Management accounting can assist managers in an organization make timely and purposeful management decisions about the organization. Different organizations have different managerial accounting needs depending on their most essential area of business. Generally, management accounting deals with providing accounts and management reports to managers within the organization (Khan & Jain 2007). The information provided is crucial in assisting managers make informed decisions for control and management purposes. In contrast to financial accounting, which provides annual reports to external parties such as investors, creditors, shareholders and others, management accounting provides periodical reports (Coombs, Hobbs, and Jenkins 2005). These reports are important to managers in decision-making and for the organization to meet its long-term and short-term objectives. Management accountants propose various innovations to management that can assist in meeting organizational objectives. Therefore, this paper analyzes those innovations and the importance of management accounting in meeting long-term organizational objectives.
Innovations by accountants
Management relies on the information from managerial accounts to make decisions in the organizations. Since management accounting does not follow strict national standards, managers can tailor make their decisions according to the demands of the company. The information from managerial accounting enables managers to perform the management functions of planning, control, coordinating, and organizing (Langfield-Smith & Thorne 2005). Management focuses on these functions as they make decisions for the future of the organization. The management accounting information helps in forecasting because managers are able to analyze the expected return on investment by studying the accounts. The managers are then able to identify the investments that will not provide sufficient returns and do away with them.
Management accountants focus on several areas of the organization, which have potential to affect the performance of the firm. The managerial accounting information includes information on costs of products and services, which assist managers in setting selling prices. Additionally, this information is useful in valuation of inventory and determining the income requirements in the firm. Management accountants provide budgets, which outline the expenditures and revenues for the organization in a particular year. This information helps managers in their planning function, as they are able to forecast in advance the direction the organization will take.
Management focuses on control to determine if the organization is meeting the expected standards. The variances identified enable managers to determine areas that need improvement for the organization to meet its objectives. Performance reports produced by management accountants enable managers to compare budgets and actual results (Coombs et al. 2005). The managers should act on the variances identified by taking measures that ensure the slightest deviations of actual results from budgets. Information on sales, purchases, fixed assets, and demand on the capacity resources assist managers in their planning and control activities.
Current innovations proposed by management accountants include the activity based costing, balanced scorecard, and the bottleneck accounting. These innovations can assist managers in making decisions that will improve the required rate of return on an organization’s investments. Contemporary managerial accounting advocates for activity based costing, which focuses on activities that drive costs. Such activities could include the number of production runs for a given activity in the organization. This accounting method is contrary to the traditional managerial accounting, which emphasizes on direct labor or raw materials as the cost drivers (Khan & Jain 2007). The activity based costing can assist managers in developing a clear picture of the cost drivers and thus, identify suitable opportunities to reduce costs. It helps managers monitor the consumption and spending of an organization’s resources so that the company can operate efficiently. The reduction in costs will in turn enable the company to earn its required rate of return on investments.
Another contemporary innovation by management accountants is the balanced scorecard. The balanced scorecard is an effective tool that managers can use to raise the performance of the company’s investments (Kaplan & Norton 2000). It is a strategic planning tool used to monitor the performance of the organization in meeting strategic goals. It provides managers and executives with a set of improvement activities, internal processes, financial measures, organization’s innovations, and operational measures to improve customer satisfaction. Management accountants formulate the balanced scorecard to assist managers with a total view of the organization’s performance. The balanced scorecard is useful in identifying the value drivers of a company’s strategy and aligning the company to the strategy. Management accountants use the balanced scorecard to provide information to managers on four different perspectives. These perspectives include the internal business processes, financial, customer, learning and growth perspective (Kaplan & Norton 2000). Based on the information from these perspectives, managers are able to make effective decisions to improve performance.
Traditionally, variance analysis involved comparison of budgeted sales with actual sales. However, management accountants did not give the specific items that caused unfavorable sales in the organization. A contemporary innovation proposed by management accountants to deal with the problem of items affecting sales includes the bottleneck accounting. A bottleneck is any activity of the organization that limits the total sales because of low production. Thus, if the organization wants to maximize sales, it has to identify and solve its bottlenecks. This system of accounting enables management accountants to identify the impediments of an organization and the amount of money lost from each bottleneck (Weygandt et al. 2010). This information serves a useful purpose in assisting managers assess the progress of the organization towards long-term objectives.
Management accountants also propose the popular benchmarking innovation. Using this strategy, the accountant compares the performance of the organization with the best in the industry. The management accountant identifies the best practices in other companies in the industry and reports this information to managers and executives of the organization (Coombs et al. 2005). The management can use the information provided by accountants to forecast and control its resources and operate efficiently.
The life cycle costing is an innovative practice used by management accountants in reporting information to the executives of the company. This system of costing enables the accountants to identify different stages of the product life cycle and the stage that incurs most costs (Khan & Jain 2007). The accountants are then able to provide accurate reports on the stages of a product life cycle that management should take great caution to minimize costs and meet the firm’s targets. The main aim of the life cycle costing is to assist the managers minimize incidences of disruption in its activities. With minimal disruptive events, managers can focus on maximizing the required rate of return on their company’s investments.
Managers need to be aware of the popular and modern innovative practices proposed by management accountants. These practices are very effective in aligning the company to its goals. Managers should follow the recommendations of accountants in utilizing the practices to improve organizational performance. In the end, the company is sure to earn the required rate of return on its investments.
Purpose of management accountants
Management accountants are crucial in assisting the organization determine its progress towards long-term goals. These accountants propose contemporary practices that executives can adopt to meet organizational objectives. They provide necessary information for making decisions in the organization. They carry out variance analysis to determine the reasons for deviations between the budgeted and actual results. This information is vital for managers because they are able to learn the progress in achievement of goals and take early corrective measures to ensure realization of objectives (Langfield-Smith & Thorne 2005).
Additionally, the management accountants assist in identifying areas of inefficiencies and wastages, which hinder the progress of achievement of objectives. By identifying these areas, the accountants assist managers to allocate resources optimally and ensure total quality management (Langfield-Smith & Thorne 2005). Inefficiencies can impede the achievement of a company’s long-term objectives. However, with management accountants in the organization, it is possible to identify the inefficiencies and take adequate measures. They analyze the overall organizational data and develop standards for performance hence assisting in decision-making.
Managerial accounting provides managers with the useful information for making future decisions. The reports and accounts provided by management accountants enable the managers to assess the organization’s progress in meeting its long-term objectives. The accounts assist managers in the planning, control and organizing functions of management. The managerial accounts show the costs incurred by the organization and the progress of the firm is achieving the set standards outlined by management. With information on managerial accounting, managers are able to take corrective measures early enough to ensure the organization meets its long-term objectives.
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