Brief tall of management accounting

开篇：润墨网以专业的文秘视角，为您筛选了一篇Brief tall of management accounting范文，如需获取更多写作素材，在线客服老师一对一协助。欢迎您的阅读与分享！

Abstraction：As a consequence of growing instability and competitiveness in the business environment many companies have reconsidered customer satisfaction as a priorities and adapted organizational structures and processes. The development of management accounting is thus gaining its importance in the operational process.

Key Words:management accounting opportunity cost decision-making

The role of management accountants has recently evolved from their traditional responsibilities of merely providing useful information to decision-makers. They were typically concerned with factory contents, expenditure and profit. These accountants tended to have a long standing contract or position in the company but little real power beyond providing reports. Management accountants have now evolved to become more like non-financial managers in relation to operational decisions. For example, management accountants in Slovenia are not only information providers but also perform active involvement in strategic management processes. (Aver&Cadez2009)

The objective of this study is to discuss the influence of management accounting in decision-making and address the role of management accountants in the process of financial decisions. Secondly, it presents an example that illustrates management accountant use opportunity cost as a practical decision aid. Finally, it offers conclusions and demonstrates that decision makers in the organization must understand how to create and use good management accounting information.

Decision-making in management accounting

In management accounting, decision-making may be simply defined as choosing a course of action from among alternatives. If there are no alternatives, then no decision is required. The best decision is that which involves the most revenue or the least amount of cost. The task of the management accountant is to find the best alternative approach to achieve the most profits. A management accountant is a member of a cross functional team and makes a contribution by providing useful information and figures to the report. Management accountants are increasingly required to take into account long term strategies of the organization as well as adapt to new concepts of value(Talha&Raja2010).The management accountant should ensure that the information is relevant, accurate and timely to the decision making but also keep watch for other long term costs or risks associated with the broader plan of the company’s management team.

Relevance as a concept has broadened beyond that of management accounting information produced for each manager. The relevant cost is defined as the costs appropriate to a specific management decision in the context of the organizations strategy and potential. In order to qualify for relevancy, a relevant cost would traditionally meet two criteria: (i) Effects the future and (ii) Differentiates among alternatives. Management Accountants must now look beyond these base definitions to provide more opportunities for their client to evolve their business.

The opportunity cost is regarded as one type of relevant cost. Victoravich (2010) indicates‘Opportunity costs are incurred whenever a decision-maker must choose between two or more courses of action; however, they are commonly overlooked by decision-makers’.

Identification of opportunity costs as relevant information is likely to influence decisions and estimation (Victoravich2010).In particular, it is important to attend to opportunity costs since failing to consider them as relevant information is likely to bias in favor of continuing projects that are unprofitable. Decision makers need to be aware of all alternatives and their consequences across the whole organization. Opportunity costing is needed for a comparison of all alternatives (Keasey&Moon1994).

An example of the use of opportunity cost

Following the table indicates information about Yellik ltd which has recently received a contract (Keasey&Moon1995).

Table 1:Yellik Ltd-contract

According to the above figures, management accountancy indicates that this contract should not be accepted. The company would lose at least $3000 for conducting this contract.

Additional information available:

1.Material A was bought for $20000 two years ago that was not undertaken. Indeed, costs of $500 would have to be incurred in order to dispose of it. Alternatively, it could be used in a few months time for factory extension which would cost $16000. In this case, material A would cost $2000 for conversion.

2. Material B is ordered by the firm at price of $15000. Yellik Ltd is agreed to pay this sum on delivery. If for any reason, Yellik Led cancel the order, they should be charged a 20% for cancellation.

3.Direct labor paid on a piece-work basis. So it should be treated as a variable cost.

4.The equipment was purchased a few years ago for $70000.Its expected useful life was five years. Now it could be sold for $20000.Its re-sale value is expected to decline to$15000 in six months time.

5.The $8000 fixed overheads represent an allocation of factory costs. However, a part of the factory could be sub-let to a local repair business ($7000/quarter) if firm do not use it.

6.An administrator’s time lost on her work being account for paying costing $3000.

Table 2：Yellik Ltd-opportunity cost approach

As indicated above Table 2, management accountants can be called upon to calculate relevant costs and benefits for the decision of alternative plans under the opportunity cost approach. It is clear that the contract yields net benefits of $5000. Therefore, the company should accept this contract.

According to the above analysis, management accountants should consider all alternative plans to make sure that firms can gain the most profits.

Conclusion

A skilled management accountant can provide flexibility, risk awareness, more insightful approaches to costing; as well as reports correctly matching value to the client’s long term strategy. With a more prominent role alongside the decision making team of the company or institution, a management accountant can affect directly the business model and major decisions of the team beyond figures and reports. Opportunity costing demonstrates this new range of responsibilities. Management accountants need to use such tools to predict costing over a longer period and take into account many more factors.

Reference

[1]Keasey,K.&Moon,P.(1995).Oppprtunity Cost for Decision Making:A Teaching Resource to Illustrate the Difficulities of Practice.Accounting Education,2(1995),189-196.

[2]Victoravich,L.M.(2010).When Do Opportunity Costs Count? The Impact of Vagueness,Project Completion Stage,and Management Accounting Experience. Behavioral Research in Accounting.22(2010),85-108

[3Aver,B.&Cadez,S.(2009).Management Accountants’participation in Strategic Management Processes:A cross-industry Comparison. Jeems.

[4]Talha,M.&Raja,B,J.(2010).A New Look at Management Accounting. Applied Business Research.26(2010),83.

[5]Mcnir.C.&Can,L(1991).Toward Value-Added Management Accounting.CMA.65(1991).26.