Managerial Accounting Week 1 Assignment
How can Managers use accounting information to make better decisions”?
assignment !
Write a 15- to 20-page paper that addresses relevant theories and empirical research leading to a
significant research topic, problem, and research question(s). Approach your topic providing an academic
theoretical argument that might support a vital new step in understanding why managerial accounting
systems succeed or fail in a given economic environment. You do not have to actually design a study to
the point of specifying research measures of effective managerial accounting practices or specify
samples, but try to evolve your thinking to the point of framing a relevant research topic, problem, and
question(s) on which your proposed research would be focused.
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Introduction
An accounting information system (AIS) is an essential component in any business
organization. Accounting is concerned with the recording, and grouping in a sensible manner the
different concepts to do with money. The various undertakings and activities need to have
financial value attached to them. The fiscal information is important to both the internal and
external users. The internal users include the business managers, the owners and as well as the
staff members. The external users are the accounting firms, and they review the information from
the company. The other external users are creditors, tax authorities, investors, customers as well
as the regulatory authorities. The accounting information is commonly used in making of
business decisions. The decisions entail the expansion of current business operations, utilization
and reviewing new business opportunities among others. Therefore, the research question for this
proposal will be, “How can managers use accounting information to make better decisions?”
The research proposal topic is relevant because the management team various business
challenges that require making decisions based on the fiscal information. The decisions are made
efficient with the availability of financial data. Accounting information is an essential component
in the control functions of the managers. It is therefore a basic management tool, and when used
in control, it can greatly shape the operations of the company. This study will strive to offer the
relevant knowledge and expertise on how the different groups of managers can make the correct
decisions by using the different accounting information that is available.
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Literature Review
The companies, through the use of the different accounting information, can access
different types of information regarding its business operations. The process of information
acquisition is facilitated by the business organization and the internal auditing department. The
review of this fiscal information is done by an external certified public accounting firm. For
small businesses, the information concerning its business operations is usually not much.
However, all the business organizations participate in the reviewing process of their financial
information to determine the operation of the business activities. The information can enable the
stakeholders in deciding whether to expand their business operations (Cunningham et al., 2015).
The available accounting information can help an organization through various methods
that include assessment of the company performance and competitive position. The above will
make it possible for the company to take appropriate improvement measures. (Silviu-Virgil,
2014). It could as well offer insight on expanding or growing the existing business operations. It
is notable that accounting information is typically presented to the managers of financial
statements, forecasts, budgets, as well as management accounts. Small companies have less
fiscal information recorded in the accounting process compared to bigger companies. According
to Silviu-Virgil (2014), the financial statements are basic information accounting tool that
enables the assessment of business operations. The accounting information that is provided in the
financial statements is used by the financial ratios in coming with up with financial indicators.
The indicators enable the comparison of the business in question with its competitors with the
environment or against the standards of the industry (Elena, 2010).
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The business owners also utilize the accounting information for creation of the budgets
for their companies. The historical accounting information provides managers with detailed
analysis on how the business has been spending money on various functions. In most cases, the
business owners use this kind of information in the creation future budgets so that their business
has a clear financial road map. The adjustment of this budget can also be done basing on the
current accounting information so that the critical economic resources cannot be ignored. The
accounting information is also useful in making business decisions. Some of the business
decisions are the expansion of current operations, purchasing new facilities, use of different
resources, estimation of future sales and review of business opportunities. The information is
used by the business owners to find out the costs of various operations of the business. The can
have various applications that include being used for comparing the income of new business
opportunities during the process of financial analysis. The process enables the business owners to
understand the ways in which the current business operations will be affected when they expand
or grows their business (Chron.com, 2015).
The accounting information is also used by the external business to make investments.
Venture capitalists, lenders, banks take the time to review the financial health as well as the
operational profitability of the business by reviewing the accounting information. The process of
the review enables one to identify the best alternative of doing business. For the businesses that
are starting, it is very risk to invest in it without considering the accounting information because
it enables one to gauge the viability of the business. Accounting information is used by various
categories of the external users such as the regulatory authorities, investors, and creditors among
others. The creditors use this information to find out how worthy the organization is regarding
credit. Creditors are usually involved in the setting the terms of credit basing on the financial
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health of their customers. The examples of creditors are suppliers and lenders who take part in
lending of finances to customers (Wild, Chiappetta, & Shaw, 2009, p. 96).
The tax authorities use accounting information for the determination of the credibility of
the tax returns that are filed on behave of the company. Investors are also interested in the
information to enable them to analyze how feasible it can be to invest in the company. They
have to have a level of surety that their investment will yield reasonable returns before
committing any resources to the company regarding finance. The customers also require the
information to find out the financial position of their suppliers. The information creates a level of
confidence in the customers that they will be having a stable supply source for a stipulated
period. The local authorities have an interest too in the information. The local authorities ensure
that the disclosure of the information about accounts is in line with the rules and regulations
governing the different operations. The regulations are after guarding the stakeholders’ interests
especially those who depend on that kind of information to make business decisions (Hall, 2012;
Elena, 2010).
The secondary users receive this kind of information regarding financial statements. In
that regard, the aim of the financial statement is to cater for the needs of such kind of users who
have diversified needs of the accounting information to help them make financial decisions that
are sound. Accountancy involves recording, classifying, as well as summarizing of events and
transactions in a way that is beneficial to the users. It enables the ability to understand the current
position of the business entity when it comes to competitive edge and the financial muscle. The
process of accounting is procedural, and it begins with the identification of the transactions and
events. The identification of the transactions and events is followed by recording, classification
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and summarizing in a way that enables the user of the accounting information to determine the
effects and nature of such transactions and events (Demski, 2013).
The internal users who are also referred to as the primary user of the accounting
information are the employees, the management team, and the business owners. The owners use
this information to analyze how viable and profitable the business investment. The analysis
makes it possible for the business to put in place viable mechanisms to mitigate the problems that
are identified. The employees require the information to assess the net benefits that are gained
from the different functions of the company. It makes it possible for making plans for the future
actions in the organization. The accounting information is useful to the management team in that
they analyze the performance and position of the organization. They result from the analysis
enables them to take appropriate decisions that can aid them in improving the results of the
company. For the internal users, the presentation of the accounting information regards budgets,
management accounts, forecasts as well as the financial statements (Demski, 2013).
Functions of Cost & Management Accounting
The uses of accounting information are numerous, and they are beneficial to some
groups. To the managers, they are essential sine the managers handle carrying out analysis of the
performance status of the business organization and find ways of improving the profitability of
the company. The major functions of control and management accounting are planning, decision
making, accountability as well as monitoring and control (Hall, 2012).
Planning is a major component of financial accounting. The planning process entails the
use of budgets and forecasts. The forecasting process involves estimating the future expected
business position and performance. The examples of business forecasts are cash flow forecasts,
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profit and loss projections, as well as the balance sheet forecasts. Forecasts are important in the
determination of the likelihood of the change of the current financial performance. The forecast
is based on various assumptions of the current and future factors and situations. Forecasting is
the first step in determining the resources that will be required by a business. These resources are
quantified into budgets (Hall, 2012).
The budgets are used in the quantification of the financial targets that are to be achieved
by the management team if that particular organization. The process of budgeting should be
initialized by coming up with a grand budget that is used as a background of preparing
departmental and operational budgets. Budgeting aids the managers to allocate the organizational
resources effectively among competing needs such as the departments and products so as to
achieve the business financial goals. The budgets and forecasts enable the businesses to deal
proactively with potential problems such as the foreseeable bottlenecks in the business resources
(Hall, 2012). The management accounting ensures that financial information is available to the
managers for decision making. It also ensures that alternative strategies and actions are
evaluated. The evaluation is done by applying techniques and concepts like limiting factor
analysis, performance appraisal techniques, cost-volume-profit analysis, cost, and client or
product profitability analysis (‘ENROAC 7th Doctoral Summer School in Management
Accounting’, 2013).
The issue of control in accounting management begins with the definition of the basic
measure against which the performance will be measured like the budgets and costs. The actual
and target results are evaluated and where possible, the corrective measures are taken to
minimize the gap. The management accounting is essential in monitoring and controlling costs
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and efficiency of the daily repetitive processes and one-off jobs and projects that are undertaken
by a business organization (Gelinas & Wheeler, 2011).
The management accounting puts great emphasis on accountability through effective
performance management. When strategic business units and departments have the set targets,
the management accounting can aid in assigning the responsibilities that are oriented to the
achievement by the managers. Performance appraisal of the managers who are responsible
ensures responsibility accounting. Therefore, the use of accounting information by the managers
is essential since it improves the productivity of a business (Businesscasestudies.co.uk, 2015).
In the recent past, the business sector has encountered a wave from the external business
environment. It entails the global change in climates such as global warming and capital market
crisis; there has been much attention given to the stakeholder-oriented management. As
consequence, the shareholder value management is experiencing criticism since it has
undesirable external effects to the stakeholders but not to the owner. Even if the criticisms do not
hold sufficient basis, the question of concern is how the techniques related to accounting that are
used for supporting managerial decision making are different both in the aspect of stakeholder
and shareholder value management (Wall & Greiling, 2011).
Wall & Greiling (2011) also asserts that there are two ways in which the accounting
information can affect managerial decision making. The information directly affects managerial
decision making as an input in decision making. It also has an indirect effect by influencing
managerial behaviors. Comparatively, share value management approaches are much more
advanced. To be specific, the two applications of the information in shareholder value
management are manifested in the techniques related to accounting, which are oriented to
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increasing value of the firm. The examples are valued driver models residual income based
measures of performance (Businesscasestudies.co.uk, 2015).
Comparatively, accounting related techniques for supporting the decision making the
process of managers in stakeholder management is not advanced as such. Currently, there are
approaches whose concentration are on selective stakeholder groups and partially address the
extent of multi-dimensionality the value creation of a stakeholder. Wall concludes that from a
conceptual perspective that stakeholder value creation requires an approach that is more
integrated for answering the question whether there is a creation of stakeholder value or
diminished (Wall & Greiling, 2011).
A manager is expected to take on roles within an organization relating to information,
decision, and relational. It is very important that the manager handles all these tasks with
success. To ensure efficiency and effectiveness in handling all the tasks, the managers should
have tools to aid them and among them is management accounting. The management accounting
information should be diversified and be of global standard so that it can be used by the various
manager from different places and ranks Christensen & Feltham, 2012). The research has
summarized the three functions of management accounting. It provides information on the
results as well as the past performance, facilitation of decision-making orientation of other
people’s behaviors in the expected direction. The outlined roles are demonstrated at the
individual level of managers (Hall, 2010).
Managerial accounting in planning and control
The management can use the different accounting information in the process of carrying
out the control different functions of the company. The managerial accounting information is
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also a tool for planning within an organization (Sinofsky & Iansiti, 2010). Total absorption
costing, one of the components of the different cost components of the firm, will give the total of
the different variable and fixed costs of a firm. The management needs to be in the position to
quantify the different costs that are affecting the factors. It is effective to analyze therefore all the
cost and relate them to the revenues that the company is obtaining. It is a critical tool for both the
control and planning function. The firm will be in a position to plan for layoffs if the various
costs that are being experienced are not economical enough to the firm. As a control tool, it will
entail aligning the various costs with the sources of the same costs within the company. It makes
it possible for the management to control such cost components.
Incremental Costing is another component that I critical in the analysis of how the
management can use the managerial accounting information in the process of making certain
decisions in the firm. The cost represents the level of cost increase that is necessary for the
production of an extra unit of output. The management, therefore, need to understand if such
increases are worthwhile to the firm as well as determine if such cost increase can be effected by
an alternative means. Incremental costing is a very basic component in accounting as firms
always target to increase their sales that necessitate the increase in the other components of the
cost function. The other component of control and planning is the adaptive processes. The
business organization will need to adapt to the different circumstances within the environment.
The factors that may make it necessary for such adaptation may include: scarcity of the raw
materials, labor laws, and price volatility. It is, therefore, necessary that the management needs
to assess the different costs that are associated with such uncertainties within the environment.
The above uncertainties also need to be quantified by attaching a certain cost to them. The
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successful assessment of such costs will make it possible for the management carry out the
different control and planning functions of the organization.
The budgeting process will also give an opportunity to the management to make use of
the available accounting information in the process of decision making, control, and planning of
an organization (Davis &Davis, 2012). The budgeting process is a complex process, and it needs
effective assessment of the future by assigning to it certain costs as well as expected revenues
(Sinofsky & Iansiti, 2010). The management is therefore faced with the problem of making the
exact assignment so that the figures that are given are not in extremes. Managerial accounting is
also essential in customer strategic adaptation, product process, and the channel. The
management, therefore, needs to understand the specific needs of the customers. The cost
associated with tailoring the product to the final; consumer is also supposed to be assessed and
understood. The cost can be associated with the sales and market services, warehousing of the
product, and consumer education about the product. Necessary studies need to be done and the
information associated with the cost of availing a product to one consumer assessed. The product
process and the channel are also the other key components in managerial accounting. The
management is supposed to choose the best and effective channel for the product depending on
the available costs for marketing such a product and the revenues that are supposed to be realized
by the company. The above therefore is also one of the key components of why managerial
accounting is important in control and planning. The above-stated factors are predictive in nature
as they try to give the future position of how an organization is supposed to look like in future.
(Davis &Davis, 2012)
Managerial accounting in evaluation and analysis
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The evaluation and analysis process tries to relate the past position of an enterprise, the
current position, and what the future ought to be like. The above process is, therefore, essential in
managerial accounting so that the performance of the firm is well monitored and the progress in
the different areas well analyzed. It ensures that the management is well within the set objectives
of the organization. However, there are certain key areas that need to be worked on to ensure that
the process is effective. The assessment of current strategies and plans is made possible through
a well tailored managerial accounting study. The management will be in a position to understand
the current situation (Savoie & Business Expert Press, 2012). The different types of areas that
may make it necessary for improvement will be recognized within the organization. The
management will, therefore, make the necessary provisions for the control functions within the
areas of weakness that are identified. The management will, therefore, make it possible that the
organization either improves on what is being performed in an organization or necessary
measures are taken to improve areas of weakness. The managerial accounting information ids,
therefore, an important control tool within an organization.
The different cost components that are measurement within an organization are essential
in the taking of the control different functions of an organization (Jaffin, 2013). The cost
components can also be sued for comparison purposes between the different years and between
the different companies or enterprises. Integrated cost/operational performance measure is well
centered on measuring the various cost components within an organization. The above measures
include cost variance, process efficiency, and capacity measurement. The cost variance is well
entailed to measure the cost differences that exist between different products, or between the
same products but for the different years, and it may also entail the measurement of such a
variance between the different years. The measurements they make it necessary that the company
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has a great research and development department to gather the different data components that
can be used in the analysis of such basic information. Process efficiency makes it possible to
assess if the company is producing the same level of output by incurring the least cost possible
(Jaffin, 2013). Capacity measurement is well centered on the analysis of the capabilities of the
enterprise towards meeting the needs of the existing customers of the company, the availability
of the raw materials, and the capacity of the firm labor. The above is critical in control. It offers
the management the opportunity to make the necessary arrangements for hire of the personnel
having the traits that suit the needs of the firm, arrange for the supply of the raw materials, and
arrange of the effective carrying out of the different functions of the organization to meet the
needs of the customers.
Profitability analysis is another key component of managerial accounting. The profit
levels of a company will give an indicator of if the business venture is worth operating or not.
The information is essential to the management in making the decisions of control by assessing if
it is worthwhile to carry on with the business venture. The different indicators need to be keenly
assessed and the necessary comparisons done so that a reasonable conclusion is made about the
company. Decisions will be made on if it will be worthwhile to carry on with the business
venture or not. The above, when combined with process analysis, forms a holistic whole in the
running of a business venture. The management needs, therefore, to keenly understand the
different processes that the product goes through before it is availed to the final consumer who is
usually the customer. Care also need to be placed on the importance of learning and the taking of
the different corrective measures when making the different decisions within the organization.
The different weaknesses are supposed to be corrected, and this is one of the key measures to
ensure the effective control of organizations (O’Neal, 2012).
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The process of managerial accounting is, therefore, important to the organization and the
whole management team. It can be well evidenced that the role that managerial accounting plays
in the setting of the path for the organization is critical. The organization will have a well set-out
plan within which it can operate the various business processes. It can be evidenced that
managerial accounting encompasses the different components of the organization that ranges
from the management, the staff, and the whole customer base. The setting of the right targets for
the whole organization is, therefore, a necessary condition but not a sufficient condition. The
organization, therefore, needs to put in place the right mechanisms through which it will achieve
the different set out objectives. The different areas that managerial accounting plays a key role
include the process of product costing, assessing the level to which the different needs of the
different customers are met, and the efficiency with which the different operations are carried out
in an organization.
The management is therefore supposed to make the right choices when it comes to the
selection of the staff that will be used in the meeting of the different objectives of the
organization. The other basic components that need keen care for the efficiency gain include
monitoring of processes, calculation of the different variances, and the setting of standards
within an organization. The importance of managerial accounting within an organization can
therefore not go unmentioned. The role played by managerial accounting within an organization
is highly important, and there is the need to understand keenly the sector so that the different that
keep on happening in the sector are discussed in detail.
MANAGERIAL ACCOUNTING WEEK 1 ASSIGNMENT 15
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