Management Accountant
Discuss About The Australian Journal Of Business Management.
As a newly appointed management accountant of the GEK Technologies, I had a meeting with Director Daniel Bryant, because of that I was tasked with preparing a report to the director highlighting some of the benefits GEK Technologies will derive by employing a management accountant.
The firm was set up in 2006 by Engineer Bryant and specialises in the production of high quality though relatively cheaper unmanned aerial vehicles for public market as well as the entertainment industry.
A management account plays a key role in decision making process, he assists the top managers understand the financial condition of the firm by interpreting the financial information. A management accountant possesses special skills which is a combination of accounting, fiancé and management (Agostino and Arnaboldi 2011). The management accountant has more of management duties than the financial accountant, collaborating with the top managers to assist analyse data related to costs and revenues of the firm (Clinton and White 2012).
Even though the firm has been successful to date addition of a management accountant to their ranks will yield several advantages:
Organising accounting duties, the management account has a key role in ensuring an accounting system is put in place that helps cater for costing, pricing and resource allocation activities (Burns and Baldvinsdottir 2005). In addition, he assists with the budgeting process. These skills will be ideal for improving GEK Technologies decision making process.
Control, this is one aspect of management that will assist steer the GEK to the right direction in cases where deviations are experienced. The accountant role is to set the budget monitor actual performance and make comparisons to assist the firm offer remedy to loss making experience.
Interpretation, occasionally the managers may not possess accounting skills. With his vast knowledge in accounting as well as management duties the, management accountant bridges the gap and assist by interpreting financial data to the managers (Baldvinsdottir, Burns and Scapens 2009). This way the performance of GEK management team is set to improve.
Activity-based costing is a costing system that allocates overhead costs based on the activities consumed by products during the production process. The system is very effective in complex business environment that is characterised by massive use of technology. The GEK Technologies heavily depends in technological innovation and production to assist it secure competitive advantage in the market. With this the firm incurs massive costs such as product testing, computer monitored operations, inspection and a lot of others. Since these activities normally involve more than one product its only effective that they are allocated using the ABC system (Baykaso?lu and Kaplano?lu 2008).
How the management accountant can improve the performance of GEK Technologies
The advantages of ABC costing are derived from how overhead costs are treated under the system
Evaluating the cost of activities, putting in place the ABC system will enable the firm to track the activities associated with an item or a service. This way wasteful activities can be eliminated from the production line (González-Gómez and Morini 2006).
Analysing consumer profitability, even though most of the costs relating to consumers are product costs there are overheads involve to a certain level. For instance, customer service level and product return handling. The use of the ABC allows the managers to trace these costs and eliminate loss making clients (Majid and Sulaiman 2008).
Monitoring distribution cost, as a manufacturing firm the frim relies on several distribution channels to ensure its products reach the consumers. Examples by use of the internet, retailing and distributors. The major component of distribution cost is the overhead cost. ABC allows tracing of overhead per distribution channel hence allows the managers to monitor and regulate the channels. This way the firm can concentrate on the channels that offer optimum revenue (Schulze, Seuring and Ewering 2011).
- The cash budget
This is an accounting document that contains details of the projected uses and sources of cash in the firm. The cash budget assists the managers have a view of the expected future cash situation, this way they can determine if the cash available will be enough to cater for the intended operational activities. In cases where deficiencies are expected the manager is responsible for identifying alternative sources of cash. The inputs in the cash budget are derived from other budgets.
The cash budget has two wide features: sources and uses od cash. Any surplus between the two components calls for investments decisions while deficits calls for financing decisions.
Cash and profit are totally different terms. Occasionally budgets are prepared using the accrual basis of accounting this makes the master budget to vary from the cash budget (Georgieva 2014). The cash basis of accounting does recognise revenue when received and expenses when paid. This makes it necessary to adjust reconcile the accrual and cash basis as away of projecting the future cashflow of the organisation. The preparation of the budget needs to accommodate all other expected capital expenditure (Palepu K., Bernard and Healy 2000).
The cash budget gives a look at the future cashflow, this way GEK Technologies will be able to identify financial deficits and seek additional funding in advance. Also, it enables surplus funds to be directed to appropriate investments which will increase profitability. This prompt actions allows for continuous smooth running of the firm’s operations (Watt and Traynor 2013).
- The sales budget
Activity-Based Costing
This is a document that estimates the future sales demand quantities and price
In its preparation GRK Technologies should factor in the following issues (Putthiwanit 2011):
- Past trend
- Sales reports
- Market survey
- Economic conditions
- Production cost
- Expected product profitability
- Analysis of the SZI offer
The internal production requires $ 325 per unit of video camera this cost is composed of the variable component and the fixed component. On the other hand, purchasing of the cameras from SZI will need $ 255 per unit. By taking this deal the company will still spend the fixed manufacturing overhead and thus will bring the total cost per unit to $ 266.
In conclusion the firm should accept the offer buy SZI to supply the video cameras. The deal by SZI reduces the expenses on the cameras from $ 325 to $ 266 per unit saving the firm $ 59. See appendix for details.
Implementation of the ABC system in GEK Technologies
The process below indicates the steps that GEK Technologies need to put in place to ensure effective installation of the ABC costing system;
Cost identification, this involve recognising overhead costs that the firm is interested in allocating. This ensures only costs that are associated with the product are identified.
Loading of the secondary cost pools, this entails creating cost pools for those overheads involved while providing services to other sections of the firm associated with direct production.
Loading of the primary cost pools, this entails generating cost pools for overheads incurred while directly producing items or offering services.
Activity driver measurement, involved data collection regarding the activities that takes place during the production phase.
Allocating costs in the secondary pools to the primary pools, the activity drivers are used to assign the secondary overheads to the primary overheads based on proportion of activities consumed.
Allocating costs in the primary pools to the items, the final part of the ABC costing is using the production activities to assign the primary overheads to the produced items.
Once this process is completed reports can be generated for use by the managers to make strategic decisions that will guide how the firm handles pricing, marketing and selling activities
Conclusion
Efficient operation of an organisation deeply depends on the managers ability to make use of the financial information of the firm. This calls for a bridge that will assist prepare the information and interpret it. The management accountant being an individual with a vast knowledge in management, Accounting and finance is the perfect fit to offer this service. Through proper costing and financial interpretation, the GEK Technologies’ managers can make more informed choices.
References
Agostino, D. & Arnaboldi, M., 2011. How the BSC Implementation Process Shapes Its Outcome. International Journal of Productivity and Performance Management, pp. 99-114.
Baldvinsdottir, G., Burns, J. N. H. & Scapens, R. W., 2009. The Changing Roles and Changing Discourse of the Management Accountant: 1980-2008. , s.l.: HEC Research Seminar.
Burns, J. & Baldvinsdottir, G., 2005. An Institutional Perspective of Accountant’s New Roles – The Interplay of Contradictions and Praxis. European Accounting Review, pp. 725-757.
Clinton, D. & White, L. R., 2012. The Role of the Management Accountant: 2003-2012. Management Accounting Quarterly, pp. 40-74.
Georgieva, K., 2014. Financial Report 2014, s.l.: European Commission.
González-Gómez, J. I. & Morini, S., 2006. Activity-based costing of wine. Journal of Wine Research, pp. 195-203..
Majid, J. A. & Sulaiman, M., 2008. Implementation of activity based costing in Malaysia. Asian Review of Accounting , pp. 39-55.
Palepu K., Bernard, V. & Healy, P., 2000. Business Analysis & Valuation. Using Financial Statement, Cincinnati : SouthWestern Colege.
Putthiwanit, C., 2011. Buyer Success and Failure in Bargaining and Its Consequences. Australian Journal of Business and Management Research , p. 83–92..
Schulze, M., Seuring, S. & Ewering, C., 2011. Applying activity-based costing in a supply chain environment. International Journal of Production Economics, pp. 716-725.
Watt, N. & Traynor, I., 2013. EU agrees historic budget deal after all-night talks, London: The Guardian
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