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Paper Example on Management Accounting

6 pages
1590 words
Harvey Mudd College
Type of paper: 
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1.0 Introduction

Alexis Kindig 2017, defines accounting as the process of documenting, organizing and condensing financial information in a manner that enables users to make economic decisions based on it. Running successful businesses requires access to information, records, reports, investigation, precise data about resources, obligations, liabilities, benefits. In the past three decades, most corporate and businesses operating in Australia have faced increased competition from other global partners due to a lack of management accountants. For instance, the Australian manufacturing industry that experienced a systemic decline affecting a massive shift to part-time employment.

Yazdifar and Tsamenyi 2005, argues that at this point, the role of a management accountant to a company becomes critical. The Cambridge dictionary defines management accountants as individuals who assist managers in making decisions of increasing profits or making savings by analyzing the information associated with the expenses of running a business and breaking down profit gains from different parts of the company. In recent years, their role has been changing as far as the making of new methods and frameworks to suit adjustments of societal changes additionally. The paper looks at why management accountants are significant assets to organizations and the competitive advantage they possess as compared to other agencies without management accountants operating in the same industry. 2.0 Management Accounting and how it adds Value to FreeAir Skate Pty LtdThe business dictionary defines management accounting as the procedure of compiling administration reports and records that give precise and auspicious monetary and factual data required by managers to make daily and interim choices. Different to financial accounting that generates yearly reports predominantly for external stakeholders, management accounting produces weekly and monthly reports for company's internal stakeholders such as managers and officers in charge. These reports commonly demonstrate the measure of available money, deals income created, the ratio of demands close by, the condition of records payable and records receivable, remarkable obligations, crude material and stock, and may likewise incorporate pattern diagrams, change examination, and different insights. Management accountants in companies dependably play crucial and indispensable roles towards their success. They have tremendous command of varying accounting standards and approaches, which makes them critical individuals of the organizations they work in, particularly in the decision-making process.

Management accountants additionally have the right skills of delivering important, significant and helpful data. They do as such by increasing the value of the data and changing it over into helpful data. As Hilton (2011, 5) claims, they can add value by influencing the best utilization of the company's assets, individuals and exercises to achieve the hierarchical objectives. Notwithstanding, management accountants likewise take part in four different daily practices, which include decision making, planning, directing operational activities and controlling. This is the reason as to why management accountants are critical individuals from cross utilitarian administration groups, and in these groups, they settle on an assortment of choices including budgetary, advertising and generation.

In FreeAir Skate Pty Ltd, a management accountant can add value by giving the two sorts of data, standard and specially appointed, which are essential for making decisions. Furthermore, the management accountant would significantly contribute to the definition and execution of technique, survey the implementation and oversee the plan, if assessment would not be specific. Additionally, a management accountant in FreeAir Skate Pty Ltd would settle on choices by analysing both inner and outer data, while a financial accountant utilizes internal data as it were. The management accountant would likewise look at all the money related and non-monetary expenses and advantages to a specific choice. Besides, the data presented by the management accountant can be of the past, present or future, however, is continuously significant, subjective and convenient, and is set up to suit particular needs of various managers. In conclusion, a financial accountant would concentrate on the organization in general. However, a management accountant focuses on multiple segments, since management accounting, for the most part, concentrates on sectorial bookkeeping.

2.1 How Management Accounting Contributes to Organization StrategyManagement accounting adds to a companys strategy, as the data sourced from an accountant is valuable to help the creation and also the execution of a companys strategy. As expressed by Langfield-Smith et al. (2015, 15) strategic planning is characterized as long-haul planning as a rule directed by senior administrators to help accomplish the company's objective. Numerous companies are rapidly executing strategic planning into their systems, as it encourages them with issues, for example, overcoming high rivalry and the regularly developing changes to the business condition. For example, companies depend on their hardware intensely, because without it they wouldn't have the capacity to proceed with daily operations which is proficient for a business with aims of making profits. Furthermore, management accountants assume a crucial part in executing a strategy, with the utilization of planning which is articulating the bearing for future operations, and the usage of control frameworks that give data about daily activities that can help with control, are both basic for detailing a business' long haul design.

2.2 Management Accounting: Contributing to Competitive Advantage

Management accounting also contributes to an organization's upper hand which is the favorable position that one business has over different organizations of a similar industry. This can be reflected through offering customers more noteworthy esteem. For example, bringing down costs as well as offering more unique advantages. This is the point at which the data acquired by a management accountant is helpful, as it concentrates on the company's wellsprings of competitiveness. For instance, if a firm contends on keeping up the most reduced value, at that point its management accounting data should concentrate on low item cost and keeping uptight control on costs, with the objective to limit cost for their merchandise and ventures yet, also, maintain profit gains.

2.3 Management Accounting Systems

Management accounting systems or frameworks refer to the systemic utilization of management accounting data to accomplish a company's objective. This framework is concerned with the running of the company, and the utilization of any financial and operational data focused on helping managers in making decisions, planning, and control. By using management accounting data, it will influence the company's exercises and the decisions made by managers. It is additionally a wellspring of propelling managers and workers to coordinate their energies towards the company's objectives as opposed to their objectives. It is demonstrated that in management accounting the fundamental mode of inspiration is the execution administration framework. While there are cost and advantages related with sharing management accounting data, the expenses incorporate the accountant's pay, costs related with buying and working PCs, cost of social occasion and putting away this data and in conclusion, the time spent perusing the data introduced. However from this are benefits that incorporate more guaranteed choices, more compelling planning with daily operations being more proficient and savvy, and ultimately accomplishing client and investor fulfillment.

2.4 Components of a Management Accounting System

Management accounting frameworks are ordinarily engaged in the company's needs. There are four fundamental frameworks which management accountants use to detail data that they can give to the manager to help them in decision making and planning that are utilized; they include costing framework, planning framework, execution estimation framework, and cost administration framework. A costing structure is used by an association to screen the expenses acquired by directing an individual exercise, which is additionally used to answer to authority. The budget framework is critical as it decides a gauge cost for planned incomes and the cost of various authoritative offices. Next is the execution estimation framework which gives data on how well a company is getting along as far as accomplishing their coveted goal, it demonstrates components, for example, quality, advancement, and money related position. Ultimately is the cost administration framework which gives data to the manager which encourages them to control their cost of operation, it likewise demonstrates the contrasts between their planned expenses and the real value.

3.0 Financial Overview of Whether to Shutdown SnowskateIf it is not shutdown:

Variable Cost = $157,500, Sales = $175,000, Fixed Cost = $64,000

Therefore Operating Income (Loss) = $(221500 175000) = $46,500

Alternatively, if Snowskate is shut down:

Increase in sales income of Surfskate = 0.15 * 2100000 = $315000

Subtract (Increase in fixed cost) = $(324000/3) = $108000

Subtract (Remodeling cost) = $65000

Adding money gained from selling machine = $45000

Hence profit/loss gained in the event Snowskate is discontinued = $(315000 108000 65000 + 45000) = $187000

The correlation above delineates the thought of FreeAir to proceed or suspend the production of SnowSkate. According to the analysis, it is seen that FreeAir would make a loss of $46, 500 if it maintains the Snowskate production line and makes profits of $187,000 if it quits production of SnowSkate items.

4.0 Assessment of ABCActivity-based costing (ABC) is a strategy which doles out the assembling overhead expenses in a more efficient procedure to items, contrasted with the conventional approach which assigned expenses, with relationship to machine hours. An ABC framework follows a two-phase approach with a specific target of appointing overhead expenses to items. The first stage included is estimating the cost of assembling overhead exercises. This incorporates perceiving real assembling exercises and afterward deciding the spending totals for each of these exercises. Stage two includes relegating the expenses of assembling exercises to the items.

In numerous organizations today, the decent variety of their item and cost structures focus more on overhead and less on volume. In the recent past, traditional costing frameworks used to be dominant, and now they need inexactness as they may overestimate the cost of high volume straightforward items that are delivered in extensive amounts and the other way around where there is a disparage of values relevant to the low volume items created in smaller quantities. Accordingly, this can prompt insufficient data that will be utilized to develop odd choices which will be related with hi...

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