Accounting论文模板 – Managerial Accounting Report

1.0 Introduction

Financial information is paramount for both analysis and capital decision making. Financial accounting entails evaluating, recording, summarizing and reporting the financial position of a business while management accounting is internally based, designed with a purpose of aiding managers to effectively make decisions. Making a decision involves evaluation of various alternatives and deciding on the best choice which gives the maximum benefit. Business decisions revolves around accepting or rejecting an investment proposal and are made at the top management. This report will discuss the distinction between management accountant and financial accountant, provide a decision for a case study and give an explanation of accounting terminologies.

2.0 Differences between Financial Accountant and Management Accountant

First, financial accountants concentrate on the preparation of financial statements which are distributed to the external users like shareholders and lenders of the company based on the generally accepted accounting principles. Management accountants focus on providing information to internal users of the company. They are accounted to management of the company and work as per their instructions. Secondly, financial accountants are governed by company law and the IFRS (Bohusova & Nerudova, 2015, pp.12-19). which are required by the chartered institute of accountants and other regulatory bodies relating to the conduct of accountants. On the other hand, management accountants (Proctor, 2012) are answerable to the needs of the managers. They work and operate within the schedule and scope of the management of the company. They cannot execute duties which are outside the scope or the consent of their bosses. The next distinction is based on coverage. Financial accountants are responsible and in charge of the entire company. They prepare reports and account for day to day activities taking place in the whole company. Management accountants are responsible for various departments, products and the company divisions. They give an account related to the activities within the departments they are entrusted to work.

The fourth difference is based on the nature of accounts. Financial accountants prepare statements based on the historical transactions on its income statement, statement of changes in equity, statement of financial position and the cash flow statements. While management accountants make capital decisions which impact on the future economic benefits of the company. They prepare reports to advice the company management on the investment decision of the firm. Fifth, financial accountants operate legally and their works are more professional. Failure to comply with the accounting standards may lead to withdrawal of operating license and deregistration from the accounting body. On the other hand, management accountants do not operate legally. They do not execute their duties with stringent measures. Failure to do their duties they risk being fired from the company but that do not bar them from seeking employment elsewhere. The last distinction is that financial accountants have a precise and a standard format for presenting their accounting information. They follow standards laid down by the IASB (Tracey, 2015, pp. 539-542). When reporting financial statements. On the other hand, management accountants do not have a standard format for conducting their duties and preparing records. Their reports are detailed and presented to mangers for decision making without any format.

2.1 The role of management accountants

       The management accountant has several important roles in an organization. They are fully engaged in the management process. The first role of management accountant is planning (Patton, Sawicki & Clark, 2015). Here the manager decides on what goals to accomplish, when and how they will be will be accomplished. The main duty is to provide future plans based on the market trends and what products to sell. When budgeting, they provide historical data on past performance to act as a benchmark. Another role is controlling (Horváth, Gleich & Seiter, 2015). This process involves comparing the actual performance with the plans to ascertain the deviations and offer a corrective action. The management accountant reports on the performance of the cost center and any information based on management by exception. Any deviations are brought to the attention of the company management so that a decision is made on the way forward. The next role of organizing. This is where a defined framework is established that ensure all the organizations activities are executive according and with the right people. Various departments should be well organized so that continuous flow of activities is witnessed. The management accountant should ensure that the departments are in congruent with the company objectives (Scott & Davis, 2015). The fourth role of a management accountant is motivation. This refers to the appraisal of human labor so that they can identify with the company goals and that they are in harmony with the management decisions (Chadwick & Raver, 2015, pp.957-988).  Managers should devise goals that are challenging and easily attainable. The last role of management accountants involves communication.  Communication entails perceiving of information by the sender and encoding (Raychev, 2015, pp. 1356-1366).  it in a format that is most suitable to the recipient. Managers install and maintain an effective communication system such as the management accounting information system during budgetary planning (Cho, 2015).

3.0 Methods of evaluation

3.1 Marginal costing

Marginal costing is an alternative of absorption costing where only variable costs are charged as cost of sales and the contribution margin is calculated as the difference between the sales revenue and the variable cost of sales (Kaplan & Atkinson, 2015). Closing inventory is charged at marginal cost while fixed costs are treated as period costs and are charged in full (Iossa, & Martimort,2015, pp.4-48) Marginal cost is always applied to variable cost per unit and also refers to that extra cost that the company will avoid in producing an extra product. In the event of selling an extra product, the sales revenue will increase by the value of sales, profits will also increase by the amount of contribution earned and the costs will increase by the variable cost per unit. In relation to the case study, the incremental costs of renovation of the old building, leaky roofs and salaries on under employed employees should be treated as fixed costs which will be expensed at the year end. The costs associated with renovation, should not surpass the contribution margin.

3.2 Relevant costing

It is an alternative of marginal costing and used to determine the minimum price of a project. Relevant costing (Laska & Schönemann, 2015) as the name suggests classifies costs as either relevant or irrelevant. Managers are encouraged to takes decisions which benefit the firm as a whole. In order to set the pricing of a project, relevant cost suggest that managers should find out the relevant cost needed for the project. In relation to the case study, the building and the restaurant are obsolete and therefore their relevant cost is its resale value (Chu, 2015). On the other hand, if the workers to be considered redundant in the project continue to offer services, there will be no relevant costs. However, if such workers are laid off and replaced then the relevant cost relates to the cost of offering new salaries.

3.3 Payback

Payback period refers to the time a project takes to return its initial investment (Maroušek,  Hašková Zeman & Vaníčková,2015,pp. 203-207) The longer the project takes to returns it initial outlay the more time it takes and thus considered unfavorable.  However, if it takes a shorter period to return the initial costs, then it is considered favorable.  Investors like projects with a shorter payback period. In this case, if the management accountant choses to renovate the bar and erect new buildings say at a cost of £ 150,000 then it will take less than a year to return its outlay given that the market sales revenue is at £ 250,000. It is therefore important to select a project whose payback period is short.

3.4 Net present value (NPV)

Present value of a project is obtained by the summation of all the discounted cash inflows that the project generates over a given period of time. Net present value therefore is PV of the project less the initial capital outlay (DeFusco, McLeavey, Pinto, Runkle, & Anson, 2015). Management accountants should make decisions based on the sign of the NPV. A positive NPV is more favorable than a project with a negative NPV. Therefore, managers should choose projects with a positive NPV because they are considered viable. In relation to the case study, the management should discount both expected cash inflows associated with investing in an online shop and renovating the bar thereafter selecting the best alternative which gives a positive NPV. In the event both project gives a positive NPV then the higher value is chosen. NPV is preferred to payback period as it considers time value of money. This is because, the cash inflows must be discounted using a relevant discount rate which returns the present value of the project.

3.5 Internal rate of return (IRR)

The internal rate of return is different from the accounting rate of return. This rate is computed on a trial and error method. It also considers the time value of money (Tappura, Sievänen, Heikkilä, Jussila, & Nenonen, 2015, 151-159).  Internal rate of rate is obtained by equating all the net cash inflows discounted with a particular rate to zero. If the rate chosen gives zero, then that is the required rate. If it doesn’t, then another rate is chosen which will equate the NPV to zero or a figure close to zero. It is used to determine the NPV of an investment or project where a specific discount rate is not provided. A higher figure is preferred as it gives the desired rate of return. In this case, management should consider giving a standard rate for the restaurant project as it will determine the profitability of the investment.

3.6 Budgetary planning and pricing

Budgeting refers to a short term planning and control technique where managers calculate the expected revenues and the expenditure that will be incurred to achieve those revenues (Goel,2015) Budgetary planning (Weygandt, Kimmel & Kieso, 2015) involves designing a comprehensive plan that covers the whole business. Managers should monitor the plans and provide for any corrective measure within the plan. On the other hand, pricing refers to the methods used to set the price of a product. Setting the price too high or too low can have an adverse effect on the company performance. Setting it high may scare away customers and therefore no one will buy the products (Graham, Harvey, & Puri, 2015, pp.449-470).   Pricing can be set from the economist point view, accountant or a marketer’s point of view. Economists would want to set a price that will maximize the profits. That is, at the level where marginal revenue equals marginal costs. However, accountants set price plus a mark-up margin to determine the selling price of the product. In the above case scenario, it will be important if the cost accountant establishes a budget that will focus on the renovation of the building and establishes an online marketing plan that will meet its objectives. While setting prices for the products, caution should be taken not to overstate the profit margin. At the end of the year, it is paramount to establish the actual performance of the firm and budgeted figure to know whether there could be any variances involved. If the amount projected is higher than the actual amount spent, then that is a favorable variance and the vice versa is true.

4.0 Recommendation

The management accountant should recommend for the investment in an online shop. This is because the incremental costs associated with renovating and bring back the restaurant into place is not cost effective. The workers who are under employed should be considered redundant since they do not add any value to the company’s profitability. Having an online shop will cut on the overhead costs involved with marketing and in the production cost centers. The bar should be renovated and not knocked down. Renovation is less costly than having the whole project demolished.

5.0 Conclusion

Capital decision making is done for the purpose of effective planning so that scarce resources are committed into the rightful investments. The commonly used methods for evaluation of capital investment decisions are payback period, internal rate of rate and NPV which incorporate the time value of money. The management accounting is done with the intention of providing the information for the use by managers and other internal users of such information. However, financial accounting is aimed at preparing accounting records for external users. The role of financial and management accountants are critical for the success of any business.


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