Managerial Accounting Assignment help




Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.

In contrast to financial accountancy information, management accounting information is

  • In contrast to financial accountancy information, management accounting information is
  • usually confidential and used by management, instead of publicly reported;
  • forward-looking, instead of historical;
  • computed by reference to the needs of managers, often using management information systems, instead of by reference to general financial accounting standards.

According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities" (CIMA Official Terminology).

The American Institute of Certified Public Accountants(AICPA) states that management accounting as practice extends to the following three areas:

  • Strategic Management—Advancing the role of the management accountant as a strategic partner in the organization.
  • Performance Management—Developing the practice of business decision-making and managing the performance of the organization.
  • Risk Management—Contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization.

Role within a corporation:-

Consistent with other roles in today's corporation, management accountants have a dual reporting relationship. As a strategic partner and provider of decision based financial and operational information, management accountants are responsible for managing the business team and at the same time having to report relationships and responsibilities to the corporation's finance organization. The activities management accountants provide inclusive of forecasting and planning, performing variance analysis, reviewing and monitoring costs inherent in the business are ones that have dual accountability to both finance and the business team. Examples of tasks where accountability may be more meaningful to the business management team vs. the corporate finance department are the development of new product costing, operations research, business driver metrics, sales management scorecarding, and client profitability analysis. Conversely, the preparation of certain financial reports, reconciliations of the financial data to source systems, risk and regulatory reporting will be more useful to the corporate finance team as they are charged with aggregating certain financial information from all segments of the corporation. One widely held view of the progression of the accounting and finance career path is that financial accounting is a stepping stone to management accounting. Consistent with the notion of value creation, management accountants help drive the success of the business while strict financial accounting is more of a compliance and historical endeavor.

Specific concepts

Cost accounting

Cost accounting is a central element of managerial accounting.

Grenzplankostenrechnung (GPK)

Grenzplankostenrechnung is a German costing methodology, developed in the late 1940s and 1950s, designed to provide a consistent and accurate application of how managerial costs are calculated and assigned to a product or service. The term Grenzplankostenrechnung, often referred to as GPK, has best been translated as either Marginal Planned Cost Accounting or Flexible Analytic Cost Planning and Accounting. The origins of GPK are credited to Hans Georg Plaut, an automotive engineer and Wolfgang Kilger, an academic, working towards the mutual goal of identifying and delivering a sustained methodology designed to correct and enhance cost accounting information. GPK is published in cost accounting textbooks, notably Flexible Plankostenrechnung und Deckungsbeitragsrechnung and taught at German-speaking universities today.

Lean accounting (accounting for lean enterprise)

In the mid to late 1990s several books were written about accounting in the lean enterprise (companies implementing elements of the Toyota Production System). The term lean accounting was coined during that period. These books contest that traditional accounting methods are better suited for mass production and do not support or measure good business practices in just in time manufacturing and services. The movement reached a tipping point during the 2005 Lean Accounting Summit in Dearborn, MI. 320 individuals attended and discussed the merits of a new approach to accounting in the lean enterprise. 520 individuals attended the 2nd annual conference in 2006.

Resource consumption accounting (RCA)

Resource Consumption Accounting (RCA) is formally defined as a dynamic, fully integrated, principle-based, and comprehensive management accounting approach that provides managers with decision support information for enterprise optimization. RCA emerged as a management accounting approach around 2000 and was subsequently developed at CAM-I the Consortium for Advanced Manufacturing–International, in a Cost Management Section RCA interest group in December 2001.

Throughput accounting

The most significant recent direction in managerial accounting is throughput accounting; which recognizes the interdependencies of modern production processes. For any given product, customer or supplier, it is a tool to measure the contribution per unit of constrained resource

Transfer pricing

Management accounting is an applied discipline used in various industries. The specific functions and principles followed can vary based on the industry. Management accounting principles in banking are specialized but do have some common fundamental concepts used whether the industry is manufacturing based or service oriented. For example, transfer pricing is a concept used in manufacturing but is also applied in banking. It is a fundamental principle used in assigning value and revenue attribution to the various business units. Essentially, transfer pricing in banking is the method of assigning the interest rate risk of the bank to the various funding sources and uses of the enterprise. Thus, the bank's corporate treasury department will assign funding charges to the business units for their use of the bank's resources when they make loans to clients. The treasury department will also assign funding credit to business units who bring in deposits (resources) to the bank. Although the funds transfer pricing process is primarily applicable to the loans and deposits of the various banking units, this proactive is applied to all assets and liabilities of the business segment. Once transfer pricing is applied and any other management accounting entries or adjustments are posted to the ledger (which are usually memo accounts and are not included in the legal entity results), the business units are able to produce segment financial results which are used by both internal and external users to evaluate performance.

Management accounting tasks/ services provided:-->

Listed below are the primary tasks/ services performed by management accountants. The degree of complexity relative to these activities are dependent on the experience level and abilities of any one individual.

  • Rate & Volume Analysis
  • Business Metrics Development
  • Price Modeling
  • Product Profitability
  • Geographic vs. Industry or Client Segment Reporting
  • Sales Management Scorecards
  • Cost Analysis
  • Cost Benefit Analysis
  • Cost-Volume-Profit Analysis
  • Life cycle cost analysis
  • Client Profitability Analysis
  • IT Cost Transparency
  • Capital Budgeting
  • Buy vs. Lease Analysis
  • Strategic Planning
  • Strategic Management Advise
  • Internal Financial Presentation and Communication
  • Sales and Financial Forecasting
  • Annual Budgeting
  • Cost Allocation

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