Management Accounting

Topics: Management accounting, Costs, Cost Pages: 6 (1777 words) Published: April 29, 2015
1) Managerial accounting has its focus on analyzing and providing cost information within the company internally so that its management can plan, operate and control the company more effectively. In contrast, financial accounting has its focus on the financial statements which are distributed to external stockholders, lenders, financial analysts, and others outside of the company, as mentioned by (K.A. Francis, n.d.) Knowledge in management accounting will allow Anne Radhika to have knowledge of basic cost accounting skill, various finance tools and also some tax principles. As Information in management accounting is presented internally, it would allow Anne, as an operations manager, to make decisions concerning the daily operations of a business, by keeping track of her production division’s income and expenses. Furthermore, she will learn to analyze the basic data and make forecasts, budgets, etc. MA has several advantages that coincide with the ability for companies to improve operations and overall profitability. According to (Osmond Vitez, n.d.), it can firstly help to reduce cost: Information from Management Accounting assist to review the cost of economic resources and other business operations, allowing Anne to better understand how much money it costs to run her solar power production division. In addition, an analysis can be conducted on how economic resources are utilized to produce the solar panels. If overall production quality would not be hampered by using a more affordable raw material, Anne would be able to propose this to the higher management, helping her company and division to reduce production costs. Secondly, it can help to improve cash flow by allow Anne to comb and sift through the nooks and crannies of her division, creating a budget that contributes to the master budget. With the main objective of saving money through careful analysis of necessary and unnecessary cash expenditures. Thirdly, management accounting is able to improve Anne’s decision-making process. Instead of making decisions based only on qualitative analysis, she could use quantitative analysis on information given from MA to review and make various decision opportunities. This would allow higher management and her to see both sides of the coin, and hence, resulting in improved decision-making Last but not least, Anne can also make use of management accounting to increase the company’s financial returns. It enables her prepare financial forecasts relating to consumer demand patterns, potential sales or the effects of consumer price changes in the economic marketplace. Therefore, allowing her division to produce enough solar panels to meet consumer demand at current prices and hopefully, achieving Just-In-Time (JIT) production in the long run, to reduce unnecessary warehousing cost. However, with the various advantages being mentioned, management accounting does have its limitations as well. First off, it does not follow a standard set of procedures, like the Generally Accepted Accounting Principles (GAAP) used in financial accounting. Thus, anne would have to devise her own set of systems to evaluate the finances of her solar production division, which might lead to inconsistencies in the way that financial benchmarks and assessments are measured. (Wendel Clark, n.d.). To worsen matters, coming from an electrical engineering background, Anne has no prior knowledge in management accounting and the necessary experience to make a mid-level management decision. Next, as management accounting decision making are based on facts and figures, there is a tendency to make decisions intuitively. Anne, being new to accounting, might avoid lengthy courses of proper evaluation and instead, take an easy route, by using her intuition. Intuitive decisions limit the usefulness of management Accounting. To further complicate matters, there is the issue of personal bias. The interpretation of financial information relies on the personal...

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