Nature of Management Accounting Nature of management accounting guides to know main characteristics of management accounting.

Following are main points which shows the nature of management accounting: 1. No Fixed Norms Followed In financial accounting, we follow different norms and rules for creating ledgers and other account books. But there is no need to follow fixed norms in management accounting. Management accounting tool may be different from one organization to other organization. Using of different tools of management accounting is fully dependent on the persons who are using it. So, business policy of each organization affects rules and regulation of applying management accounting. 2. Increase in Efficiency It is the nature of management accounting that it is used for increasing in the efficiency of organization. It scans the points of inefficiency through analysis of accounting information. By taking action for improving, organization can increase the efficiency. 3. Supplies Information not Decisions Management accountant supplies accounting facts and information and also provides interpretation, but decision making is fully dependent on higher authorities. Management accounting is just guide. 4. Concerned with Forecasting It is the temperament of management accounting that it is fully concerned with forecasting. In management accounting, historical accounting information is analyzed through common size financial statement, ratio analysis, fund flow analysis and accounting data tendency for knowing the probability of next fact. So, all these things are especially useful for forecasting. These forecasting may be related with following things a) sales forecasting b) production forecasting c) earning forecasting d) cost forecasting http://www.svtuition.org/2010/12/nature-of-management-accounting.html Nature of management accounting: Managerial personnel are entrusted with authority and responsibility of operating business activities. Management accounting provides information to the personnel are entrusted with authority and responsibility of operating business activities. Management accounting provides information to the managerial personnel at three levels of management viz., top, middle and lower levels of management. It provides the management with the tools for an analysis of its administrative action that can lay suitable emphasis on the possible alternatives in terms of costs, prices and profits. The decisions made by management are based on quantitative information and common sense, foresight, knowledge and experience. Management accounting includes financial accounting information and raw material from several other disciplines such as costing, statistics, mathematics, political science, sociology, psychology, management economics, law etc. With all these data he can ensure optimum utilization of all the resources including employees by maintaining sound morale of the employees, maximization of output and minimization of inputs, analyze the managerial questions in terms of costs, revenues, profits and growth. It is thus a highly personalized service with the help of which management can explore and exploit business opportunities and take sound and

correct decisions. It is not a precise science as it uses its own conventions rather than standardized principles. Therefore the inferences drawn from the facts provided, depends on the skill, judgment and common sense of different management accountants. Thus it is said that management accounting serves as a management information system which enables the effective management of an enterprise. Scope of management accounting: Management accounting is a wide and diverse subject. As stated earlier it includes various branches of knowledge such as psychology, sociology, economics, laws, political science, mathematics, statistics, finanacial accounting, cost accounting etc. It is thus very difficult to define its scope, as it is a dynamic and ever growing discipline of knowledge. The important techniques and systems used by management accounting are briefly stated below.
1. Historical cost accounting: Maintenance of books of cost accounting enables to know the

actual costs incurred by the firm. 2. Standard costing: The standard costs laid down by experts are compared with the natural costs in order to know the deviations 3. Marginal costing: The costs are divided into fixed and variable costs which help is making vital decisions. 4. Decision accounting: Decisions are made after studying the impact of decisions in terms of costs, resource, profits, growth etc. 5. Budgetary control: It is a system of controlling the cost with the help of budgets. 6. Control accounting: It includes the techniques such as standard costing, budgetary control, control reports, internal check, internal audit and reports. 7. Revaluation accounting: It is based on current costs to ensure that the investment is intact and profits from investment are kept in mind. 8. Financial planning & policies: It consists of raising the long term and short term finance and invest it on optimum basis and enhance the profitability of the firm. 9. Capital expenditure: The large amounts of future capital expenditure and future profits are analysed to take important decisions. 10. Break even analysis: This is an important technique which is used to analyse the behavior of costs viz., fixed and marginal costs, indicating the level of activity at which the total costs would equal the total revenue and also the margin of safety. 11. Inter-period comparison: It is a technique of comparing the present performance with the past performance. 12. Techniques of forecasting: Some techniques like decision tree, probability and sensitivity analysis are used by management accountants for forecasting which forms a base for planning. 13. Operations research: It consists of statistical and mathematical techniques that are increasingly used in decision making process. 14. Statistics: The statistical techniques used by management accountant are correlation, regression, probability, time series, standard deviation, linear programming, control charts etc. 15. Other techniques: Other techniques employed are: Financial reporting, data processing, project management and appraisal, management audit, efficiency audit, cost audit, performance budgeting, tax planning, social accounting & audit, human resource accounting, responsibility accounting and divisional performance. http://www.finmanagementsource.com/nature-and-scope-of-management-accounting.html

Nature and Scope of Management Accounting : Slide 2: The maintenance and creation of economic value or wealth. Management accounting : Management accounting It measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Evolution of management accounting : Evolution of management accounting traditional view modern view Traditional view : Traditional view pre- 1930s 1. Emphasis on financial markets and securities. 2. Little attention on asset management. Traditional view contd : Traditional view contd 1930s and 1940s 1. Focus on legal matters dealing with bankruptcy. 2. Recognition of newly emerging govt. Regulations. Criticism of traditional view : Criticism of traditional view treats the entire subject of finance from view point of investment banker. Rather than a financial decision maker with in the enterprise. Heavy emphasis on long term financial instruments and lack of emphasis on working capital management. Criticism of traditional view contd. : Criticism of traditional view contd. Much emphasis on corporate finance, little attention on the problems of non-corporate enterprises. Due to depression in 1930s and 1940s emphasis shifted much on bankruptcy problems and liquidity crisis. Modern view : modern view 1950s increased emphasis on asset management. 1960s application of mathematical models. Theoratical developments in cost of capital, dividend policy and risk analysis. Modern view contd. : modern view contd. 1980s application of computer technology to assist in financialdecision making. 1990s increased attention to international competition and management of multinational firms. Difference : difference traditional view focus on the acquisition of funds. Modern view expands the focus on both use and acquisition of funds. Slide 12: 1) Profit Maximization? This Goal Ignores: a) Timing of Returns b) Uncertainty of Returns Slide 13: 2) Shareholder Wealth Maximization? this is the same as: a) Maximizing Firm Value b) Maximizing Stock Price Objectives of management accounting : Objectives of management accounting relevant to making decisions types of decisions investing financing operating Investment decisions : Investment decisions determinig the total amount of assets needed to be held by the firm. (assets side of the b/s) investment can be: 1. Investment in fixed assets 2. Investment in working capital decisions rule: investment in a particular asset can be accepted only if the return on investment is more than the minimum acceptable rate

Investment decisions : Investment decisions the main types of investment decisions can be: 1. Fixed assets to be acquired. 2. Investment in current assets. 3. Buy or lease decisions. 4. Asset replacement decisions. 5. Restructuring, merger and acquisition decisions Finance decisions : Finance decisions related to the procurement of funds. (liability side of the b/s). Decisions about debt and equity mix. The long term assets should be financed with long term funds and short term assets should be financed with short term funds. Finance decisions : Finance decisions the main types of finance decisions can be: 1. Determining the degree of leverage 2. Determinig the financing pattern of long, mediam and short term funds. 3. Arranging finance for working capital. 4. Decision about the interest burden on the firm. Dividend decision : Dividend decision concerned with how much profits to be distributed as dividend and how much to be retained in the business. If profit is paid as dividend it influence the share price. If profit is not paid as dividend it maximises the wealth of the shareholder. Functions of management accounting : Functions of management accounting management accountants perform these functions planning & forecasting financial analysis & interpretation communication facilitates managerial controls helpful in taking strategic decisions use of qualitative information co-ordinating Financial and management accounting : Financial and management accounting the primary questions about an organizations success that decision makers want to know are: what is the financial picture of the organization on a given day? How well did the organization do during a given period? Financial and management accounting : Financial and management accounting accountants answer these primary questions with three major financial statements. Balance sheet shows financial picture on a given day income statement shows performance over a given period statement of cash flows shows performance over a given period Financial and management accounting : Financial and management accounting annual report - a document prepared by management and distributed to current and potential investors to inform them about the companys past performance and future prospects the annual report is one of the most common sources of financial information used by investors and managers.

Financial and management accounting : Financial and management accounting 1. The major distinction between financial and management accounting is the users of the information. Financial accounting serves external users, such as investors, creditors, and suppliers. Management accounting serves internal users, such as top executives, management, and administrators within organizations. Management accounting and financial accounting : management accounting and financial accounting help managers plan and control business operations help investors, creditors, and others make investment, credit, and other decisions 2. Purpose of information Management accounting and financial accounting : management accounting and financial accounting relevance reliability, objectivity, and focus on the past 3. Focus and time dimension Management accounting and financial accounting : management accounting and financial accounting internal reports not restricted by gaap financial statements restricted by gaap 4. Type of report Management accounting and financial accounting : management accounting and financial accounting no independent audit annual independent audit 5.verification Management accounting and financial accounting : management accounting and financial accounting detailed reports on parts of the company summary reports primarily on the company as a whole 6.scope of information Scope of management accounting : scope of management accounting financial accounting cost accounting budgeting & forecasting inventory control reporting to management internal audit tax accounting Tools & techniques of management accounting : tools & techniques of management accounting financial management analysis comparative financial statements ratio analysis fund flow statement trend analysis cvp analysis cash flow analysis Tools & techniques of management accounting contd. : tools & techniques of management accounting contd. Budgetary control standard costing marginal costing responsibility accounting price level accounting human resource accounting social cost benefit analysis Importance : importance increases efficiency proper planning measurement of performance Maximising profitability Improve service to customers Effective management control Limitations of Management Accounting : Limitations of Management Accounting Based on accounting information Lack of knowledge Intuitive decisions Not an alternative to the administration Top heavy structure Evolutionary stage Personal biasness Psychological resistance http://www.authorstream.com/Presentation/guptaritu-478490-nature-and-scope-of-managementaccounting/ What is the Role of Management Accounting Information in Influencing Pricing Decisions?

Perhaps, every organization wants to initiate a management system and strategy that could maintain the organizations capability, strength and competitiveness. The dramatic changes and advances in communications and information technology facilitated the way towards a sustained progress in the international business and finance environment. The low cost and the efficiency as well as the attractiveness of conducting and entering any business venture local or international in nature were made available by these technological advances which characterize the global marketplace. Today, greater challenges are faced by financial managers and accountants as opportunities for growth as well as possibilities of risks increase in the current and more attractive business world. This paper aims to discuss the significant role of management accounting information in relation to making decisions on pricing. It sought to find relevant applications of information gathered through management accounting. In the end, it suggests some ways to effectively implement the gathered information for the advantage and benefit of the company paying particular attention to pricing decisions. Management Accounting: Before delving into the specified topic, there is a need to have a brief background on the general subject management accounting. Management accounting is one of the areas in the field and profession of accountancy. It generates the proper flow of accounting information that are accumulated, analyzed, and presented in the organization. Furthermore, this information are used in making imperative decisions, served as basis for predicting and solving specific problems, and utilized in the daily operations in business management. Management accounting is more oriented toward internal decision making and purposively channels relevant and timely information to internal managers. As to its relationship with financial management, both are production processes of different accounting data for different problem-solving situations. Management accounting, however, reflects the use of techniques from different disciplines, including accounting, for internal problem solving. Therefore, management accounting techniques may differ from Generally Accepted Accounting Principles (GAAP) techniques and from one firm to another. They do not conform to any set of prescribed rules, and much may be left to the decision-maker's philosophies. Cost Accounting Although the relationship between cost accounting and management accounting has not been explicitly clarified, it is usually believed that it is one point of emphasis. Cost accounting deals mainly with cost accumulation, inventory valuation, and product costing. It emphasizes the cost side. The objective function is implicitly perceived to be cost minimization. Similarly, management accounting deals with the efficient allocation of resources. The objective function may be perceived to be profit maximization. It is also believed that the cost accountant and the management accountant are performing different activities; cost control is in the domain of the cost accountant, while cost reduction is in the domain of the management accountant. A cursory examination of accounting textbooks shows that, in general, those labeled cost accounting emphasize cost control while those labeled management accounting or managerial accounting emphasize planning, which may have reinforced the belief in a difference between both areas. In brief, management accounting should go beyond cost accounting and integrate various materials from organization theory, behavioral sciences, information theory, and so on, in a multidisciplinary approach aimed at facilitating the production of information for internal decision making.

Price and Pricing Decision Being the most powerful tool in marketing, price is identified following the companys established goals and objectives. These goals range from enhancing the market share of the products, improving the demands in the target markets, to extending the sales at an even rate for one whole day, week, month, or year. Pricing is utilized in several ways namely: (1) to increase unit sales so that resources of the firm; (2) to restrict sales, or limit the quantities demanded per unit time; (3) to make the market less attractive to actual or potential competitors; and (4) to attract buyers so that they will buy other items once the transaction has begun. In general, making pricing decisions for businesses like MNCs is an important, complex, flexible, and complicated task because these decisions have a significant effect on other major functions of the business. The investment and financial decisions that should be made in a particular business organization or firm fall under the responsibility of the financial manager who is expected to have the financial skills and knowledge to manage financial problems and make financial decision-making process result to positive output. Any commercial, entrepreneurial, private as well as public organizations and institutions who has a financial arm to manage the funds of the group, is faced with the objective of maximizing the shareholder wealth and not the profit as was stated in the theory of financial management. It is the primary duty of the financial manager to ensure that the investment and decision-making processes are soundly based and that the outcomes will result in an increase in the long-term value of the firm whether it is a case of long-term or short-term plans and strategies of the organization. The Role of Management Accounting In Influencing Pricing Decisions Generally, management accounting is responsible in the decision-making process of internal aspects of the organization. By playing this immediate function, it could be considered that the role of management accounting in influencing pricing decision is CONTROL. The business, in order to effectively execute any business strategy or plan, should be able to determine first and identify the resources that are available in the company. Studying and examining the opportunities of the available resources will help in constructing a business plan which will be profitable. The characteristics of the business should be clearly laid out and the ideas that will be made available should be thoroughly researched. This will provide relevant information that the general management can utilize so as to be able to allocate the funds of the company in the most effective way. If the company knows the nature of the business, the further steps in formulating strategic business plan will be easier. This is same as true in relation to pricing decisions done by the managers. After knowing the available resources of the company which it can utilize in order to accomplish a specific or target business output, selecting the most promising resource in which the company may invest and take advantage of will be the next priority of the whole business enterprise. The financial manager who has the responsibility to designate the amount of money which will be allocated in every decision or move that the company will take the action needed as well as examine the decision made so that there will be no loopholes in the near future. But still it should be kept in mind that will be issues and problems will still arise even if proper precautions and studies are made. The allocation of funds will determine the amount of money which will be invested. This part is considered to be the most critical since the company will be letting out money from the company. The

money may not necessarily come from the profit already made by the company. The owners or shareholders may also use their own money and not the money they invested in the business itself. There is also a possibility that money will not be invested. The business organization can actually utilize and literally make use of the resources that are already available in the company. This can be applied to the human resources of the company. If they have the people who can make the goals and objectives of the business attainable, they can take advantage of such opportunity by merely compensating on the efforts, knowledge and skills of the staff and employees. It could also be a case in which the company will be investing on its people through workplace training and programs that will be made available to the employees. There are companies who enroll their staff in training courses as well as make them attend conferences from which they can learn new ideas that could be utilized for the benefit of the company. On the same manner, pricing decisions determine the profit that the company would possibly generate. Introduced the most common mistakes that are encountered in managing the finance of a business organization. These include the failure to research and conduct studies regarding the goals prior or after the planning period, not using an automatic saving plan, being too conservative with longterm investments, the problem of succession, putting off the start of the investment, not getting professional advice, and not setting aside at least three to six months worth of savings in an interestbearing account. However, all these procedures aim to achieve the goals and objectives of the business organization. That is why it is highly important that the firm knows the direction it intends to take. The people, especially the finance manager should have the expertise, experience and skills to analyze the financial situation of the business to be able to make sound decisions that will either take the business failure establishment to the peak of its success or to the lowest grounds. Making a pricing decision and taking a stand to support the possibility of exploring the strength and advantages of a particular resource of the company will be handy if the organization has financial personnel who is decisive and practical enough with a daring character to challenge and the social and economic conditions in the business enterprise to take the company to achievement. All the plans will be put to waste if the company has no effective system of financial control that will monitor the investment that the company made. There should be constant and regular reports regarding the progress of the decision made. If outputs are expected, there should be immediate application of the advantages that the company gained. The results of the investment whether it is profit or performance-related advantages should be duly reported for evaluation and assessment. This will provide the black and white transparency which the company can take hold of as guide in the future investment and business plans and strategies that its people will employ. The ipricing strategies will be likewise assessed and evaluated as well as the capacity and the ability of the people who made the project and the attainment of the plans possible. In monitoring the pricing decision made, it should be taken into account the factor or variable of time. Since the business organization has the options of investing, planning and strategizing long-term and a short-term projects, the nature of the pricing decision in relation to the needed time for the initial execution should be given great consideration, there are just times when the business firm is not in the position to control the flow as well as the circumstances of the investment made. Sometimes the best thing to do is to wait. When the time comes that is but right to take further action, the company may do so. In summary, management accounting controls the business plan especially the pricing decisions. It determines the limits and the potential pitfalls that the company might encounter in its

future operations. Regardless of the predefined effects of the pricing decision, management accounting information is the foundation and primary principle that brings success and failure to the pricing strategies of the company. Conclusion In formulating pricing decision and strategies, proper research and studies should be made in order to define and maneuver the direction of the whole business plan. Setting up the ideas and presenting them to the figures of authority for a rich exchange of views will be helpful in generating plans that will be best for the business establishment. The company should be conscious and cautious in terms of the savings and the transparency of the expenditures. The people involved should also have the guts and the character to make the long-term plans a success by initiating efforts that will make such conjured ideas possible and tangible in the future. Specifying the date and time frame of executing the business plans and strategies that will make its attainment possible will push and business to start right on and take the challenge. As much as possible, hesitations should not be acknowledge unless there are enough reasons to postpone the initial execution of the plans that will be more risky than the imagined drawbacks of the project. They should be sensitive in making delays and lagging off from the defined plan and tactics as well as in the changes and differences of the actual application and that of the plan. It would also be advisable to get help and consult from a professional finance consultant, certified accountants, and other corporate professional with sufficient know-how in management accounting especially with respect to pricing decision-making. The rationale behind this is that they can provide information and views that were not pointed out and brought up during the planning period. They can also plan and foresee circumstances that serve as a financial back up for the emergencies and difficulties that were not foreseen while coming up with the plans. In managing the pricing decisions of the company with respect to the principle of management accounting, it is of primary importance that the resources and the welfare of the company are identified. From these resources, the people in the general management especially the manager to be selective in choosing the price and other financial resources that the company will invest in. The nature of the pricing decision should be studied so that the opportunities that it offers can be fully exhausted by the company. Strategic planning could be only successful if the circumstances of the investment that will be made are well examined and researched. This will prepare the whole business in the problems and issues that the company may confront during the execution of the project or plan. However, this does not assure that there will be no problems that will exist and confront the business venture. The management accounting process cannot be put in isolation from the whole organization. The price, budget and all the investment, and profit growth possibilities that the company can venture in all depend on its overall capacity which will make the operations of the business possible. Coordination between and among the department within the organization as well as among all the staff and employees should be fostered in the workplace for the immediate success of the business endeavor. http://ivythesis.typepad.com/term_paper_topics/2008/02/what-is-the-r-1.html

What Is The Role Of Management Accounting In An Organisation? The effectiveness of management accounting any organisation Management accounting is generally concerned with informing managers so that they stay up to date with relevant information so that they can make informed business decisions. Management accounting should not be confused with financial accounting (which is a common misconception). Financial accounting tends to be more focused on previous transactions, whereas management accounting is more towards looking into the future. Financial account often involves information for shareholders which is publicly released, whereas management accounting deals with private, confidential information which is often never released to the public. As a management accountant in an organisation, you'll provide operational and financial information to those inside the organisation who need it, and you'll regularly report with the business and financial teams for updates on their progress. You're responsible for keeping track of any new information and any changes, and then directing that information to those who can deal with the new information or changes. You're activities will involve reviewing aspects of the business like costs, forecasting ahead based on evidence, and checking previous forecasts to see if they are correct, and if not, then you'll have to understand why they are not correct. That said, this is a role which can vary considerably from one organisation to the next, although the core principles remain the same. A large business can even have many management accountants keeping track of more specific parts of the business. You'd then be responsible for overseeing and forecasting for just that section of the business. Keeping records is a key skill, you'll need to keep top quality records so that you can quickly provide key information of specific issues that may arise in the organisation. Moreover, you'll be required to produce summaries of the key information related to the business, so that internally managers can track progress. Often management accountants are also involved with controlling activities and ensuring that they are being carried out. As you're collecting so much information, chances are that you're often the first one who'll notice an issue, so in some cases it's your responsibility to track down and resolve that issue (particularly in smaller business where you can't just report to a manager and expect them to take care of everything). Some of the specific skills you'll need will likely include: Analysis of data, price modelling, profitability analysis, cost benefit analysis, budgeting, planning, management advice, and financial forecasting. Overall you'll have a key role in the organisation which can be quite varied, from helping with decision making to producing forecasts. http://www.blurtit.com/q514965.html