ASSIGNMENT

ON

How management accounting can help a typical Bangladeshi

manager to improve the performance of the business?

COURSE # ACT201

SECTION: 1

SEMESTER: SUMMER 2010

Submitted to:

Mohammad Faridul Alam

Senior Lecturer

Department of Business Administration

EAST WEST UNIVERSITY

Submitted By:

Md. Mohiman

Id.: 2009 – 1 – 10 – 147

EAST WEST UNIVERSITY

Date of Submission: July-29, 2010

 INTRODUCTION

A manager is the person who is responsible for the overall performance of the business, and
therefore, a good manager does matter for an organization. A good manager is the person
who has good managerial skills, knows his responsibilities properly, and knows how to
handle people around him, also knows how to tackle the changes and unavoidable situations,
etc, that’s why, it is important for the business to have good managers. Management
accounting or managerial accounting is concerned with the provisions and use of accounting
information to managers within organizations, to provide them with the basis to make
informed business decisions that will allow them to be better equipped in their management
and control functions. Managerial accounting is concerned with providing information to
managers that is people inside an organization who direct and control its operation.
Managerial accounting provides the essential data that are needed to run organizations. It
prepares a variety of reports. Some reports focus on how well managers or business units
have performed comparing actual result to plans and to benchmark. Some reports provide
timely, frequent updates on key indicators such as orders received, order backlog, capacity
utilization and sales. Other analytical reports are prepared as needed to investigate specific
problems such as decline in the profitability of a product line. And yet other reports analyze a
developing business situation or opportunity. So to improve the performance of the business
the practice of the managerial accounting is vital for every typical Bangladeshi manager.
 MANAGERIAL ACCOUNTING

Management accounting is the presentation of accounting information in such a way as to

assist management in the day-to-day operation of undertaking.

In other words, management accounting is a system of measuring and providing operational

and financial information that guides managerial action, motivates behaviours, and supports
and creates the cultural values necessary to achieve an organization’s strategic objectives.

There are four key ideas contained in this definition of management accounting. These ideas
capture the nature, scope, purpose, and attributes of management accounting.

1. By nature management accounting is a measurement process.

2. The scope of management accounting includes financial information, such as cost, and
operational information, such as percentage of defective units produced.
3. The purpose of management accounting is to help an organization reach its key strategic
objectives. It is not meant for mandated financial and tax reporting purposes.
4. Good management accounting information has three attributes:

a. Technical—it enhances the understanding of the phenomena measured and provides

relevant information for strategic decisions.
b. Behavioural—it encourages actions that are consistent with an organization’s strategic
objectives.
c. Cultural—it supports and/or creates a set of shared cultural values, beliefs, and
mindsets in an organization and society.
 THE FRAMEWORK OF MANAGEMENT ACCOUNTING

The framework of management accounting is based on a number of implied assumptions.

Although no single work has attempted to identify all of the assumptions the major
assumptions will be detailed below. Five categories of assumptions will be presented:

1. Basic goals
2. Role of management
3. Nature of Decision- making
4. Role of the accounting department
5. Nature of accounting information.

Decision-making in Management Accounting

Decision- making Assumptions - A critical managerial function is decision making.
Decisions which management must make may be classified as marketing, production, and
financial. Decisions may also be classified as strategic and tactical and long- run and short-
run. A primary objective of decision- making is to achieve optimum utilization of the
business’s capital or resources. Effective decision- making requires relevant information and
special analysis of data.
In management accounting, decision-making may be simply defined as choosing a course of
action from among alternatives. If there are no alternatives, then no decision is required. A
basis assumption is that the best decision is the one that involves the most revenue or the least
amount of cost. The task of management with the help of the management accountant is to
find the best alternative.
The process of making decisions is generally considered to involve the following steps:
1. Identify the various alternatives for a given type of decision.
2. Obtain the necessary data necessary to evaluate the various alternatives.
3. Analyse and determine the consequences of each alternative.
4. Select the alternative that appears to best achieve the desired goals or objectives.
5. Implement the chosen alternative.
6. At an appropriate time, evaluate the results of the decisions against standards or other
desired results
 Vital role of Managerial Accounting for management activities

The roles of the managers at different levels are: planning, organizing, motivating, and
controlling. These management activities can be done properly with the help of managerial
accounting.

PLANNING
Planning involves establish a basic strategy, selecting a course of action, and specifying how
the action will be implemented. It is the foundation area of management. It is the base upon
which the all the areas of management should be built. Planning requires administration to
assess; where the company is presently set, and where it would be in the upcoming. From
there an appropriate course of action is determined and implemented to attain the company’s
goals and objectives. An important part of planning is to identify alternatives and then to
select from among the alternatives the one that best fits the organization’s strategy and
objectives. For example the basic objective of an organization is to earn profits for the owners
of the company by providing superior service at competitive prices in as many markets as
possible. To further this strategy, every year top management carefully considers a range of
options, or alternatives, for expanding into new geographic market. This year management is
considering opening new stores in other states. When making this choice, management must
balance the potential benefits of opening a new store against the costs and demands on the
company’s resources. Let assume that management has bitter experience of opening a store in
a major new market is a big step that cannot be taken lightly. It requires enormous amounts of
time and energy from the company’s most experienced, talented, and busy professionals.
Among other data, top management looks at the sales volumes, profit margins, and costs of
the company’s established store in similar markets. These data, supplied by the management
accountant, are combined with projected sales volume data at the proposed new location to
estimate the profits that would be generated by the new stores. In general, virtually all
important alternatives considered by management in the planning process impact revenues or
costs, and management accounting data are essential in estimating those impact. As in the
case of Personnel Department, the plans of management are often expressed formally in
budgets, and the term budgeting is generally used to describe this part of the planning
process. Budgets are usually prepared under the direction of the controller, who is the
manager in charge of the Accounting Department. Typically budget is preparing annually and
represent management’s plan in specific, quantitative terms. In addition to a travel budget, the
Personnel Department will be given goals in term of new hires; courses taught and detailed
breakdowns of expected expenses. Similarly, the store managers will be given targets of sales
volume, profit, expenses, pilferage looses, and employee training.

ORGANIZING AND MOTIVATING

Organizing and motivating involves mobilizing people to carry out plans and run routine
operations. Under these function of the management is getting prepared, getting organized.
Management must organize all its resources well before in hand to put into practice the
course of action to decide that has been planned in the base function. Through this process,
management will now determine the inside directorial configuration; establish and maintain
relationships, and also assign required resources. Working under this function helps the
management to control and supervise the actions of the staff. This helps them to assist the
staff in achieving the company’s goals and also accomplishing their personal or career goals
which can be powered by motivation, communication, department dynamics, and department
leadership. In addition to planning for the future, managers oversee day-to-day activities and
try to keep the organization functioning smoothly. This requires motivating and directing
people. Managers assign tasks to employees, arbitrate disputes, answer questions, solve on-
the-spot problems, and make many small decisions that affected customers and employees. In
effect, directing is that part of a manager’s job that deals with the routine and the here and
now. Managerial accounting data, such as daily sales reports, are often used in this type of
day-to-day activity.

CONTROLLING

Controlling involves ensuring that the plan is actually carried out and is appropriately
modified as circumstances change. Control, the last of four functions of management,
includes establishing performance standards which are of course based on the company’s
objectives. It also involves evaluating and reporting of actual job performance. In carrying
out the control function, managers seek to ensure that the plan is being followed. Feedback
which signals weather operations are on track is the key to effective control. In sophisticated
organizations, this feedback is provided by various detailed reports. One of these reports,
which compares budgeted to actual result, is called a performance report. Performance
reports suggest where operations are not proceeding as planned and where some parts of the
organization may require additional attention. For example the manager of a store will be
given sales volume, profit, and expense targets. As the year progresses, performance reports
will be constructed that compare actual sales volume, profit, and expenses to the targets. If
the actual result falls below the target, top management will be alerted that the store needs
more attention.

The practical role of managerial accounting is to increase knowledge within an organization

and therefore reduce the risk associated with making decisions. Accountants prepare reports
on the cost of producing goods, expenditures related to employee training programs, and the
cost of marketing programs, among other activities. These reports are used by managers to
measure the difference, or "variance," between what they planned and what they actually
accomplished, or to compare performance to other benchmarks. For example, an assembly
line supervisor might be interested in finding out how efficient his/her line is in comparison
to those of fellow supervisors, or compared to productivity in a previous time period. An
accounting report showing inventory waste, average hourly labour costs, and overall per-unit
costs, among other statistics, might help the supervisor and superiors to identify and correct
inefficiencies. A detailed report might evaluate the assembly line data and estimate trends and
the long-term effects of those trends on the overall profitability of the organization. Below
are the primary tasks or services performed by management accountant’s variance analysis,
rate & volume analysis, business metrics development, price modelling, product profitability,
geographic vs. industry or client segment reporting, sales management scorecards, cost
analysis, cost benefit analysis, cost-volume-profit analysis, life cycle cost analysis, client
profitability analysis, IT cost transparency, capital budgeting, buy vs. lease analysis, strategic
planning, strategic management advise, Internal financial presentation and communication,
sales and financial forecasting, annual budgeting, cost allocation, resource allocation and
Utilization and so on. These are the ways a manager can take better decision regarding the
organization by using management accounting concept.
COST INFORMATION

Information gathered by cost accounting methods within an organization make up

most of the detailed data used to create managerial accounting reports (and financial
accounting reports). Understanding the costs associated with producing goods and
services is vital to the decision-making process because that comprehension can help
place a measurable value on the results of a company's individual decisions.

Four basic cost accounting activities that support the managerial accounting function
are

1. cost determination, which involves determining the actual cost of a product or

an activity, such as marketing;
2. cost recording, whereby costs are recorded in journals and ledgers;
3. cost analysing, which refers to accountants and managers analysing the data
to help solve problems and make plans; and

cost reporting, which entails showing the costs in detail, including showing how the
costs were measured, what characteristics the costs have, and what the costs actually
mean and how they should be interpreted.
 MANAGEMENT ACCOUNTING TASKS/ SERVICES PROVIDED

Listed below are the primary tasks/ services performed by management accountants. The
degree of complexity relative to these activities are dependent on the experience level and
abilities of any one individual.

 Variance Analysis
 Rate & Volume Analysis
 Business Metrics Development
 Price Modelling
 Product Profitability
 Geographic vs. Industry or Client Segment Reporting
 Sales Management Scorecards
 Cost Analysis
 Cost Benefit Analysis
 Cost-Volume-Profit Analysis
 Life cycle cost analysis
 Client Profitability Analysis
 IT Cost Transparency
 Capital Budgeting
 Buy vs. Lease Analysis
 Strategic Planning
 Strategic Management Advise
 Internal Financial Presentation and Communication
 Sales and Financial Forecasting
 Annual Budgeting
 Cost Allocation
 Resource Allocation and Utilization

 Incremental analysis
 Keep or replace
 Additional volume of business
 Credit analysis
 Demand analysis
 Sales people compensation analysis
 Capacity analysis
DISCUSSION

From the above information we can say that-

Where financial and cost accounting lay emphasis on other objectives managerial accounting
provide essential data that are needed to run organization.

Managerial accounting provides relevant information to managers to take a number of

decisions.

Managerial accounting helps the managers to plan, organize, motivate and control the
business properly and effectively.

Managerial accounting is necessary to solve the increasing complexity of managerial

decisions.

Increasing in size, and problems of corporate entities can be halalled properly with the help of
Managerial accounting.

Managerial accounting provides information to different levels of management.

So, Managerial accounting can help a typical Bangladeshi manager to improve the
performance of the business by assisting in the creation of policy and in the day-to-day
operations properly and effectively.