Question

1) Explain why management decisions will normally require management accounting inputs or information?

2) Explain, giving a suitable example in each case, what is meant by the management functions of:

(a) planning

(b) decision making

(c) control

3) Explain, giving a suitable example in each case, how management accounting may serve the purposes of:

(a) directing attention

(b) keeping the score

(c) solving problems

Answer 1

1) Management accounting is the use of cost accounting information for decision making in an organisation. There are various techniques of management accounting like Variable costing, Cost volume profitablity analysis, Variance analysis, Just in time, Flexible budgeting, Target costing , etc which help in giving right input required for the decision making. Hence management accounting is helps managers in taking reliable and timely decisions required for the growth of the business. Management accounting is more detailed accounting and has required information for decision making in an organisation

2) a) Planning: Planning is the function of making an action plan to achieve the strategic objectives and goals of an organisation. For example: Master budget prepared for a year is a planning activity

b) Decision making: Decision making is the selection of best course of action from available options. For example : Decision to make or buy, decision to sell at split off point or process further, decision to retain or replace an equipment

c) Control: Control is a management function which checks the deviation from the plan and taking corrective action to mitigate the adverse results. For example: Flexible budget performance report, Variance analysis report.

3) a) Directing attention: Flexible budgeting performance report helps in understanding the variances of revenue, variable cost, fixed cost and net operating income. Management can check the deviations based on a certain threshold and take actions to control the results

b) Keeping the score: Management accounting techniques like Target costing help in checking the cost incurred and ensure it is as per target

c) Solving problems: Techniques like transportation, linear programming helps in solving the problems. For example transportation technqiue helps in reducing the warehousing cost, linear programming helps in achieving the stated objectives based on constraint factors.