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Management Accounting measures and reports financial and non-financial information that helps managers make decisions to fulfill the goals of an organization. Management accounting focuses on internal reporting. It differs from financial accounting which measures and records business transactions and provides financial statements for the information of investors, government regulators, and other external parties (Horngren et al 2002). One exclusive advantage of management accounting is that it encompasses performance measurement. Performance measurement encompasses the establishment of budgets that take into account the financial goals of the business. Alignment of the organizational goals, with the goals of the individual members of the organization, becomes the primary responsibility of the management accountant. The performance measurement system to be successful can also establish cost savings goals for the directors and other members of the organization who are responsible for controlling the costs.
Recommendations to Claire’s Antiques
In the case of Claire’s Antiques, the following recommendations can be made from the perspective of management accounting.
It appears that there is a general attitude that the finance accounting group is viewed as pre-occupied with transaction processing not very responsive to the user needs. But in reality, it is not so. It would result in more advantages to the company to form a ‘Finance Leadership Team’. The members of the team are to include line managers, information system people, and finance department managers. The objective of the team is to ensure that the finance department provides information that the customers deem important. These should include:
- Budgets and planning
- Providing management with readily accessible information and data for supporting decision making
By having established the budgets the performance of the organizational members can be measured against set targets. The planning and decision-making process including the budget preparations will be greatly helped by the information to be provided with the guidance of the new team.
The second recommendation is to have a relook into the existing costing system and getting it revised to include a marginal costing system. This would enable the vice-president to operations those products where the contribution margin is more which will go to increase the profitability of the company. The calculation of cost-volume-profit ratios and product mix calculations would go a long way in aiding the decisions of the management in respect of improving the profitability of the company.
Functions of Management Accounting
Thus management accounting can be considered as an integral part of the management process. It adds to the value of the management by continuously probing whether the resources of the company have been put to proper and effective use so that it results in the creation of value for customers, shareholders, or other stakeholders. For an organization to become successful in the highly competitive business environment a sound management accounting practice must be put in place. It involves the understanding of the cost behavior which is fundamental to managerial decision making (Anderson et al 2000). The management accounting information can be used as a support to the actions of the management not only in decisions relating to cost and pricing but also in several other areas including the performance appraisal of the members of the organization through establishing benchmarks for achievement by them.
Anderson, R.I., Fok, R., and Scott, J. (2000), Hotel industry efficiency: an advanced linear programming examination, American Business Review 18(I), 40-48.
Horngren T. Charles, Foster George & Datar M Srikant (2002) Cost Accounting: A Managerial Emphasis Edition X Prentice Hall India Private Limited India.