Management Accounting Report: Customer Profitability Analysis

This report delves into the critical aspects of management accounting, emphasizing the importance of accurate product costing and customer profitability analysis. It critiques traditional costing methods and advocates for the adoption of Activity-Based Costing (ABC) to provide better cost visibility and accurate product/service line profitability. The report highlights the shift in sales and marketing objectives from solely focusing on sales growth to achieving profitable sales, stressing the importance of identifying and retaining the most profitable customer segments. Furthermore, it explores the integration of business analytics into management accounting, illustrating its role in enhancing decision-making, strategic planning, and overall organizational profitability. The report discusses various business analytics approaches, such as correlation analysis and regression analysis, and their impact on customer loyalty, brand management, and sustainable competitive advantage. It also touches upon the coexistence of different management accounting techniques and the significance of selecting the most appropriate methods based on the specific circumstances of the business to achieve profitable results.

Running head: MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTING
Name of the Student:
Name of the University:
Author Note:

1MANAGEMENT ACCOUNTING
Table of Contents
Management Accounting Issue..................................................................................................2
First reply...................................................................................................................................2
Second reply...............................................................................................................................3
References..................................................................................................................................5

2MANAGEMENT ACCOUNTING
Management Accounting Issue
Product to Channel Expansion and Customer Profitability Analysis
The reporting of accurate product and cost of standard service-line as well as
information of profitability using ABC method helps in tracing expenses into cost with the
activity drivers and resources and helps in providing much visibility of cost, which is
traditionally hidden. There are various companies that continue to use single indirect and the
shared expense pool, which allocates expenses of resources into the costs based on single cost
factor that violates causality principle of cost accounting. The resultant service and product
line are under and over costing simultaneously because allocations have always zero sum
error. It is mysterious that how this deficient practice will be accepted by accountant, when
ABC technique is better alternative. In today’s situation, customers views offerings of the
supplies in most of the industries as commodities. Hence, the objectives for sales and
marketing functions should not be solely regarding growing sales and increasing market
share, but to grow profitable sales. For this, company should know best customer types for
retaining, growing and acquiring those who are already and those who are not (IndustryWeek
2016).
First reply
In the present competitive global market, each organization must have a healthy
management system that can make an efficient decision-making process by which the
company can attain profitability. In every organization, management accounting is one of the
significant pillars that contribute towards its profitability and success. It is evident that if the
management system is reliable and sufficient to make profitable strategies, then definitely,
the organization will be able to expand and grow in the future (Nielsen 2015). One of the
specific trends that the organization are trying to implement in their management accounting

3MANAGEMENT ACCOUNTING
is using various business analytics into the management techniques. Business analytics is one
of the innovative tools for a project manager who is engaged in developing detailed project
plans, and even these techniques are crucial elements for financial departments in planning
how to invest money in profitable projects. If we take an example of real business world, a
startup company is interested in investing its capital in some new project the management of
the company needs to analyze all factors associated to the plans to ensure that the investment
will be profitable for the business. Several data analysis concepts must be taken into
consideration so that proper strategies can be framed and the project proves to be beneficial
for the company. There are various business analytics approaches such as correlation
analysis, linear optimization, regression analysis, and many more that will attract customer
loyalty and brand management to the organization. Even though strategies are made on past
data, it proves beneficial to know the market condition and frame a profitable pricing strategy
for the firm. To sustain in a long-run and to stand out in the market, an organization needs to
use the tool of business analytics and try to gain sustainable competitive advantage.
Second reply
The management of an organization plays a crucial role in the decision-making
process and try to implement innovative strategic planning that will be efficient and will give
positive outcomes for the company. In the present market scenario, it is common for an
organization to embed business analytics approaches into management accounting to gain
profitable results in future. In an organization, it is common to have two aspects of
management system as the organization is made up of various accounting system. Both
financial and management accounting exists in business, financial accounting mainly deals
with the valuation of the company, whereas management accounting means to create value
for the company. Many other accounting systems exist in an organization such as cost
accounting, human resource management accounting, and many more that are equally

4MANAGEMENT ACCOUNTING
important for a business (Rikhardsson and Yigitbasioglu 2018). When business analytic tools
are included in the management, accounting it becomes easy for the managers to make
investment decisions regarding a project, and the administration can even introduce strategies
that can be used in future to gain profitable results for the company. Various successful
companies such as Google and many more companies adopt this approach to attain
sustainable competitive advantage and to beat their competitors in the current global market.
Corporate performance can be improved by including various analytical tool and introducing
quality management in the organization. It entirely depends on the administration to use
management accounting techniques as per the circumstances that are existing in the business.
Various methods such as zero-base costing, activity-based costing, traditional costing, and
many more options are available with the company. It is the management decision to adopt a
profitable costing technique that will be beneficial for the organization as a whole.
Nowadays, tolerance and coexistence of different management approach are standard in most
companies as managers can adopt various techniques for their organization as per the
requirement. However, the focus of the management should be to achieve the ultimate
objective of the business that is to attain profitable results and to sustain in long-run.

5MANAGEMENT ACCOUNTING
References
IndustryWeek. 2016. Why Measure Channel and Customer Profitability?. [online] Available
at: https://www.industryweek.com/finance/article/22007252/why-measure-channel-and-
customer-profitability [Accessed 12 Mar. 2020].
Nielsen, S., 2015. The impact of business analytics on management accounting. Available at
SSRN 2616363.
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.