Role of Management Accounting Information in Performing Management Functions - Assignment Example

?MANAGEMENT ACCOUNTING Part Role of management accounting information in performing management functions Management in an organization entails social processes involving effective and economical regulation and planning of operations in organizations consistent with the established goals and objectives. The management process is dynamic consisting of various activities, elements and functions (Hermanson 2010). The key major management functions involve planning, controlling, decision making and communicating. It is notable that management accounting information is very vital in executing these management functions in an organization. The following discussion shows how the Management Accounting information assists the management of a company. Planning This involves looking ahead and preparing future courses of action that need to be followed. Managers devise a systematic programme regarding future courses of action. Planning is selection of the best way or alternative of performing various managerial functions in an organization. Management accounting information is very vital in planning management function (Demski 2008). The basic objective of a company is to ensure that the company is profitable by creating competitive advantage in regard to prices as well as market expansion. In choosing any alternative the company management must consider its potential benefits and its underlying costs against the company resources. Management accounting information is important in projecting profits in new established markets. The required information includes profit margins, sales volumes and costs in firms operating in similar markets. This information is combined with projected sales. Most companies express their management plans based on the management accounting information formally in budgets. Budgeting is considered a core part of the planning process. Controlling Controlling management function in a company ensures that the planned alternative is being followed. It is important to note that feedback plays an important role indicating the effectiveness of control in a company. Management accounting information is used when comparing the budgeted results and its actual results mainly referred to as performance report. This report shows whether the company is operating as planned as well as pointing out areas that need some attention. The management accounting information used for comparison includes sales profits, sales volume and the expenses. In cases where the targets are not met then the company management establish the next relevant course of action strategy hence the need for a revised plan by the top management. According to Hermanson (2010) the management accounting information plays a significant role in providing the relevant feedback in regard to company progression and performance (Hermanson 2010). The feedback is mainly used as a control tool in regard to the company operations through the comparison of the actual and the budgeted results. Decision making Decision making is one of the core functions of management which is a continuous process. Company management obtains the relevant management information and various costs calculation (Demski 2008). The obtained management accounting information is used in establishing and developing the best decisions at all the levels of the organization. The information that is used mainly indicates how a company is effectively conducts its operations. The management makes use and exploits the information in the management and its underlying leadership skills in its underlying decision making processes. The management accounting information is essential in a company making key decisions in the operational and the production processes. The role of management accounting is to provide key relevant information which is used in making decision within a company. Communicating In addition to the above management functions, company management oversees the company operations on daily and long-term basis thus ensuring that the company is operating smoothly. To ensure that these functions are executed effective communication is required because it provides a sense of direction (Demski 2008). Company managers assign and delegate tasks, arbitration of issues, conflict resolution, answering questions and making decisions which affect all the stakeholders. It is therefore important to note that managers should effectively communicate the relevant information. The management accounting information underlying this includes daily sales reports and daily day-to-day company operations. Part 2. Cash Budget from July to October 2012 Income ? Expenditure ? Profit ? July Sales 112000 (0.8 *3500* 40) 32000 (0.2*4000*40) 144000 – 15000 Total 129000 Materials 60000 (3000*20) Labor 30000(5000*6) Overhead 15000(5000*3) Fixed Overhead 5000 (10000-5000) Total 110000 129000- 110000 = 19000 August Sales 128000 (0.8 * 4000* 40) 36000 (0.2*4500*40) Total 164000 Materials 100000 (5000*20) Labor 30000 (5000*6) Overhead 15000 (5000*3) Fixed Overhead 5000(10000-5000) Total 150000 164000 – 150000 = 14000 September 144000 (0.8 * 4500* 40) 32000(0.2 * 4000* 40) Total 176000 Materials 100000 (5000*20) Labor 27000(4500*6) Overhead 13500(4500*3) Fixed Overhead 5000(10000-5000) Total 145000 176000 – 145000 = 30500 October 128000 (0.8*4000*40) 40000(0.2*5000*40) Total 168000 Materials 90000 (4500*20) Labor 24000(4000*6) Overhead 12000 (4000*3 Fixed Overhead 5000(10000-5000) Total 131000 168000 – 13000 = 37000 (2B) Factors contributing to difference between Cash balance and the budgeted profits This is referred to as variance which indicates the difference between the actual results and the budgeted results. It is notable that the difference can be positive or negative. The most common causes of these differences can be attributed to overspending in some months thus the sales revenues can fall below the budgeted forecasts (Demski 2008). In addition are the unexpected significant changes in the cost structure, underestimated or overestimated requirement for utilizing the company cost resources and finally the unexpected problems and emergencies within a company. (2C) Revised costs for each of the materials on a relevant cost basis Steel 100*330 = 33000 this is a relevant cost. This is attributed to it being a future thing and its constant use. This will affect decisions in the future as it is used constantly and the fact that it is also used on other operations. Brass 10500-8000 = 7000 this fall under the irrelevant costs category, this is because the underlying cost has little significance to the future. It is use used specifically for the boiler operations and that it is more historic rather than futuristic. Copper 5000*110% = 5500 this falls under relevant costs category. This cost entails the future and thus significantly affects the future decision making (Hermanson 2010). Furthermore this material is used in many organization functions in general. Nuts, bolts and screens (4000±?) this falls under relevant costs. Since it is a manufacturing firm, the underlying costs are of constant use and ought to be used in one or another. Therefore they are futuristic and depend on a determinable price which is the value of the relative amount as per the job specifications. References Demski, J. S, 2008, Managerial Uses of Accounting Information, New York: Springer. Hermanson, E. a, 2010, Managerial Accounting, Saint Paul: Freeload Press, Inc. Read More