Management Accounting Techniques

How management accounting tools and techniques contribute to the attainment of organizational objectives Nowadays, management accounting is vital to companies and organizations. Why management accounting is important for the companies and organization? This is because management accounting tools and techniques contribute to the attainment of organizational objectives. Management accountants can use these tools and techniques while doing planning, budgeting and forecasting to create value to the organizations as well as achieving the objectives. Therefore, management accounting has become the focus of all levels of the organization in helping the firm to achieve its goals in an increasingly competitive environment. However, a question raises.

One of the technique is Budgeting. A budget is a quantitative plan for acquiring and using resources over a specific time period. For managers, it is difficult to maintain an overview on the big picture when caught in the various crises and firefights of day-to-day operations. Thus, budgeting is useful. This is because a budget provides a road map for performance that offers detailed information about expected outcome that managers can use to guide decision toward desired goals. The first purpose of budgeting is planning. Planning involves developing goals and preparing various budgets to achieve those goals such as sales budget. As a manager looks forward over a period of business and prepares, he may consider how much material and staff is needed. When a budget shows expected sales over the same period, the manager can take budgeted cost of sales and work backwards to determine how much raw materials needs or labor hours required. This can make the production to be more effective and efficiency. For an example, if sales have been performing 4 percent over budget for consecutive months. The manager may increase the materials or increase and manpower. This can keep the production line smoothly and increase the efficiency of the company. Moreover, the next purpose is prioritizing. Prioritizing means comparing year-to-date

Cost variance is an important factor to measure performance. Generally, a cost variance is the difference between a cost’s actual amount and its budgeted or planned amount. For example, if a company had actual repairs expense of RM 200 for January but the budgeted amount was RM 100. Then the company had a cost variance of RM 100. Since the actual cost was more than the budgeted amount, the cost variance is said to be unfavorable. When an actual cost is less than the budgeted amount, the cost variance is said to be favorable. Cost variance gives managers information in controlling. Managers can identify the problem of the account item which is unfavorable. For example, direct wages had been budgeted to cost RM 10,000 but actual cost was RM 15,000 during a period. This shows unfavorable of cost variance and shall identify the reason of the increase direct wages such as increase in wage rate, decline in productivity of workforce and so on. Then, managers can solve the problem according to the analysis such as providing training to workers to increase their productivities. Besides from helping in controlling, cost variance provides responsible accounting. Variance analysis facilitates performance measurement and control at the level of responsibility. For an example, production department shall be held responsible with respect to an increase in the usage of raw materials. Therefore, the performance of each