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The Role Of The Management Accountant Is 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


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


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


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


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?????????????????????????? This involves an arrangement of machines

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

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