Management accounting meets the needs of managers responsible for day to day operation of the business. As part of his/her role the management accountant provides information to facilitate a range of activities including:
Planning and controlling
To carry out their roles effectively the various managers in a business require information to assist them in planning and controlling the operations of the organisation. Planning involves translating goals and objectives into the specific activities and resources that are required to achieve these goals and objectives. The management accountant is involved in the preparation of both long term and short term plans. Budgets are short-term plans that are prepared in more detail than longer term plans. Control involves the process of ensuring that actual outcomes conform to planned or expected outcomes. Budgets may be used to support the controlling of activities by providing a measure against which actual performance may be compared.
Managers also require information to assist them with routine and non-routine decision making. routine decisions relate to issues such as assessing the profitability of different segments of an organisation in terms of products, services and customers. non-routine decisions are made infrequently and may relate to strategic issues such as the introduction of new products or services. The information provided by the management accountant to support these decisions may be financial or non-financial in nature, depending on what best meets the needs of management. In many instances cost information accumulated by the management accountant is relied upon to inform decisions, and therefore it is critical that such information is of a high quality.
The management accountant generates periodic reports, which compare actual performance to plan, and provides these to managers enabling them to determine if operations are proceeding as expected and to identify where corrective action may be required. These periodic reports also allow managerial performance to be evaluated and provide incentives for managers to try to achieve favourable results.
Allocation of costs between cost of goods sold and inventories
It is important to allocate costs to products as accurately as possible in order to establish the profitability of the business. The management accountant ensures that cost information is collected and correctly allocated to cost of sales or inventories as appropriate. The management accountant may use techniques such as activity based costing to allocate overheads to products or the first in first out (fIfO) method to value inventory.