Management Accounting Principles And Role In Financial Decision-Making

Designing and complying

Explaining the principles of management accounting:

The management accounting principles that could be identified are depicted as follows.

Designing and complying:

The major principles of management accounting are to identify all the accounting information, while maintaining the record report statements and the evidence of all the past and future transactions. Management Accounting allow the organization to gauge into the trend of expense and income that is obtained over the period of time.

Management by exception:

The management of exception indicates the overall presenting of information to the management regarding all the relevant information affecting the organizations progress.  budgetary control system and standard costing techniques are followed by the management accounting that helps in identifying favorable and unfavorable situations in which the organization can linger (Zeff 2016).

Accounting for inflation:

The principal of management accounting is the measure of inflation that needs to be conducted by the management. Profits of the organization is only maintained intact if adequate capital is being maintained in real terms. Therefore, the organization needs to understand the impact of inflation on the capital of the organization. hence the owners need to evaluate the business on real term value to the revaluation accounting method. this would eventually help in accommodating the inflation rate, while helping the management to identify the actual business success obtain throughout the years.

Forward looking approach:

Management Accounting relatively allow the management to identify future problems related to standard costing techniques, which could hamper the overall profit of the organisation. The forward-looking approach the relatively allows the organisation to understand the problems that might can go in future and prevent them to conduct their operations. Therefore, adequate measures are taken in the current state to minimise the negative impact of future obstacles.

Controlling at source accounting:

Management Accounting helps in identifying the source of all the relevant cost incurred by the organisation, while conducting their operations. The control on cost is a relative principle of management accounting as it allows the organisation to minimise expenses and maximize the profit overtime. In time the overall control can be exercised on service providing devices, employees and materials used by the organisation in their production function (Renz and Herman 2016).

Role of management accounting and management accounting systems:

The major role of Management Accounting system is depicted as follows.

Cost accounting:

The role of Management Accounting is to identify the relevant cost accounting measures, which could help him improving the cost of product, process, and project. In addition, with the help of cost accounting major companies are able to identify the actual cost incurred in its operations. This relatively helps in depicting the actual expenses in the financial statement which would allow the stakeholders to make adequate investment decisions.  role of management accounting is to portray the accurate cost to the management for making adequate decision before accepted or rejecting a particular project. The cost accounting measure allows the organisation of segregate all the relevant cost and detect whether any kind of improvements can be conducted for reducing their expenses (Scott 2015).

Management by exception

Inventory management system:

Management Accounting system also focuses on the inventory management system which is used by the organisation to control its orders. With the help of inventory management system adequate supervision and control over the purchases and production of relevant product is controlled by the management. This relatively has the company understand the level of products which is being sold in the market and the products that are being stored. The inventory management system helps in detecting the level of production that needs to be conducted by the company for reducing the blockage of essential capital as inventory. The inventory management system effectively gauges into the Effectiveness of the selling process and demand for the products of the organisation (Kothari, Mizik and Roychowdhury 2015).

Job costing:

Job costing measure is an adequate procedure used by organisation to determine different level of cost associated with operations.  with the help of job costing measures organisations are able to differentiate between the relevant expenses related to different customer requirements. The production process with the help of job costing measures is substantially improved as the organisation minimises the extra cost incurred from each activity.

Price optimising:

the price optimising measure is also used in management accounting which allows the organisation to understand the level of prices the customer demands. This price optimisation mainly helps the organisation to improve the level of competency in the market and improve their customer base. Moreover, the price optimising would eventually allow the organisation to determine the reactions of buyers in different price levels for the services and products delivered by the organisation (Labro and Hemmer 2017).

Use of techniques and methods used in management accounting for presenting calculations for an income statement using variable costings:

Explaining of how management accounting is integrated within an organisation:

Management accounting is effectively integrated into an organisation where the following operations is conducted to improve financial viability of the company.

Price setting:

Management Accounting directly allows the organisation to effectively conduct price settings for its products and services.  these settings are relatively allowed the organisation to minimise any kind of competition in the market in maximize their customer base.  the determination of price settings is based on the cost centres and expenses that was entered by the company. hence with the identification of all the cost and the demand of the product organisations able to identify the relevant price for the product which will generate adequate demand and increase the customer base.

Accounting for inflation

Cost centres:

Management Accounting effectively identifies the organisation different cost centres that is associated with the production. these derivations of the cost centres has been and effective measure for determining the actual price of the product. the management is able to make adequate decisions regarding the cost centres and how its expenses could be reduced overtime to improve their profitability and increase their market share. the cost centres are related to the production cost, administrative cost and transportation cost incurred by the organisation to produce and deliver the relevant product (Tappura et al. 2015).

Decision making:

The further integration of Management accounting system is in the decision-making process which is conducted by the management to improve financial viability of the organisation. Management Accounting relevantly helps in identifying different options for the organisation which could help in improving the level of profits over time. the decision-making process is directly related to the management accounting system as it helps in providing all the relevant information to the management regarding the decision.

Departmental budget:

Management accounting is also integrated in the budgetary system by different level of budget are prepared by the organisation such as departmental budget. This helps in minimising any kind of extra expenses or resource allocation which is not needed for a particular job. the effectiveness of the budget system allows the organisation to maximize their resource allocation and minimise any kind of wastage of essential resources.  Furthermore, with the help of departmental budget your organisation is able to identify the trend of expenses which is incurred in a particular operation. this allows the organisation to obtain adequate information to make essential decisions during their decision-making process (Tucker 2017).

Central budget:

The central budget is also prepared by the organisation to Conduct the operation smoothly over the period of time without any kind of hinderance from resources and cash availability. Management Accounting effectively allows the organisation to prepare the central budget which addresses all the relevant information regarding the operations of the company. The central budgeting process effectively allows the organisation to maximize the level of profits and minimise any kind of extra expenses that is conducted on each department. with the help of Management Accounting the central budget is prepared, where all the relevant information is stored which would eventually help in maximizing the profitability of the organisation.

Benefits of the function to the organisation:

The different level of benefits that could be provided from Management Accounting such as deduction in cost, improvement in efficiency, detection of goals, maximizing profitability, and increasing financial Returns. All the above Benefits directly allow the organization to improve their financial stability and maximize the level of profit that could be generated from a particular operation. Management Accounting has effectively allowed the organizations to improve the level of operations and reduce any kind of excessive expenses conducted in their operations. Therefore, it could be assumed that the benefits of management accounting are immense if the organization is effectively implementing in its operations (Fullerton, Kennedy and Widener 2014).

References:

Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management, 32(7-8), pp.414-428.

Kothari, S.P., Mizik, N. and Roychowdhury, S., 2015. Managing for the moment: The role of earnings management via real activities versus accruals in SEO valuation. The Accounting Review, 91(2), pp.559-586.

Labro, E. and Hemmer, T., 2017. Management Accounting and Operations Management. In The Routledge Companion to Production and Operations Management (pp. 345-359). Routledge.

Renz, D.O. and Herman, R.D. eds., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Tappura, S., Sievänen, M., Heikkilä, J., Jussila, A. and Nenonen, N., 2015. A management accounting perspective on safety. Safety science, 71, pp.151-159.

Tucker, B.P., 2017. Figuratively speaking: analogies in the accounting classroom. Accounting Education, 26(2), pp.166-190.

Zeff, S.A., 2016. Forging accounting principles in five countries: A history and an analysis of trends. Routledge.

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