Management Accounting and its Application in Organizations

This document discusses the requirements and benefits of management accounting systems in organizations. It covers different types of management accounting systems, methods of reporting, and the integration of these systems in organizational processes.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SCENARIO......................................................................................................................................1
1. Management accounting and the requirements of the different types of management
accounting systems......................................................................................................................1
2. Different methods used for management accounting reporting...............................................2
3. Benefits of management accounting systems and their application within an organization.. .3
4. Integration of the management accounting systems and the management accounting in an
organizational process..................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Management accounting is one of the key functions in an organization wherein the
financial information shall be communicated and based on that the management of the company
shall be making the sound business decisions in the company. The current project shall be
highlighting upon the requirements of the different types of the management accounting systems
and how are they benefiting the organization in which they are applied. It shall also be reflecting
the methods of management accounting reporting and all these are integrated within the
organization.
SCENARIO
1. Management accounting and the requirements of the different types of management
accounting systems
Management accounting is the essential business function in which the accounting
information shall be communicated to the management which shall be assisting them in
formulating the key business decisions and accordingly controlling the operations within an
organization. It shall be playing the crucial role in budgeting and the forecasting of the future
business operations, controlling the costs and integrating the various processes so that the
organizational objectives of the company can be achieved.
The essential requirements of the various management accounting systems in the
organization are:- Cost accounting systems- The cost accounting system shall be applied in the business so
that the total costs of the operations can be assessed and the controlling can be
accordingly be undertaken by the management (Alvarez and et.al., 2021). Based on these
the essential requirements like the assessment of the profitability, application of the cost
effective techniques, shutting down the operational segments which are ineffective in
terms of higher costs etc. Inventory management systems- This is the other management accounting system that
shall be tracking the levels of inventory, identifying the correct method of its valuation,
determination of the supply chains and it shall mainly be applied by Prime Furniture to
govern the issue of the under-stocking and overstocking of the inventory. Its required to
determine the correct levels of the inventory that are to be ordered to minimize the costs.
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 Job costing systems- In this the costs are accumulated of the particular job order of the
company so that the profitability of the contract can be ascertained by the company
(Azudin and Mansor, 2018). All the costs associated with job order shall be recorded
separately so that the decision can be affixed.
 Price optimization system- This shall be applying the mathematical tools to optimize the
price offerings to the customer so that both the customer satisfaction and the profitability
of the business can be maximized for the company.
2. Different methods used for management accounting reporting
There are different methods following which the reporting in the company shall be done
which are:- Budget reports- The budget reports that are prepared within the Prime Furniture
specifying the future operations of the business which is based on the past trend
accompanied by the necessary adjustments (Rikhardsson and Yigitbasioglu, 2018). These
are then communicated to the various employees who shall be setting these as the targets
and accordingly performing the obligations of the business so that the organizational
objectives of the business are fulfilled. Accounts receivable ageing reports- If the major proportion of the sales that are made by
the company are in credit then they shall have to prepare the reports presenting the
remaining balances of the debtors, collection period, the defaulters and the required
transformations in the credit policies (Burritt and et.al., 2019). The accounts receivables
of the company also has to be managed helping in the smooth working capital cycle of
the business. If there are higher defaults in the organization then in that case the company
shall have to tighten the credit policy in the company.
 Performance reports- The performance reports are also prepared in the Prime Furniture
for the management to review the overall performance of the company as well as at the
individual levels. Accordingly the deviations shall be analysed which shall be resolved by
the company by taking the necessary steps. Apart from that the individual performance
appraisal of they employees shall also be undertaken to satisfy them and motivate to
perform better.
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3. Benefits of management accounting systems and their application within an organization
The application of the various management accounting systems in the organization shall
be proving to be very beneficial as they shall be optimizing the overall operations of the
business. Some major benefits are:-
 The minimization of the costs of operations is one of the major advantages as the cost
accounting system, job costing system and the inventory management systems all are
associated with reducing the costs of the business.
 If the Prime Furniture shall be applying the inventory management system then it shall
lower the scope of the errors, wastages and the blockage of the funds (7 Key Benefits of
Using an Accounting System in Your Company, 2021).
 It shall be improvizing the overall decision-making process of the company as it shall be
dealing with the profit margin that is to be charged, re-ordering period and quantity and
the continue or shut the operations.
 Lastly it shall be improving the overall management of the inventory, costs and the profit.
4. Integration of the management accounting systems and the management accounting in an
organizational process
The management accounting function of the organization shall be performed with
integration of the various processes that are performed in the organization and the systems that
have been applied to smoothing of these processes. Since the management accounting is
concerned with the efficient decision-making that is the reason it shall first identify the various
issues and the deviations with the help of these systems and the reports that are generated and
then the management of the company will formulate the strategic plans for the future operations
of the business (Abdusalomova, 2019). All these are used to work in the collaborated and
integrated form such that the organizational objectives of the business can be fulfilled.
CONCLUSION
From the above project it can be summarized that management accounting is crucial for
the business to make the important business choices and decisions and to monitor and control the
internal operations. Apart from that the various management accounting systems shall be applied
so that yet the improvements can be done and the problems in the organization can be tracked.
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REFERENCES
Books and Journals
Abdusalomova, N., 2019. PROBLEMS OF MANAGEMENT ACCOUNTING AND WAYS TO
SOLVE THEM. International Finance and Accounting. 2019(3). p.2.
Burritt, R. L. and et.al., 2019. Diffusion of environmental management accounting for cleaner
production: Evidence from some case studies. Journal of Cleaner Production. 224.
pp.479-491.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems. 29. pp.37-58.
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of
organizational DNA, business potential and operational technology. Asia Pacific
Management Review. 23(3). pp.222-226.
Alvarez, T. and et.al., 2021. Management Accounting Practices and Performance of SMEs in the
Hotel Industry: Evidence from an emerging economy. International Journal of Business
and Social Science. 12(2). pp.24-35.
Online
7 Key Benefits of Using an Accounting System in Your Company. 2021. [Online] Available
through: <https://www.hashmicro.com/blog/benefits-of-using-an-accounting-system/>
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