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ACCT618 Managerial Accounting

Abstract

The entire report revolves around managerial accounting practices and managerial accounting information that is used by business organizations. Financial experts and accountants play a major role in managing and improving the financial performance and operational performance of the business organization. Through qualitative and quantitative financial information, financial experts develop detailed reports and suggest recommendations that help to make profitable investments, achieve business goals, and formulate capital management strategies. Managerial Accounting is nothing but a process that includes the identification of accounting and financial information, measuring the information, analysing, and interpreting the gathered accounting and financial information. Managerial Accounting helps financial experts and business leaders to make sound financial decisions and also helps to manage their daily business activities efficiently. In this report, a financial article is chosen from The Sydney Morning Harald, and a financial analysis based on managerial accounting is conducted. The report includes various heads based on problems and difficulties faced in the selection of the article, specific issues reported from the article, relevant managerial accounting practices, findings, and recommendations for the role of managerial accounting. In the later part of the report, the extent of the ABC system is adopted by the business organization in Australia. The report mainly includes managerial accounting practices, their concepts, and how it is implemented in an organization.

Introduction

Managerial Accounting helps financial experts and business leaders to make sound financial decisions and also helps to manage their daily business activities efficiently. Managerial Accounting is a process of identification, analyzing, measuring, and interpreting all the financial data and accounting information. Managerial Accounting helps the financial experts and accountants of the business organization to make critical and crucial financial decisions. Managerial Accounting has various forms and it depends upon the needs of the organization. For instance, it includes product costing and valuation, analysis of cash flow, break-even analysis, constraint analysis, etc. Managerial Accounting is required to know the soundness and financial strength and position of the business. It mainly focuses on the decisions that can affect the future. Essentially, financial experts and accountants provide major key insights that help the management of the company make several crucial decisions. They also contribute to and support the decision-making in the company by revealing the wealth and statistical or financial data that helps to make decisions by the higher authorities. The managerial accounting concepts and practices are described and analysed with the help of a selected article from the business magazine. The report covers many relevant heads that are related to the chosen article.

Description

Part A

Managerial Accounting in the Organization

Managerial Accounting is distinct from other accounting systems like bookkeeping and financial accounting. It mainly focuses on providing relevant financial information that helps financial experts like accountants to make effective financial decisions. Unlike other accounting branches, the main role of managerial accounting is to focus on collecting, gathering, and reporting of financial data. The accountants of the organization provide all the financial data and information to the management team, which helps them to make sound and profitable financial decisions ((Crosson, and Needles, 2014, p2(1)). Managerial accounting is used to make short-term and long-term financial decisions that are profitable and effective in the near future. It includes several financial metrics that involve sales of the business, revenues, operating expenses, and cost controls. This branch of accounting helps companies and business organizations to predict and forecast the previous trends and prepare budgets for business activities, to ensure the growth and success of the organization. Managerial accounting has different forms, that is depends upon the needs of the organization. The primary examples of managerial accounting consist-

  • Cash flow Analysis- The managerial accountants also performed the task of determining the outflow and inflow of cash in the business. It also includes the cash impacts on the different business decisions. The managerial accounting task has identified and analysed the cash-related transactions of the business. It is important to perform this task to determine the allocation of cash and capital funds for various business activities (Warren, et al., 2016, p3 (2)).
  • Valuation and product costing- Product costing is said to be the computation of the total cost of developing and producing goods and services. The managerial accountants compute all types of costs and expenses and other variables to calculate the actual cost of the product and service, which gives direction to the management team to make investment decisions like where to invest and when to sell.
  • Break-even analysis- This enables the managers to compute the break-even point for a product or service. The break-even point is generally the point at which the total cost of the product and the revenues are set to be equal. This type of analysis is important when the business introduces any new service or product in the market and it is also useful for setting the price of the new product.
  • Constraint Analysis- The managerial accountants also perform the function of constraint analysis. This enables the business to evaluate the loopholes and hurdles in the sales and production processes, and compute their impacts on revenues, cash flows, profits, and expenses of the business. It also looks for different ways to make business activities more profitable and efficient.

Appropriateness of the selected article

The chosen article has the title “Market Meltdown is an Ominous Sign for Interest Rates”. The above-mentioned article is taken from The Sydney Morning Herald. The article is written by Stephen Bartholomeusz, who is a senior business columnist. It was published on September 14, 2022. The above-chosen article is based on the inflation in the economy of the United States, which leads to an increase in the prices of interest rates. At times of pandemic, the US share market falls by 4.3 percent. This fall was the biggest since June 2020 which was the starting day of the corona pandemic (Appelbaum, et al., 2017, p5(2)). The article is based on the share market conditions of the United States. Prior to the pandemic, the conditions in the share markets were normal and favourable. But, due to the corona pandemic, the share market goes down and adversely affects the prices of the interest. The interest rates in the bond market fall down and badly decreases. After all these circumstances, still there is an expectation in the market to get the same market conditions as prior to the pandemic. The released data is quite optimistic that as time passes, the share market conditions become normal and favourable again which leads to an increase in the interest rates in the bond market.

Difficulty in the selection of the article

Some difficulties have been faced in the selection of suitable articles for the project. The main challenge is faced in the selection of the best article from the several articles. There are several challenges and problems that arise in the article selection. For instance, fail to understand what is expected by the assessor. Without understanding the guidelines and instructions that are given to complete the report, it was difficult to choose the topic of the article. After understanding the need and requirements of the assigned project, it becomes easy and simple to select the topic. Another challenge that was faced is several options available for the selection of the topic. There are various business magazines and sites available for the selection of the topic of the article. Picking broad topics (Edmonds & Tsay, 2014, p4 (3)).

The selection of highly broad and vast topics for the report makes the study exhausting and boring. It is very difficult to read a long topic and then make a report on it. To make a report interesting, it should be kept in mind that always select an interesting topic that has a normal length and should not be too long. Picking old and boring topics. One of the challenges that are encountered during the selection of the topic for the article is that the topic should be the latest and recent. It should not be too old and outdated. The outdated topic makes the reader bored and there is a chance to lose interest in the article. During the selection of the topic of the article, make sure that that the topic should not be very old and outdated, which has no relevance in the present time. The topic should be the latest and new. It should have relevance in the present time so that the reader can show interest in reading the article (Jiambalvo, 2019, p6 (2)).

Issues in the selected article

There are many issues that have been encountered while the selection of the article. The chosen article has the title “Market Meltdown is an Ominous Sign for Interest Rates”. The above-mentioned article is taken from The Sydney Morning Herald. The selected article is based on the inflation in the share market of the United States. During the time of the corona pandemic, inflation takes place in the economy but the inflation numbers were opposite to the expectations of the financial markets. The share market of the United States goes down 4.3 percent. Since June 2020 was the starting period of the pandemic, it was one of the biggest downfalls in the market prices. Due to the pandemic, in a bond market, the rate of interest also goes down. This was not good or positive news for the shareholders or the investors. A ten-year bond suddenly increases up to 3.42 percent and treasury bills of two years increase to 3.76 percent. Since 2007 October, there is the highest level of increase that can be seen in the two years treasury bills (Di Vaio & Varriale, 2018, p4 (2)).

With all the ups and downs in the share market, still there is an expectation of some positive news in the market. But the released data and the recent economic information and the expectations from the UD Federal Reserve dashed all the positive hopes. Economic news reveals that the percentage of increase was higher than in the month of July. Due to inflation, the prices of fuel, and the cost of food, increase from the month of July. The increment in the cost of living breaks all the previous records during the pandemic. Inflation also affects the prices of healthcare, food, and rent. The prices aggressively rising in the labour market. With the increase in the wages of the workers and labourers, the tight labour market can be seen.  The interesting thing that can be seen in the article is that it gives lots of knowledge and information regarding the share market and reveals the ups and downs in the US share market due to the pandemic. The chosen article is the best topic for the report as it helps to understand the loopholes and factors and their impacts on the prices of the goods and services that take place in the economy. The article gives deep knowledge and information about the share market ups and downs and how the change in price also affects the entire economy and the business. The selected topic is suitable to apply the managerial accounting practices which is the major task in the report. with the help of managerial accounting practices, the issues that arise in the share market of the United States, which is depicted in the article, can be solved or the risk of loss to the shareholders and investors can be mitigated and reduced (Lourenço, 2019,p6(1)).

Relevancy of Managerial Accounting Practices in the Issues

Above discussed issues are the ones that are encountered in the share market of the United States during the pandemic. The major issues that are identified are the decrease in the prices of interest rates in the share market. It can be seen that there is a big downfall in the share market. According to the Federal Reserve Board, the shareholders and investors can expect a rise in the prices of the share. For all these disturbances in the market, managerial accounting practices are applied. Using managerial accounting techniques, the loss or degradation in the performance of the business organizations can be mitigated and reduced. There are various managerial accounting techniques that can be applied to reduce the adverse effects of the share market on business activities. Marginal Analysis is an effective technique of managerial accounting. In this technique, the profits of the company from several costs are assessed. This technique deals with increased production. In this analysis, the accountants compute the break-even point which requires a contribution of the sales of the company. This managerial technique is used by financial experts like an accountant to identify the price of different products (Mater & Kanasro, 2018, p2 (1)).

The accountants determine the prices of the products that compete in the share market. In this list, the next technique is capital budgeting. To make effective decisions in the organization, that are related to the capital expenses. Capital budgeting needs high knowledge of the allocation of financial resources in the market to gain profit. In this technique, the managerial accountants of the business compute the present value and the internal rate of return that helps them to make crucial decisions such as computation of payback period and computation of accounting rate of return. Forecasting Trend Analysis. This technique can be said to be one of the best techniques in managerial accounting. This technique mainly deals with product cost variations. The previous market trend and market history help the experts to forecast the market situation and also help to determine the unusual patterns and disturbances in the market. With the help of these techniques, the accountants can find effective ways to mitigate the risk that arises from the market disturbance and also helps them to resolve them. Constraint Analysis. This technique is used by accountants to monitor the profits and cash flows of the business. They identify the problems and the bottlenecks in the cash flows and the financial statements of the business organization. They also calculate the impacts of profits, cash flows, and revenues in the business.

Role of Managerial Accounting in 21st Century Business

Managerial Accounting is crucial, complex, and demanding field. This field needs high knowledge and experience and also it requires a lot of time and effort. Managerial accounting needs brainstorming and motor skills and also problem-solving skills to implement managerial accounting practices. In the modern era, when there is high competition in the market and the market drastically changes due to changes in the taste and preferences of the customers, it automatically affects the performance of the business. In this highly pervasive market environment, it is important for the business organization to prepare in advance and formulate strategies in advance to reduce and mitigate the loss that can be occurred due to changes in the market environment. Management Accounting plays a vital role in the business organization as it provides all the relevant financial data and accounting information to the accountants and other financial experts enabling them to make effective and cohesive decisions and formulate strategies. It also helps business organizations to achieve the organizational goals and objectives that are vital and integral parts of the modern business environment (Intakhan, 2018, p3 (6)).

Managerial Accounting focuses on the relation between cause and effect. This type of accounting identifies and analyses the causes and the reasons that are responsible for the losses and profits, incomes, and all types of expenses. Managerial accounting studies the cause and effect relationship by identifying several variables that can affect the revenues and profits of the business organization. Management Accounting has no boundations of strict rules and regulations. Managerial Accounting makes available all the relevant information that helps in policy formulation, planning, and decision-making. It can only offer the information and not proscribe. Managerial Accounting is a strategic technique that is selective in nature. In this technique, the entire data is not been taken into consideration, but it chooses and selects only that information that is relevant and useful for the management and contributes to the decision-making.

There are two recommendations for business firms to inform the business about the role of managerial accounting:

– It should provide financial reports on a daily basis related to the internal stakeholders so that they can improve the performance of the business.

– The other is to use different costs for different purposes to carry out different business activities.

Part B

Adoption of ABC System

ABC system is based on the cost analysis that is related to each and every activity that is performed by the business organization in the manufacturing of the products and services. On the basis of these activities, the resources are allocated to different sectors like services, products, markets, etc. It helps to generate a clear vision for the cost of the company. The activity-based costing considers the manufacturing cost of the products in a systematic and logical manner. ABC system first assigns the cost to the activities that are the major reason for the overhead. After that, it assigns the cost to the products that are demanded by the activities. ABC system achieves success in Australia. Australian firms and business organizations adopt and implement the ABC system in their business. In this system, the cost of the product and services is computed by the financial experts that help the firm to achieve success. The organizations gain profits in several ways like Improvement in dollars and an increase in the value of the firms. The companies identified the benefits of the ABC system in various ways such as accurate product costing, improvement in the profitability of the business, timely information, improvement in the physical operations, and survival in the highly competitive working environment (Cristian, 2014,p9(3)).

In the ABC system, the factors for adoption by Australian firms that is sophisticated information technology, consumer globalization, an increase in competition, education, etc. In Australian Firms, the factors for non-adoption are due to overhead resources consumed by the activities, and employee resistance is one of the obstacles to the success by the ABC system. The two real-life examples are- order processing in which the number of invoices can be sent. The next example is the administration of purchase, in which orders to suppliers and the number of orders can be sent (Vance, 2016, p6 (2)).

Conclusion

At the end of this report, it can be concluded that Managerial Accounting plays a vital role in the growth and development of the business. With the help of managerial accounting, the financial experts and accountants of the company can make cohesive decisions with the help of financial data and accounting information. Managerial Accounting helps financial experts and business leaders to make sound financial decisions and also helps to manage their daily business activities efficiently.

They also contribute to and support the decision-making in the company by revealing the wealth and statistical or financial data that helps to make decisions by the higher authorities. Through qualitative and quantitative financial information, financial experts develop detailed reports and suggest recommendations that help to make profitable investments, achieve business goals, and formulate capital management strategies. With the help of various techniques of managerial accounting, the accountants and financial experts can make financial decisions and formulate strategies that can help to achieve heights and also helps to compete in the market.

References

Appelbaum, D., Kogan, A., Vasarhelyi, M. and Yan, Z., 2017. Impact of business analytics and enterprise systems on managerial accounting. International Journal of Accounting Information Systems25, pp.29-44. Available at, https://sci-hub.hkvisa.net/10.1016/j.accinf.2017.03.003

Cristian, D., 2014. The importance of managerial accounting in managerial accounting system. Analele Universitatii Maritime Constanta15(21), pp.173-176. Available at, http://cmu-edu.eu/RePEc/cmc/annals/173-v21.pdf

Crosson, S.V. and Needles, B.E., 2014. Managerial accounting. South-Western Cengage Learning. Available at, https://www.adzu.edu.ph/wp-content/uploads/2022/03/Managerial-Accounting.pdf

Di Vaio, A. and Varriale, L., 2018. Management innovation for environmental sustainability in seaports: Managerial accounting instruments and training for competitive green ports beyond the regulations. Sustainability10(3), p.783. Available at, https://sci-hub.hkvisa.net/10.3390/su10030783

Edmonds, T. and Tsay, B.Y., 2014. Fundamental Managerial Accounting Concepts 7e. McGraw Hill. Available at , https://books.google.co.in/books?hl=en&lr=&id=TaRvEAAAQBAJ&oi=fnd&pg=PP1&dq=managerial+accounting&ots=HMSmPcAxNm&sig=E60Y5w5Rortb_AJn396uFoD18U4&redir_esc=y#v=onepage&q=managerial%20accounting&f=false

Intakhan, P., 2018, March. Successful managerial accounting practices, the antecedents and consequences: Empirical evidence from SMEs ceramics. In Proceedings of the 8th International RAIS Conference on Social Sciences. Available at, https://sci-hub.hkvisa.net/10.2139/ssrn.3162210

Jiambalvo, J., 2019. Managerial accounting. John Wiley & Sons. Available at,   https://books.google.co.in/books?hl=en&lr=&id=QB7HDwAAQBAJ&oi=fnd&pg=PA12&dq=managerial+accounting&ots=8LyRYFIyO7&sig=k7TARAhOn4m8g7gaoncFousMios&redir_esc=y#v=onepage&q=managerial%20accounting&f=false

Lourenço, S.M., 2019. Field experiments in managerial accounting research. Foundations and Trends® in Accounting14(1), pp.1-72. Available at, https://sci-hub.hkvisa.net/10.1561/1400000059

Mater, W.A. and Kanasro, H., 2018. Advanced Managerial Accounting Techniques and Decision Support System: An Empirical Analysis of Small and Medium Enterprises in Jordan. European Scientific Journal14, pp.233-254. Available at, https://core.ac.uk/download/pdf/236413988.pdf

Vance, M., 2016. BUAD 286a–Accounting Fundamentals & Managerial Accounting. Available at , https://web-app.usc.edu/soc/syllabus/20161/14533.pdf

Warren, C.S., Reeve, J.M. and Duchac, J., 2016. Financial & managerial accounting. Cengage Learning. Available at , https://books.google.co.in/books?hl=en&lr=&id=puq5DQAAQBAJ&oi=fnd&pg=PP1&dq=managerial+accounting&ots=vT2J5oFpVx&sig=IOyVX-g7LlcbQ1CWv_gtsR3VFG0&redir_esc=y#v=onepage&q=managerial%20accounting&f=false

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