Management Accounting
Chapter-1
Definition and importance of MA
Management accounting concerned with
providing information to managers for use
within the organization . In another word,
accounting that relates to managerial function
like planning, directing and motivating and
controlling is called Management Accounting.
Characteristic of Management
Accounting
• Management oriented Accounting
• Relates with managerial function . i.e
planning, direction and motivation , and
controlling in order to increase efficiency.
• It provides information for internal users of an
organization.
• It can assist the top level management and
other departments in the formation of policy
and control.
Work of Management and need for
MA information
Planning
Directing and
Motivating
Controlling
Planning
Identify
alternatives.
Select alternative that does
the best job of furthering
organization’s objectives.
Develop budgets to guide
progress toward the
selected alternative.
Directing and Motivating
Directing and motivating involves managing dayto-day activities to keep the organization running
smoothly.
– Employee work assignments.
– Routine problem solving.
– Conflict resolution.
– Effective communications.
Controlling
The control function ensures
that plans are being followed.
Feedback in the form of performance reports
that compare actual results with the budget
are an essential part of the control function.
Planning and Control Cycle
Formulating long-and
short-term plans
(Planning)
Comparing actual
to planned
performance
(Controlling)
Decision
Making
Measuring
performance
(Controlling)
Begin
Implementing
plans (Directing and
Motivating)
Comparison of Financial and
Managerial Accounting
Financial Accounting
Managerial Accounting
External persons who
make financial decisions
Managers who plan for
and control an organization
Historical perspective
Future emphasis
3. Verifiability
versus relevance
Emphasis on
verifiability
Emphasis on relevance
for planning and control
4. Precision versus
timeliness
Emphasis on
precision
Emphasis on
timeliness
5. Subject
Primary focus is on
the whole organization
Focuses on segments
of an organization
6. GAAP
Must follow GAAP
and prescribed formats
Need not follow GAAP
or any prescribed format
Mandatory for
external reports
Not
Mandatory
1. Users
2. Time focus
7. Requirement
The Changing Business Environment
and Management Accounting
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Just-in-time production
Total quality management
Process reengineering
Theory of constraints
International competition
E-commerce
Business environment changes in
the past twenty years
Process Management
• A business process is a series of steps that are
followed in order to carry out some task in a
business
• The different approaches to managing and
improving business process are :
-Lean Production
-Theory of Constraint
-Six sigma
Lean Thinking Model
• It is a five step management approach that organizes
resources such as people and machines around the flow of
business processes and that pulls units through these process
in response to the customers.
• The lean thinking model
Step-1.Identify value in specific products
Step-2.Identify business process that delivers value
Step-3.Organize work arrangements around the flow of the
business process
Step-4.Create a pull system that responds customers orders
Step-5.Continuously pursue perfection in the business process.
Just-in-Time (JIT) Systems
Receive
customer
orders.
Complete products
just in time to
ship customers.
Schedule
production.
Receive materials
just in time for
production.
Complete parts
just in time for
assembly into products.
JIT Consequences
Improved
plant layout
Reduced
setup time
Zero production
defects
Flexible
workforce
JIT purchasing
Fewer, but more ultra reliable suppliers.
Frequent JIT deliveries in small lots.
Defect-free supplier deliveries.
Benefits of a JIT System
Reduced
inventory
costs
Freed-up funds
Greater
customer
satisfaction
Higher quality
products
Increased throughput
More rapid
response to
customer orders
Total Quality Management (TQM)
TQM improves productivity by encouraging the use of fact
and analysis for decision making and if properly implemented,
avoids counter-productive organizational infighting.
Continuous
Improvement
Systematic problem
solving using tools such
as benchmarking
is
Process Reengineering
A business process
is diagrammed
in detail.
Every step in
the business
process must
be justified.
Anticipated results:
Process is simplified.
Process is completed
in less time.
Costs are reduced.
Opportunities for
errors are reduced.
The process is redesigned
to eliminate all
non-value-added activities
Process Reengineering versus TQM
Process Reengineering
• Radically overhauls
existing processes.
• Likely to be imposed from
above and to use outside
consultants.
Total Quality Management
• Tweaks existing processes
to realize gradual
improvements.
• Uses a team approach
involving people who
work directly in the
process.
Six Sigma
Six sigma is a process improvement method that relies on
customer feedback and fact based data gathering and analyst
techniques to drive process improvements
• Define
• Measure
• Analyze
• Improve
• Control
Establish the scope and purpose of the projects
Diagram the flow of the current process
Establish the customer’s requirement for the process
Gather baseline performance data related to the existing process
Narrow the scope of the project to the most important problems
Identify the root cause of the problems identified in the measure stage
Develop , evaluate , and implement solution to the problems
Ensure that problems remain fixed.
Seek to improve the new method over time.
Theory of Constraints
A constraint (also called a bottleneck) is anything that
prevents you from getting more of what you want.
The constraint in a system is determined
by the step that has the smallest capacity.
Theory of Constraints
Only actions that
strengthen the
weakest link in the
“chain” improve
the process.
2. Allow the weakest link
to set the tempo.
3. Focus on
improving the
weakest link.
1. Identify the weakest
link.
4. Recognize that the
weakest link
is no longer so.
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