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Management Accounting

As Information in management accounting is presented internally, it would allow Anne, as an operations manager, to make decisions concerning the daily operations of a business, by keeping track of her production division’s Income and expenses. Furthermore, she will learn to analyze the basic data and make forecasts. Budgets, etc. MA has several advantages that coincide with the ability for companies to improve operations and overall profitability. According to (Commons Vitae, n. D. , it can firstly help to reduce cost: Information from Management Accounting assist to review he cost of economic resources and other business operations, allowing Anne to better understand how much money it costs to run her solar power production division. In addition, an analysis can be conducted on how economic resources are utilized to produce the solar panels. If overall production quality would not be hampered by using a more affordable raw material, Anne would be able to propose this to the higher management, helping her company and division to reduce production costs.

Secondly, it can help to improve cash flow by allow Anne to comb and sift through the nooks and crannies of her division, creating a budget that nutrients to the master budget. With the

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mall objective of saving money through careful analysis of necessary and unnecessary cash expenditures. Thirdly, management accounting is able to improve Ann.’s decision-making process. Instead of making decisions based only on qualitative analysis, she could use quantitative analysis on Information given from MA to review and make various decision opportunities.

This would allow higher management and her to see both sides of the coin, and hence, resulting in improved decision-making Last but not least, Anne can also make use of management accounting to increase the company’s financial turns. It enables her prepare financial forecasts relating to consumer demand patterns, potential sales or the effects of consumer price changes In the economic marketplace. Therefore, allowing her division to produce enough solar panels to meet consumer demand at current prices and hopefully, achieving Just-Len-Time TIT) production in the long run, to reduce unnecessary warehousing cost.

However, with the various advantages being mentioned, management accounting does have Its limitations as well. First off, it does not follow a standard set of procedures, like the Generally Accepted Accounting Principles (GAP) used in financial accounting. Thus, Anne would have to devise her own set of systems to evaluate the finances of her solar production division, which might lead to Inconsistencies in the way that financial benchmarks and assessments are measured. (Wendell Clark, n. D. ). To worsen matters, coming from an electrical engineering background, Anne has no 1 OFF mid-level management decision.

Next, as management accounting decision making are based on facts and figures, there is a tendency to make decisions intuitively. Anne, being new to accounting, might avoid lengthy courses of proper evaluation and instead, take an easy route, by using her intuition. Intuitive decisions limit the usefulness of management Accounting. To further complicate matters, there is the issue of personal bias. The interpretation of financial information relies on the personal Judgment of the interpreter, I. E. Anne.

Such personal prejudices and bias affect the objectively of decisions. Following that, management accounting allows for a great deal of subjectivity for methods on measuring performance. This is questionable because the operations anger’s personal beliefs and biases can have an outcome on the way performance is measured. For instance, if Anne were to measure the productivity of her workers, she may focus solely on outputs and not take into consideration regarding the workers’ inputs that can have a profound effect on overall productivity.

This affects the employees and eventually the overall company of Green and Renewable Energy Ltd (GREG), as suggested by (Rashers, NINA) However, having said that, with the help of modern technology and a fully integrated Enterprise Resource Planning (ERP) system in place, resulting in more involvement in designing business process and less on data entries, mentioned by (Gary Sparkman,York University, December 31 . 2010), it will hopefully provide Anne with an easier and smoother transition into her new role as operations manager. AAA) Original plan: Revenue: (variable cost: contribution: (Fixed cost: Propose Plan: (variable cost, 0. 2 x Operating Income: (160,000) AI) Operating Income: 240,000 iii) Sales (x) = Variable Cost + Fixed Cost + Profits 0. XX = b) Environment awareness and adherence are increasingly crucial for today’s legal requirements imposed on companies, I. . Or Technology Company (ROTC), for drastically cutting cost, perhaps through improper disposal of waste products, without considering the negative environmental impact. Thus, government agencies would impose clean-up charges and heavy fines on these unethical companies, which drives up the cost.

Apart from increased environmental costs, it would also lead to other long term repercussions for the aforementioned company. Firstly, violations of some Environmental Protection Acts (EPA) can lead to possible imprisonment for those held accountable for. Secondly, according to (Charles J. Coated, NINA), consumers are progressively considering a company’s environmental factor’, a part of corporate social responsibility, before deciding whether to purchase its products or services. This directly affects overall sales revenue and general impression of the company.

Thus, unethical business practices that lead to firms going against “socially imposed regulations” can actually cause a big slump in sales. Both these points will ultimately tarnish a company’s reputation and public image, and once ruined, rebuilding it would be a colossal task. Ultimately, as (Chartered Institute of Management Accountants, 2013) stated, businesses that want to succeed in the long run have to consider both upon ethical challenges in their own operations and take appropriate action to avoid integrity risks. C)The importance of ethical behaviors can never be reiterated enough.

All firms, regardless of its size, usually have their own code of ethics. However, they generally all point towards the same direction – the importance of integrity and carrying out only socially-acceptable actions. Under section 320. C (COMA, 2010), it was specifically mentioned that the accountant must take necessary steps in maintaining information of the businesses in a responsible manner that “represents the facts accurately and completely in all material respects. ” Furthermore, ‘Integrity is placed first out of the five fundamental principles in their code of ethics.

To reinforce their stance that one should be “straightforward, honest and truthful” in all professional and business engagements, and never misappropriate or provide false information. Therefore, Mr.. Foe, the financial controller should include it in the revised income statement. The president just be informed and the onus is on him to make the necessary decisions, regardless if it could possible cast the production manager in a negative light. The first step – is to first decide the specific type of environmental costs. In this case, we’re looking at those associated with noncompliance under environmental laws’.

It is the most severe, and provides no benefit or return to the company. Therefore, it should generally be charged to current operations as a non-extraordinary expense, as mentioned by (Rogers, 2005). As a result, ROTC should include potential environmental costs in the revised income statement. The impact of these environmental issues is not limited to financial reporting. It affects managerial accounting as well. Mr.. Nick, the production manager, should measure and include it in its product costs and production decisions.

Perhaps, he can propose to decrease variable cost through can also re-use the waste material for other purposes. By aiming for short term results (reducing variable costs) and forsaking the adverse longstanding impact, Mr.. Nick is guilty of unethical behavior. Apart from technical competence, another important aspect of a professional manager is the adherence to a code of ethics. According to Chartered Institute of Management Accountants (COMA), being a professional means having responsibilities beyond the narrow pursuit of profit at any cost.

If ethical standards are not generally adhered to, there would be undesirable consequences for everyone. Essentially, it would lead to a lower standard of living with sub-quality goods and services, albeit with a higher price. The existence of a black market would eventually emerge. Hence, adhering to ethical procedures is absolutely crucial for the smooth functioning of an advanced market economy, as suggested on (Will Seal, 2012) Finally, Environmental issues have increased in importance in past decades.

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