Definition and Role of Management Accountant
Discuss About The Australian Journal Of Business Management.
Having been hired by the GEK Technologies Inc, I had an introductory meeting with Engineer Daniel Bryant whom delegated me the duty of preparing a report on the significant of management accounting to the GEK Technologies’ success.
GEK Technologies was set up by Daniel Bryant in 2006 and from there the firm have established itself as a reputed firm which specialise in producing high quality and relatively cheaper unmanned aerial vehicles for public and entertainment consumption. So far, the firm had successfully produced and sold its first drone the GEK Eagle Eye.
As a way of assisting improve the operations of the firm my report will cover definition and the roles of a management account, importance and ways of implementing the ABC costing system, preparation of cash budget and sales budget. With this it’s my hope that Mr Bryant will be able to get the necessary information needed to make strategic decisions in the firm.
A management accountant is the person tasked with interpreting financial information for making business decisions. This role is a combination of accounting, management and finance and need possession of special skills to enhance the success of a business. the management account avail business data and interpretation to the managers within the firm which help in the decision making and control processes. The accountant is tasked with more management roles, collaborating with the managers to assist analyse costs and revenue’s data (Clinton and White 2012). The primary focus is on the analysis and interpretation of the organisation’s financial position to give an insight into the performance of the firm. This involve giving monthly management accounts and preparing budget forecasts to assist in the business planning.
Despite the GEK technologies progress so far, introducing a management accountant to the organisation’s ranks will come with a set of benefits some of them have been highlighted below:
Planning of the accounting functions, the management account will ensure an accounting system is installed in GEK Technologies. This system will assist in the standard costing, financial planning and capital budgeting. In addition, the accountant will prepare the necessary steps needed to prepare and put in place the plans in an effective manner (Burns and Baldvinsdottir 2005).
Control, the accountant will compare the actual performance of the firm to the standard forecasted performance. With this comparison he will identify differences and analyse the situation before submitting a report to the top managers. By applying appropriate accounting reporting standard this information will assist the managers make a more informed strategic decision.
Importance of a Management Accountant to GEK Technologies
Reporting, in cases where unfavourable events occur during the business processes the managers of the firm will task the accounting managers with the review of the situation and reporting on the root cause of the issue as well as recommend appropriate steps to assist improve the case.
Interpretation, the management accountant acts as the consultant to the business managers (Baldvinsdottir, Burns and Scapens 2009). With this he will fill the gap between the business activities and the top management decisions. The interpretation gives reasons for operating results in a way that can be understood by the managers.
Tax administration, GEK Technologies is liable to the authorities to remit value added tax, income tax and other taxes. The management accountant will assist the organisation to compute and pay the taxes, he will farther manage the records for the organisation. This will go a long way in assisting the organisation avoid legal obligations that may have been caused by failure to adhere to the taxation rules (Agostino and Arnaboldi 2011).
- Importance of ABC costing system
ABC costing is a system that allow for more accurate allocation of the overhead costs to the products and services that consume them. the system is very effective in complex business environments that is composed of several machine hours in addition to tangled processes that are difficult to associate with a single product. GEK Technologies being a firm that relies on technology to advance its business processes incur huge overhead costs hence the necessity of embracing the ABC costing system (Baykaso?lu and Kaplano?lu 2008).
The primary advantage of the ABC costing system is attached to how the overhead cost is useful. Upon installing an ABC system, the company can obtain significant information regarding the following cases:
Costs of activities; ABC costing system can track cost of activities that may be applied to see activity costs that are not within the company’s standard budget (González-Gómez and Morini 2006). The system is effective in measuring of specific assignments and products as a management tool for regulating product costs
Profitability of clients, even though most costs regarding consumers are simply product costs there is a great deal of overheads that are involved too. For instance, the service level demanded by clients, market agreements and handling of product returns. By using the activity-based system the management accountant can analyse the indirect costs and assist the management determine which clients are worth retaining. This way the firm may turn loss making consumers and focus on the clients who are earning the firm profits (Majid and Sulaiman 2008).
How the Activity-Based Accounting Can Improve GEK Technologies Owner
Cost of distribution, the GEK Technologies rely on several distribution channels to distribute its products to the final consumers. Examples are retail outlets, internet, email orders as well as distributors. Moist of the costs associated with the product distributions are classified under the overheads. Should the firm be able to determine the overhead consumed by the distribution channels it can be able to determine how the distribution channels are used and which ones to drop to optimise the profitability.
Make or buy decisions, the ABC system avail a comprehensive view of each cost associated with the internal manufacturing process, this way the managers can see which costs will be done away with once a product manufacturing is eliminated and which costs are permanent irrespective of the product line termination. This gives managers options to consider when making decisions.
Margins, proper installation of the ABC system can assist evaluate the margins of various items, product lines as well as subsidiaries. This way the managers can distribute the resources optimally.
Minimum price, the pricing of products and services heavily relies on the market conditions. Despite this the marketing department should be able to know the cost of the product so that products are not priced below the breakeven points. The use of ABC is very effective in evaluating the overheads that need to be part of the minimal costs (Schulze, Seuring and Ewering 2011).
Cost of production facility, segregation of the overhead costs is quite easy at the plant wide level. The production costs can be compared between facilities using the valuable information obtained under the ABC system. The use of ABC designs a data that is needed to make the decision. The use of cost benefit analysis which is supported by the ABC system is worth establishing the ABC costing model.
The cash a budget is a document that contains items that are related to the estimated sources and uses of cash in the upcoming future period. This budget is helpful in determining whether the cash generated from the company’s operations and other activities will be sufficient to meet the projected cash demand of the firm. Should there be a deficiency the management is tasked with sourcing for additional funding. The information in the cash budget is normally derived from other budgets. The cash budget is thereafter applied in making financing and investment decisions.
The budget is characterised by two wide areas; sources and uses of cash. The sources of cash side is composed of beginning cash balance, cash receipts, account receivables, and the sale of assets. On the other hand, the uses section is composed of: planned cash expenditure. This comes from the direct labour budget, manufacturing overhead budget, direct materials budget, selling as well as administrative expenses. The side may also possess line items for fixed asset purchases and dividend allowed to shareholders.
Definition and Significant of a Cash Budget
Huge surplus between the two sides of the budget are applied to the financing budget to fund selected projects. also, should huge deficits arise the financing budget will show the amount and timing for settling the deficits.
Profit does not mean the same thing as cash. Normally most of the budgets are prepared based on the accrual basis of accounting, for this the master budget is different from the cash budget. The cash basis unlike the accrual basis of accounting recognises revenue when received and expenses when paid. In cases where credit sales are made receivables will not be collected at the same time. also, in cases where expenses are charged payables don’t possess similar terms. The purchase of inventory and materials are not usual paid at the same time as well. All this necessitates the need for adjustments considering the accrual budget to a cash budget to assist estimate the projected future cashflows of the organisation. All other capital; expenditures also need to be put into account when preparing the cash budget (Palepu K., Bernard and Healy 2000).
Through the preparation of the cash budget the firm can have a view of the future cash demand and expenses of the firm. This estimation of future cashflows assists the managers predict sufficiency of future cashflows for the operational, investment, debt service and purchase of new equipment activities. The cash budget also highlights deficits where they exist and so the managers can plan for ways to finance the deficiency.
For a firm to operate effectively there is need for proper planning (Watt and Traynor 2013). The managers need to know when cash will be available for purchases, loan settlement and other operational activities. For this it’s necessary for all the items affecting the cash budget to be analysed and estimated to determine timings of cash payments and receipt. Just like all the other budget the cash budget may not pinpoint the exact future timing but can point the managers to the expected direction. This projection is helpful in ensuring efficient flow of the business operations (Georgieva 2014).
The sales budget is the budget of total sales expressed in terms of quantities or money. It relates the sales quantity to the selling price.
- Past trend analysis
- Salesmen reports
- Market research/survey
- The prevailing economic situation
- The items production cost.
- Expected profit margin
- Advertisement and sales techniques responsible for promoting the product(Putthiwanit 2011).
- Review of SZL offer
The company should consider buying the video cameras instead of producing them internally. The deal by SZI will mean the firm will spent $ 266.67 per unit in the video cameras instead of the current cost of $ 325 per unit of camera. This means the firm is saving $ 58.33 per unit if camera and should accept the deal. Details of the calculation are attached in the appendix.
How to implement ABC in GEK Technologies Inc
Activity based costing can be implemented in the GEK Technologies through the process listed below;
Identification of costs; the initial procedure in an ABC system is to recognise the costs that the firm wishes to allocate. This step is vital as it ensures minimal time is wasted in broad project scopes. Only the costs that are associated with a product are singled out.
Loading of secondary cost pools, this involves generating cost pools to the expenses incurred in the provision of services to other departments involved ion direct production. Examples of such expenses include: computer services and administrative salaries. These costs re later allocated to the primary pools.
Loading of primary cost pools, this will involve creating a set of pools which cover expenses that re incurred during the direct production process. Each product line should have a distinct cost pool as costs mostly occur at these points. Examples of some of the costs pools to consider includes: advertising, research and development, procurement as well as distribution. In cases where the production varies greatly in batches then the cost pools can be created for batch levels.
Measuring of the activity drivers, upon designing the cost pools data collection can then be carried out to obtain information regarding the activity drivers that are applied in allocating the secondary cost pools to the primary cost pools and to assign the primary costs to the cost objects. Since the data collection process can be expensive its recommended that drivers to which information is readily available should be used.
Allocating costs in the secondary pools to the primary pools, the activity drivers are then used to assign the secondary costs to the primary cost pools.
Assigning the costs to the items, the activity drivers can then be used to assign each of the primary cost pools to the cost objects. A unique activity driver can be used for each cost pools. The objects are assigned costs based on the proportion of activities they consumed.
Formulation of reports, once the costs are allocated to the products a report can be made by the management accountant to the managers to allow them to make strategic choices. This report will give the managers a full view of the cost of items.
Having completed the assigning of the overhead costs using the ABC system managers can now see which activity drivers are wasting resources and should be regulated. This way the company will be able to control its expenses and optimise their profitability
Conclusion
For an organisation to function effectively there is need to fill the gap between the business financial reports and the management strategic decision-making. This demands the managers to have a wide knowledge of finance and accounting. The need for this nature of information is what calls for the management accountant to be involved in the business management, by incorporating this post the managers will be assisted to understand the financial statements, budgets and the costing system. All this ensures decision of the managers are informed and intelligent hance facilitating business prosperity.
References
Agostino, D.,, and M. Arnaboldi. 2011. “How the BSC Implementation Process Shapes Its Outcome.” International Journal of Productivity and Performance Management 99-114.
Baldvinsdottir, G.,, J., Norreklit, H., Burns, and R. W. Scapens. 2009. The Changing Roles and Changing Discourse of the Management Accountant: 1980-2008. . Working Paper, HEC Research Seminar, 1-37.
Baykaso?lu, A.,, and V. Kaplano?lu. 2008. “Application of activity-based costing to a land transportation company: a case study.” International Journal of Production Economics 308-324.
Burns, J.,, and G. Baldvinsdottir. 2005. “An Institutional Perspective of Accountant’s New Roles – The Interplay of Contradictions and Praxis.” European Accounting Review 725-757.
Clinton, D.,, and L. R. White. 2012. “The Role of the Management Accountant: 2003-2012.” Management Accounting Quarterly 40-74.
Georgieva, K. 2014. Financial Report 2014. Europa, European Commission.
González-Gómez, J. I.,, and S. Morini. 2006. “Activity-based costing of wine.” Journal of Wine Research 195-203.
Majid, J. A.,, and M. Sulaiman. 2008. “Implementation of activity based costing in Malaysia.” Asian Review of Accounting 39-55.
Palepu K., V., Bernard, and P. Healy. 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 83–92.
Schulze, M.,, S. Seuring, and C. Ewering. 2011. “Applying activity-based costing in a supply chain environment.” International Journal of Production Economics 716-725.
Watt, N.,, and I. Traynor. 2013. EU agrees historic budget deal after all-night talks. London: The Guardian.
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