Prepared by:,

Ahmar Sharmin Khalil, Zaman, Nabeel

Prepared for: sir. Bilal Lodhi

Management accounting

Management accounting is the use of accounting data to assist the management team with information useful in the decision-making process
More scientific process Less guess

Choosing a course of action from alternatives

Low cost High revenue

Types of decision making

In management accounting, it is useful to classify decisions as: Strategic and tactical Short run and long run

1. 2.

Strategic and Tactical Decisions

Strategic decisions are broad based, qualitative type of decisions , based on the subjective thinking of management concerning goals and objectives.
Cost Reduction Techniques: Value

analysis, Total quality management and zero defect programs, Target costing, Continuous improvement and cost of quality reporting,

Strategic and Tactical Decisions

Tactical decisions are quantitative executable decisions which result directly from the strategic decisions.

Short run versus Long-run Decision-making

The decision-making process is complicated somewhat by the fact that the horizon for making decisions may be for the short run or long run. The choice between the short run and the long run is particularly critical concerning the setting of profitability objectives.

Short run versus Long-run Decision-making

Profitability objectives which management might choose to maximize include: 1. Net income 2. Sales 3. Return on total assets 4. Return on total equity 5. Earnings per share

The choice of profitability varies with long and short run decisions

Technique used for decision making

This data can be gathered by Variance Analysis a variance is the difference between a budgeted, planned or standard amount and the actual amount incurred/sold. Variances can be computed for both costs and revenues.

planning controlling Controller

budgeting

setting goals, determining resource requirements, and devising a means of achieving goals Monitoring financial results and measuring the outcome of planning processes

The person in charge of an entity's accounting department

The plans of management are formally communicated as budgets The controller oversees the development of budgets by the accounting department, usually on annual basis.

Cost Information in Decision Making

Information gathered by cost accounting methods within an organization make up most of the detailed data used to create managerial accounting reports
Cost determination which involves determining the actual cost of a product or an activity, such as marketing Cost recording whereby costs are recorded in journals and ledgers Cost analyzing which refers to accountants and managers analyzing the data to help solve problems and make plans 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.

How managers are reported?

Accountants prepare reports

cost of producing goods,
expenditures related to employee training

programs the cost of marketing programs Others

Benefit of reports

Management accounting reports are typically much more in-depth than traditional financial accounting reports
such as, balance sheet ratios and net

income calculations.

Managers can read the summaries by reports, efficiently identify possible problem areas, and then examine the details within those areas to determine a course of action.

Example

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 labor 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 longterm effects of those trends on the overall profitability of the organization.

Going Concern Policy

Management accounting is also used to evaluate a business' results beyond what the financial statements are telling the reader. Financial statements are great for demonstrating a company's performance over an established period of time. However, the statements alone, without analysis, tells us nothing more.

Going Concern Policy

However if the statements are used to perform analysis, much more can be determined about the company's financial position. These techniques are called financial ratios. These ratios are used to determine the company's liquidity, or ability to pay its short-term debt. They are also used to determine a company's solvency, or ability to pay its long term-debts. This leads to the Going Concern Policy. The Going Concern Policy determines whether a company will be viable to remain in operation into future business periods.