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
Talha, M., Raja, J. B., & Seetharaman, A. (2010). A New Look at Management Accounting. Journal of Applied Business Research, 26(4), 83-96. Retrieved from http://origin-search.proquest.com/docview/733023696?accountid=91041
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Velmurugan, M. S. (2010). The Success and Failure of Activity-Based Costing Systems. Journal of Performance Management, 23(2), 3-33. Retrieved from http://origin-search.proquest.com/docview/856125540?accountid=91041
An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx, 2009). The key to cost allocation under ABC is to identify the activities that are performed to provide a particular service and then aggregate the costs of the activities (Gapenski, 2012). This is a marked departure from the practice of sharing overheads costs equally or overheads becoming part of the overall profit-loss estimate instead of component product pricing (Nayab, 2011).
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
Management accounting in organisation is very important for decision-making and to make the business more efficient and therefore increasing its profits. Is the process of preparing accounts that can help managers to make day-to-day and short-term decisions, by providing them with accurate and timely key financial and statistical information...
"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
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).
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
Activity-based costing is used as a supplement of traditional cost accounting in a company to support manager in internal decision making. It focus on assigning the indirect cost to direct costs in order to get a more accurate cost on products. Activity-based costing uses several cost pools instead of one in traditional cost accounting. The system is easy to implement and it provides many benefits, it allows the company to respond to inefficiency by reallocating resources to more profitable activity from areas that absorb too many resources. It also allows the company to respond to manufacturing overhead cost and assumes a more accurate selling price on products in order to make more profits. Company that do not have internal expertise to conduct activity-based costing analysis may think to hire one or ask company that provides this kind of services for help.
13. Romano, P.L. "Trends in Management Accounting." Management Accounting, August 1990, pp. 53-56. 14.
Heisinger, K., & Hoyle, J. B.(2012). Accounting for Managers. Creative Commons by-nc-sa 3.0. Retrieved from: https://open.umn.edu/opentextbooks/BookDetail.aspx?bookId=137
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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.
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...