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Application

of
Management
accounting
in
management of organization to make right decision

the

Management accounting plays important role in a business. Management


accounting use financial information and help business to make key decision
about the future of the business. Management accounting also focuses on
forecasting.
The manager uses the forecasting information that how
business can take further step For example should a business buy or invests
in new equipment. (the time 100 business case study) Management
accounting plays a key role in strategic planning when a business wants to
make a strategic decision. For example to produce a new product or acquire
other business or can expend to other countries so to make these kind of
decision a management accounting can give advice by using different tools
such as ratio analysis , budget and forecasts such as cash flow and
variances. the time 100 business case study)
In management accounting there are different ratios such as efficacy or
activity ratio including liquidity these kinds of ratios shows whether the
business is able to pay its debts also look to the assets of the company that
could repay any debts. Gearing shows the long term financial position of the
business that how much money is from loans and how much is from
shareholders. Profitability ratios show the performance of business they
relate the business objectives to make profit or obtain return on investment
so it is important that management accounting look all the relevant ratios
when making decision so management accountants need to be able to
produce accurate analysis and correct forecasts which will contribute to the
success of the business. (the time 100 business case study)
Other important terms in management accounting which help in decision
making and management of the organization are cash flows forecasts,
budgets and Variances. Cash flow forecasts look to the flows of cost and
revenues so business can plan from cash flow that where it need to borrow.
Budgets are the financial plan for the future they help the business to see
where it will incur costs and revenues will come from. Variances shows the
differences between forecasted budget and actually happened so
management accountants see how the business build positive variances or
avoid negative ones in future (the time 100 business case study)
Business strategies help business to grow and strengths the position of
business in the market so management accountants help business to make
strategic decision by

Identifying and collecting key information


Measuring and interpreting information
Analyzing information
Analyzing information
Communicating findings
Join with other managers to plan changes
Monitoring , measuring and controlling progress

So management accounting helps and supports the policy of business.


management accounting help in long-term decision it give business a future
direction so if the forecasts and decision are right the business will grow so if
business make poor decision it may fail for example a business wanted to
invested in new technology to improve the efficiency of production so if the
business has analyzed the benefits properly the investment will lead to
growth however if the business has not evaluated all factors it may not give
a return on investment.)the time 100 business case study)
management accounting help small business as small business owners faced
countless decision every business day so managerial accounting information
provide data driven input to these decision which improve decision making in
long term so managerial accounting information is used by company
management what to sold and how to sell . . Freedman.J so when the
company determined what products to sell now need arise to whom a
business should sell products so by using activity based costing techniques a
management can determine the activities require to produce and service
product line so it allows which customers are profitable which allows
business owners to focus advertising towards the consumers who are most
profitable . Freedman.J
the objectives of management accounting is not to make best decision but
to make good decision because of the complexity it is vey difficult to
determine the best decision and management accounting does not provide
techniques for making strategic decision once a strategic decision has been
made then a specific management tool can be used to make decision.
Kidane.F,2012 for example if the strategic decision has been made to avoid
stock outs then a safety stock model . may be used to determine the desired
level of inventory so in management accounting the approach to decision
making is basically quantitive so ,management accounting deals with those
decision that require quantitive data so management accounting deals with
only key variables which help in decision making
in the business.
Kidane.F,2012)

Financial statements prepared by accountants are created by management


through the implementation of decision. The reader and user of financial
statements is not primarily the accountant so from management accounting
point of view it is management rather than accountants that needs to have
understanding of financial statements (Kidane.F, 2012)

Conclusion:
The primary purpose of the management accounting is to make decision that
makes decisions that may be classified as marketing, production and
financial. Financial statements is the descriptive model for decision making
every element in financial statements is the result of decision for each
decision there exists a management accounting tool that may be used to
make good decision . management accounting help business to make long
term decision setting the objectives for the business and making the
objectives according to the need of business . In addition to this
management accounting collects information and uses that information in
decision making process to make right and good decision. Moreover
management accounting deals with complex relation and techniques but the
management accountants takes key information which are suitable for the
business to make right decision for the business to provide long term profit
and success in the future.

REFERNCES
The times 100 business case studies Financial information in Decion MakinG:
http:// business case studie co.uk/ cima/ financial information-in decisionmaking/introduction .html# axzz H8Xlrfm date accessed 25.1.2014
Feeedman,J , Small business CHORN , Why Management Accounting is
Important in Decision Making : http://smallbusiness.chron.com/managementaccounting-important-decisionmaking-53947.html date accssed 25.1.2014

Kidane.F ,2012 DECISION MAKING AND THE ROLE OF MANAGEMENT


ACCOUNTING FUNCTIONA REVIEW OF EMPIRICAL LITERATURE, A Journal of
Radix International Educational and Research Consortiumhttp://
www.academia. edu/ 1819493/DECISION_ MAKING_ AND_THE_ROLE

_OF_
MANAGEMENT_ ACCOUNTING_ FUNCTION-A_
REVIEW_OF_EMPIRICAL_ LITERATURE , volume 1 date accessed 25.1/2014