Decision Making With Managerial Accounting Essays Example
Type of paper: Essay
Topic: Accounting, Business, Company, Management, Accountant, Quality, Information, Entrepreneurship
Managerial accounting implies the defined process that involves the detection, identification and analysis of financial information that the management employs in the strategic planning and evaluation of the organization (Charles & Elizabeth, 2012). Accounting has proven to be a powerful tool in the management of the businesses today. For instance, accounting assists in the accountability of every single dime spent by the organization as well as provide basis for the management to make their decisions that will directly or indirectly affect the productivity of the business. Accounting also assists in speculating the trend in the business financial status from the present to the future. With regards to the managerial accounting in organizations, the latter can assess its expenditure accordingly and so can cut down costs that may be impeding the growth of the business. In other words, managerial accounting is a very important aspect in business management.
Roles of managerial accounting
Managerial accounting as mentioned is among the important tools that the management employs in the running of the business. The main role of the managerial is to assist the various managers in the organization to make informed decisions (Needles, Powers & Crosson, 2013). Considering that the managerial decisions are those that turn the company around, the present position of the company, together with its past and future is dire. The fact that the various data that are attained by a managerial accountant are vital for the general direction of the whole enterprise, it emphasizes the need for one within the business environment. In addition, the strategic management that devise the strategic plan and make the strategic decisions for the enterprise will need the information from managerial accounting in order to make their decisions.
Apart from making informed decisions for the organization, managerial accounting also serves to ensure that the employees are effective in their jobs (Needles, Powers & Crosson, 2013). Considering that managerial accounting assists in the planning and setting of objectives for the business, the employees, both at managerial and union level, understand where they are heading. This is because managerial accounting provides the targets that the business ought to achieve in order to be a viable company in the market. In this case, accounting assists the business in the sense that the employees are aware of the deficits that the business has and how much they need to work in order to achieve and counter the deficits and start making profits. In other words, the setting of goals and objectives for a business, both long term and short term, managerial accounting provides a perspective and a platform to begin.
Not only does managerial accounting assist in setting goals and making informed decisions for a business enterprise, but also enhances the general organization’s performance (Needles, Powers & Crosson, 2013). This is an indirect approach in the sense that it is only discovered after a period. Managerial accounting enables the employees in the enterprise to understand what they are working towards as projected to them by the strategic or overall management. This in turn gives the employees the direction that the company needs to move during that financial year. This implies that the employees will work hard as planned by the strategic management in order to attain the short term goals and eventually the long term goals. The enterprise in the end will realize an increased level of performance compared to the previous. In a nutshell, managerial accounting is indeed a fundamental part of business enterprises.
Ethical issues with the managerial accountant
Ethical behavior of the managerial accountants is very crucial to the enterprise in the sense that bias behavior might jeopardize the whole company. Considering their roles, it is important to note that the managerial accountants play vary vital roles in the businesses they are involved in. First and foremost, competence is a very important ethical concern for the managerial concern (Marian, 2014). It is really important and essential for a managerial accountant to remain competent as well as increase his competence levels every now and then. This is majorly to ensure that the high level of professionalism is ensured in the process of decision making. In addition, the challenges that the business evolve every now and then and without refreshing and updating one’s competence levels and skills might render a managerial accountant improbable for that position. In other words, one needs to ensure that he or she is always competent in that position.
On other grounds, the managerial accountant has the responsibility to remain confidential considering the type of information that he or she handles in that position. It is among their prime obligations to withhold that particular confidential information except in cases where he or she is obligated by law (Marian, 2014). Even so, the managerial accountants need to guarantee secrecy for the sake of their enterprises because this bit of data would give the competitors an edge. Also, the managerial accountants advise the management in accordance to the information that he or she has gathered from her research. In addition, a managerial accountant has to ensure that his subordinates are fully informed on the confidentiality principle and ensure that they comply with the same. This is important in various situations such as avoiding the leaking of information from the enterprise where the competitors might gain the advantage to their secrets.
Integrity is the sense of good and right behavior and it is an ethical concern for the managerial accountants. In the overall making, behavior affects the decisions that a managerial accountant might end up making and therefore, the more righteous one is, the better judgment he or she makes (Marian, 2014). In other words, the integrity of the managerial accountant affects his or her objectivity in the end. Objectivity implies that the managerial accountant communicates the correct information without any hints of favor to any affected by the information. This is a very important path that a managerial accountant needs to ensure in order to facilitate the right decisions by the management. On the other hand, disregard for objectivity might end up affecting the business and the managerial accountant will be legible for charges by the law when he is caught misinforming the management.
Finally, the credibility of the managerial accountant is very important in ensuring an ethical behavior. Credibility ensures that the managerial accountant is trusted by the other employees and the management in the sense that the decisions that are made are true (Marian, 2014). This is ensured through providing information to the management of an enterprise with proof that what is being presented is true. In addition, it helps when the accountant is original in his presentations rather than copying information from others maybe due to poor integrity and laziness. In this sense, the accountant is credible with information that has proof from credible sources. Therefore, a managerial accountant is faced by four distinct ethical issues that need to be watched out for to ensure ethical behavior and they include competence, confidentiality, credibility and integrity.
Managerial accounting techniques
Breakeven analysis is a managerial accounting technique that is employed to determine that volume of sales the company can achieve with zero profits. This technique basically involves the classifying the costs of a business as either fixed or variable. This is a very important technique for managerial accountant because it enables them to understand the outcome of the project plans of a business enterprise especially in the designing and preparation of the annual company budget or the initiation of a new product. Capital budgeting is a managerial accounting tool that many companies employ when trying to rank and evaluate possible investments or expenditures of the company in a descending manner (Peterson, 2002). This technique is employed in a bid to maximize the company’s profits since an enterprise can only manage a few large projects at any single point in time.
A balanced scorecard is another profit maximizing technique that businesses have employed over the years. It generally involves achieving three fundamental organizational issues and they include effective performance measurement, increasing the intangible assets of the business and successful implementation of the business strategies (Niven, 2006). This scorecard seeks to focus more on the intangible capital such as the human skills and abilities, loyalties and others including cultures. In addition, the measurement of the performance business is another aspect focused upon and this is possible through financial measurements such as profits. In addition, the implementation of the strategies that the strategic management proposed for the whole enterprise is another aspect that the balanced scorecard seeks to impose on the business. In a summary, managerial accounting techniques are very important when it comes to the making decisions that determine the future of the whole enterprise.
Real-life examples of managerial accounting
A food manufacturing company seeks to manage the heavy costs that it has been incurring heavily. Despite the heavy costs, the food manufacturing company management did not understand how the costs came about. This inability to understand the source of the costs has made the industry to be rather dull considering that most of the profits end up catering for the costs. The management of that food industry seeks help from the strategic management officials of the very company who are also unable to strategize for the company for they are unable to thoroughly cover the costs of the company. In this sense, the strategic management proposes that a managerial accountant be hired and in so doing, a managerial accountant with the required expertise was hired. The main role of the specialist was to identify and propose the best path to avoid the heavy costs.
Upon beginning his duty, the managerial accountant reviewed the previous 1,000 purchases and sales if the food manufacturing and categorized them accordingly and prioritized using the capital budgeting technique. It is from the priority that the specialist was able to determine where cost reduction is to be best applied in order to reduce the burden on the profits of the business. He prepared a future cost reduction plan where he worked with the various suppliers of the various materials used in the industry and was able to yield a 10% reduction in the overall cost. In addition, the specialist revised the charges of the supplies using proprietary software and re-negotiated prices and retrieved $200,000 from the overcharge. Also, a team was placed to monitor the usage of the materials and 11% was saved from the costs. This cost management performed by the hired managerial accountant saved the industry huge amounts of money.
Activity-Based costing method is indeed a costing method whereby products or services are indirectly assigned costs. This involves the pricing of all the activities involved in the achieving a final product or service, that is, the whole production process. Interwood is a furniture brand that is run by Alex Erkwin and has a sofa range including 2-set, 3-set and even 6-set. An order was placed by the Platinum Interiors for the 6-set type, 150 units, and the order is to be delivered within a month. Therefore, using the ABC method, the order can be cost accordingly in accordance to the activities that led to the production of the 6-set units. Ideally, the ABC method is very refined and involves identification of the production activities, classifying the activities in hierarchy, accumulation of the overall costs for each activity, determination of the cost driver for each activity, determination of the activity rate and applying the cost to every product in accordance to the production activities.
A managerial accountant was employed in effect to cost the order using the ABC method after Erkwin discovered that the traditional costing method is relatively inefficient in measuring the costs of product. Several activities related to the production of the sets were identified. They included component production for each set, the assembling of those components to give the sets, the packaging and shipping of the assembled sets, setting up costs, designing costs, testing and renting costs. The relative activity rates for each production activity were identified as well as the usage. The activity costs were assigned appropriately and summed to give the overhead costs. The activity-based cost was determined through the summing of the raw materials purchase, the components, labor costs and the manufacturing overhead costs to give $157, 721.
All businesses seek to maintain and gain customers and their approval. With this in mind, many have employed quality management systems in their business enterprises and companies to ensure that the products or services rendered are of standard or even greater quality. A perfect example of a quality management system is the ISO standardization systems that are employed globally. Sony is a technology-inventing company that is among the giants in the markets. This company produces high-level technological instruments that serve for entertainment to various work places (Sony.net). The need for quality control is therefore a concern to ensure that the customers are satisfied accordingly. The organization sought to improve and modify the quality management systems in order to ensure that the quality of their products meet the current demand of their products by their customers in the sense that they are reliable and efficient.
Sony is therefore implementing a range of measures that will in turn improve the quality of its products. For instance, the company has appointed executives at the corporate level that will respond to the customer problems in a timely manner. In addition, a software quality officer was appointed in accordance so as to supervise the software engineering for their products. Sony has further attained certification under the ISO 9001 that implies that it is qualified to manufacture the electronic products at all its sites. A CS officer was appointed in order to coordinate all the customer care facilities all around the sites where Sony electronics are being manufactured (Sony.net). It is important to note that all these decisions were made in a bid to maintain the performance of the business at a higher standard and maintaining the customers.
The application of managerial accounting skills in a business is indeed a key step towards the making of informed decisions at the management level. This will in turn ensure that the business is governed in the appropriate manner ensuring minimum losses and maximum gains for the enterprises. This comes about when the managerial accountant employs techniques such as the capital budgeting of the expenditures and the projects that will in turn ensure that the former and latter are properly accounted for and managed accordingly. The application of the costing methods that will ensure that all the costs incurred during the production process are covered for during the costing method, the Activity-Based Costing (ABC) method. Decision making process is a complex and yet important procedure in any business complex and it has to be based on tangible proof like that obtained from a managerial accountant’s desk.
In addition, the managerial accountant is a very important person in the business organization as his contributions from the very basis of the decisions that the management will make. In addition, his contributions in the organization assist in pointing the employees in the appropriate direction with regards to performance and objectives. For instance, using the capital budgeting, capital investment techniques, costing methods, quality control techniques, the managerial accountant can assist the management to plan strategically on how best to turn the markets to their favor. This implies that the enterprises will rely heavily upon the accountant’s performance and so his or her ethical behavior is on watch. This is because, unethical behavior on his part might cost the company heavily. As mentioned earlier, integrity, credibility, confidentiality and competence determine the ethical behavior of a managerial accountant.
Davis, C. E., & Davis, E. (2012). Managerial accounting. Hoboken, N.J: John Wiley & Sons.
Marian, T. (2014). ETHICS IN MANAGEMENT ACCOUNTING. Science Bulletin- Economic Science 9(15): 93-98.
Needles, B., Powers, M., & Crosson, S. (2013). Financialand Managerial Accounting. Boston, MA: Cengage Learning.
Niven, P. R. (2006). Balanced scorecard step-by-step: Maximizing performance and maintaining results. Hoboken, N.J: Wiley.
Peterson, P. P., & Fabozzi, F. J. (2002). Capital Budgeting: Theory and Practice. Hoboken: John Wiley & Sons.
Product Quality and Quality Management. Sony. August 12 2014. Web. March 29 2015. http://www.sony.net/SonyInfo/csr_report/quality/management/