Large And Not Exhaustive Essay, Research Paper
The Role of the Management Accountant is Constantly ChangingThe
role of the management accountant is large and not exhaustive.? Defining the role of the management account
Depends on many factors including: the goal of the organisation, the size of
the organisation and the structure of the organisation.? Popular consensus however highlights a
number of areas shared by most management accountants.? Most would agree that the management
accountants job is concerned with supplying senior management with information.? This information is not limited to financial
information it relates to any economic information that will allow senior
management to make more informed decisions.Unlike
financial accounting, management accounts must look to the future in many cases
they need to supply information that will help people in the organisation see
the situation in a better light.? A
manager may ask a management accountant?Will
eliminating this product A increase profit on product B?? ?Can
we sell this product at a low price and still make profit?? ?Should
we create redundancies or cut down on production?A
management account does not often give direct answers but s/he can often make
or break decisions.Management
accountants have a job to speculate on scenarios and create ideas for people
who need the information.? Therefore they
need to be in touch with any factor that can determine an outcome.? These factors are both internal and
external.? Internally the accountant
needs to know about production costs, process, staffing indirect expenses and
as the internal operations match the business environment there are constant
changes which need to be in the management accountants domain.? Here are a number of examples of factors
within the organisation that can change.·
New machinery may increase or decrease costs
within the firm.? The management account
needs to know how much the machine cost and how will it effect costs on the
production line and by how much. ·
New technology is introduced on a monthly basis
in some companies the management accountant needs to know how and if this is saving
money. ·
Economies of scale, downsizing, product
renovation and up-scaling are terms thrown about by senior management.? With the way people operate and conduct
business changing rapidly management accountants need to be able to adapt to
new situations.External
factors can have an even larger effect on the way things are conducted in the
business.·
Globalisation means that there are thousands of
suppliers, distributors and competitors for the same products.? The management accountant needs to keep an eye
out for how these factors effect the market. ·
Tax is an issue that needs to be addressed by
the management account sooner than the financial account and many of the
factors s/he deals with are in the future not present or past. ·
Technology reflects upon competition, suppliers
and distributors as well as the company itself.? Accountants need to be aware of factors which may help them cut
costs.Product
lifecycles and nowadays becoming shorter.?
That is the distance of time between product launch and product
termination.? Intensive global
competition has made customers become sophisticated in their tastes and loyalty
and has made the consumer demand more from the products they buy.? There are various stages in the product life
cycle? Ü
Introduction Ü
Growth Ü
Maturity Ü
?DeclineAs
these stages shorten in an already vague environment the management accountant
needs to be able to adapt to the situation readily and prepare for the next
step.By
establishing global networks for acquiring raw materials and distributing goods
overseas, competitors are now able to access domestic markets throughout the
world.? For companies to be successful
nowadays they need to not only compete with domestic competition but also
against the best companies in the world.?
This has been added by deregulation in many industries, privatisation
and the opening up of markets such as the EU and China joining the WTO.? New markets and globalisation create both
opportunities and threats part of the management accounts job will be to
analyse situations as they come and help the company what is the best approach
for them in regard to globalisation.Management
techniques have developed into a complicated approach to running a
business.? Many firms favour an approach
to running a business placing customer satisfaction a top priority by adopting
?Total Quality Management? (TQM) management employ strategies aimed at cutting
costs and boosting production such as v
Just in time production management ? Adopting
techniques whereby the delivery of materials immediately precedes their
use.? Done by creating relationships
with suppliers and eliminating any mistakes in batch delivery v
Employee empowerment ? Giving a more decision
making power to whoever is closest to that process.? Involves the creation of teams and formulating bonus schemes for
lower end employees v
Total value chain analysis ? A step by step
process which aims to eliminate waste or mistakes in each section of the
process that goes from conception of idea to customer receiving the product. v
Efficiency in ?????????? *Quality *Time *InnovationThis
creates an opportunity for management accounts to adjust their analysis in
consideration of these factors and help senior management make non-financial
decisions with an aim towards long term market share.? Accountants can help this process by suggesting in detail how
these options will influence operations in both financial and non-financial
terms.? These
new strategies are new to many company especially SMEs therefore anticipation
and adaptation are important for all management accountants.Manufacturing
has seen new trends in recent times.?
Researchers have noticed that each production system cannot be lumped
into a simple process but that each establishment needs to adopt an approach by
them which is best helps save time and money.?
As mentioned earlier product life cycles are getting shorter this means
that firms can no longer dedicated huge sums of money in developing a single
flow line production facility for one product.?
Instead, companies are investing in flexible production facilitates that
will be used not only on existing product designs but also on future redesigns
of these products.? The management
accountant can therefore reduce costs based on multiple changeover times and
equipment set-ups.Below
are several trends in manufacturing systems that will require management
accounts to be adaptive in their analysis and use changing approaches to
activity based costing, the allocation of overheads and process costing.Ü
Group technology?????????????
that ?????????????????????????????????????????????????? can
adapt to easily to the requirements of ????????????????????????????????????????????????????????????????????? products
which have similar requirements in the ???????????????????????????????????????????????? manufacturing
process. Ü
Repetitive manufacturing ??????????????? A type of production system that
groups ?????????????????????????????????????????????????????????? ????? together facilities required to produce
similar ???????????????????????????????????????????????????? components,
it is possible to gain some benefits ???????????????????????????????????????????????????????? associated
with flow productions systems ???????????????????????????????? ????????????????????????????? through this as
can reduce some of the ????????????????????????????????????????????????????????????? associated
cost coupled with non flow systems. Ü
Just in time scheduling ??????????????????? This helps eliminate non-value added activities ????????????????????????????????????????????????? and
gives more space to the organisation and ??????????????????????????????????????????????????? developing
a reliable delivery service.Other
manufacturing technologies include the use of computer such as ?Computer-aided
design? and ?Computer-aided manufacturing? and robots.? This helps eliminate employee costs and
often reduces errors.? The management
accountant needs to be aware of the fact that new technologies used to replace others
often effect other areas and costs indirectly such as maintenance quality
control.Attributing direct costs and absorbing overhead costs to the
product/service through an ABC approach will result in a better understanding
of the true cost of the final outputThe theory of activity based
costing is simple in its design.? The
principle is that of attributing non direct expenses to the product which is
most benefited by that expense.? Such
maintenance.Imagine a single factory
that produces 2 products A and B.? The
machinery used to construct product A has been giving trouble over the last few
months and has required 40 hours of maintenance costing £1200 from the
beginning of the year.? The machinery used
to construct product B is relatively new and has had no problems
whatsoever.? In this situation the
accountant will attribute the £1200 cost to product A as it was the sole
beneficiary of the maintenance whereas no money will be attributed to product B
as it did not benefit from any of the maintenance.Traditional cost systems did
not use this philosophy a pre-ABC approach would have determined that indirect expenses
such as maintenance must be applied to what the plant produces.? The traditional system would have suggested
that maintenance costs for the factory amounted to £1200 so this must be taken
into consideration when choosing a price for the products in order to cover
costs.Activity ?based costing stresses
the requirement to obtain a better understanding of the manner of overhead
costs, and consequently establishes what causes overhead costs and how they
relate to products.? ABC recognises that
in the long run most costs are not fixed, and it endeavours to understand the things
that cause overhead costs to change over time.ABC systems infer that cash
outflows are incurred to acquire a supply of resources such as raw materials
and staff that are then employed by activities. It is assumed that activities procure
costs and also that products create demands for activities.? A connection is made between activities and
products by assigning costs of activities to products based on an individual
product?s consumption for each activity.?
ABC systems perceive that businesses must understand the components that
drive each major activity, the cost of activities and how activities correlate
to products. There are several stages in
the system1. Determine which
activities are most important in the organisationE.g.: Assembly,
Labour, Administration?2. Develop a cost centre
for each one of the activitiesSuch as the total
cost of all maintenance becoming one cost centre for all maintenance related
costs.3. Find out what
drives the costs for each of the major activitiesCost drivers are
the factors that are notable determinants of the cost of activities.? For example if electricity usage was
determined by the length of time a machine was running then machine running
time would represent the cost driver for electricity4. Assign costs to
products according to which cost the product takes advantage of and by how muchThis stage ascertains
the cost of the activities to products suiting the products? demand for these
activities during the production process.?
A product?s demand for the activities is measured by the number of transactions
it produces for the cost driver. Traditional product costing
systems report a picture of product costs which under analysis is deemed as erroneous.
This occurs when an organisation produces a range of products that is large or
of low-volume especially when there are many different types of product being
produced in the same factory.? ABC a
need to obtain a better understanding of the behaviour of overhead costs, and
thus ascertains what causes overheads and how they relate to products.? An activity based costing suggests that
traditional costing systems can over-cost high volume products and under-cost
low volume products when the costs of some product-related activities are
unrelated to volume.? This occurs when organisations
allocate overheads to production overheads. ?With ABC they are allocated to each major activity and not departments
which displaying a more realistic exposition of the real cost of the product.Below is a diagram of how of
a traditional system differs to an ABC system Production depts.???????????????????? Dept overhead allocation rates Activity cost pools????????????????? Activity cost driver rates The diagram above
illustrates how an ABC system would be constructed (Innes and Mitchell (1990).)ABC systems are examples of resource
consumption not spending.? They aspire
to measure the absolute organisational resources required to produce a
product.? Many people suggest that ABC
systems are designed to identify priorities for managerial attention, and not
to provide decision-relevant costs.ABC has also attracted a substantial
amount of application because it provides not only a foundation for calculating
more legitimate product costs but also an instrument for managing overhead
costs.? By accumulating and narrating on
the significant activities in which a business engages, it is possible to
understand and manage costs more effectively.?
It is therefore an area of cost management, rather than product costing.
It is arguably in this area that activity based costing systems may have their
greatest potential.Management Accounting AssessmentYear 3 semester 5TA 102/3 NDBS Management Lee Condell 98710206