North East University Bangladesh

Course title: Advanced Management Accounting

Course code: ACC-423
Assignment topic: Managerial Accounting and Business Environment

Submitted to
Md. Nasir Uddin
Lecturer
Department of Business Administration
North East University Bangladesh Submitted by
Sahriar Emon Dalim
ID: 160201010006
Session; Summer-16
Department of Business Administration
North East University Bangladesh

Submission Date: 2 December 2019

Content

1
s
Managerial Accounting..............................................................................................................3

The functions of management and the need for Managerial Accounting information..............3

Comparison of Financial and Managerial Accounting..............................................................4

Process Management..................................................................................................................5

Figure 1: Business functions making up the Value chain..........................................................6

Lean Production.........................................................................................................................6

The Lean Thinking Model.........................................................................................................7

The Theory of Constraints (TOC)..............................................................................................7

Six Sigma...................................................................................................................................7

Technology in Business.............................................................................................................8

Conclusion..................................................................................................................................9

2
Managerial Accounting
Managerial Accounting is concerned with providing information to managers that is people
inside an organization who direct control its operations. Managerial Accounting provides the
essential data that are needed to run organizations. Managerial accounting information often
takes the form of nonfinancial measures. For example, Sportswear Company might measure
the percentage of defective products produced or the percentage of on-time deliveries to
customers. This kind of nonfinancial information comes from the managerial accounting
function.

The functions of management and the need for Managerial Accounting information
Every organization-large and small- has managers. Someone must be responsible for
formulating strategy, making plans, organizing sources, directing personnel, and controlling
operations.

Managers everywhere, carry out three major activities- Planning, Directing and Motivating
and Controlling. Planning involves establishing a basic strategy, selecting a course of action
and specifying how the action will be implemented. Directing and Motivating involves
mobilizing people to carry out plans and run routine operations. Controlling involves
ensuring that the plan is actually carried out and is appropriately modified as circumstances
change. Management accounting information plays a vital role in these basic management
activities but most particularly in the planning and control functions.

Planning

An important part of planning is to identify alternatives and then it to select from among the
alternatives the one that best fits the organizations strategy and objectives. As in the case of
the personnel department, the plans of management are often expressed formally in budgets,
and the term budgeting is generally used to describe this part of panning process. Budgets are
usually prepared under the directions of the controller who is the manager in charge of the
Accounting Department.

Directing and Motivating

In addition to planning for the future, managers oversee the day to day activities and try to
keep the organization functioning smoothly. This requires motivating and directing people.

3
Managers assign tasks to employees, arbitrate disputes, answer questions, solving on the spot
problems, and make many small decisions that affect customers and employees. In effect,
directing is that part of a manager’s job that deals with the routine and the here and now.
Managerial accounting data, such as daily sales reports, are often used in this type of day to
day activates.

Controlling

In carrying out the control function, managers seek to ensure that the plan is being followed,
feedback which signals whether operations are on track, is the key to effective control. In
sophisticated organizations, this feedback is provided by various detailed reports. One of
these reports, which compares budgeted to actual results is called performance report.
Performance reports suggest where operations are not proceeding as planned and where part
of the organization may require additional attention.

Comparison of Financial and Managerial Accounting

Financial accounting reports are prepared for external reports such as shareholders and
creditors, whereas managerial accounting reports are prepared for managers inside the
organization. This contrast is orientation results in a number of major differences between
financial and managerial accounting even though they often rely on the same underlying
financial data.

Financial and Managerial accounting differ not only in their user orientation but also in their
user orientation but also in their emphasis on the past and the future, in the type of data
provided to users and in several others ways. These difference are discussed in the following
paragraphs.

Emphasis on the future

Since planning is such an important part of the manager’s job, managerial accounting has a
strong future orientation. In contrast financial accounting primarily summarizes past financial
transactions. These summary maybe useful in planning, but only to a point. The future is not
only simply a reflection of what has happened in the past.

Relevance of data

4
Financial accounting data should be objective and verifiable. However, for internal uses
managers want information that is relevant even if it is not completely objective or verifiable.
Managerial Accounting should be flexible enough to provide whatever data are relevant for a
particular decision.

Less Emphasis on Precision

Managerial Accountants often places less emphasis on precision than Financial Accountants
do. In addition to placing less emphasis on precision than financial accounting, managerial
accounting places much more weight on nonmonetary data.

Segments of an Organization

Financial Accounting is primarily concerned with reporting for the company as a whole. By
contrast, managerial accounting focuses much more on the parts, or segments of a company.
These segments may be product lines, salary territories, divisions, departments, or any other
categorizations that management finds useful. Financial Accounting does require some
breakdowns of revenues and costs by major segments in external reports, but this is a
secondary emphasis. In Managerial accounting, segment reporting is the primary emphasis.

Generally Accepted Accounting Principles(GAAP)

Financial Accounting statements prepared for external users must comply with generally
accepted accounting principles (GAAP). External Users must have some assurance that the
reports have been prepared in accordance with a common set of ground rules.

Managerial accounting is not bound by GAAP. Managers set their own rules concerning the
content and forms of internal reports.

Managerial Accounting – Not Mandatory

Financial Accounting is mandatory that is it must be done. Various outside parties such as the
Securities and exchange Commission and the tax authorities require periodic financial
statements. Managerial Accounting on the other hand is not mandatory.

Process Management
A business process is a series of steps that are followed in order to carry out some task in a
business. It is quite common for the linked set of steps comprising a business process to span

5
departmental boundaries. The term value chain is often used when we look at how the
functional departments of an organization interact with one another to form business
processes. A Value Chain consists of the major business functions that add value to a
company’s products and services. The customers’ needs are most effectively met by
coordinating the business process that span these functions.

Research and Product Manufacturing Marketing Distribution

Development Design

Customer Services

Figure 1: Business functions making up the Value chain.

Lean Production
Traditionally, managers in manufacturing companies have sought to maximize production so
as to spread the costs of investments in equipment and other assets over as many units as
possible. In addition, managers have traditionally felt that an important part of their jobs was
to keep everyone busy on the theory that idleness wastes money. These traditional views,
often aided and abetted by traditional management accounting practices.

In a traditional manufacturing company, work is pushed through the system in order to

produce as much as possible and to keep everyone busy even if products cannot be
immediately sold. This almost inevitably results in large inventories of raw materials, work in
process, and finished goods. Raw materials are the materials that are used to make a product.
Work in process inventories consists of units of product that are only partially complete and

6
will require further work before they are ready to sale customer. Finished goods inventories
consists of units of product that have been completed but have not yet been sold to customers.

The Lean Thinking Model

The lean thinking model 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
processes in response to customer orders. The results are lower inventories fewer defects, less
wasted effort and quicker customer response times.

The first step is to identify the value to customers in specific products and services. The
second steps is to identify the business process that delivers this value to customers. The third
steps is to organizes work arrangements around the flow of business process. The fourth steps
in the lean thinking model is to create a pull system where production is not initiated until a
customer has ordered a product. The fifth steps of the lean thinking model is to continuously
pursue perfection in the business process.

The lean thinking model can also be used to improve the business process that link
companies together. The term supply chain management is commonly used to refer to the
coordination of business processes across company’s batter serve end customers.

The Theory of Constraints (TOC)

A constraint is anything that prevents you from getting more of what you to want. Every
individual and every organization faces at least one constraint.

The Theory of Constraints is based on the insight that effectively managing the constraint is a
key to success.

Six Sigma
Six Sigma is a process improvement method that relies on customer feedback and fact based
data gathering and analysis techniques to drive process improvement. Motorola and General
Electronics are closely identified with the emergence of the six sigma movement.
Technically, the term six sigma refers to a process that generates no more than 3.4 defects per
million opportunities. Because the rate of defects is so low, Six Sigma is sometimes
associated with the term zero defects.

7
The most common framework used to guide Six Sigma process improvement efforts is
known as DMAIC, which is stands for Define, Measure, Analyze, Improve, and Control.

The Define stage of the process focuses on defining the scope and purpose of the project, the
flow of the current process, and the customers’ requirements.

The Measure stage is used to gather baseline performance data concerning the existing
process and to narrow the scope of the project to the most important problems.

The Analyze stage focuses on identifying the root causes of the problems that were identified
during the measure stage.

During the Improve stage potential solutions are developed, evaluated, and implemented to
eliminate non value added activities and any other problems uncovered in the analyze stage.

Finally, the objective in the Control stage is to ensure that the problems remain fixed and that
the new methods are improve over time.

Technology in Business
Technology is being harnessed in many ways by businesses. In this section I will discuss two
of these ways E-commerce and Enterprise Systems.

E-Commerce

E-commerce refers to business that is conduct using the internet. E-commerce is the buying
and selling of goods and services, or the transmitting of funds or data, over an electronic
network, primarily the internet. These business transactions occur either as business-to-
business (B2B), business-to-consumer (B2C), consumer-to-consumer (C2C), Consumer-to-
business (C2B).

Enterprise Systems

An enterprise system is designed to overcome these problems by integrating data across an

organization into a single software system that enables all employees to have simultaneous
access to a common set of data. There are two keys to the integration inherent in an enterprise
system. First, all data are recorded only once in the company’s centralized digital data
repository known as database. Second, the unique data elements contained within the
database can be linked together.

8
Conclusion
Managerial Accounting prepares a variety of reports, some reports focus on how well
managers or business units have performed-comparing actual results to plans and to
benchmarks. Some reports provide timely, frequent updates on key indicators such as orders
received, order backlog, capacity utilization and sales. Other analytical reports are prepared
as needed to investigate specific problems such as decline in the profitability of a product
line.