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Management accounting Essay

The wake of the 21st century brings with It more challenges than the long awaited relief amidst the corporate world. Even with the improvement and introduction of cutting edge technology, management issues still remain a hassle even with the best tools and the best brains in the trade. Problems and issues pertaining to management are very sensitive especially when It comes to managing a company’s finances. The waxing and waning of the world economy makes this process even harder as more and more companies are forced to hire the services of skilled analysts at high cost all the while speculating the outcomes of the economy.

However, with the right tools Information and skills, a company Is guaranteed to stay afloat In a world where businesses keep dropping out of the corporate world. How companies manage their finances and workforce dictates whether the company is bound to open its doors come the next financial year. One of the major concerns in management is the management of accounts which Is usually handled a company’s accountants In conjunction with the management of the company.

Management accounting pacifically deals with generating information pertaining to a given company and basically relates on how to minimize costs while

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improving sales and boosting profits within the available company’s resources. In short this Is information that helps the management to make crucial decisions. Financial accounting on the other hand deals with generating information based on information relayed by external users and mainly deals with control of cash inflow and outflow in the company.

So why is management accounting so important? Among the most important reasons why management accounting is important to company include; 1) Planning-this basically deals with making decisions pertaining to the company’s products where and when to make them, who to sell them to, how much labor it will use and so on and so forth (Kaplan, 5). 2) Operational Control-management helps the top officials in identifying and minimizing production error from the time a product Is Initiated for production to the time It Is released to the market for sale. ) Performance and Evaluation-this involves evaluating the efficiency and effectiveness of different products and efferent managers within the company. When dealing with management of accounts two concepts become clear: Variable (Direct) costs and fixed production overhead costs (Accounting Coach 4). Fixed costs dealt all costs that do not pertain to the amount of sales and production. Basically, these are the costs that do not link directly to the final output and remain constant throughout the production process. Costs such as rent and ordinary water and electricity bills constitute this kind of costs.

On the other hand variable costs constitute costs such as labor costs, raw materials and rainspout levies which constantly vary with the production (Economic Fundamentals 9). A company is defined from these costs and they form the very core of the company’s finances. A flaw in any of the above costs can reduce a multimillion company to nothing In a matter of hours, and It Is specifically for this reason that company’s are willing to spend heavily on outsourcing skilled professionals to run their management and board rooms as well as finances.

Take for example the Virgin 1 OFF necessarily deal in airlines but all the same are reputable commercial brands such the Virgin Radio and Virgin festivals. Such a huge brand requires diverse management with numerous managers to manage and control the different sub- brands which are fully-fledged brands on their own. A company that is well established is in one way or the other bound to invest in the best cost-effective strategies to manage its accounts.

Some of the commonly used strategies implemented to control variable costs and fixed production overhead costs include but not limited to: 1) Constant Cost Monitoring: Just as the subject implies this procedure involves monitoring and accounting for every penny invested in the equines. This is how big businesses keep afloat; by ensuring that every penny is accounted for, they are able to balance their books by countersinking their expenditures against their returns. Monitoring costs and more so variable costs, enables the management to make ‘active’ decisions based on real time data and information.

This is so vital that if ignored can lead to massive losses overnight. Take for example if a manager overlooked the sales price variance as depicted by the operating statement, the aftermath would be a substantial margin in the gross profits. This can lead to irrelevant data concerning the sales of the product and the final expenditure costs and variance (More Business 12). 2) Focus on Variable Costs- with the world economy portraying fluidity, it is important that account managers and also company managers keep a close eye on the variable costs.

Variable costs occur spontaneously and sometimes they happen so often which can make it difficult for a company to make decisions on whether to proceed with production or cease production activities until the situation has stabilized for some time. Take for an instance, if the cost of raw materials keeps fluctuating for a period of time it will literally become impossible for the company to sustain the production and the overhead costs (More Business 16). 3) Scrutinize Products and Services-the main point of opening up a business is to offer some products or services.

In an ideal situation, the cost of production would be directly proportional to the returns. This means if a company was to spend OHIO to produce a phone they are guaranteed of a IEEE return after deducting all costs and expenses. However, this is not usually the ease as sometimes the market would flood with a certain product dropping the price of that product significantly. Hence, companies have evolved with time to develop measures and countermeasures to stay afloat by offering a variety of products and services within the same niche.

To maximize profit, companies are seen to take stringent steps to significantly cut down on unnecessary costs and costs deemed superfluous. Take for an instance if a manager decides to cut down on the direct labor hours from let us say 525 hours to 400 hours based on the operating statement, ND instead increase the number of employees by 5 on a reduced salary. In doing he/ she would have boosted production and at the same time reduced the variable costs affiliated with labor.

As the world economy continues to grow, more and more businesses are bound to hire more and more professionals to manage their accounts based on their financial records and operating statements. There is no argument that for a business to grow it requires to analyze all the data and information it gets from the market and make crucial decisions based on real time eventualities. Paying close operating statements generated forthwith, will give a company a heading in the its future based on its past.

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