INTRODUCTION
The term management accounting refers to producing information to internal sources. These internal sources can be top-level managers or floor supervisors. The information that is produced is used for planning and controlling the company’s actions while also producing information that aids in the decision making process. A management accounting systems is used as an aide in this process. Management accounting systems can produce information for the costs of goods, products and services, and other departments in the company. A management cost accounting system produces information regularly for budgeting, performance, and the production of cost reports (Talha, Raja, Seetharaman, 2010, P. 83).
In the 1980’s, more attention was given to management accounting, and its inability to keep up with technology. The advances in technology in manufacturing and information technology led to the need for a more advanced management accounting system that replaces the traditional cost management system already in-place. The traditional cost management systems were in place to offer neutral and objective financial information that was easy to calculate (Talha, Raja, Seetharaman, 2010, P. 83-91).
To keep up with these changes, activity-based costing (ABC) was created. ABC is considered an alternative approach to the traditional cost management models. This accounting approach is focused on the causality and providing the decision makers the ability to manage costs at the root, as opposed to focusing on the product cost alone (Talha, Raja, Seetharaman, 2010, P. 91).
ACTIVITY BASED COSTING: THE BASICS
Activity based costing (ABC) was first proposed to the United States during the 1970’s-1980’s. ABC was brought to the country to ove...
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...er Profitability: Insights from the Paper Industry in Florida. Research in Business and Economics Journal , 1-9. Retrieved from http://origin-search.proquest.com/docview/1114066869?accountid=91041
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[6] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 8, Cost-volume-profit analysis, p. 165-173
This case assignment will discuss managerial accounting and different income statements a business owner may use internal to the company. Divided into two parts, part one will discuss and analyze the difference between managerial and financial accounting, the needs for financial information used for internal purposes. Additionally, it will focus on the managerial accounting profession and how its roles have changed in today’s business. Expanding on the profession, it will comment on the Certified Management Accountant (CMA) certification and how it differs from the CPA certification. Part two of this assignment
Patil, R. (2010, March 2). Activity Based Management: The ROI of an Activity Based Costing (ABC) project. Retrieved February 6, 2014, from http://activitybasedmgmt.blogspot.in/2010/03/roi-of-activity-based-costing-abc.html
"College Accounting Coach." Process Costing-Definitions And Features(Part1) « Process Costing « Cost Accounting «. Feb. 2007. Web
In the 1970s due to limitations in traditional costing systems, Greater competition and further inaccuracies in costing products effectively encouraged businesses to seek out alternative methods to enabling them accurate and causal cost allocation , at the same time Activity-Based Costing (ABC) method came about, being quickly adopted by enterprises of many and various types
absorption costing—the most widely used method of determining product costs—can artificially increase profits when managers choose to increase the quantity of units produced. Numerous organizations have incorporated activity-based costing in their method of calculating production. Activity-based
Krishan M Gupta, & A Gunasekaran. (2005). Costing in new enterprise environment: A challenge for managerial accounting researchers and practitioners. Managerial Auditing Journal, 20(4), 337-353. Retrieved March 12, 2011, from ABI/INFORM Global. (Document ID: 875490591).
Activity-Based Costing ( ABC ) Summary The business environment in the 1990s is markedly different from that of the past when conventional cost accounting procedures were established. Activity-based costing (ABC), pioneered in the late 1980s, offered a new costing approach consistent with the changed environment. However, ABC did not diffuse rapidly into the business community.
Weetman,P. (2011). Financial and management accounting. An introduction. . 5th ed. London: Financial Times Pitman Publishing imprint. p175.
According to the Chartered Institute of Management Accountants [CIMA], management accounting is the combination of accounting, finance and management that holds the forefront to a successful business (CIMA). This definition from CIMA is generally accepted as the definition for management accounting since some of its known definitions and descriptions were too broad and imprecise. Terence Lucey (2003) could generally define management accounting as an integral part of management, which involves identification, presentation and interpretation of information, which will be used in the following:
The effectiveness and ability of an organisation to fully transform itself as well as implement its growth and development objectives relies on its ability to embrace positive skills of managerial accounting. Managerial accounting therefore, entails the process of ensuring there is compatibility in providing accurate financial control and reporting that is used by the organisations management to implement and develop their strategies through planning, management systems and decision making. Managerial accounting is present to provide both non financial and financial information to managers that is analyzed and used as a key guide in organisational decision making. Strategic management advances the role and purpose of management accounting as a key partner in the organisation while performance management develops various practices of decision making and accurately managing the performance of the organisation.
CIMA (Chartered Institute of Management Accountants) defines Management accounting as “the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that used by management to plan, evaluate, and control within an entity and to assure appropriate use of an accountability for its resources”. It is not based on the past, but only on the forecast of market current and future trends, and no exact numbers allowed. With this partition, management accounting focuses on offering information and financial suggestions to the people inside of the company, especially the corporate executives, to make business decisions while financial accounting only provides financial statements to external users, such as investors, stockholders, creditors, suppliers, competitors and customers. Management accounting is manager oriented, while financial accounting provides the record of a company’s past performance.
Today, it is evident that management accounting practice is indeed and is seen as an important material that every company and firm needs to implement. Although the perspective and the practices of management accounting vary from one country to another, it does not change the significance of management accounting. Needless to say, without management accounting, there will not be any logical decision made for long term plans regardless of which approach, whether it is through the new method or traditional method.
Modification at management accounting system became urgent owing to discontinuation keeping step with the last management philosophies and manufacturing technologies. That is why product costing, non-financial performance and capital investment appraisal were the cause for concern. Information Technologies were highly developed and management a...
Businesses use cost accounting to help manager illustrate potential areas to reduce cost and process for services and goods, describes how goods and services should be priced to reflect their true cost (Conway-Schempf & Ph, 2001). Cost accounting is the process of accumulated, measuring, interpreting and the reporting of cost information that is relevant to the stockholders of the business. Managers as well as management use cost accounting to help in justifying the capacity in helping to cut costs for the company in order to increase that company’s profit. Internal use, versus external use tools allow users such as financial accounting, cost accounting who do not need to follow the General Accepted Accounting Principles (GAAP) because they use a more practical type if accounting. The importance of cost accounting," 2011). It also gives managers a good idea of what the actual cost of the processes, depart...