COMM-2016EL Study Guide - Midterm Guide: Management Accounting
by Meghan Lever
DepartmentCommerce and Administration
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Management Accounting and Management Decision Making
Management accounting is the process of identifying, measuring, accumulating, analyzing,
preparing, interpreting and communicating information that helps managers fulfill the
organizations objectives. Management accounting exists because managers require
information to make decisions. Unlike financial accounting, management accounting
focusses on internal users.
There are three types of decisions that must be made by management accountants,
operational control, management control and strategic planning decisions.
Operational control decisions ensure tasks are carried out efficiently and effectively.
Management control decisions ensure resources are used efficiently and effectively and
strategic planning decisions focus on the objectives of the organization and the manner
in which resources are purchased and utilized.
So what is the role of a management accountant within an organization?
Scorekeeping- accumulation and classification of data. Enables internal and external
parties to evaluate an organizations performance and position.
Attention directing- reporting and interpreting of information that helps managers to
focus on operating problems, imperfections, inefficiencies and opportunities. Commonly
associated with current planning and control and with the analyses and investigation of
recurring routine internal accounting reports.
Problem Solving- quantifies the likely results of possible courses of action and often
recommends the best course of action to follow. Often non- routine decisions and situations
that require special accounting analyses or reports.
How do management accounts obtain data to make decisions?
Budgets- quantitative data used to plan future production or projects. Aids in planning.
Performance reports- a reports which compares planned amounts to actual results
highlighting variances. Aids in controlling.
Variance- a deviation from original plans. Variance analysis can lead to better decisions.
Management by exception- concentrating on areas that deserve attention and ignoring
areas that are presumed to be running smoothly.
What decision is the best decision to make?
Managers must always keep the organizations key success factors in mind. Key success
factors are the activities that must be managed to make the organization successful.
Overall management accountants have many decisions to make and require heaps of
financial data to make these decisions. The underlying concept in management accounting
is that the costs to obtain this data must not exceed the benefits!
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