quality, a major factor valued bycustomers.
TheCoca-Cola Company is one of the major corporations that considerquality in its production process. The company has been in existencefor many years implying that it is in the mature phase. Importantproduct and packaging characteristics are measured by centering onmaterials and ingredients, and regulation of production, bottling aswell as the distribution of all the company products (Lopez, 2013).This makes certain that such products meet customer expectations andcompany needs. Considering that the Coca-Cola Company has aworldwide presence, maintenance of high standards is significant inensuring constant quality, both in the production of concentrate andin the bottling and delivery.
Thecompany has developed novel management system with the intention ofensuring reliability and consistency is observed. The Coca-ColaOperating Requirements (KORE) governs the company in its dailyoperations of ensuring quality control. The management system becameactive in 2010 and it replaced the older management system referredto as The Coca-Cola Management System (TCCMS). Through KORE, thecompany is able to deal with the modifying business landscape whilstat the same time, supporting its strategic plans through the creationof an incorporated quality management program (Lopez,2013).The program ensures that similar standards are applied in alloperations including production, bottling and distribution. TheCoca-Cola Company has been able to benefit from KORE in that itassures premier quality and safety standards, environmentalstandards, as well as occupational health and safety. The managementsystem outlines understandable prerequisites for the programs,specifications, and policies guiding the operations of the company(Lopez,2013).
Budgetingis a major factor for any organization. Nevertheless, most businessesdepend greatly on budgeting during their start-up stage. Budgets actas financial framework that can be used by organizations whileplanning future business spending (Drury, 2006). The components of abudget are quantities of resources, revenue and sales forecasts,liabilities, costs and expenses, cash flows and assets.
Theoutcomes of any organization are evaluated in terms of financialachievement. This implies that the budgeting procedure is theplatform through which managers make plans and decisions regardingthe company. Planning is a key management role, and budgets aretermed as the financial plans of an organization. Through budgeting,organizations are able to know the sources of economic resources andhow such resources are utilized. Some examples of economic resourcesin financial accounting are assets which offer companies with futureprofits. Budgeting allows organizations to know the origin of suchassets and their uses (Drury, 2006). Eventually, they act asplatforms for generation of profits and cash flows forecasted bycompanies.
TheCoca-Cola Company makes budget for every financial year. The budgetincludes such elements as advertising, sales forecasts, revenueforecasts, profit forecasts, and operating income forecasts. Forinstance, the worldwide yearly advertising budget is $1.6 billion. Inthe fiscal year 2011-2012, Coca-Cola India had an operating income of$19.2million, sales of $356.9 million, Net Profits of $6.4million,and Trading Price of $63.70 (Lopez, 2013). Through budgeting, thecompany ensures that the production, bottling, and distribution ofits products flow continuously and in an effective manner.
Costingmethods delineates the ascertainment of costs. Industries usedifferent costing methods depending with the production activities aswell as the kind of business. Costing methods are classified in twomajor groups: process costing and job costing (Clinton & Van derMerwe, 2006).
Jobcosting, also referred to as terminal costing, entails the collectionand accumulation of costs with reference to jobs, products, orcontracts and these are treated as detached entities. Total cost isobtained by compiling labor and material costs, whilst expenses arecharged on predestined basis. Job costing is categorized into batchcosting, cost plus contract, and contract costing (Macintosh &Quattrone, 2010). Examples of industries where job costing is appliedencompass ship building, printing and furniture making amongstothers.
Processcosting denotes continuous operation costing. The costing method isrelevant in industries in which goods go through diverse processesbefore being changed into finished commodities (Macintosh &Quattrone, 2010). The four categories of process costing includeoperation costing, output costing, operating costing, and multiplecosting. There are various industries in which process costing isrelevant some of which include sugar industries, cement industries,chemical industries, and textile industries. In sugar industries forinstance, the raw materials go through various processes before beingconverted into sugar, which is the final product.
Fromaforementioned, organizations use different managerial accountingtechniques depending with their nature of business. This paper hasinvestigated the role of managerial accounting and it has offered ageneral overview of managerial accounting. It has also discussed howmanagerial accounting theories and principles can be applied in abusiness world. Managerial accounting aims at offering information tohelp organizations make effective decisions. Such decisions are usedby management accountants for the purpose of planning and controllingorganizational operations. Managerial accounting techniques areimportant as they enable organizations to set functional goals andobjectives to be achieved both by managers and the personnel. Thepaper has discussed quality control, budgeting, and costing methodsand their application in organizations.
Clinton,B. D. & Van der Merwe, A. (2006). Managementaccounting – approaches, techniques, and management processes.New York: Thomas Reuters RIA Group.
Drury,C. (2006). Costand management accounting: an introduction.London: Cengage Learning EMEA.
Lopez,D. (2013). Branddevelopment of Coca-Cola Company (UK).London: GRIN Verlag.
Macintosh,N. B. & Quattrone, P. (2010). Managementaccounting and control systems: an organizational and sociologicalapproach,(2nd ed.). New York: John Wiley & Sons.
Nokes,S. (2000). Takingcontrol of IT costs.London: Prentice Hall.
Taicu,M. (n.d). Ethics in management accounting. EconomicSciences,9 (15), 93-97.