Management accounting

pages 50-53 textbook

role of the management accountant

• design, implement and manage information systems in order to produce reports which will help the organisation to monitor and manage its performance and to plan future activities 

• work as part of a management team involving managers from other areas of the business such as marketing and HR and production

• supply financial information to other departments to assist them in their own internal planning and decision making 

• provide advice to assist management with decision- making regarding alternative strategies and courses of action 

• producing business plans, forecast and. budgeting information 

advantages of management accounting

• the most and least profitable products/ departments/ areas of business can be identified

• areas where costs are too high can be identified and action taken 

• the business will have more control over costs 

• the business can plan production in a way that maximises profits 

cost centres

any area of a business to which costs can be allocated e.g. department, person, activity 

duties of the cost accountant 

• collecting and categorising costs such as labour, material and expenses

• allocating costs to costs centres 

• costing of products and services 

• determining the profit made o individual. products 

• drawing up budgets and making comparisons between budgeted and actual data 

three elements of cost

labour, materials, expenses

direct costs

can be directly attributed to the making of a particular product e.g. wood used to make a table

prime cost

direct materials + direct labour + direct expenses

indirect costs

cannot be directly allocated to a particular product or activity 

fixed costs

costs which do not vary directly with the level of production

variable costs

costs which vary directly with the level of production

management accounting

is concerned with collecting high-quality information to aid decision making

advantages of AVCO

• It is logical since all identical units of inventory are given an equal value

• fluctuations in the purchase price of inventory are evened out so the impact on costs and profit is reduced

• It conforms to the accounting standard SSAP9 and is acceptable to the Inland Revenue

disadvantages of AVCO 

• the average cost has to be recalculated every time th price of purchases inventory changes 

• the average cost might nit be the same as any of the prices actually paid for the inventory 

• If inventory prices are rising rapidly, the average cost will be much lower than the replacement price