Management Accounting Information: A Tool for Effective Decisions

This essay discusses the various types of management accounting information and their uses as decision-making tools in business. It highlights the importance of management accounting in measuring short-term performance and cost control. Key tools such as budgeting, variance analysis, and break-even analysis are explained, emphasizing their role in controlling expenses, identifying performance issues, and setting sales targets. The essay also explores how management accounting information aids in controlling expenses, determining product pricing, and implementing activity-based costing to optimize production processes. It concludes that management accounting is essential for businesses of all sizes to make accurate and sound decisions, referencing the use of cost control strategies and data analysis to improve business outcomes.

Different type of management accounting
information that can be used in the business
 Management accounting is the one of the most important branch of
accounting because it help firm in measuring its performance for short time
period. By using management accounting tools firm performance in respect
to cost control can be easily measured. Different type of management
accounting information that can be used in the business are as follows.
 Budget: It is one of the most important tools that can be used by the Merlin
entertainment to control its expenses. Budget is a statement in which all
items of cash inflow and outflow are recorded in the systematic way. By
deducting cash outflow items from aggregate value of inflow net balance
that remain at end of the specific duration are identified. There are varied
sort of budgets that can be prepared by the firms .
 Some commonly used budgets are sales and production budget. By using
production budget manufacturing expenses are controlled by the firm. In
the budget value of expenses is determined and firms try to make all
expenses within the determined limit. Hence, lots of information in respect
to cost control targets are made available by the budget.

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Variance analysis: It is another important management accounting
tool that is used by the business firms to measure the extent to which
they successfully control the expenses. Application of this method of
management accounting helps business firms in identifying the
expenses that are made within the determined limit or exceed
standard value.
 Areas where performance was not good are identified and strategy is
formulated by using which to great extent in upcoming time period
cost can be controlled by the business firm.
In order to ensure that cost control strategy will be prepared in the
right direction after identification of variance reason due to which
same comes in existence is identified. Once the reason is identified
strategy is formulated to eliminate that reason from the business.

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Break even analysis: It is one of the widely used management
accounting tool. By using break even analysis method
minimum number of units that need to be sold in order to cover
cost of production is determined. This method has wide
applications for the business firm.
In the model of the break even analysis method various times
different sales price can be entered and it can be identified that
at varied price levels to what extent changes comes in the
number of units that need to be sold in the market.
 On the basis of results of break even analysis sales target can
be set by the firm. Moreover, appropriate price can be
determined for the product by using which good amount of
revenue can be earned by the firm by selling less units to the
customers.

Uses of management accounting
information as decision making
tool
 Management accounting information in current time period is widely used as
decision making tool by the business firms. Management accounting tools
are usually used to make short term business decisions. Uses of management
accounting information are given below.
 Control on increase in expenses: Management accounting information is
used by the business firms to make decisions in respect to control of direct
and indirect expenses in the business. It can be seen that most of business
firms at their own level prepare cost control strategy in the business.
 There are certain type of information’s that made available by the
management accounting tool to the business firms. Like variance analysis
provides information about expenses which are increasing above certain
limit. The reasons due to which such an elevation in expenses is observed
will be identified.
 By formulating corrective actions chances of occurrence of variance in next
time period are eliminated completely. Hence, it is clear that management
accounting information is used as decision making tool by the business firm.

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Price of product: price of the product greatly influence sales of the
firm. it can be noted that many times business firms offer their
product at very low price due to which there will be very high
demand of their product in the market. Contrary to this, many times
price of product is very high less number of people like to purchase
it.
This reflects that there is great importance of pricing and it is the
factor that greatly influences the firm decisions. By using
management accounting information cost of product or service can
be measured.
This is because in management accounting complete record of all
sort of expenses is maintained and analyzed. On the basis of analysis
of data product price can be determined easily. This reflects that at
large level management accounting information is used to make
business decisions.

 Activity based costing: Activity based costing is the method of costing
under which cost of each and every production stage is computed. The cost
of this different phase of production is added and in this way in activity
based costing method cost of product is determined. In order to do activity
based costing huge data set about the firm business operations is collected.
In each phase or single production activity there are multiple operations that
are performed by the business firm.
 Facts related to each of these sub activities are collected. In this way any
sub production activity in each phase whose cost is high are easily
identified. By preparing a cost control strategy an attempt is made to reduce
cost of specific production operation (Wang, Zhang and Li, 2012). In this
way activity based costing approach help business firm in taking cost curb
related decisions.
 It can be said that management accounting tools have great use for the
business firms. Thus, firms even they are small, medium and large in size
must widely used management accounting information in order to take
accurate and sound business decisions.

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