ACT 201

East West University

ASSIGNMENT
On
“MANAGEMENT ACCOUNTING”
[COURSE CODE # ACT 201]

Submitted to:

Mohammad Faridul Alam

Senior Lecturer & Assistant Proctor
Department of Business Administration
EAST WEST UNIVERSITY

Submitted by:

Name: Imran Maleqe

Id.: 2008 –1– 10 – 135
Section: 2
Semester: Fall 2009

Date of Submission: December 21, 2009

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Introduction

A manager is the person who is responsible for the proper running of an organization, and
therefore, a good manager does matter for an organization. A good manager is the person who
has good managerial skills, knows his responsibilities properly, and knows how to handle people
around him, also knows ho to tackle the changes and unavoidable situations, etc, that’s why, it is
important for the business to have good managers. The roles of the managers at different levels
are: planning, organizing, motivating, and controlling. To execute these roles, a manager should
be a good leader to his subordinates, so that he can direct and motivate them in the right path to
obtain the ultimate objective and goals of the organization. It is the manager’s duty to make sure
that everything is going according to the plan and budget, and all the employees are working
effectively with efficiency, and also to bring any changes if required. If the manager is not able
to do his responsibilities properly then the entire management system of the organization will
collapse, the employees will stop working, or work according to their own will, no coordination
will be there, as a result the organization will come to an end. However, a good manager works
as the brain of an organization, which is responsible for the success of a plan. By using
management accounting knowledge a manager can make a good decision which can be played a
vital role for his organization.

Management Accounting

In ordinary language, any system of accounting which assists management in carrying out its
functions more effectively may be termed as management accounting.
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.
In contrast to financial accountancy information, management accounting information is:
• Designed and intended for use by managers within the organization, whereas financial
accounting information is designed for use by shareholders and creditors.

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• Usually confidential and used by management, instead of publicly reported;

• Forward-looking, instead of historical;
• Computed by reference to the needs of managers, often using management information
systems, instead of by reference to financial accounting standards. Management
accounting basically helps in recording, Planning and control of activities which further
aid in the decision making process. It is used as a future planning tool apart from its
usage as a current record keeper.

Decision-making in Management Accounting

In management accounting, decision-making may be simply defined as choosing a course of

action from among alternatives. If there are no alternatives, then no decision is required. A basis
assumption is that the best decision is the one that involves the most revenue or the least amount
of cost. The task of management with the help of the management accountant is to find the best
alternative.
The process of making decisions is generally considered to involve the following steps:
1 Identify the various alternatives for a given type of decision.
2. Obtain the necessary data necessary to evaluate the various alternatives.
3. Analyze and determine the consequences of each alternative.
4. Select the alternative that appears to best achieve the desired goals or objectives.
5. Implement the chosen alternative.
6. At an appropriate time, evaluate the results of the decisions against standards or other desired
results.

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. A fact of the real business
world is that not all companies pursue the same measures of success. Profitability objectives
which management might choose to maximize include:
1. Net income

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2. Sales
3. Return on total assets
4. Return on total equity
5. Earnings per share
The decision making process is, consequently, affected by the profitability objective and the
choice of the long-run versus the short-run. If the objective is to maximize sales, then the method
of financing a new plant is not immediately important. However, if the objective is to maximize
short run net income, then management might decide to issue stock rather than bonds to avoid
interest expense. In the short run, profits might suffer from expenditures for preventive
maintenance or research and development. In the long run, the company’s profit might be greater
because of preventive maintenance or research and development.
Although the interests of management and the organization may be presumed to coincide, the
possibility of making decisions for the short run may cause a conflict in interests. An individual
manager planning to make a career or job change might have a tendency to make decisions that
maximize profitability in the short run. The motivation for pursuing short run profits may be to
create a favorable resume.
The tools in management accounting such as C-V-P analysis, variance analysis, budgeting, and
incremental analysis are not designed to deal with long range objectives and decision.
Hopefully, decisions which clearly benefit the short run will also benefit the long run.
Nevertheless, it is important for the management accountant, as well as management, to beware
of possible conflicts between short run and long run planning and decision making.

Management Accounting Helps a Manager for Making Effective Decision

Management accounting helps a manager to do variance analysis, rate and volume analysis,
profit planning, sales management scorecards, cost benefit analysis, cost-volume-profit analysis,
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capital budgeting, strategic planning, sales and financial forecasting, and master budgeting, etc.
It helps the manager to decide how to use the scarce resources of the business effectively and in
the most efficient way to get the maximum output. It also let the manager plan about the future
cash inflow and outflow of the business and then decide whether an extra funding (i.e. loan,
issuing share, etc) is required, if so, then what should be the amount and the payment policy, etc.

A good manager needs managerial accounting to perform his duties in a more efficient manner
because it reports to those inside the organization for planning, directing and motivating,
controlling, and performance evaluation. Also, it gives emphasis to the relevance and timeliness
of information. Besides, its emphasis is more on decisions affecting the future. Under
management accounting detailed reports about individual departments, products, customers, and
employees are prepared. These are the reasons that make it important for managers to be
effective.

Managers are the vital integrated part of the business, and therefore, a good manager,
with effective managerial skill, will run the organization in the right direction of successfully
achieving the objective in the most efficient manner. However, management accounting enables
a manager to make analysis on data, and form report and do future planning for the organization.
It is one of the tools for the managers for effective decision making.

Conclusion:
Management accounting is concerned with the provisions and use of accounting
information to managers within organizations, to provide them with the basis to
make informed business decisions that will allow them to be better equipped in
their management and control functions. By using knowledge of Management
accounting manager can make good decisions which are the important step for
success.

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