Decision Making with Managerial Accounting

Document Type:Research Paper

Subject Area:Accounting

Document 1

This research paper describes the process of decision making in a business organization with managerial accounting. The first part defines managerial accounting, its roles, and three accounting techniques as well as their application in a business organization. Part two describes different managerial accounting topics and their application in real-world cases. PART ONE Definition of managerial accounting Managerial accounting is simply referred to as the provision of information to managers which involve financial and non-financial decision making. According to IMA, “Managerial accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy” (IMA, 2008). Management Accountant Management accountants are responsible for dual reporting relation which is consistent with other responsibilities in a business organization.

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They serve as strategic partners and help in the provision of operational and financial information based on decisions. A management accountant is responsible for management of the organizational team and also reporting responsibilities and relationships to the finance department within an organization. These professionals help senior managers in achieving their four basic responsibilities by playing different roles in planning, decision making, controlling and directing. During the planning process, management accountant help in setting organizational objectives and goals as well as coming up with different approaches for fulfilling them by choosing certain actions to be implemented (Ahid & Augustine, 2012). Today, management accountants are found in everywhere within a business organization and work with cross-functional groups made up of workers taking part in different roles such as R&D, consumer services, processing, distribution as well as marketing and report to vice presidents heading different organizational operations (Ahid & Augustine, 2012).

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Ethical issues of management accountants Management accountants work under four principles of IMA which include objectivity, competence, integrity, and confidentiality. These accountants are responsible for improving continuously so as to ensure high levels of professional competence. Considering the kind of information handled by these professionals, they are obliged not to disclose any confidential information to unauthorized individuals as a way of enhancing confidentiality. Management accountants should not be corruptible. It is used in such sectors because they are not mostly aimed at making profits. It involves incidental benefits which come from executing a project instead of direct cash flow from the same. According to Mark and Long, “if national governments are to carryout CBA of projects the spate of abandoned projects in developing economies would have reduced drastically” (Matsoha & Ronan, 2006).

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Their study involved five developing nations and concluded that CBA technique was not used in these regions by the State governments in executing their projects. According to their study, most of the projects started by different state government are abandoned for various reasons. Therefore, serves as baseline used by firms in setting prices of commodities in the market. This approach was practically applied in 2000 in Florida by Blue Shield and Blue Cross Inc. after facing a complex and competitive market for health services. According to research, the management introduced “The cost for pricing” approach as a measure for countering such increased competitiveness (Thurston, Kelemen, & MacArthur, 2000). The purpose of this project was to make use of cost management approach at its organizational structure in order to set up a competitive price for its products and services.

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The moment any capital investment is made, there is always an increased outflow of funds during a specific of time which is later followed by cash inflows because the amount invested begins generating income. It is the hope of every entrepreneur that his/her initial investment will be repaid by such inflows. The approach is most applicable for startup businesses where investors face a lot of challenges in relating immediate outflow with future inflows. The approach involves capital investment and determining the lifecycle of the project. In the case of capital investment, the only factor in incremental cash outlay, savings, as well as other working capital that could be considered in supporting the investment. 5% per annum, trade credit of 20 million dollars and a short-term bank loan of 40 million dollars with interest rate of 5% per year.

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The project life was 5 years with 40 million dollars salvage value of fixed assets as well as 80 million dollars liquidation value of the working capital. Mathematically; Working capital margin = Gross working capital – (Short-term loan+ Trade credit) = $80 million – ($40 million +$20 million) = $20 million Long term money put in the project= Fixed assets + New Working capital = $120 million + $140 million Initial flow = Amount invested in fixed assets + Working capital margin Operating cash flow = Profit after taxation + Depreciation (For five years). Terminal cash flow = Net salvage value of fixed assets – Net recovery value of working capital margin = $40 million +$20 million dollars = $60 million Net value of cash flow = Initial flow + Operating flow value + Terminal flow value Assuming that after analysis the Net present value comes out to be negative, and IRR is lower compared to the standard ROE, then the project will not be viable, thus rejected.

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Cost management technique Running a personal business is challenging and calls for drastic measures whenever it is facing a financial downturn. During the third quarter of 2015FY, its net operating costs reduced by 8% to almost 10 billion dollars. Without factoring the effect of foreign currency, acquisitions and divestitures, its annual revenue just declined by 1% during the same year. Its net income attributed to different shareholders increased to almost 61 percent which indicated 28 cents for every share during the same time. Therefore, this shows how cost management technique through reduction of overhead expenditures can be better for a business organization. Conclusion The research paper sought to determine the decision-making process in a business organization based on managerial accounting. Retrieved from https://globaljournals. org/GJMBR_Volume12/6-The-Roles-and-Responsibilities-of-Management-Accountants-in.

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