The Impact of Management Accounting Techniques on Performance and Profitability
Management accounting has helped organizations in many different ways in the decision- making process. Management accounting does not require following any set of national accounting standards and hence, customization is possible depending upon the demands of the organization. Accordingly, some quantitative as well as qualitative techniques can be used in order to provide solutions to the problems arising in the organization. Hence, it is believed that management accounting techniques has solution for every problem faced by organizations (Yeshmin & Hossan, 2011). Management accounting helps in preparing management reports that reflect the organization’s financial and statistical information which is used by the managers of the organization to take short- term and long- term decisions. It helps in forecasting future, forecasting cash flows, evaluating performance variances, etc. (Rongala, 2015).
Blue Apron suffered serious losses in the year 2017 and as a result, the managers of the organization decided to take the help of management accounting techniques in order to reduce their losses. The loss was suffered by the company because of the fall in the number of customers which fell directly from one million to 786,000. The organization blamed the reduction in spending by the organization behind the reduction of customers. The company decided to at least try to control the losses till the time the company starts to earn profits again. In order to control the losses, the company decided to reduce their operating costs. As a result, the organization’s operating costs reduced to $226.6m from $296.5m as compared to year 2016. Because of this, the Blue Apron was able to reduce their losses. In the year 2016, the organization recorded a loss of $52.2m in a quarter which fell down to $31.7m during a quarter of the year 2017. Though any profit was not achieved by the organization, but still, this was considered as a progress by the company. Because of the management accounting techniques, the organization was also able to see some efficiency in their operational processes (Yuk, 2018).
Management accounting offers a number of techniques to increase the performance as well as the profitability of the organization. Many researches have been conducted that proves the fact that management accounting techniques has the ability to improve the corporate performance (Rasyid et al., 2017). Blue Apron was successful in getting the desired result by using the cost cutting management accounting technique. Other than this, there are other ways also through which such situations can be overcome. Some of the techniques include standard costing, cost volume profit, just in time approach, activity- based costing, target costing and benchmarking. Some of the techniques mentioned are traditional and some have evolved depending upon the modern demands of the organization like the activity- based costing (Kamal Abd Rahman et al., 2003).
Case Study: Blue Apron
Some of the management accounting techniques that has evolved with time includes standard costing, balanced scorecard, inventory management, process management, etc.
Standard Costing: Standard costing helps to evaluate the variance between the actual costs and the standard costs at the time of purchasing the products. These techniques were present earlier as well but today, it has become far easy with the help of software packages. Management accounting professionals are able to use this software very efficiently (Freedman, 2018).
Balanced Scorecards: BSC is one of the most important and beneficial management accounting tools that are being used by organizations on a great scale. BSC is used to combine both the financial as well as non- financial methods to improve the performance of the company. With the help of BSC, the tasks of organizations are always checked and hence, any single flaw can be identified easily. Because of this method, blunders in accountancy are avoided improving the efficiency of the organization. BSC also helps in keeping a track of the performance evaluation of the employees of the organization (Balanced Scorecard, 2018).
Inventory Management: Managing the inventory holds great importance in any organization. A proper inventory management can save the organization from huge losses. Inventory management can directly reflect over the profitability of the company. The purchase and sale of goods are tracked with the help of this and accordingly, the organization can initiate their production. Also, the accounting systems are updated automatically hence, offering the managers to take decisions as and when required (Rouse, 2011).
Process Management: Process management is the modern concept in management accounting. This method works with the concept of management with exception. Under this method, the management focuses on those processes only that need urgent attentions that are believed to be not working properly. This is applied with the help of modern quality tracking techniques (Nepal, 2018). In the case of Blue Apron, this technique could have been used to identify what went wrong. This way the organization could have shifted its focus on that particular process to improve it.
Cash Flow Statement: Cash flow statement gives a detailed analysis of the information related to the inflow as well as out flow of cash within the organization. This method helps to conduct liquidity analysis of the organization. The difference in the cash flow statement should have been analyzed properly by the Blue Apron organization as from this it would have received the idea of the difference between the inflow and the outflow. This method is useful for short- term decision- making.
Management Accounting Techniques for Improving Performance and Profitability
Fund Flow statement: This method records the increase or decrease in the working capital of the organization. This statement will help to analyse the changes in the financial position of the company. Though, this method is useful for long -term decision- making. This statement is also used for undertaking comparative analysis (Singh, 2018).
In the article discussed above it can be clearly said that the costs of the organization were very high and due to this reason, the organization suffered huge losses. Though, reduction in the number of customers was also an issue. But, costs related issue is something internal that could have been controlled by the organization if identified earlier. The above mentioned techniques related to management accounting like the cash flow statement, standard costing, balanced scorecard, process management, etc. could have been used by the management accountant professionals of Blue Apron. The use of these techniques would have helped to analyze the long- term as well as the short- term financial performance of the organization and hence, the current situation of the organization could have been avoided. Hence, it is important to understand the strategic role played by the management accounting professionals and how they can shape the performance of the organization. The potential threats of the issue faced by Blue Apron can be many, like if the situation becomes worst the company may soon need to declare them as bankrupt and might end up winding up the business. As the organization started to use the cost managing technique as their management accounting tool it can be said that the organization will possibly in future avoid this situation (Haddon, 2017).
The main strengths of the solution adopted by the Blue Apron are that the organization will now effectively reduce the irrelevant costs incurred by the company earlier. Because of this reason, the expenses side of the company will be decreased and as a result, the losses incurred will be lowered. Also, the costs that are being reduced do not have any impact on the quality of the production of the organization. Hence, if along with this solution if the organization tries to adopt other management accounting techniques mentioned above, there are chances that the organization will be able to increase their customers by improving the processes of the company (Haddon, 2017).
Conclusion
In order to conclude it can be said that the Board of Directors will get to see the activities of the organization from a different perspective with the help of the management accounting techniques. Management accounting techniques will help to improve the performance of the organization by focusing on each and every activity of the organization. Management accounting technique has been proven to increase the profitability of the organization. A number of management techniques are used to communicate and reflect the true picture and condition of the organization in front of the decision makers. This is the main reason that the management accounting techniques are being used widely today by almost every organization irrespective of the size of the organization. On the basis of the news article discussed it can be said that the organization can change their worst situations as well with the help of management accounting techniques. Our consultancy services will provide the organization with the solutions to all the problems of the organization and hence, it is recommended that our consultancy services are given chance to help the company prosper. Our consultancy specializes in management accounting techniques as we have the best management accounting professionals in the market. We communicate all the necessary financial and non- financial information to the decision makers that may help them to take decisions for the long -term as well as short -term.
References
Balanced Scorecard, 2018. Balanced Scorecard Basics. [Online] Available at: https://www.balancedscorecard.org/BSC-Basics/About-the-Balanced-Scorecard [Accessed 07 September 2018].
Freedman, J., 2018. Modern Management Accounting Techniques. [Online] Available at: https://smallbusiness.chron.com/modern-management-accounting-techniques-67384.html [Accessed 07 September 2018].
Haddon, H., 2017. Blue Apron Posts Loss and Sheds Customers. [Online] Available at: https://www.wsj.com/articles/blue-apron-pulls-back-on-marketing-spending-1509625329 [Accessed 07 September 2018].
Haddon, H., 2017. Blue Apron posts loss as customers leave. [Online] Available at: https://www.marketwatch.com/story/blue-apron-posts-loss-as-customers-leave-2017-11-02 [Accessed 07 September 2018].
Kamal Abd Rahman, I., Omar, N. & Zainal Abidin, Z., 2003. The Applications Of Management Accounting Techniques In Malaysian Companies: An Industrial Survey. Journal of Financial Reporting and Accounting, 1(1), pp.1-12.
Nepal, M., 2018. What is Business Process Management (BPM)? [Online] Available at: https://kissflow.com/bpm/business-process-management-overview/ [Accessed 07 September 2018].
Rasyid, A., D, E.S. & Kosasih, W., 2017. Management accounting techniques and corporate performance of Manufacturing Industries. Risk Governance and Control: Financial Markets & Institutions, 7(2), pp.116-22.
Rongala, A., 2015. What is Management Accounting and its Importance. [Online] Available at: https://www.invensis.net/blog/finance-and-accounting/what-is-management-accounting-and-its-importance/ [Accessed 07 September 2018].
Rouse, M., 2011. Inventory management. [Online] Available at: https://searcherp.techtarget.com/definition/inventory-management [Accessed 07 September 2018].
Singh, S., 2018. Top 11 Techniques used in Management Accounting. [Online] Available at: https://www.accountingnotes.net/management-accounting/techniques/top-11-techniques-used-in-management-accounting/5862 [Accessed 07 September 2018].
Yeshmin, F. & Hossan, M.A., 2011. Significance of management accounting techniques in decision-making: an empirical study on manufacturing organizations in Bangladesh. World Journal of Social Sciences, 1(1), pp.148-64.
Yuk, P.K., 2018. Blue Apron sheds customers and sales, but losses narrowed. [Online] Available at: https://www.ft.com/content/03970e28-4ebf-11e8-a7a9-37318e776bab [Accessed 07 September 2018].
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