Applications and developments of management accounting

Category: Accounting

Management accounting, also as known as "internal report accounting" ,which analyses the movement of funds in the enterprise current and in the future, for the purpose of improving economic efficiency, and provides the scientific basis for internal management decision-making managers. It is an economic management activity in both accounting and management areas. Management accounting account information which has happened and predict information which will happen. Management accounting not only services for the enterprise management, but also services for shareholders, creditors, regulatory agencies and tax institutions. In this way, monetary information and non-monetary information could both provided by management accounting. Management accounting is correlation with financial accounting,cost accounting and financial management. Applications and developments have taken place in recent years. In this essay I will discuss three important applications in management accounting, which have benefited the companies and decision-makers. Noticeable developments have been made because of these applications. These developments will be discussed in next several paragraphs. To sum up, these applications which are used in companies have made accounting more efficient and effective. These developments which are caused by management accounting provide a better environment to the development of companies.

Application

First, Cost-Volume-Profit analysis has been widely used in companies. It is a mathematical accounting model which could show the relationship between fixed costs, variable costs, sale quantity, unit price, gross sales and profits. The core part of cost-volume-profit analysis is break-even point. There are two feasible methods to calculate the break-even point. According to the physical unit term, its formula is: contribution margin per unit = unit sales- variable cost per unit of product. Meanwhile according to the amount of consolidated terms, its formula is: sales (amount) of break-even point = fixed costs / contribution margin ratio. Companies have realized four vital points by this analysis.

1. If the total cost was set, the break-even point depends on the unit price. When unit price becomes higher, the break-even point becomes higher.

2. If the sales revenue was given, the break-even point depends on fixed costs and unit variable costs. The higher fixed costs go, or higher unit variable cost goes, the break-even point increases.

3. If the break-even point was set, a smaller sale will less profit.

4. if the sales was set, the break-even point goes lower, enterprises will achieve more profit.

Second, budget process is one of the most integrant parts in the management accounting. The budget has two functions, management decision-making and management control. Different functions of the budget system require different budget designs. If the budget formulation process in the sales, according to the professional division of labor caused by the various professional departments of information asymmetry between the sales department holds the company's future sales, if the budget just to play a managerial decision-making functions (such as production quotas in order to sell ), sales department will unreservedly out the information at its disposal, with departments sharing; but if the budget's goals is to play a management control function (for example, as performance evaluation criteria), marketing departments may be deliberately under-estimated the future sales revenues, thus contributing to their performance evaluations. However, underestimate the production plan will result in a corresponding reduction in production will not be able to achieve the most efficient state. Another example is in accordance with the budget funds allocated to various departments, the departments use of funds in order to have greater freedom, and be able to control more funds may be rhetorical demand of funds in this sector, resulting in a waste of money, which is obviously Budget management is also contrary to the intention of communication and coordination.

Therefore, in order to solve the above-mentioned functions and departments, between the contradiction between the budget management practices, on one hand should be allowed to participate in various departments in the formulation of the budget to promote the widest range of information flow, so that communication between the more detailed budgeting to increase the budget for scientific and operability. On the other hand, in the past many companies only by the completion of the budget and finance departments for implementation, reducing the budget authority of enterprise soft budget constraint, allow enterprises to address this of concern to the highest leadership in the development budget and have the final decision-making power, the only This can be from the overall interests of the entire enterprise to develop a realistic budget.

Third, cost management

Development

First, the business company has become a independent operating entities, as the developing of economy, the problems about cost control, cost assessment and other aspects are becoming serious, which make the company need to pay more attention to cost management including budget,accounting, control , analysis and account. In order to meet the requirements of the company, costs are divided into the marginal cost, differential cost, opportunity cost, fixed and variable costs, target costs,in addition a proper plan of measurement system has been established. It is necessary to collect the previous data about cost and the data from the other companies in the some industry. The meaning and extension of the various costs have been changed and developed to adapt to the development of business and economic.

Second, activity-based costing and target costing were only applied in a small number of manufacturing industries in the past, but now they are also being used in the financial, commercial and other sectors. These applications not only provide relatively accurate cost information, but also are helpful to make effective and efficient business decisions. More attention has been paid to satisfy the needs of customers, under the guidance of market price, and try to make lower prices. The product's features and target customs are well planned before the production. The product enhances the competitiveness of the enterprise's turnover and profits will rise. Rising in the value of enterprises can increase the competitiveness of enterprises.

Third,Strategic Cost Management

Forth, Non-financial indicators have become an important assessment for the management accounting.

Conclusion