SOLUTION: Management Accounting (MA) | My Assignment Tutor

2/24/20201LO1: IntroductionDr Fidelis AkangaLearning outcomesBy the end of this unit Define Management Accounting (MA) Discuss the history of MA Explain the difference between management accounting andfinancial accounting Explain how accounting information assists in decision making. Explain those factors that have influenced the businessenvironment Explain the key success factors that affect customersatisfaction Explain new approaches used in management accounting2/24/20202What is Accounting? The process of identifying, measuring andcommunicating economic information topermit informed judgements and decisionsby users of the information (AmericanAccounting Association).Nature of Accounting• The accounting system is a series of stepsperformed to analyse, record, quantify, accumulate,summarise, classify, report, and interpret economicevents and their effects on an organisation.• The financial accounting and managementaccounting systems should both record the samebasic data, but each set may be analysed differently.However, both systems should reconcile with eachother.2/24/20203Nature of Accounting• Accounting systems are designed to meet the needsof the decisions makers who use the financialinformation.• Every business has some sort of accounting system.• These accounting systems may be very complexor very simple, but the real value of anyaccounting system lies in the information that thesystem provides.Branches of Accounting• Management accounting information systemprovides information to assist managementwith planning and control and decisionmaking.• Financial accounting – focuses on the specificneeds of decision makers external to theorganisation, such as stockholders, suppliers,banks, and government agencies2/24/20204What is Management Accounting? “… the process of identification, measurement,accumulation, analysis, preparation, interpretation,and communication of financial [and non-financial]information used by management to plan, evaluate,and control an organization and to assureappropriate use of and accountability for itsresources …” Institute of Management Accountants (IMA) Management accounting combines accounting,finance and management with the leading edgetechniques needed to drive successful businesses.Chartered Institute of Management Accountants (CIMA)Role/Functions of MA System A cost and management accounting systems shouldproduce information to meet the followingrequirements: Allocate costs between products sold and partlycompleted products that are unsold: Inventory valuation for both externalreporting and internal reporting. Meeting external regulatory and legal reportingrequirements.2/24/20205Role/Functions of MA System Provide relevant information to help managers make betterdecisions: Profitability analysis Product pricing Make or buy (outsourcing) Product mix and discontinuation Strategic decisions – new long-term investment Provide information for planning, control, and performancemeasurement . Long-term and short-term planning Control and performance evaluationHistorical Review of MA Industrial Revolution of the 19th Century – many ofmanagement accounting practices had been developed. Slow down (1925 – 1987) – the focus on external reporting,the use of old practices, and the use the same informationused for external reporting. The late 1980s – criticisms of old practices by academicsand professionals & the development of new practices. During 2000s – the development of electronic businessmodels and the extensive use of IT to support businessactivities.2/24/20206Financial and ManagementAccounting• The major distinction between financialand management accounting is the usersof the information.• Financial accounting serves external users.• Management accounting serves internal users,such as top executives, management, andadministrators within organisations.Financial and ManagementAccounting Statutory requirement for public companiesto produce annual financial accounts,whereas there is no legal requirement formanagement accounting. Financial accounting reports describe thewhole of the organization, whereasmanagement accounting focuses onreporting information for different parts of thebusiness.2/24/20207Financial and ManagementAccounting Financial accounting reports must be prepared inaccordance with generally accepted accountingprinciples. Financial accounting reports historical information,whereas management accounting places greateremphasis on reporting estimated future costs andrevenues. Management accounting reports are produced atmore frequent intervals.The changing businessenvironment Organizations have faced dramatic changes in their businessenvironment:• Protected markets —> Highly competitive markets• Deregulation• Declining product life-cycles To compete successfully in such environment:• Making customer satisfaction an overriding priority• Adopting new management approaches• Changing manufacturing systems• Investing in AMT ’s.2/24/20208Customer SatisfactionCustomersatisfactionContinuousimprovementEmployeeempowermentTotal value chainanalysisKey successfactors:Quality, time, costand innovationFocus on customer satisfactionKey Success Factors1. Cost Efficiency: Since customers will buy the product with the lowestprice, all other things being equal, keeping costs lowand being cost efficient provides an organisationwith a strong competitive advantage.2/24/20209Focus on customer satisfaction2. High Quality Products & Services: Customers are also demanding high quality products& services. Most companies are responding to thisby focusing on Total Quality Management (TQM).The goal of TQM is customer satisfaction. TQM is aterm used to describe a situation where all businessfunctions are involved in a process of continuousquality improvement.Focus on customer satisfaction3. Speedy Response to Customer Requests Increase in customer satisfaction by providing aspeedier response to customer requests, ensuringthat 100% on-time delivery and reducing the timetaken to develop and bring new products to market.For these reasons management accounting systemsare starting to place emphasis on time basedmeasures, which are now an important competitivevariable.2/24/202010Focus on customer satisfaction4. Innovation To be successful companies must develop a steadystream of innovative new products and services andhave the capability to adapt to changing customerrequirements. Innovation measures include anassessment of the key characteristics of newproducts relative to those of competitors, feedbackon customer satisfaction with the new features ofnewly introduced products, and the number of newproducts launched and their launch time.New approaches to ManagementAccounting1. Continuous improvement Aims to reduce costs, eliminate waste, and improvethe quality and performance of activities that increasecustomer satisfaction. Benchmarking is a technique that is increasinglybeing adopted as a mechanism for achievingcontinuous improvement. It is a continuous processof measuring a firm’s products, services or activitiesagainst the other best performing organisations,either internal or external to the firm.2/24/202011New approaches to ManagementAccounting2. Employee Empowerment: By empowering employees and giving them relevantinformation they will be able to respond faster tocustomers and improve morale. Management accounting is therefore moving fromproviding information to managers to monitor theactivities of employees to providing information toemployees to empower them to focus on thecontinuous improvement of activities.New approaches to ManagementAccounting3. Value Chain Analysis It is a means of increasing customer satisfaction andmanaging costs more effectively. The value chain is alinked set of value creating activities from suppliersof raw materials to the ultimate end-user, the customer.Coordinating the individual parts of the value chaintogether to work as a team creates the conditions toimprove customer satisfaction.2/24/202012Reading List Drury, C. (2018), Management & CostAccounting, 10th Edition. Chapter 1.