Management Accounting Case Study
P1. Explain management accounting and give the essential requirements of different types of management accounting systems.
What is Management Accounting?
The Institute of Management Accountants (IMA) describes management accounting as follows:
"Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization 's strategy" (Debitoor.com, 2018)
Breaking down this definition, Management accounting (also known as managerial or cost accounting) is a process, that involves with managerial decision making, planning, performance management
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Despite of many similarities there are some significant difference between these two .One of the most important differences between Management accounting and financial accounting is that both have different audience.
The main objective of managerial accounting is to produce monthly or weekly reports or useful information for internal use, which required by managers to make current and future financial decisions and also the day-to-day operations, of a business. These reports normally show the amount of available cash, sales revenue generated, amount of orders, labour cost raw material and inventory and other statistics. Managerial accounting relies heavily on forecasts, and usually does not allow for exact figures to be generated. The reason for that, in fluctuating environment, managers often have to take operational decision in short period of
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Different types of Management Accounting System?
Management accounting systems are confidential internal reports that assist managers in decision making that are vital to the operation of a company. The main focus of this system is to tracking the cost that associated with the production of goods and services in the company. Different types of management accounting systems are as follows:
Inventory management system: Inventory management is important for any kind and any size of businesses. The main focus of inventory management, is to holding the optimum level of inventory and then balancing the cost with that. It also focuses on when to restock certain items, when and how much to order and also what price to sell.
Job costing system: Job costing system is used for large projects specially when products manufactured are different from each other, for an example construction business, where each project is unique .The job costing system will report direct materials, direct labour, and manufacturing overhead allocated to each job. It will also keep report for the cost of the work-in-process inventory, the finished goods inventory, and the cost of goods
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