Essay Example on Meaning of Management Accounting








1 1 Meaning of management accounting Management accounting was described by The Institute of Management Accountants IMA in the following statement Management accounting is a profession that involves partnering in management decision making devising planning and performance management systems and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization's strategy Management accounting also known as managerial or cost accounting includes preparing and providing seasonable and accurate financial and statistical information to business managers which can help them to make day to day and short term decisions It is differs from financial accounting when it makes frequent and confidential reports for organization s internal audiences such as the CEO and department managers whereas financial accounting produces publically annual reports mainly towards external stakeholders Management accounting reports typically include details of the organization s available cash recent creation of sales revenues the current state of the company's accounts payable and receivable number of orders in hand debts raw materials and other statistics Different types of management accounting Organizations make decisions and judgments based on accounting Accounting is the process of measuring communicating and identifying economic data to provide informed by the users of data There are many kinds of management accounting systems such as cost accounting system price optimization and job costing system all with different accounting functions objectives and elements

However all the accounting systems basic elements create the standardized context as to the aim for the data that is analyzed identified and communicated Edmonds and Olds 2013 Cost accounting system Cost accounting system is the structure applied by the companies to estimate the cost of their products for cost control inventory valuation and profitability analysis It is one of the kinds of accounting system which aims at capturing the organization production cost through measuring the input s cost of every production step plus company's fixed costs like capital equipment depreciation Costing system will individually record and measure the costs then comparing with input s outcomes to the actual results or output to help management of the company in evaluating financial performance Managers rely on these accounting data to general and specific on cost Cost accounting is likely as the key concept in management accounting because it offers the analytical ways like budgetary control marginal costing operating costing and inventory control which are used by management in discharging their reproducibility efficiently Job costing system Job costing refers to the system of distributing manufacturing costs to the individual item or lot size of the products It will apply when the goods process are different from one another It relates to the practice of accumulating data on the costs with a particular service or production job The information is required to submit cost data to consumers under the contract in which costs are refunded It was pointed out that the information is important for determining the accuracy of the estimating system of the company that must be capable of quoting prices which permit for a reasonable income Drury 2015

There are few requirements that job costing system needed to accumulate the direct information of labor direct materials and overhead Price optimization systems Price optimization is the application of mathematical analysis to the companies which determine how consumers will response to various prices for their goods and services through different channels Edmonds and Olds 2013 Besides it is applied to deciding the prices which the company determines should best fulfill their goals such as maximizing the operating profit Role of management accountants Managerial accounting is concerned with providing information to managers that is people inside an organization who direct and control its operations Garrison Noreen Brewer 2006 The techniques of managerial accounting make managers of business an easier way to work out financial strategies explain the financial outcome of business decisions monitor different department s expenses and maintain profit margins Therefore the role of management accountants is someone that based on the fact of the situation and provides information to the managers Managers usually make decision according to the information So that management accountants may influence all aspects of a company's operations 1 2 Classification of costs One of the purposes of management accounting is providing detailed information about the costs of the products Base on certain characteristics and nature cost was classified into five categories they are behavior traceability relevance function and controllability The following shows the explanation of different costs Fixed cost is a cost that does not change when the volume of productions change Variable cost is that the cost changes while there is a change in the volume of production Mixed cost contains both fixed and variable elements

Direct cost exists when the company is benefit from one specific product while indirect cost is incurred for the profit of more than one product or cannot be efficiently or easily traced to a specific product 1 3 Unit costs of PC and VP based on Marginal costing and Absorption costing Since the Marginal costing only considers variable cost we can find out the unit costs of PC is 1 000 Direct material Direct labor other variable O H 600 200 200 and the unit costs of VP is 1 400 Direct material Direct labor other variable O H 800 400 200 With different from the Marginal costing the Absorption costing considers both variable cost and fixed cost

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