Importance of Management Accounting Systems in Business

This assessment analyzes the importance of management accounting systems in a business and how they aid in decision-making. It focuses on the implementation and relevance of tools like balanced scorecard, benchmarking, and activity-based costing. The case study of Woolworths Ltd is used to showcase successful implementation. Comparison between two research papers on management accounting is also discussed.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Author’s Note

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Executive Summary
The main purpose of the assessment is to analyse the importance of management
accounting systems in a business and how the same helps in decision-making process
of a business. The assessment would be including analysis of two articles which would
be focusing on implementation and relevance of management accounting tools in a
business. The company of Woolworths ltd is considered as an example for successful
implementation of management accounting system in the business and how the same
have affected the efficiency of the business. In addition to this, the assessment would
be making comparison between two different research works on relevance of
management accounting system in a business and identifying similarities between the
two papers. The discussion would also be showing outcomes of the two research
papers.

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Table of Contents
Introduction........................................................................................................................3
Discussion..........................................................................................................................3
Specific Examples of Management Accounting Systems..............................................3
Relevance of Management Accounting System............................................................5
Conclusion Drawn from Relevance of Management Accounting System.....................6
Specific Outcomes of the Research...............................................................................7
Conclusion.........................................................................................................................8
Reference..........................................................................................................................9

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Introduction
The main purpose of the assessment is to understand the role of management
accounting tools in the development and proper management of a business
organization. The discussion would be based on two articles showing the relevance of
management accounting system in an organization. The techniques which are used in a
business organization are major consideration and how the same contribute to success
of the business (Padovani, Orelli and Young 2014). The discussion would be identifying
specific accounting tools which are consistently used by management for the purpose of
proper management of a business in this modern era. Further the assessment would be
dealing with relevance of management accounting tools in the business and how the
same can help the management to manage effectively the day to day operations of the
business as well as enhance the productivity of the business. The company which is
selected for the assessment is Woolworth ltd which is engaged in the business of retail.
The assessment would also be analysing journal articles showing the importance of
management accounting system in today’s generation in a business environment.
Discussion
Specific Examples of Management Accounting Systems
Management accounting techniques have gained significant importance in
business environment and operations considering the current era. This is mainly due to
the fact that management of companies are trying to reduce cost of operations and also
enhance the efficiency level in the operations of the business. There are different
management accounting tools available for selection but the same needs to be done
wisely considering the nature of operations of the business. In addition to this, the
management of the company also needs to focus which area will the management be
planning to improve. It has been seen that if an inappropriate management accounting
system is adopted than the same can also have a detrimental effect on the strategic or
operational functioning of the business (Fullerton, Kennedy and Widener 2013). Some
other triggers which has lead to the implementation of management accounting tools in
a business are increasing exposure to global competition; significant changes in
manufacturing processes; significant technological changes and several others.
The tool which is used by the management of the company is for a particular
purpose and improvement of a particular segment of the business. One of the tools
which has gained significant popularity over the years is Activity Based Costing
Techniques (ABC) which can assist organizations to effectively help the business in
managing the costs of the business. ABC helps businesses to allocate resources to
different activities which are carried out by the business and then to a particular cost
object which may be based on volume or can even be non-volume drivers (Chenhall
and Moers 2015). It is regarded as the best cost management tools and it certainly
covers the deficiencies of the traditional costing system thereby ensuring that the
management of the company has a clear information regarding the costs of the
business so that appropriate decisions can be taken. The technique has lots of benefits
and it certainly improves the costing process of the business but there are certain
difficulties associated with the same as well. Due to the changes which needs to be

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made in the costing structure of the business, several companies do not want to switch
to ABC even though this method is far superior. In addition to this, employees find it
difficult to understand ABC categories and allocate costs according to the categories.
This is one of the reason that the method has not been implemented in full scale but it is
anticipated that the same will be done in future.
Balanced Scorecard is another important performance management tool which
can be used for strategic planning for the operations of the business. The purpose of
balanced scorecard in a business can be for communication of plans of the business,
alignment of day to day work of every individuals, prioritization of strategies and
measuring progress towards strategic targets (Lavia López and Hiebl 2014). There are
four legs of balanced scorecard on the basis of which different factors are identified and
strategic planning process is undertaken by the management of the company. These
four legs are financial perspective, customer perspective, process perspective and
learning and growth perspective.
Figure 1: (Balanced Scorecard Approach)
Source: (Balancedscorecard.org. 2019)
This is a popular tool which is used by many organization and studies have
shown that it is the fifth most used tool out of ten in a business organization as the same
keeps the management of the company in track with the performance of the business.
One of the key advantages of a balanced scorecard is that the tool can be customized
as per the requirement of the business and as per the goal which is set by the
management of the company.
Another major tool which is associated with management accounting system is
benchmarking which is used in almost all businesses. This is a technique under which
the management of a company tries tom imitate a product, process or a technology of
its competitors so that the competitive edge of the competitors can be diminished. In
this technique, the management of the company also tries to make more improvement
to the product, process or technique which is imitated so that they can create their own

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competitive advantage (Mirzaey, Jamshidi and Hojatpour 2017). This is one of the tools
which helps a business to effectively compete with other businesses in the market. The
benchmarking tool is considered to be of the most widely used tools in a company and
the same effectively aims to enhance the efficiency of the business in the market.
The above-mentioned tools are quite significantly used in a business for
enhancing the profitability and efficiency of the business. In addition to this, there are
also several other tools which can be used by a business as per the requirement of the
business and some of these tools are JIT, TQM, standard costing which can also impact
the operational process of a business and thereby enhance the productivity of the
business.
Relevance of Management Accounting System
Analysis of Case Company
The company which is considered for analysing efficiency of management
accounting system in the business framework is Woolworths Ltd which is a giant in retail
business operating in Australia. The company is considered to be one of the largest
businesses which is operating in Australia along side Wesfarmers which is the closest
rival of the business. The business of Woolworth follows a policy to expand the
operations of the business and also focuses on creating long term values for the
shareholders of the business. One of the tools which is used by the business is
Balanced Scorecard for the long-term planning and implementation of the plans of the
business. Balanced scorecard allows the management of the company to effectively
align the work process of the business with the goals and objectives which are set by
the management of the company (Woolworthsgroup.com.au. 2019). The balance
scorecard approach allows the management of Woolworth limited to be realistic
regarding the goals which are to be set by the management and also allows the
management of the company to effectively communicate the decisions to the lower
subordinates. This allow the business to move in a single direction that is towards the
goal of the business.
Another major tool which is used by the business of Woolworths Ltd is
benchmarking which allows the management of the company to effectively combat
competitive pressure in the market. In the retail industry in Australia, the competition
level is significantly and one of the toughest competitors of the business is Wesfarmers
ltd. It is therefore for such a reason that the management of Woolworth utilizes
benchmarking as a tool so that the business can deal with competitive pressure in the
market in an effective manner. The benchmarking tool also allows the management of
the company to effectively take out the positives from the strategy which is followed by
Wesfarmers ltd and thereby improve the same so that a differentiated strategy can be
used for effectively competition in the business.
Comparison between Two Journal Articles
First Article
The first article significantly covers the importance of management accounting
system in a business environment and how the same has grown from the 20th century.
The article states that contemporary organizations follow management accounting tools
for the purpose of improving the business process and thereby generating more profits
from the operations of the business. The study mainly focuses on the changes which
has taken place in management accounting system and how implementation of the

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same is relevant for a business organization to execute its activities effectively (Grabner
and Moers 2013). The motivations for the adoption of management accounting change
generally fall into two broad categories, strategic or long-term change and short term or
operational change (Watts, Yapa and Dellaportas 2014). The study highlights the
triggers which are responsible for bringing about a change are increasing exposure to
global competition; significant changes in manufacturing processes; significant
technological changes and several others. The article points out some of the tools which
are widely used by a management of a company for ensuring that the activities of the
business are BSC, standard costing, benchmarking, TQM, JIT. The research paper
further involves analysis whether management accounting tools play a part in decision
making process of the management of the company. The research paper also shows
relevance of management accounting tools in different types of decisions which are
taken by the management of the company.
Second Article
The second article is a more detailed approach and it selectively states the role
of balanced scorecard in a business and how the same helps in decision making
process of the business. The balanced scorecard is discussed as the popular tool which
can be used by a business for appropriate decision-making process for different areas
concerning the operations of the business. The research paper reveals the importance
of BSC as an important tool however also highlights some of the reasons due to which
the tool is not widely used in a business environment. The business which is considered
in the research paper is that of a Dutch insurer business and it is shown how the same
assist the business in targeting the long-term goals of the business (Akkermans and
Van Oorschot 2018). The research also shows how balanced scorecard aligns the goals
of the business to specific activities and also guides the way which can help the
management of the company to take necessary steps. With the application of balanced
scorecard approach the management came to understand that seemingly contradictory
goals such as customer satisfaction, employee satisfaction and employee productivity
as shown in the research paper.
Similarities
The similarities which can be identified between the two papers which are
discussed reflect the importance of management accounting tool in a business and how
the same impacts the productivity of the business. One other similarity which can be
identified regarding both the articles is that it covers the management accounting tool
Balanced scorecard which can be used by businesses for the purpose of strategic
planning of the business (Sunarni 2013). Both the research papers cite the instances of
successful implementation of balanced scorecard approach in the operations of the
businesses which are selected in the research paper. The research papers which are
considered also states the difficulties which are present in implementation of a
management accounting system in a business. Both the research papers show in its
findings that management accounting systems can successfully help a business to take
major decisions relating to the operations of the business.
Conclusion Drawn from Relevance of Management Accounting System
The analysis of the modern-day business environment clearly shows that proper
management accounting systems are required for the purpose of implementing changes
in the business efficiency. The relevance of management accounting system is

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imminent as the level of competition in the business environment is on the rise on a
constant basis and therefore in order to make changes in the business structure proper
management accounting tool is required. There are numerous tools available but the
management of the company need to take a decision regarding which tool would be the
most appropriate considering the nature of operations of the business.
It is no doubt that management accounting systems are beneficial for an
organisation but the main issues which several research papers have shown is related
to implementation of the management accounting system in a business. Most of the
businesses are either resistant to changes or think that such tools would increase the
costs of operations and thereby refrain themselves from using such a tool (Senftlechner
and Hiebl 2015). The globalization effect and the advancement of technology have
made businesses realize that changes in the operational structure of the business is
necessary so that the business can survive for the long run. The businesses nowadays
are focusing on reduction of costs or proper strategic planning for which different
management accounting tools are being applied. Therefore, it can be said that the
businesses in order to cope up with rapid industrialization and increase in competition
has opted to utilize management accounting systems to get a slight comparative
advantage in the business environment.
The analysis of the research papers shows that the management accounting
systems in the modern generation is essential for a business to survive as the level of
competition in the market is significantly high and therefore companies need to
implement management accounting systems so that they can gain the slight
advantages in the market so that the operational process can be made more efficient. In
addition to this, it is the decision of the business regarding which area the management
of the company wants to make improvements in and on the basis of the same
management accounting tools are selected. In certain businesses there are often
implementation issues which affects the operations of the business and thereby can
also have an impact on efficiency of the business (Breuer, Frumusanu and Manciu
2013). In conclusion, it can be said that management accounting tools are of significant
importance to a business in the modern business environment and every business
needs to have one of tool implement so that the operational process of the business can
be supported and improved further.
Specific Outcomes of the Research
The research papers which have been analysed for this assessment have
revealed the following findings regarding relevance of management accounting systems
in a business:
First Article
 The first article shows the importance of management accounting systems in a
business and especially a manufacturing concern. The research paper shows
how management accounting tools of different sorts can help in maintaining
costs, competitive pressure and efficiency in the operations of the business. In
addition to this, the management accounting tools also have the ability to
improve the business structure.
 The research paper also shows that management accounting tools play a vital
part in the decision-making process of the business and can assist the managers
to take accurate decisions in relation to the business. The management

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accounting tools presents all relevant information in front of the managers and on
the basis of the same, the manager takes relevant decisions regarding the
business process.
Second Article
 The second article which is considers shows that the balanced scorecard is an
important tool for a business and the same helps in formulating long term
strategic plans for the business. In this research paper, the business of a Dutch
dealer is considered which has a complex business process. The Dutch dealer
effectively implements the balance scorecard for ensuring that efficiency can be
promoted in the business organization.
 The analysis of the research paper also revealed that there are also certain
difficulties which is associated with implementation of balanced scorecard in a
business and such concerns need to be solved as the research paper
appropriately shows that implementation of a balance scorecard effectively helps
the business organization to take major decisions relating to the business.
Conclusion
The above discussion effectively shows that the management accounting tools
play an important role in managing the operations of the business. Management
accounting tools helps the management of business to take important decisions
regarding the operations of the business and also assists managers in long term
planning. The discussion above shows analysis of two research papers which reveals
that the management accounting tools are relevant for a business and significantly
helps in the operational process of the business. The discussion also covers the
example of the business of Woolworths ltd which has effectively implemented
management accounting systems in their business process. In addition to this, the
discussion also covers three types of management accounting tools which are available
for a business to choose considering the nature of the business. The discussion also
shows analysis of two research articles and consider the similarities between the same
in the operational process of the business.

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Reference
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