MANAGEMENT ACCOUNTING

Definition
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"
Traditional vs innovative practices.
Within the area of management accounting, there are almost an infinite number of tools, methods,
techniques and approaches floating around.
he distinction bet!een traditional and innovative accounting practices is perhaps best illustrated
!ith the visual timeline "see sidebar# of managerial costing approaches presented at the $nstitute of
Management %ccountants &'(( %nnual )onference.
raditional standard costing "*)#, used in cost accounting, dates back to the (+&'s and is a central
method in management accounting practiced today because it is used for financial statement
reporting for the valuation of income statement and balance sheet line items such as cost of goods
sold "),-*# and inventory valuation. raditional standard costing must comply !ith generally
accepted accounting principles "-%%. /*# and actually aligns itself more !ith ans!ering financial
accounting requirements rather than providing solutions for management accountants. raditional
approaches limit themselves by defining cost behavior only in terms of production or sales volume.
$n the late (+0's, accounting practitioners and educators !ere heavily criticized because
management accounting practices "and, even more so, the curriculum taught to accounting students#
had changed little over the preceding 1' years, despite radical changes in the business environment.
$n (++2, the %ccounting 3ducation )hange )ommission *tatement 4umber 5 calls for faculty
members to come do!n from their ivory to!ers and expand their kno!ledge about the actual
practice of accounting in the !orkplace. .rofessional accounting institutes, perhaps fearing that
management accountants !ould increasingly be seen as superfluous in business organizations,
subsequently devoted considerable resources to the development of a more innovative skills set for
management accountants.
6ariance analysis is a systematic approach to the comparison of the actual and budgeted costs of the
ra! materials and labor used during a production period. While some form of variance analysis is
still used by most manufacturing firms, it no!adays tends to be used in con7unction !ith innovative
techniques such as life cycle cost analysis and activity8based costing, !hich are designed !ith
specific aspects of the modern business environment in mind. life8cycle costing recognizes that
managers' ability to influence the cost of manufacturing a product is at its greatest !hen the product
is still at the design stage of its product life8cycle "i.e., before the design has been finalized and
production commenced#, since small changes to the product design may lead to significant savings in
the cost of manufacturing the products.
%ctivity8based costing "%9)# recognizes that, in modern factories, most manufacturing costs are
determined by the amount of 'activities' "e.g., the number of production runs per month, and the
amount of production equipment idle time# and that the key to effective cost control is therefore
optimizing the efficiency of these activities. 9oth lifecycle costing and activity8based costing
recognize that, in the typical modern factory, the avoidance of disruptive events "such as machine
breakdo!ns and quality control failures# is of far greater importance than "for example# reducing the
costs of ra! materials. %ctivity8based costing also deemphasizes direct labor as a cost driver and
concentrates instead on activities that drive costs, %s the provision of a service or the production of a
product component.
,ther approach that can be vie!ed as innovative to the /.*. is the -erman approach,
-renzplankostenrechnung "-.:#. %lthough it has been in practiced in 3urope for more than ;'
years, neither -.: nor the proper treatment of <unused capacity= is !idely practiced in the /.*. -.:
nor the concept of unused capacity is slo!ly becoming more recognized in %merica, and "could
easily be considered 'advanced' by /.*. standards
,ne of the more innovative accounting practices available today is resource consumption accounting
">)%#. >)% has been recognized by the $nternational ?ederation of %ccountants "$?%)# as a
"sophisticated approach at the upper levels of the continuum of costing techniques"@0A because it
provides the ability to derive costs directly from operational resource data or to isolate and measure
unused capacity costs. >)% !as derived by taking the best costing characteristics of the -erman
management accounting approach -renzplankostenrechnung "-.:#, and combining the use of
activity8based drivers !hen needed, such as those used in activity8based costing. With the >)%
approach, resources and their costs are considered as "foundational to robust cost modeling and
managerial decision support, because an organization's costs and revenues are all a function of the
resources and the individual capacities that produce them".
Specific methodologies
Activit!"ased costing #A$C%
%ctivity8based costing !as first clearly defined in (+0B by >obert *. :aplan and W. 9runs as a
chapter in their book %ccounting and ManagementC % ?ield *tudy .erspective. hey initially focused
on the manufacturing industry, !here increasing technology and productivity improvements have
reduced the relative proportion of the direct costs of labor and materials, but have increased relative
proportion of indirect costs. ?or example, increased automation has reduced labor, !hich is a direct
cost, but has increased depreciation, !hich is an indirect cost.
Gren&plan'ostenrechn(ng
-renzplankostenrechnung is a -erman costing methodology, developed in the late (+5's and (+1's,
designed to provide a consistent and accurate application of ho! managerial costs are calculated and
assigned to a product or service. he term -renzplankostenrechnung, often referred to as -.:, has
best been translated as either marginal planned cost accounting or flexible analytic cost planning and
accounting.
he origins of -.: are credited to Dans -eorg .laut, an automotive engineer, and Wolfgang :ilger,
an academic, !orking to!ards the mutual goal of identifying and delivering a sustained methodology
designed to correct and enhance cost accounting information. -.: is published in cost accounting
textbooks, notably ?lexible .lankostenrechnung und Eeckungsbeitragsrechnung and taught at
-erman8speaking universities.
)ean acco(nting #acco(nting for lean enterprise%
$n the mid8 to late8(++'s several books !ere !ritten about accounting in the lean enterprise
"companies implementing elements of the oyota .roduction *ystem#. he term lean accounting !as
coined during that period. hese books contest that traditional accounting methods are better suited
for mass production and do not support or measure good business practices in 7ust8in8time
manufacturing and services. he movement reached a tipping point during the &''; Fean
%ccounting *ummit in Eearborn, Michigan, /nited *tates. 2&' individuals attended and discussed
the merits of a ne! approach to accounting in the lean enterprise. ;&' individuals attended the &nd
annual conference in &''1 and has varied bet!een &;' and 1'' attendees since that time.
*eso(rce cons(mption acco(nting #*CA%
>esource consumption accounting ">)%# is formally defined as a dynamic, fully integrated,
principle8based, and comprehensive management accounting approach that provides managers !ith
decision support information for enterprise optimization. >)% emerged as a management accounting
approach around &''' and !as subsequently developed at )%M8$ the )onsortium for %dvanced
ManufacturingG$nternational, in a )ost Management *ection >)% interest group in Eecember &''(.
Thro(ghp(t acco(nting
he most significant recent direction in managerial accounting is throughput accountingH !hich
recognizes the interdependencies of modern production processes. ?or any given product, customer
or supplier, it is a tool to measure the contribution per unit of constrained resource.
Transfer pricing
Management accounting is an applied discipline used in various industries. he specific functions
and principles follo!ed can vary based on the industry. Management accounting principles in
banking are specialized but do have some common fundamental concepts used !hether the industry
is manufacturing based or service oriented. ?or example, transfer pricing is a concept used in
manufacturing but is also applied in banking. $t is a fundamental principle used in assigning value
and revenue attribution to the various business units. 3ssentially, transfer pricing in banking is the
method of assigning the interest rate risk of the bank to the various funding sources and uses of the
enterprise. hus, the bank's corporate treasury department !ill assign funding charges to the business
units for their use of the bank's resources !hen they make loans to clients. he treasury department
!ill also assign funding credit to business units !ho bring in deposits "resources# to the bank.
%lthough the funds transfer pricing process is primarily applicable to the loans and deposits of the
various banking units, this proactive is applied to all assets and liabilities of the business segment.
,nce transfer pricing is applied and any other management accounting entries or ad7ustments are
posted to the ledger "!hich are usually memo accounts and are not included in the legal entity
results#, the business units are able to produce segment financial results, !hich are used by both
internal and external users to evaluate performance.
Tas's+ services provided.
Fisted belo! are the primary tasksIservices performed by management accountants. he degree of
complexity relative to these activities are dependent on the experience level and abilities of any one
individual.
>ate and volume analysis
9usiness metrics development
.rice modeling
.roduct profitability
-eographic vs. industry or client segment reporting
*ales management scorecards
)ost analysis
)ostGbenefit analysis
)ost8volume8profit analysis
Fife cycle cost analysis
)lient profitability analysis
$ cost transparency
)apital budgeting
9uy vs. lease analysis
*trategic planning
*trategic management advice
$nternal financial presentation and communication
*ales forecasting
?inancial forecasting
%nnual budgeting
)ost allocation
)ist of voca"(lar #ne, ,ords a"o(t the topic%.
$alance sheet- % statement of the financial position of an entity sho!ing assets, liabilities and
o!nership claim.
Direct cost- )ost that is directly traceable to an identifiable unit, such as a product or service or
department of the business, for !hich costs are to be determined.
A$CC *ee activit!"ased costing.
Activit!"ased costing #A$C%- traces overhead costs to products by focusing on the activities that
drive costs "cause costs to occur#.
AMTs- *ee advanced man(fact(ring technologies.
Ann(al report- % document produced each year by limited liability companies containing the
accounting information required by la!. Farger companies also provide information and pictures of
the activities of the company.
Assets- >ights or other access to future economic benefits controlled by an entity as a result of past
transactions or events.
Capital "(dgeting- % process of management accounting !hich assists management decision
making by providing information on the investment in a pro7ect and the benefits to be obtained from
that pro7ect, and by monitoring the performance of the pro7ect subsequent to its implementation.
*esponsi"ilities of an acco(ntant manager.
he responsibilities of an account manager can vary depending on the industry they !ork in, size of
the company, and nature of the business. ?or instance, each customer account can vary in demands
and an account manager may !ork !ith brand managers for one account and a media department for
another. %ccount managers usually report directly to the account director or agency director of the
activity and status of accounts and transactions. %n account manager may also manage a single
account or a variety of accounts depending on the requirement of the company. %lthough the
responsibility can vary bet!een companies and bet!een accounts, there are a shared set of common
responsibilities, !hich are as follo!sC
-enerate sales for a portfolio of accounts and reach the company's sales target
$dentify ne! sales opportunities !ithin existing accounts to remain a client8account manager
relationship by up8selling and cross8sellingC
Manage and solve conflicts !ith clients
$nteract and coordinate !ith the sales team and other staff members in other departments
!orking on the same account
3stablish budgets !ith the client and company
Meet time deadlines for accounts
*eferences-
httpCIIen.!ikipedia.orgI!ikiI%ccountJmanager
3arl E. Doneycutt, Kohn 9. ?ord, %ntonis ). *imintiras "&''2#, Sales management: a global
perspective
httpCIIsmallbusiness.chron.comIduties8responsibilities8account8manager80B;.html
httpCII!!!.princeton.eduILachaneyItmveI!iki(''kIdocsIManagementJaccounting.html