Accounting knowledge is core business skill that individuals should pursue working in an organization. Individuals at management or supervisory roles find that many of their responsibilities involve knowing something about accounting. As accounting increasingly becomes decentered from the accounting department in organizations, line managers in all functional areas of business are expected to be able to prepare budgets, develop business cases for capital investment, and exercise cost control to ensure that profit targets are achieved. Managers are also expected to be able to analyze and interpret accounting information so that marketing, operations and human resource decisions are made in the light of an understanding of the financial implications of those decisions. Any of these events could trigger awareness that individuals need to know something about accounting and how money works in an organization. So managers should be well educated and equipped enough with the basic concepts of accounting and how it works.
According to the Chartered Institute of Management Accountants (CIMA), “Management Accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities"
The Institute of Certified Management Accountants (ICMA) states "A management accountant applies his or her professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertaking".
Managerial Accounting (also called as Accounting for Mangers or Cost Accounting) emphasizes the focus on meeting the needs of managers. It is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions. It is a process of preparing management reports and accounts that provide accurate and timely financial and statistical information required by managers to make day-to-day and short-term decisions. It stresses the interpretation (rather than the construction) of accounting information as well as a critical (rather than unthinking) acceptance of the underlying assumptions behind accounting. In short, it is the process of identifying, measuring, analyzing, interpreting and communicating information for the pursuit of an organization's goals.
The answer to each question can come only from the practice known as management accounting. The answers to these questions aid the managers to prepare for the activities, budgets and forecasts of the next time period. They also help to compare with past time periods and look at any variances that might need corrective action or improvement. These results help to control, plan, and decide.
Management accounting varies, depending on whether you manufacture or retail goods and on whether you provide a product or a service. In each area, the approach to cost identification varies. However, the goal of all approaches is to aid strategic decision-making and cost management. Stated differently, management accounting information is the mechanism which can be used by managers as a vehicle for the overview of the whole internal structure of the organization to facilitate their control functions within an organization.
Management and Cost Accounting Questions 1. Do you recommend that G.G. Toys change its existing cost system in the Chicago plant? In the Springfield plant? Why or why not? 2. Calculate the cost of a Geoffrey doll, the specialty-branded doll #106, and a cradle using the cost study conclusions. 3. Compare and contrast the profitability of each doll under the new and old systems. Based on your recomputed product costs, what actions would you recommend the company consider to enhance its profitability? What additional information would you like to have to make these recommendations? 4. How should G.G. Toys account for the excess capacity created to produce the holiday reindeer dolls? Qualitatively, how will this impact your calculated cost of the Geoffrey doll and the specialty-branded dolls in question number 2? Explain your method and its impact. (Answer qualitatively. Do not recompute any of your product costs from question 2.) 5. What explains the difference between forecasted and actual revenue for the Chicago plant during March of 2000? What other information would you collect to help explain this difference? 6. Do you recommend G.G. Toys produce the Romaine Patch doll? Why or why not? (Ignore manufacturing overhead costs including packaging, shipping, and receiving and production control.)
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