Management Accounting Tools

Management Accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions. In contrast to financial accountancy information, management accounting information is: Usually confidential and used by management, instead of publicly reported; Forward-looking, instead of historical; Practically computed using extensive management information systems and internal controls, instead of complying with accounting standards. The American Institute of Certified Public Accountants (AICPA) states that management accounting as practice extends to the following three areas: Strategic ManagementAdvancing the role of the management accountant as a strategic partner in the organization. Performance ManagementDeveloping the practice of business decisionmaking and managing the performance of the organization. Risk ManagementContributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization. Management Accountants therefore are seen as the "value-creators" amongst the accountants.

They are much more interested in forward looking and taking decisions that will affect the future of the organization, than in the historical recording and compliance (scorekeeping) aspects of the profession. Management accounting knowledge and experience can therefore be obtained from varied fields and functions within an organization, such as information management, treasury, efficiency auditing, marketing, valuation, pricing, logistics, etc.

Aims
1. Formulating strategy| strategies. 2. Planning and constructing business activities. 3. Helps in making decision. 4. Optimal use of Resource (economics). 5. Supporting financial reports preparation.

Management Accounting Tools/ Services Provided

Listed below are the primary tools/ services performed by management accountants. The degrees of complexity relative to these activities are dependent on the experience level and abilities of any one individual. Variance Analysis Rate & Volume Analysis Business Metrics Development Price Modeling Product Profitability Geographic vs. Industry or Client Segment Reporting Sales Management Scorecards Cost Analysis Cost Benefit Analysis Cost-Volume-Profit Analysis

Life cycle cost analysis Client Profitability Analysis Capital Budgeting Buy vs. Lease Analysis Strategic Planning Strategic Management Advise Internal Financial Presentation and Communication Sales and Financial Forecasting Annual Budgeting Cost Allocation Resource Allocation and Utilization

Variance Analysis
It is used to determined the total changes between budgeted and actual amounts. In most of the factors: 1) Volume 2) Mix of units of activities 3) Revenue per unit of activity 4) Cost incurred per input 5) Usage and efficiency of the input organizations, it can be explained by one or more five

Activity-Based Costing (ABC)

It is a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each: it assigns more indirect costs into direct costs. USES: It helps to identify inefficient product, department and activity It helps to allocate more resources on profitable product, department and activity It helps to control the cost at individual level and on departmental level It helps to find unnecessary costs

 Target costing
Target Costing is a disciplined process for determining and realizing a total cost at which a proposed product with specified functionality must be produced to generate the desired profitability at its anticipated selling price in the future.