Introduction to Managerial Accounting Essay

Introduction to Managerial Accounting Essay

Management accounting is concerned with the provision and use of accounting information to managers within organizations, to facilitate the managers in their decision making and management control functions. Unlike financial accounting information which, for the most part, is made publicly available, management accounting information is used within an organization and is usually confidential.
Managers need the answers to questions that help an organization to achieve their goals.   Some examples of these questions would be whether the company is doing well or poorly (scorecard), attention directing questions that focus on comparing actual results to expectations, and problem-solving questions that target specific areas of the organization, and recommend solutions.

The distinction between traditional and innovative management accounting practices can be illustrated by reference to cost control techniques. Traditionally, management accountants’ principal cost control technique was variance analysis, which is a systematic approach to the comparison of the actual and budgeted costs of the raw materials and labor used during a production period. While some form of variance analysis is still used by most manufacturing firms, it nowadays tends to be used in conjunction with innovative techniques such as lifecycle costing and activity-based costing, which are designed with specific aspects of the modern business environment in mind. Lifecycle costing recognizes that managers’ ability to influence the cost of manufacturing a product is at its greatest when the product is still at the design stage of its product lifecycle (i.e., before the design has been finalized and production commenced), since small changes to the product design may lead to significant savings in the cost of manufacturing the product. Activity-based costing recognizes that, in modern factories, most manufacturing costs are determined by the amount of ‘activities’ (e.g., the number of production runs per month, and the amount of production equipment idle time) and that the key to effective cost control is therefore optimizing the efficiency of these activities. Both lifecycle costing and activity-based costing recognize that, in the typical modern factory, the avoidance of disruptive events such as machine breakdowns and quality control failures is of far greater importance than (for example) reducing the costs of raw materials. An alternative view of management accounting is that it is not a neutral or benign influence in organizations, but is instead a mechanism for management control through surveillance. This view locates management accounting specifically in the context of management control theory.

Management accountants are valued business partners, directly supporting an organization’s strategic goals. With a renewed emphasis on good internal controls and sound financial reporting, the role of the management accountant is more important than ever. Management accountants primarily serve as advisors to the organization, and generate detailed reports on the organization itself, its products, departments, territories, etc. and include performance and budget reports that focus on organizational goals. Managerial accountants carry titles such as CFO (Chief Financial Officer), controller, and treasurer.   The CFO deals with all finance and accounting issues within the organization; the controller and treasurer report to the CFO with matters that aid in decision making.   The controller is the organization’s top accounting officer; the treasure is concerned mainly with raising and managing cash.

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The Oxford Dictionary. (1998, June). January

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Roles and Responsibilities of Managerial Accountants. (2007, July). January

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