ACCA BT Syllabus C. Business Functions, Regulation and Technology - Management Accounting & Performance management - Notes 3 / 6
THE MAIN MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT FUNCTIONS IN BUSINESS
| management accounting | financial accounting | |
| why information is mainly produced | for internal use, eg. managers and employees | for external use, eg. shareholders creditors, banks, government |
| purpose of information | to aid planning, controlling and decision making | to record the financial performance in a period and the financial position at the end of the period. |
| legal requirement | none | limited companies must produce financial accounts |
| formats | management decide on the information that they require and the most useful way of presenting it | format and content of financial accounts must follow accounting standards and company law. |
| nature of information | financial and non-financial | mostly financial |
| time period | historical and forward looking | mainly a historical record |
Examples of decision making that management accountants can help management with are:
Breakeven analysis
– what products or customer segments are currently profit making or loss making?
Key factor analysis
– should products be made in house with available resources or should their manufacture be outsourced to somewhere cheaper?
Pricing decisions
– should the prices of strongly selling items be increased to try and increase overall profit?
Investment appraisal
– should a new machine be bought for the factory to replace an old machine near the end of its useful life?
One should appreciate that simply preparing an income statement for the year, as a financial accountant does, is a valuable exercise in itself, but is of no immediate help in answering all the above sorts of questions.
Management accountants are needed to address these issues.
The budgetary control process involves planning and control.
Planning involves the setting of the various budgets (sales budget, manpower budget, etc.) for the appropriate future period.
All the budgets of the various parts of the business need to be coordinated, to ensure that they are complementary and in line with the overall company objectives and policies.
Once the budgets have been set and agreed for the future period, the control element of budgetary control is ready to start.
This control involves comparison of the plan in the form of the budget with the actual results achieved for the budget period.
Any significant divergences between the budgeted and the actual figures should be reported to the appropriate manager so that any necessary action can be taken.