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1.1 ORIGIN OF THE REPORT

Accounting can be defined as "the process of identifying, measuring and communicating

economic information to permit informed judgments and decisions by users of the
information" (Hogget and Edwards, 1987). The information in accounting systems relates
mainly to financial data about business transactions, which is presented in monetary terms. In
addition to presenting financial information about past transactions, the accounting system
enables to generate forecasts and predictions as an aid to decision making.

Accounting is sometimes referred to as the language of business. It offers a medium through

which the marketing, production, human resources and other impacts of a decision may be
reflected in monetary terms. This indicates the way in which most companies use accounting
and finance as an integrative function to show the combined consequences of a proposed
course of action on the firm's financial situation.

The American Accounting Association formulated the definition of Accounting as the

process of identifying, measuring, and communicating economic information to permit
informed judgments and decisions by users of the information. Accounting is a language that
communicates economic information to people who have an interest in an organization-
managers, shareholders, potential investors, creditors, government and the employees. The
accounting literature identifies quite a number of specialized fields of accounting. Among
them, financial accounting is the original field of accounting. Its main purpose is to record
transaction details in monetary terms and Prepare financial statements and reports in
accordance with GAAP. The other part of accounting, Management accounting provides
necessary information to assist management in decisions making and management control.

Management accounting provides necessary information to assist management in decisions

making and management control. The Chartered Institute of Management Accountants
(2001) describes Management Accounting as: -
the application of professional information in such a way as to assist the management in the
formation of policies and in the planning and control of the operations of the undertaking.
Management accounting has been considered as an integral part of the management process,
and management accountants have been visualized as important strategic partners in an
organization's management team.

Hilton (1999) states that the management team seeks to create value for the organization by
managing resources, activities, and people to achieve organizational goals effectively. To this
end, managers require information which is utilized in the decision making process and in
controlling operations. Management accounting thus serve management in providing the
needed data and information, including advice and recommendations.

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1.2 BACKGROUND OF THE REPORT

Globalization or Free market economy is now worlds major challenge to every business
industry. Demands immediate development of business technique, tools and proper decision
making policy.

1.3 OBJECTIVES OF THE REPORT

The main objectives of the study are to using management accounting technique in order to
assist the managers with information relevant to decision making and day-to-day operational
activities and the extent or degree of such use. In broader sense the objectives to be covered
under the study are

1) To find out the using status of Management accounting Technique.

2) To evaluate the concept of managers as to importance of use and problem, if any
they face in using the technique.
3) To identify the Management Accounting information structure and to highlight suggestive
measure to the users of management accounting information for its extensive use.

1.4 SCOPE OF THE REPORT

The scope of this study was strictly confined textbooks, journals, newspapers website. To
collect the information .All other data related to the financial analysis was collected from web
sites of those companies & other related. Investigative study method is used in writing this
report. This study method was significant for me because before this study I have not enough
understanding to proceed with such type of research project also on this topic.

The study involves structured questionnaire, large sample and probability sampling plans.
Under the study once a new idea or insight is discovered, they may shift their exploration in
that direction. Observation method is used to complete this qualitative research.

Finally the purpose of this study is to determine whether management accounting technique
is used by the Role of Management Accounting in Decision-Making the technique apply the
application process in their customer expectation, profit margin, cost and price determination,
cost reduction and management operations.

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1.5 LIMITATIONS OF THE REPORT

On the way of my study, I have faced some problems that termed as the limitations of the
study. In all respect following limitation and weakness remain within which I failed to escape
by any means. These are follows:

Budgeted time limitation: - It was one of the main constraints that hindered to cover all
aspects of the study.

Confidentiality of data: - Because of some divisional and confidential problem, I could not
get enough information. Every organization has their own secrecy that is not revealed to
others. While collecting data some company personnel did not disclose enough information
for the sake of confidentiality of the organization.

Data Insufficiency: - Especially there is a lack of information about the determination of the
sufficient books; publications; fact and figure is not available. These constrains narrowed the
scope of accurate analysis. If these limitations had not been there, the report would have been
more useful and attractive.

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2.1 LITERATURE REVIEW

Decision making is a fundamental part of management. Before discussing what decision-

making is let us discussed what decision is, because decision-making is a process of deciding.
Collins (1999) defines decision as the act of making up ones mind by collecting, sharing and
gathering significant ideas from different sources. Moreover, Longman (2000) defines that
decision as a choice or judgment that you make after a period of discussion or thought.

Longmans definition is very clear but it gives rise to a question on the definition of deciding
or decision-making. In the end decision-making is to make a choice or judgment about
something, especially after a period of not knowing what to do or in way that ends in
disagreement(Alam,2008) Moreover, Fullan (1982) asserts that decision-making is the
process of identifying and choosing alternative course of action in a manner appropriate to
the demand of the situation. The act of choosing implies that alternative courses of action
must to weigh and weeded by sharing. Fremont, et, al, .1970 defined decision-making as the
conscious and human process, involving both individual and social phenomenon based upon
factual and value premises, which concludes with a choice of one behavioral activity from
among one or more alternative with the intention of moving toward some desired state of
affairs. It represents a course of behavior or action about what must or must not be done
(Herbert, 1960).

Decision- Making is the selecting of action from among alternatives to achieve a specific
objective or solve specific problem (Donald, 1963). The art of decision-making provide us a
variety of approaches, method and techniques helpful and useful for making high quality of
decision. A decision maker, as an individual, or as member of formal organization with his
own philosophy and perception of the organization, selects for optimizing values within the
constraints imposed by the organization (varshney, 1997). Decision-making and its role in
organizations can viewed in a number of ways. Kretner (199) believes good management can
be defined in terms of good coordination of an organizations employees.

Mullins (2000), Moorhead and Griffin (2000 posit that decision and its nature vary in terms
of kinds and types. Decision-making is the backbone of administrative functions. This is
because decision direct actions (Marvin, cited in lgwe, 1995). Good and effective decision
can only be made when right information is made availed at the right time to the right
recipient. Johnson, Newell and Vergin (1972) stated that information for decision-making is
the dynamic; therefore, it needs to be constantly up- dated. Decision- making, itself, is a
dynamic process (Harrison, 1995, Daft, 1983).

Managers need continuous flow of managers can therefore be greatly enhanced by the quality
of information they are able to utilize in decision-making. Right decision give direction for a
right courses of action. Daft (1983) stated that when an organization is designed to provide
correct information to managers, decision processes work extremely well and tasks will be
accomplished. However, when information is poorly designed, problem-solving and decision

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processes will be ineffective and managers may not understand why.
An individual or multiple participant decision makers can be divided into unilateral an
negotiated decisions. In the first one, which is also called team decision, one of the
participants has the power to decide. The others although, can highly influence how the
decision will look like. In negotiated decision the participants share the authority of making a
decision. This type distinguishes between group decision where the participants have nearly
equal authorities and discuss their different viewpoints in various meeting and organization
decision.

2.2 OVERVIEW OF MANAGEMENT ACCOUNTING

Management accounting is concerned with the provisions and use of accounting information
to managers within organizations, to provide them with the basis in making informed
business decisions that would allow them to be better equipped in their management and
control functions. Unlike financial accountancy information, management accounting
information is used within an organization typically for decision-making and is usually
confidential and its access available only to a select few.

According to The Chartered Institute of Management Accountants (CIMA) -

Management Accounting is the process of identification, measurement, accumulation,
analysis, preparation, interpretation and communication of information used by management
to plan, evaluate and control within an entity and to assure appropriate use of and
accountability for its resources. Management accounting also comprises the preparation of
financial reports for non-management groups such as shareholders, creditors, regulatory
agencies and tax authorities.

The American Institute of Certified Public Accountants (AICPA) states that management
accounting practice extends to the following three areas:
Strategic Management advancing the role of the management accountant as a strategic
partner in the organization.
Performance Management developing the practice of business decision-making and
managing the performance of the organization.
Variable costing contributing to frameworks and practices for identifying, measuring,
managing and reporting risks to the achievement of the objectives of the organization.

The Institute of Certified Management Accountants (ICMA) states - "A management

accountant applies his or her professional knowledge and skill in the preparation and
presentation of financial and other decision oriented information in such a way as to assist
management in the formulation of policies and in the planning and control of the operation of
the undertaking." Management Accountants therefore are seen as the - "value-creators"
amongst the accountants. 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.

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 1) Formulating strategies;
2) Planning and constructing business activities;
3) Helps in making decision & Optimal use of resources;
4) Supporting financial reports preparation; and Safeguarding asset
Management accounting is concerned with the provisions and use of cost 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. From different significance - management accounting information is
used within an organization, typically for decision-making. In contrast to financial
accountancy information, management accounting information is:
Designed and intended for use by managers within the organization, whereas financial
accounting information is designed for use by shareholders and creditors.
Usually confidential and used by management, instead of publicly reported;
Forward-looking, instead of historical;
Computed by reference to the needs of managers, often using management
information systems, instead of by reference to financial accounting standards.
The distinction between traditional and innovative management accounting practices can
be illustrated by reference to cost control techniques. Cost accounting is a central method
in management accounting, and traditionally, management accountants principal technique
was variance analysis, which is a systematic approach to the comparison of the actual and
budgeted costs of the raw materials and labor used during a production period. While some
form of variance analysis is still used by most manufacturing firms, it nowadays tends to be
used in conjunction with innovative techniques such as life cycle cost analysis and activity-
based costing, which are designed with specific aspects of the modern business environment
in mind. Life-cycle costing recognizes that managers ability to influence the cost of
manufacturing a product is at its greatest when the product is still at the design stage of its
product life-cycle, since small changes to the product design may lead to significant savings
in the cost of manufacturing the product. Activity-based costing recognizes that, in modern
factories, most manufacturing costs are determined by the amount of activities and that the
key to effective cost control is therefore optimizing the efficiency of these activities. Activity-
based accounting is also known as Cause and Effect accounting.

Both lifecycle costing and activity-based costing recognize that, in the typical modern
factory, the avoidance of disruptive events reducing the costs of raw materials. Activity-based
costing also deemphasizes direct labor as a cost driver and concentrates instead on activities
that drive costs, such as the provision of a service or the production of a product component.

2.3 HISTORY OF MANAGERIAL ACCOUNTING

Managerial accounting has its roots in the industrial revolution of the 19th century. During
this early period, most firms were tightly controlled by a few owner-managers who borrowed
based on personal relationships and their personal assets.

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Since there were no external shareholders and little unsecured debt, there was little need for
elaborate financial reports. In contrast, managerial accounting was relatively sophisticated
and provided the essential information needed to manage the early large scale production of
textile, steel, and other products.
After the turn of the century, financial accounting requirements burgeoned because of new
pressures placed on companies by capital markets, creditors, regulatory bodies, and federal
taxation of income. Many firms needed to raise funds from increasingly widespread and
detached suppliers of capital.
To tap these vast reservoirs of outside capital, firms' managers had to supply audited financial
reports. And because outside suppliers of capital relied on audited financial statements,
independent accountants had a keen interest in establishing well defined procedures for
corporate financial reporting.
The inventory costing procedure adopted by public accountants after the turn of the century
had a profound effect on management accounting. As a consequence, for many decades,
management accountants increasingly focused their efforts on ensuring that financial
accounting requirements were met and financial reports were released on time. The practice
of management accounting stagnated.

In the early part of the century, as product line expanded operations became more complex,
forward looking companies saw a renewed need for management-oriented reports that was
separate from financial reports. But in most companies, management accounting practices up
through the mid-1980s were largely indistinguishable from practices that were common prior
to World War I. In recent years, however, new economic forces have led to many important
innovations in management accounting.

2.4 HISTORICAL DEVELOPMENT

Maher states: Management accounting has a short but exciting history: - While management
accounting concepts can be traced back at least to the beginning of the Industrial Revolution,
management accounting as a teaching discipline appears to have got off the ground in the
late1940s.

Parker concurs: Management accounting has historical antecedents that stretch back longer
than we might expect and certainly accounting historians have not yet concluded their
investigations of its earliest genesis.

Congaing and Stencil believe: Management accounting with its lack of generally accepted
accounting practice has not yet had the exposure afforded to financial accounting. The history
of management accounting is one of innovation based on necessity. Innovation therefore
continues without constraints imposed by preconceived ideas of what constitutes proper
accounting.

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2.5 MANAGEMENT ACCOUNTING PRINCIPAL

To achieve the above objectives Management Accounting employs three principal devices
from cost accounting -

Forward Looking Principle: Based on the past and all other available data, forecasting, the
future and recommending wherever appropriate the course of action for the future.

Target Setting Principle: Fixation of an optimum target which is variously known as

standard, budget etc. and through continuous review ensuring that the target is achieved.

The Principle of Exception: Instead of concentrating on voluminous masses of data

management accounting concentrates on deviations from targets and continuous and prompt
analysis of the causes of these deviations on which to base management action

2.6 OBJECTIVES OF MANAGEMENT ACCOUNTING

THE BASE OBJECTIVE of management accounting is to assist the management in carrying

out its duties efficiently. The objectives of Management Accounting are: -

1. The computation of plans and budgets covering all aspects of the business. Example:
production, selling, distribution, research and finance.
2. The systematic allocation of responsibilities for implementation of plans and budgets.
3. The organization for providing opportunities and facilities for performing responsibilities.
4. The analysis of all transactions, financial and physical, to enable effective comparison to
be made between the forecasts and actual performance.
5. The presentations of up to date information, at frequent intervals, to management in the
form of operating statements.
6. The statistical interpretation of such statements in a manner which will be of utmost
assistance to management in planning future policy and operation.

2.7 THE FUNDAMENTAL OBJECTIVE

The Fundamental Objective of management accounting is to enable the management to

maximize profits or minimize losses. The evolution of management accounting has given an
approach to the function of accounting. The main objectives of management accounting are
as follows:

Planning and policy formulation:

Planning involves forecasting on the basis of available information, setting goals; framing
polices determining the alternative courses of action and deciding on the program of
activities. Management accounting can help greatly in this direction. It facilitates the
preparation of statements in the light of past results and gives estimation for the future.

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Interpretation process:
Management accounting is to present financial information to the management. Financial
information is technical in nature. Therefore, it must be presented in such a way that it is
easily understood. It presents accounting information with the help of statistical devices like
charts, diagrams, graphs, etc.

Assists in Decision-making process:

With the help of various modern techniques management accounting makes decision-making
process more scientific. Data relating to cost, price, profit and savings for each of the
available alternatives are collected and analyzed and provides a base for taking sound
decisions.

Controlling:
Management accounting is a useful for managerial control. Management accounting tools
like standard costing and budgetary control are helpful in controlling performance. Cost
control is affected through the use of standard costing and departmental control is made
possible through the use of budgets. Performance of each and every individual is controlled
with the help of management accounting.

Reporting:
Management accounting keeps the management fully informed about the latest position of the
concern through reporting. It helps management to take proper and quick decisions. The
performance of various departments is regularly reported to the top management.

Facilitates Organizing:
Return on Capital Employed is one of the tools of management accounting. Since
management accounting stresses more on Responsibility Centers with a view to control costs
and responsibilities, it also facilitates decentralization to a greater extent. Thus, it is helpful in
setting up effective and efficiently organization framework.

Facilitates Coordination of Operations:

Management accounting provides tools for overall control and coordination of business
operations. Budgets are important means of coordination.

2.8 NATURE AND SCOPE OF MANAGEMENT ACCOUNTING

Management accounting involves furnishing of accounting data to the management for

basing its decisions. It helps in improving efficiency and achieving the organizational goals.
The following paragraphs discuss about the nature of management accounting.

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Provides accounting information:
Management accounting is based on accounting information. Management accounting is a
service function and it provides necessary information to different levels of management.
Management accounting involves the presentation of information in a way it suits managerial
needs. The accounting data collected by accounting department is used for reviewing various
policy decisions.

Cause and effect analysis:

The role of financial accounting is limited to find out the ultimate result, i.e., profit and loss;
management accounting goes a step further. Management accounting discusses the cause and
effect relationship. The reasons for the loss are probed and the factors directly influencing the
profitability are also studied. Profits are compared to sales, different expenditures, current
assets, interest payables, share capital etc.

Taking important decisions:

It supplies necessary information to the management which may be useful for its decisions.
The historical data is studied to see its possible impact on future decisions. The implications
of various decisions are also taken in to account.

Achieving of objectives:
Management accounting uses the accounting information in such a way that it helps in
formatting plans and setting up objectives. Comparing actual performance with targeted
figures will give an idea to the management about the performance of various departments.
When there are deviations, corrective measures can be taken at once with the help of
budgetary control and standard costing.

No fixed norms:
No specific rules are followed in management accounting as that of financial accounting.
Though the tools are the same, their use differs from concern to concern. The deriving of
conclusions also depends upon the intelligence of the management accountant. The
presentation will be in the way which suits the concern most.

Increase in efficiency:
The purpose of using accounting information is to increase efficiency of the concern. The
performance appraisal will enable the management top in-point efficient and inefficient spots.
Effort is made to take corrective measures so that efficiency is improved. The constant
review will make the staff costconscious.

Supplies information and not decision:

Management accountant is only to guide and not to supply decisions. The data is to be used
by the management for taking various decisions. How is the data to be utilized will depend
upon the caliber and efficiency of the management.

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Concerned with forecasting:
The management accounting is concerned with the future. It helps the management in
planning and forecasting. The historical information is used to plan future course of action.
The information is supplied with the object to guide management for taking future decisions.

2.9 ADVANTAGES OF MANAGEMENT ACCOUNTING

One of the most significant steps to improve managerial performance is the development of
the new discipline. Management accounting it is still very much in a state of evolution.
However, the following advantages are claimed for it:-

1) The main contribution of management accounting is the elimination of initiative

management. With the help management accounting, the business activities are
regulated systematically by means of efficient planning and organization thereby
avoiding over working in busy periods and slackness in slump periods.
2) It enables the business to get the maximum return on capital by helping it in planning,
distribution and controlling activities.
3) It helps the management to improve its service to its customers by resorting to a
continuous method of comparing the results with the standards.
4) It helps in improving the relations between the management and labor by avoiding
unreasonable standard of work which is the main cause of labor unrest.

2.10 Limitations of Management Accounting

Management Accounting is in the process of development. Hence, it suffers from all the
limitations of a new discipline. Some of these limitations are:

Limitations of Accounting Records:

Management accounting derives its information from financial accounting, cost accounting
and other records. It is concerned with the rearrangement or modification of data. The
correctness or other wise of the management accounting depends upon the correctness of
these basic records. The limitations of these records are also the limitations of management
accounting.

It is only a Tool:
Management accounting is not an alternate or substitute for management. It is a mere tool for
management. Ultimate decisions are being taken by management and not by management
accounting.

Heavy Cost of Installation:

The installation of management accounting system needs a very elaborate organization. This
results in heavy investment which can be afforded only by big concerns.

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Personal Bias:
The interpretation of financial information depends upon the capacity of interpreter as one
has to make a personal judgment. Personal prejudices and bias affect the objectivity of
decisions.

Psychological Resistance:
The installation of management accounting involves basic change in organization setup. New
rules and regulations are also required to be framed which affect a number of personnel and
hence there is a possibility of resistance form some or the other.

Evolutionary stage:
Management accounting is only in a developmental stage. Its concepts and conventions are
not as exact and established as that of other branches of accounting. Therefore, its results
depend to a very great extent upon the intelligent interpretation of the data of managerial use.

Provide sonly Data:

Management accounting provides data and not decisions. It only informs, not prescribes. This
limitation should also be kept in mind while using the techniques of management accounting.

Broad-based Scope:
The scope of management accounting is wide and this creates many difficulties in the
implementations process. Management requires information from both accounting as well as
non-accounting sources. It leads to in exactness and subjectivity in the conclusion obtained
through it.

2.11 MANAGEMENT ACCOUNTING TASKS

Management accounting may be said to include all activities connected with collecting,
processing, interpreting and presenting information to management. The management
accounting satisfies the various needs of management for arriving of appropriate business
decisions. They may be described as modification of data, analysis and interpretation of data,
facilitating management control, formulation of business budgets, use of qualitative
information, and satisfaction of informational needs of management.

Listed below are the primary tasks performed by management accountants generated by
different cost accounting tools. The degree of complexity relative to these activities is
dependent on the experience level and abilities

1) Variance Analysis.
2) Rate & Volume Analysis.
3) Product Profitability.
4) Cost Analysis & Cost Benefit Analysis.
5) Cost-Volume-Profit Analysis.

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 6) Life cycle cost analysis.
7) Capital Budgeting.
8) Strategic Planning Strategic Management Advise.
9) Internal Financial Presentation and Communication.
10) Sales and Financial Forecasting & Annual Budgeting.
11) Cost Allocation.
12) Resource Allocation and Utilization.

2.12 EMERGING THEMES OF MANAGEMENT ACCOUNTING

Customer Orientation
Cross-functional Perspective
Global Competition
Total Quality Management
Time as a Competitive Element
Advances in Information Technology
Advances in the Manufacturing Environment
Deregulation and Growth in the Service Industry
Activity-based Management

2.13 CODE OF CONDUCT FOR MANAGEMENT ACCOUNTANTS

Practitioners of management accounting and financial management have an obligation to the

public, their profession, the organization they serve, and themselves, to maintain the highest
standards of ethical conduct. In recognition of this obligation, the Institute of management
Accountants has promulgated the following standards of ethical conduct for practitioners of
management accounting and financial management. Adherence to these standards
internationally is integral to achieving objective of management accounting. Standards of
Ethical Conduct for Management Accountants are:-

a) Competence
b) Confidentiality
c) Integrity
d) Objectivity

Competence:

1) Practitioners of management accounting and financial management have a

responsibility to.
2) Maintain an appropriate level of professional competence by ongoing development of
their knowledge and skills.
3) Perform their professional duties in accordance with relevant laws, regulations and
technical standards.

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 4) Prepare complete and clear reports and recommendations after appropriate analysis
of relevant and reliable information.

Confidentiality:
a. Practitioners of management accounting and financial management have a
responsibility to.
b. Refrain from disclosing confidential information acquired in the course of their work
except when authorized, unless legally obligated to do so.
c. Inform subordinates as appropriate regarding the confidentiality of information
acquired in the course of their work and monitor their activities to assure the
maintenance of that confidentiality.
d. Refrain from using or appearing to use confidential information acquired in the
course of their work for unethical or illegal advantage either personally or through
third parties.

Integrate:
a) Practitioners of management accounting and financial management have a
responsibility to.
b) Avoid actual or apparent conflicts of interest and advise all appropriate parties of any
potential conflict.
c) Refrain from engaging in any activity that would prejudice their ability to carry out
their duties ethically.
d) Refuse any gift, favor, or hospitality that would influence or would appear to
influence their actions.
e) Refrain from either activity or passively subverting the attainment of the
organization's legitimate and ethical objectives.
f) Recognize and communicate professional limitations or other constraints that would
preclude responsible judgment or successful performance of an activity.
g) Communicate unfavorable as well as favorable information and professional
judgment or opinion.
h) Refrain from engaging or supporting any activity that would discredit the profession.

Objectivity:

Practitioners of management accounting and financial Management has a

responsibility to.
Communicate information fairly and objectively.
Disclose fully all relevant information that could reasonably be expected to influence
an intended user's understanding of the reports, comments, and recommendations
presented.

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2.14 RESOLUTION OF ETHICAL CONFLICTS

In applying the standard of ethical conduct, practitioners of management accounting and

financial management may encounter problems in identifying unethical behavior or in
resolving an ethical conflict.

When faced with significant ethical issues practitioners of management accounting and
financial management should follow the established policies of the organization bearing on
the resolution of such conflict. If these policies do not resolve the ethical conflict, such
practitioner should consider the following course of action.
Discuss such problems with immediate superior except when it appears that superior
is involved, in which case the problem should be presented to the next higher
managerial level. If a satisfactory resolution cannot be achieved when the problem is
initially presented, submit the issue to the next higher managerial level.

If the immediate superior is the chief executive officer or equivalent, the acceptable
reviewing authority may be a group such as the audit committee, executive committee, board
of directors, board of trustees, or owners. Contact with a level above the immediate superior
should be initiated only with the superior's knowledge. Assuming the superior is not
involved. Except where legally prescribed, communication of such problems to authorities or
individuals not employed or engaged by the organization is not considered appropriate.

Clarify relevant ethical issues by confidential discussion with an objective adviser to
obtain a better understanding of possible course of action

Consult your own attorney as to legal obligations and rights concerning the ethical
conflict.

If the ethical conflict still exists after exhausting all levels of internal review, there
may be no other recourse on significant matters than to resign from the organization
and to submit an informative memorandum to an appropriate representative of the
organization. After resignation, depending on the nature of the ethical conflict, it may
also be appropriate to notify other parties.

2.15 ETHICS & THE MANAGEMENT ACCOUNTANT

When management accounting information is used for control, management accountants may
find themselves in complex situations, fraught with conflict.

Especially when it is used for performance evaluation

Pressure may be exerted to influence the numbers to make a favored product, customer, or
line of business appear more profitable than it actually is. Department managers may distort
information so that unfavorable factors are not revealed in a management accounting report.

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The cost of inefficient processes

The existence of substantial amounts of excess capacity

Senior executives whose incentive compensation is based on the reported financial numbers
may put pressure on accountants.

To recognize revenue from a customer early

To defer until subsequent periods the recognition of an expense

In some circumstances, to recognize certain expenses early so that much higher earnings may
be reported in future periods. All of these behaviors were evident in the frauds dominating the
financial news in recent years. Organizational leadership plays a critical role in fostering a
culture of high ethical standards. The way an individual responds to pressure derives from
inner values and beliefs, but individuals are strongly influenced by their view of
organizational standards. If individuals see unethical or illegal behavior practiced by the
organizations leaders and superiors or coworkers, they may feel that such behavior is
accepted and sanctioned. An individual without a strong set of personal beliefs and values
may find it difficult to withstand the pressure to go along with the flow and participate in
this behavior when a difficult or conflicting situation arises.

Such as being asked to misrepresent an organization units performance potential

when the unit is being offered for sale.

Beyond the example set by senior executives, companies may use two types of control
systems to foster high ethical standards among their employees.

Beliefs systems
Boundary systems

A beliefs system is the explicit set of statements, communicated to employees, of the basic
values, purpose, and direction of the organization:
Credos
Mission statements
Vision statements
Statements of purpose or values

The statements in a beliefs system are intended to inspire and promote commitment to the
organizations core values and its purpose for being in business.

When conflicting situations arise, however, the lofty rhetoric in the statements will only have
true meaning and serve as guides to actions if employees observe senior managers acting
according to the statements. In this way, employees learn that the companys stated beliefs
represent deeply rooted and actionable values. Articulate and actionable beliefs systems may

18
inspire people to higher values and aim at higher missions but they may not communicate
clearly what behavior and actions are unacceptable.

Companies also need boundary systems that communicate what actions must never be taken.
Boundary systems are stated in negative terms, or in minimal standards of behavior.

2.16 Need for management Accounting information

Every organization-large and small-has managers. Someone must be responsible for making
plans, organizing resources, directing personnel, and controlling operations. Everywhere,
mangers carry out three major activities-planning, directing and motivating, and controlling.

Planning:
Planning involves selecting a course of action and specifying how the action will be
implemented. The first step in planning is to identify the alternatives and then to select from
among the alternatives the one that does the best job of furthering the organization's
objectives. While making choices, management must balance the opportunity against the
demands made on the companys resources.

The plans of management are often expressed formally in budgets, and the term budgeting is
applied to generally describe the planning process. Budgets are usually prepared under the
direction of controller, who is the manager in charge of the accounting department. Typically,
budgets are prepared annually and represent management's plans in specific, quantitative
terms.

Directing and Motivating:

In addition to planning for the future, managers must oversee day-to-day activities and keep
the organization functioning smoothly. This requires the ability to motivate and affectively
direct people. Managers assign tasks to employees, arbitrate disputes, answer questions, solve
on-the-spot problems, and make many small decisions that affect customers and employees.
In effect, directing is that part of the manager's work that deals with the routine and the here
and now. Managerial accounting data, such as daily sales reports are often used in this type of
day-to-day decision making.

Controlling:
In carrying out the control function, managers seek to ensure that the plan is being followed.
Feedback, which signals operations are on track, is the key to effective control. In
sophisticated organizations, this feedback is provided by detailed reports of various types.
One of these reports, which compares budgeted to actual results, is called a performance
report. Performance report suggests where operations are not proceeding as planned and
where some parts of the organization may require additional attention.

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The Planning and Control Cycle:
The work of management can be summarized in a model. The model, which depicts the
planning and control cycle, illustrates the smooth flow of management activities from
planning through directing and motivating, controlling, and then back to planning again. All
of these activities involve decision making. So it is depicted as the hub around which the
activities revolve.

Tools for Management Support:

A wide variety of accounting tools address that why and how of entity success or failure.
Many tools are proactive, helping us make sound decisions, and some are predictive, peering
into the future. When one develop an understanding of cost and revenue structure, the
interaction of encounters with revenue and expenses, and the amount and rate of change from
volume changes.

Cost-Volume-Profit:
The single most important concept for management is cost-volume-profit. Understanding the
cost structure of an organization allows proper management decisions. Standard financial
statements do not provide the proper cost separation, that is - variable costs versus fixed
costs.

Variable cost:
A cost that moves up or down as volume of service changes.

Fixed cost:
A cost that remains the same despite volume (within a relevant range)
A typical fixed cost is space rental. Whether five patients a day or 50 a day for lease is
probably the same amount. A typical variable cost is medical supplies. The more patients
cause the more supplies use. In real life some of these costs are considered mixed but for
most management purposes we consider only two cost behaviors.

Break-even point:
Break-even point becomes a key benchmark; being defined as the point at which fixed and
variable costs equal revenue, or the point at which profit is zero. The break-even formula is as
follows: (Revenue variable cost) = fixed costs

Contribution margin = fixed costs

As volume grows we get to leverage the fixed costs, revenue climbs but variable costs climb
little and fixed costs not at all.

CVP is critical for decision making, for example adding a new service. Usually the only
relevant numbers are the new revenue versus the new expenses, assuming adequate capacity.
Understanding which numbers are relevant is the key to a sound decision. With a relatively
low variable cost line, additional services require very little incremental spending.

20
Cost-Benefit Issues:
There are plenty of accounting tools at for ones disposal, but those tools should only use
when there is a positive cost-benefit relationship. Modern systems and ones own creativity
allow us plenty of information options, but not all options are worth the work involved. The
ideal is to create enough information to improve management, without spending so much as
to wipe out the benefit.

Cash Flows:
Any business organization exists for one reason, to generate positive cash flow for the
owners. The devil of business is in the details. Effective cash flow management is a key task
for senior management, and anticipating cash flow ups and downs is critical.

Budgeting:
A budget is a management plan expressed in numbers. Decisions are more important than
calculations. Spreadsheets have made budgeting much easier and more flexible. Once a
budget model is developed, numerous options can be calculated very quickly. Budgets should
be flexible rather than static. If one budget for 10,000 patient visits and you reach 15,000
patient visits, his static budget is worthless.

2.17 Role of Management Accounting (M.A)

1. Management Accounting facilitates planning by:

Setting the organizational objectives
Formulation of plans, policies and programs.
Adoption of strategies.

2. It helps in conducting analysis of alternative sources of resources, method of Manufactures

product or sales mix and situations like.
Accepting or rejecting an offer.
Make or buy a component
Add or delete a product line
Continue or discontinue an operation or a process or a department or a division or a
flight of Airlines.
Sale or process a byproduct.
Permanent or temporary closure of a factory or a sales territory.

3. Evaluation of method of manufacture.

4. Fixation of selling price in normal and abnormal situations.
5. Evaluation of limiting factors or constrained resources.
6. Determination of optimum level of output or inventory
7. Controlling and evaluating business operations involve the following steps:
o Implementation of plan, policies and programs.
o Comparison of actual performance with budgeted or expected performance

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 o Identification of variances between expected and actual and actual results along with
reasons thereof.
o Taking remedial measures.
o Feedback i.e., using past experience in future planning.

8. Giving direction to various operating divisions about their missions and visions and
indicating means to achieve organizational objectives.

9. Management Accounting contributes and facilitates coordination of departmental activities

10. Management Accounting reports and motivates organization employees towards

Achievement of organizational goals by measuring their performance and rewarding for
better performance and punishing for shortfalls.

11. Management Accounting is an aid to the decision making process of an organization. It

contributes towards short term routine and non-routine decision and also long term strategic
decision

12. Management Accounting influences all strata of management in planning, control and
decision making.

13. Management Accounting reports& communicates the results of the organization

performance evaluation to individual employees and division along with a total analysis of
situation peculiar to any circumstance or event through its reports.

14. Management Accounting is a multidimensional approach to problem solution of an

enterprises by its proper identification analysis of alternative solution, selection of the best
solution its implementation leading to evaluation of its result and ultimately using the
experience as feedback

15. Management Accounting is the latest addition to the use of accounting information for
evaluation of success or failure of managerial policies and strategies.
16. Management Accounting is the driving force of modern civilization and is ear, eye and
brain of modern management.

17. Diversification of business, its globalization and complexity of management and severe
competition have increased the role of management accounting tremendously

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2.18 Growth of Management Accounting (MA)

2.18.1. Use of Money as Medium of Exchange

A medium of exchange is an intermediary used in trade to avoid the inconveniences of a

pure barter system.
Value common assets
Constant utility
Low cost of preservation
Transportability
Divisibility
High market value in relation to volume and weight
Resistance to counterfeiting.

2.18.2 Growth of Mercantilism

Building overseas colonies;

Forbidding colonies to trade with other nations;
Monopolizing markets with staple ports;
Banning the export of gold and silver, even for payments;
Forbidding trade to be carried in foreign ships;
Export subsidies;
Promoting manufacturing with research or direct subsidies;
Limiting wages;
Maximizing the use of domestic resources;
Restricting domestic consumption with non-tariff barriers to trade.

2.18.3 Industrial Revolution and Industrialization

The process in which a society or country (or world) transforms itself from a primarily
agricultural society into one based on the manufacturing of goods and services. Individual
manual labor is often replaced by mechanized mass production and craftsmen are replaced by
assembly lines. Characteristics of industrialization include the use of technological
innovation to solve problems as opposed to superstition or dependency upon conditions
outside human control such as the weather, as well as more efficient division of labor and
economic growth.

2.18.4 Growth of Domestic and International Trade.

International trade affordable products for the consumer. The exchange of goods also affects
the economy of the world as dictated by supply and demand, making goods and services
obtainable which may not otherwise be available to consumers globally. Domestic trade: A
domestic market, also referred to as an internal market or domestic trading, is the supply and

23
demand of goods, services, and securities within a single country. In domestic trading, a firm
faces only one set of competitive, economic, and market issues and essentially must deal with
only one set of customers, although the company may have several segments in a market

2.18.5 Technology and the Management Accountant

Management accounting information provided to the management and executive teams inside
the organization are quite different from the financial accounting information provided to
groups outside the organization, such as investors, creditors, and regulators. You may even
ask how information and performance measures regarding quality and time can be provided
by a typical general ledger system that is limited to debits and credits of dollar amounts. This
is a good question! For most of the twentieth century, management accountants have been
able to successfully produce management accounting information using the general ledger
system financial Accenting

2.18.6. Emphasis of TQM

Total Quality Management (TQM) refers to management methods used to enhance quality
and productivity in business organizations. TQM is a comprehensive management approach
that works horizontally across an organization, involving all departments and employees and
extending backward and forward to include both suppliers and clients/customers.

TQM is only one of many acronyms used to label management systems that focus on quality.
Other acronyms include CQI (continuous quality improvement), SQC (statistical quality
control), QFD (quality function deployment), QIDW (quality in daily work), TQC (total
quality control), etc. Like many of these other systems, TQM provides a framework for
implementing effective quality and productivity initiatives that can increase the profitability
and competitiveness of organizations.

2.18.7 Use of Just in Time Inventory System

Particularly in Just in time inventory management has helped a lot of companies to save
inventory carrying cost. Mechanical and electronic industry has benefited by this
management technique. Carrying a lot of inventory cost the Company money by way of
locked capital. Locked capital mean opportunity cost and the real cost of borrowing that
money. So the advantage is we don't have to spend this money. Disadvantage is that if the
chain gets broken somewhere the line then production suffers. The chain can be broken by
logistics issue, problem at supplier side etc

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2.18.8 Introduction of Process Re-engineering

Business Process Reengineering (BPR) is the practice of rethinking and redesigning the way
work is done to better support an organization's mission and reduce costs. Reengineering
starts with a high-level assessment of the organization's mission, strategic goals, and
customer needs. Basic questions are asked, such as "Does our mission need to be redefined?
Are our strategic goals aligned with our mission? Who are our customers?" An organization
may find that it is operating on questionable assumptions, particularly in terms of the wants
and needs of its customers. Only after the organization rethinks what it should be doing, does
it go on to decide how best to do it, within the framework of this basic assessment of mission
and goals, re-engineering focus.

2.18.9 Growth of Government Accounting

Fund accounting is the most important principle of government accounting. Separate funds
are used to make it easier to account for all governmental costs.

2.18.10 Ever Increasing Complexity of Management

The pace of change and global interconnections in business have resulted in increasing
complexity, creating significant risk management challenges for companies to address.
KPMG commissioned Lighthouse Global to conduct research related to the causes and
impact of complexity among large companies across a range of industry sectors and
countries. The study determined that managing complexity is a critical issue facing
businesses, with more than 94% of senior decision makers agreeing that managing
complexity is essential for their organization to be successful. The leading causes of
complexity that became apparent from the study include:

1. Regulation and government oversight,

2. Information management,
3. Speed of innovation, and
4. The variability of complexity.

2.18.11 Rapid Growth of Banking Sector

Bangladesh is a third world country with an under developed banking system, particularly in
terms of the services and customer care provided by the government run banks. Recently the
private banks are trying to imitate the banking structure of the more developed countries, but
this attempt is often foiled by inexpert or politically motivated government policies executed
by the central bank of Bangladesh, Bangladesh Bank. The outcome is a banking system
fostering corruption and illegal monetary activities/laundering etc. by the politically powerful
and criminals, while at the same time making the attainment of services or the performance of
international transactions difficult for the ordinary citizens, students studying abroad or
through distance learning, general customers etc.

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2.18.12 Development of Capital Market

It is expected that the program will feature a wide range of policy discussions in areas of
accounting, auditing, macroeconomics, monetary economics, and applied finance.
Distinguished individuals who worked as regulators in the past will also feature prominently
in the DSS program to make discussions about financial sector regulations and
macroeconomic management in Bangladesh. The program is intended to stimulate public
policy dialogue for a sustained development of Bangladesh stock markets.

2.18.13 Development of Financial Literature Theories and Methodology

Functional requirements are observable tasks or processes that must be performed by the
system under development. For example, a functional requirement of a stock trading system
is "must update and remember stock prices;" for a web search engine, "must accurately parse
Boolean queries;" for an automated teller machine, "must process withdrawals and dispense
cash to the customer."

2.18.14 Development of Financial and cost Accounting System

Functioning financial markets, such as the bond market, stock market, and foreign exchange
market, are key factors in producing high economic growth. The increased availability of
financial instruments reduces transaction and information costs and helps to achieve
economic growth.

2.18.15 Need for Accounting Information for Planning Control and Decision Making

The purpose of management accounting in the organization is to support competitive decision

making by collecting, processing, and communicating information that helps management
plan, control, and evaluate business processes and company strategy. The interesting thing
about management accounting is that it is rare to find an individual within a company with
the title of management accountant. Often many individuals function as accountants within
the organization, but these individuals typically operate as financial accountants, costs
accountants, tax accountants, or internal auditors. However, the ability to develop and use
good management accounting (which covers a lot more ground than the product costing done
by cost accountants) is actually an important ability for many individuals, including finance
professionals, operational and marketing managers, top-level executives, and information
technologists.

2.18.16 Increasing Size of Business

A stagnant business is one that has a limited future. While increasing the size of a small
business can lead to growing pains along the way, it is a necessary step if you want your
company to succeed and stay competitive. Without growth and change, a company can
languish and never reach its full potential.

26
Growing a business takes time, especially if you are bogged down with day-to-day
operations, but taking the time to increase company growth benefits you in the long run.

2.18.17 Growth of Transportation and Communication System Including Information

Technology

Many people use the terms management information systems and information technology
interchangeably and think they mean the same. Although both are required to run a business
infrastructure and other processes, the two also have separate functions.

Management Information System, or simply MIS, is the process of providing support to

organizations with the use of daily reports, schedules, plans and/or budgets. Information
Systems or Technologies (IT) is the combination of people, hardware and software that
stores, transform and retrieves information in an organization. Management Information
Systems is also an applied science of information technology which is responsible for
securing both internal and external data that managers use to make operational decisions.
Through the use of this support system, a firm can also determine whether or not it is
performing adequately. However, changes in the business field happen very frequently and
therefore, it is essential for technology to be on the same, if not faster, pace.

2.18.18 Globalization of Business and Growth of MNC, s

Globalization has facilitated a vast shift in economic activity among various regions and
countries. Production and consumption activities have become highly dispersed around the
world.

2.18.19 Separation of Ownership from Management and Agency Problem

In large business separation of ownership and management is a practical necessity major

corporation may have hundreds of thousands of shareholders. There is no way for all of
them to be actively involved in management. Authority has to be delegated to managers the
agency issue. The control of the modern corporation is frequently placed in the hands of
professional non owner managers. We have seen that the goal of the financial manager
should be to maximize the wealth of the owners of the firm and given them decision making
authority to manage the firm technically. Any manager who owns less than 1000 percent of
the firm is to some degree an agent of other owners.

2.18.20 Use of Theory of Constraints (TOC) as Tool of Modern Management

One approach is to use the Theory of Constraints (TOC). This helps you identify the most
important bottleneck in your processes and systems, so that you can deal with it and improve
performance.

27
2.18.21 Need for Accounting Information for Planning Control and Decision Making

Accounting information is a part and parcel of Todays life which is necessary to understand
the accurate financial situation of the organization and Used as the basis of making any
decisions. Since Strategic decisions have long-term effect on the Business and therefore it is
important to analyze Accounting information for making strategic decisions. Accounting
information helps managers understanding their tasks more clearly and reducing uncertainty
before making their decisions.

2.18.22 Use of Computer in Industries Computer Integration Manufacture and

Information Technology

1. Continuous process industries these industries are easily controlled and automated and
computers are widely used for process monitoring, control and optimization.

2. Mass production industries industries manufacturing fasteners, integrated chips,

automobiles etc. are all mass produced and are therefore specially designed and optimized to
ensure automatic and cost effectiveness.

3. Batch production large % of manufacturing industries is classified as batch production

industries. The distinguishing feature of this type of manufacture is small to medium size of
batch.

4. A) Benefits of CIM

1. Mistake-proofing
2. Information Gathering
3. Increased Capacity
4. Flexibility
5. Reduced manufacturing lead time
6. Improved quality
7. Lower total cost

5. B) what is a Database?

2.18.23 Handling of International Financial Transaction with SWIFT (Society for

World Wide Interbank Financial Telecommunication)

SWIFT is the society for worldwide interbank financial Telecommunication, a member-

owned cooperative through which the financial world conduct its business operations with
speed, certainty and corporate customers in 215 countries trust us every days to exchange
millions of standardized financial message.

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2.18.24 Increasing Rate of Inflation and Complication in Exchanger rate Fixation and
Fluctuation

2.18.25 Formation of economic/trade blocs like NAFTA, ASEAN, EU etc. and

introduction of open market. Economy is cost and use of resource becomes a need of the
day due to severe competition in domestic and international market.

2.18.26 Development of Technology

The most general definition of technology is the application of science or knowledge to

commerce and industry. Many fields of science have benefited from technology, as well as
commerce and industry over the many centuries of human history. Perhaps the earliest known
use of technology was in the Stone Age when the first knife or shovel was made from a piece
of stone or obsidian Technology has obviously come a long way since then. The development
and technology has become a very important part of peoples lives. During the past few
years, technology has grown in many ways and is probably better than ever before. People
are always trying to find something new that will improve their lives dramatically.

2.18.27 Tendency toward Merger, Amalgamation and Takeover

1. Amalgamation: When two or more separate companies join together to form one
company so that their pooled resources generate greater common prosperity than if they
remain separate.

2. Mergers and Acquisitions (M&A): are both aspects of strategic management, corporate
finance and management dealing with the buying, selling, dividing and combining of
different companies and similar entities that can help an enterprise grow rapidly in its sector
or location of origin, or a new field or new location, without creating a subsidiary, other child
entity or using.

3. Takeover: In business, a takeover is the purchase of one company (the target) by another
(the acquirer, or bidder). In UK, the term refers to the acquisition of a public company whose
shares are listed on a stock exchange, in contrast to the acquisition of a private company.

2.18.28 Stiffness of local and international competition

2.18.29 Increase in size of the market with growth in population and purchasing power
resulting into growth of consumerism.

2.18.30 Economic growth of country of the world and increasing purchasing power of
the people

2.18.31 Emergence of company/corporation Type of Business including introduction of

company Law
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2.18.32 Growth of Domestic and International Trade

Domestic trade is traded in a graphical area of a country on the other hand International trade
is traded outside of a graphical area.

2.18.33 Growth of Service Sector Bank, Insurance, Legal Service, Consulting Service,
Transport, Communication etc.

2.18.34 Increasing Information Need of Business

Such managerial controls need attention and understanding such as effective understanding of
buyers requirements by vendors, higher customer awareness, grid compliance, cost and
reliability, workforce skills requirements, consistent message from all levels of management,
contingency planning for any unfavorable conditions, Smart grid investments, engagements
with the developers of the systems, education on the benefits of the Smart Grid
.
2.18.35 Need for Cost Management and Cost Reduction

In broad sense, both the terms have the same meaning. Yet cost management seems to
connote broader perspective. Cost control to an un-initiated may mean cutting down the
incurrence of cost or expenditure every time or in every situation. In reality it is not always
so. In many specific situations, many times, one has to spend or incur cost in order to gain or
make more money. It is in fact like an investment. Cost management sounds better then.

2.19 Management Accounting and Decision-Making

Management accounting writers tend to present management accounting as a loosely

connected set of decision making tools. Although the various textbooks on management
accounting make no attempt to develop an integrated theory, there is a high degree of
consistency and standardization in methodology of presentation. In this chapter, the concepts
and assumptions which form the basis of management accounting will be formulated in a
comprehensive management accounting decision model. The formulation of theory in terms
of conceptual models is a common practice. Virtually all textbooks in business administration
use some type of conceptual framework or model to integrate the fundamentals being
presented. In economic theory, there are conceptual models of the firm, markets, and the
economy. In management courses, there are models of organizational structure and
managerial functions. In marketing, there are models of marketing decisionmaking and
channels of distribution. Even in financial accounting, models of financial statements are
used as a framework for teaching the fundamentals of basic financial accounting. The model,
A = L + C, is very effective in conveying an understanding of accounting. Management
accounting texts are based on a very specific model of the business enterprise.

30
For example, all texts assume that the business which is likely to use management accounting
is a manufacturing business. Also, there is unanimity in assuming that the behavior of
variable costs within a relevant range tends to be linear. The consequence of assuming that
variable costs vary directly with volume is a classification of cost into fixed and variable. A
description of the managerial accounting perspective of management and the business
enterprise will help put in focus the subject matter to be presented in later chapter.

2.20 The Management Accounting Perspective of the Business Enterprise

The management accounting view of business may be divided into two broad categories:
(1) basic features and (2) basic assumptions.

2.20.1 Basic Features

The business firm or enterprise is an organizational structure in which the basic activities are
departmentalized as line and staff. There are three primary line functions: marketing,
production, and finance. The organization is run or controlled by individuals collectively
called management. The staff or advisory functions include accounting, personnel, and
purchasing and receiving. The organization has a communication or reporting system (e.g.
budgeting) to coordinate the interaction of the various staff and line departmental functions.
The environment in which the organization operates includes investors, suppliers,
governments (state and federal), bankers, accountants, lawyers, competitors, etc.) The
organizational aspect of the business firm is illustrated in Figure 2.1. This descriptive model
shows that there are different levels of management. A commonly used approach is to
classify management into three levels: Top management, middle management, and lower
level management. The significance of a hierarchy of management is that decisionmaking
occurs at three levels.

2.20 2 Basic Assumptions in Management Accounting

The framework of management accounting is based on a number of implied assumptions.

Although no single work has attempted to identify all of the assumptions, the major
assumptions will be detailed below. Five categories of assumptions will be presented:

1. Basic goals
2. Role of management
3. Nature of Decisionmaking
4. Role of the accounting department
5. Nature of accounting information

Basic Goal Assumptions- The basic goals or objectives the business enterprise may be
multiple. For example, the goal may be to maximize net income. Other goals could be to
maximize sales, ROI, or earnings per share.

31
Management accounting does not require a specific of type of goal. However, whatever form
the goal takes, management will at all times try to achieve a satisfactory level of profit. A less
than satisfactory level of profit may portend a change in management.

Role of Management Assumptions - The success of the business depends primarily upon
the skill and abilities of managementwhich skills can vary widely among different
managers. The business is not completely at the mercy of market forces. Management can
through its actions (decisions) influence and control events within limits. In order to achieve
desired results, management makes use of specific planning and control concepts and
techniques. Planning and control techniques which management may use include business
budgeting, costvolumeprofit analysis, incremental analysis, flexible budgeting, segmental
contribution reporting, inventory models, and capital budgeting models. Management, in
order to improve decisionmaking and operating results, will evaluate performance through
the use of flexible budgets and variance analysis.

Decision-making Assumptions - A critical managerial function is decisionmaking.

Decisions which management must make may be classified as marketing, production, and
financial. Decisions may also be classified as strategic and tactical and longrun and
shortrun. A primary objective of decisionmaking is to achieve optimum utilization of the
businesss capital or resources. Effective decisionmaking requires relevant information and
special analysis of data.

Accounting Department Assumptions - The accounting department is a primary source of

information necessary in makingdecisions. The accounting department is expected to
provide information to all levels of management. Management will consider the accounting
department capable of providing data useful in making marketing, production, and financial
decisions.

Nature of Accounting Information - In order for the accounting department to make

meaningful analysis of data, it is necessary to distinguish between fixed and variable costs
and other types of costs that are not important in the recording of business transactions. Some
but not all of the information needed by management can be provided from financial
statements and historical accounting records. In addition to historical data, management will
expect the management accountant to provide other types of data, such as estimates,
forecasts, future data, and standards each specific.
Managerial technique requires an identifiable type of information. The accounting
department will be expected to provide the information required by a specific tool. In order
for the accounting department to make many types of analysis, a separation of costs into fixed
and variable will be required. The management accountant need not provide information
beyond the relevant range of activity.

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2.21 Implications of the Basic Assumptions

The assumption that there are three types of decisions, (marketing, production, and financial)
requires that management identify the specific decisions under each category. The
identification of specific decisions is critical because only then can the appropriate
managerial accounting technique be properly used.

Some typical management decisions of a manufacturing business include:

Production Marketing Financial

Pricing Units of equipment Issue of bonds
Sales forecast Factory workers wages Issue of stock
Number of sales people Overtime, second shift Bank loan
Sales people compensation Replacement Of Retirement
Number of products Inventory levels Of bonds
Advertising Order size Dividends
Credit Suppliers Investment

An understanding of financial statements is critical to the ability of management to make

good decisions. Financial statements, although prepared by accountants, are actually created
by management through the implementation of decisions. The historical data from which
accountants prepare financial statements result from actual management decisions. The
reader and user of financial statements is not primarily the accountant but management. From
a management accounting point of view, it is management rather than accountants that needs
to have the greater understanding of financial statements.

The income statement and the balance sheet can be viewed as a descriptive model for
decisionmaking. Financial statements reflect success or lack of success in making decisions.
Management can be deemed successful when the desired income has been attained and
financial position is considered sound. To achieve managerial success management must
manage successfully the assets, liabilities, capital, revenue and expenses. Financial
statements, then, serve as a ready and convenient check list of decisionmaking areas. The
basic balance sheet equation, of course, is A = L + C. A management accounting
interpretation is that the assets or resources come from the creditors (liabilities) and the
owners (capital). It is management responsibilities to manage both sides of the equation. That
is, management must make decisions about both the resources (assets) and the sources of the
assets (liabilities and capital). Each item on the balance sheet is an area of management.
Stated differently each item on financial statements represents a critical area sensitive to
mismanagement. Cash, accounts receivable, inventory, fixed assets, accounts payable, etc.
can be too large or too small. Given this fact, then, for each item there must be the right
amount or optimum. It is managements responsibility to make the best decision possible
regarding each item on the financial statements. Gross mismanagement of any single item
could either result in the failure of the business or the downfall of management.

33
Following are Some Examples of Decisions Associated with Specific Financial Statement
Items:

Balance Sheet Items Decision

Cash Minimum level

Accounts receivable Credit terms
Inventory Order size
Fixed asset Capacity size
Bonds payable Amount and interest rate
Income Statement Items
Sales Price, number of products, number
of sales people
Salesmen compensation Salaries and commission rate
Advertising Media, advertising budget

The statement that the management accountant will be required to furnish information not of
a historical nature means that the accountant will have to deal with planned and estimated or
future data. Furthermore, much of this data will be not be found in the historical data bank
from which the accountant prepares financial statements. The management accountant may
be required to do analysis requiring data of an economic nature. For example, analysis of
pricing may require data about the companys demand curve. Labor cost analysis may require
estimating the productivity of labor relative to various wage rates.

2.22 Decision-Making in Management Accounting

In management accounting, decisionmaking may be simply defined as choosing a course of

action from among alternatives. If there are no alternatives, then no decision is required. A
basis assumption is that the best decision is the one that involves the most revenue or the least
amount of cost. The task of management with the help of the management accountant is to
find the best alternative. The process of making decisions is generally considered to involve
the following steps:

1. Identify the various alternatives for a given type of decision.

2. Obtain the necessary data necessary to evaluate the various alternatives.
3. Analyze and determine the consequences of each alternative.
4. Select the alternative that appears to best achieve the desired goals or objectives.
5. Implement the chosen alternative.

34
6. At an appropriate time, evaluate the results of the decisions against standards or other
desired results. From the descriptive model of the basic features and assumptions of the
management accounting perspective of business, it is easy to recognize that decision making
is the focal point of management accounting. The concept of decision-making is a complex
subject with a vast amount of management literature behind it. How businessmen make
decisions has been intensively studied. In management accounting, it is useful to classify
decisions as:
1. Strategic and tactical
2. Short run and long run

2.23 Strategic and Tactical Decisions

In management accounting, the objective is not necessarily to make the best decision but to
make a good decision. Because of complex interacting relationships, it is very difficult, even
if possible, to determine the best decision. Management decision-making is highly subjective.
Whether a decision is good or acceptable depends on the goals and objectives of
management. Consequently, a prerequisite to decision-making is that management has set the
organizations goals and objectives. For example, management must decide strategic
objectives such as the companys product line, pricing strategy, quality of product,
willingness to assume risk, and profit objective. In setting goals and objectives, it is useful to
distinguish between strategic and tactical decisions. Strategic decisions are broad based,
qualitative type of decisions which include or reflect goals and objectives. Strategic decisions
are non-quantitative in nature. Strategic decisions are based on the subjective thinking of
management concerning goals and objectives. Tactical decisions are quantitative executable
decisions which result directly from the strategic decisions. The distinction between strategic
and tactical is important in management accounting because the techniques of management
accounting pertain primarily to tactical decisions. Management accounting does not typically
provide techniques for assisting in making strategic decisions.

Examples of Strategic Decisions and Tactical Decisions From a Management

Accounting Point of View Include:
No. Decision items Strategic Decisions Tactical Decisions

1 Cash Maintain minimum

level
2 Accounts Sell on credit Specific credit terms
receivable
3 Inventory Maintain safety stock Specific level of
inventory
4 Price Be volume dealer by Specific price

Setting price lower than competition

35
Once a strategic decision has been made, then a specific management tool can be used to aid
in making the tactical decision. For example, if the strategic decision has been made to avoid
stock outs, then a safety stock model may be used to determine the desired level of inventory.
The classification of decisions as strategic and tactical logically results in thinking about
decisions as qualitative and quantitative. In management accounting, the approach to
decision-making is basically quantitative. Management accounting deals with those decisions
that require quantitative data. In a technical sense, management accounting consists of
mathematical techniques or decision models that assist management in making quantitative
type decisions.

Examples of Quantitative Decisions Include:

Decision Quantitative Criterion

Price Maximum income
Inventory order size Minimum total inventory
Purchase of new equipment cost lowest operating costs
Credit terms Maximum net income/sales
Sales people compensation Minimum total compensation

2.24 Short Run versus Long-Run Decision Making

The decision-making process is complicated somewhat by the fact that the horizon for
making decisions may be for the short run or long run. The choice between the short run and
the long run is particularly critical concerning the setting of profitability objectives. A fact of
the real business world is that not all companies pursue the same measures of success.
Profitability objectives which management might choose to maximize include:

1. Net income
2. Sales
3. Return on total assets
4. Return on total equity
5. Earnings per share

The decision-making process is, consequently, affected by the profitability objective and the
choice of the long run versus the short run. If the objective is to maximize sales, then the
method of financing a new plant is not immediately important. However, if the objective is to
maximize short run net income, then management might decide to issue stock rather than
bonds to avoid interest expense. In the short run, profits might suffer from expenditures for
preventive maintenance or research and development. In the long run, the companys profit
might be greater because of preventive maintenance or research and development. Although
the interests of management and the organization may be presumed to coincide, the
possibility of making decisions for the short run may cause a conflict in interests.

36
An individual manager planning to make a career or job change might have a tendency to
make decisions that maximize profitability in the short run. The motivation for pursuing short
run profits may be to create a favorable resume.

The tools in management accounting such as CVP analysis, variance analysis, budgeting,
and incremental analysis are not designed to deal with long range objectives and decision.
The only tools that looks forward to more than one year are the capital budgeting models
discussed in chapter 12. Consequently, the results obtained from using management
accounting tools should be interpreted as benefits for the short run, and not necessarily the
long run. Hopefully, decisions which clearly benefit the short run will also benefit the long
run. Nevertheless, it is important for the management accountant, as well as management, to
beware of possible conflicts between short run and long run planning and decision-making.

2.25 Management Accounting Decision Models

Management accounting consists of a set of tools that have been proven to be useful in
making decisions involving revenue and cost data. Even though many of the techniques
appear to be simplistic in nature, they have proven to be of consider able value. A
comprehensive list of the tools and their mathematical nature which constitute management
accounting appears in Appendix C of this book. The techniques which are also listed in
Figure 2.2 are all based on mathematical equations or mathematical relationships. All of the
techniques may be regarded as mathematical decision-making models. For example, the
foundation of CVP analysis is the equation: I = P (Q) - V (Q) - F. The mathematical
models which form the foundation of every tool are summarized in Appendix C to this book.
The approach described above concerning the use of financial statements as a check list to
identify decision-making areas may also be used to identify the appropriate management
accounting technique. For every item on financial statements, there is one or more
appropriate management accounting technique.

The following illustrates the association of management accounting tools with specific
financial statement items.

Financial Statement Items Management Accounting Tools

Balance Sheet:
Cash Cash budget
Capital budgeting models
Accounts Incremental analysis
receivable
Inventory EOQ models, Safety stock model
Fixed assets Incremental Analysis, Capital budgeting

37
 Income Statement:
Sales C-V-P analysis, Segmental reporting
Incremental analysis
Expenses C-V-P analysis, Incremental analysis
Net income direct costing
Figure 2.25.1 Management

Accounting Tools
1. Comprehensive business budgeting
2. Flexible budgeting and variance analysis
3. Variance analysis
4. Capital budgeting
5. Incremental analysis
Keep or replace
Additional volume of business
Credit analysis
Demand analysis
Sales people compensation analysis
Capacity analysis
6. Cost volume profit analysis
7. Cost behavior analysis
8. Return on investment analysis
9. Economic order quantity analysis
10. Safety stock/lead-time analysis
11. Segment reporting analysis

2.26 Decision-making and Required Information

The assumption that management will use management accounting tools in making decisions
places a burden on the management accountant. Each tool requires special information. The
management accountant will be asked to provide the specialized information needed.
Management accounting texts have traditionally emphasized the mechanics of techniques
with little emphasis on how to obtain the necessary data. In many cases, the inability to obtain
the required information has rendered a particular technique useless.

2.27 Comprehensive Management Accounting Decision Model

As the above discussion should make clear, decision-making is a complex network of

interrelated decision variables. Management can face an overwhelming task if it tries to
identify every variable and minute decision relationship. One approach to dealing with
complexity is the development of models, both mathematical and descriptive for the purpose
of simulating only the relevant or more important variables.

38
Management accounting is, therefore, one approach to simplifying complex relationships by
dealing with key variables and models based on restricting assumptions. The decision-making
process discussed in this chapter leads to the conclusion from a management accounting
perspective that there is a connecting link between the following:

1. Financial statement items

2. Strategic and tactical decisions
3. Management accounting techniques
4. Decision-making information

Management Accounting Decision - Making Model Balance Sheet Model

Strategic Tactical Management Required
Decisions Decisions Accounting Information
Tool
Assets
Minimum Cash budget Cash inflows
balance Cash outflows
Amount
Cash Risk needed
Accounts Credit Credit terms Incremental Addition
Addition
receivable analysis Al sales
Materials Risk Quality Order size on EOQ model Purchasing cost
Inventory risk of supplier
Safety stock Safety models caring cost Demand
probability
Fixed Assets Capacity Depreciation Capital Cash
Purchase/ lease methods Rate
Inventory Risk of return budgeting inflows/outflows net
diversification Number of Capital present value tables
share budgeting Potential
dividends/earning
Liabilities
Account Leverage Amount to Cost analysis Interest rate terms
payable pay/not pay of credit
Notes payable Leverage short Amount ROI analysis Interest rate cost of
term vs. long borrow/repay Incremental capital
term Interest analysis Cost
rate/Lender of capital
analysis
Leverage Share to issue ROI analysis Analysis Interest rate cost of

39
 short term vs. Shares retire Incremental capital capital ROI data
long term cost of
analysis
Stockholders
Equity
common stock Leverage risk Share to issue ROI analysis Cost of capital cost
Amount Incremental of issuing ROI data
needed analysis Cost
of capital
analysis
Retained Internal Amount of Incremental ROI data cost of
earning financing risk dividend analysis cost capital
of capital
analysis

Income Statement Model:

Particular Strategic Decisions Tactical Management Required

Decisions
Sales Market share Price number of Incremental Demand curve
Growth territories Credit analysis C-V- Fixed and
Additional Analysis variable
Cost of See exhibit3) Risk Amount of EOQ model Probability of
goods sold safety stock Safety stock Price
beginning
inventory
Selling Motivation/turn Salary Number Incremental Price of
Salespeople Over of sales people analysis product Calls
salaries Motivation/turnover Commission C V P Analysis per month
Commissions Risk/volume rate Number of Fixed and
Sales people new people variable
training
Travel
Advertising
General and Effective service Amounts of C V Analysis Fixed and
Admin. Turnover salaries variable cost
Executive
salaries
Secretaries
Net income

40
Cost of Goods Manufactured Model:

Particular Strategic Tactical Management Required

Decisions Decisions Accounting Tool

Materials Used
Materials(BI) Safety stock Lead time
model Demand
Material Quality Standards Budgeted pro- Budgeted Carrying cost
Purchases diction Suppliers production Purchasing cost
Order size Incremental Demand
analysis EOQ
model
Freight-in Suppliers Incremental Quantity
analysis discount
schedule
Direct labor Productivity Wage rate Incremental Fixed and
Motivation Number of analysis Business variable
Capacity Industry workers Second budgeting C-V- Costs Relevant
reputation shift/overtime Analysis costs Wage rate

Variable Capacity Keep or replace Increment Variable cost

manufacture analysis rates
Cost factors
Physical factors
Fixed direct Capacity Keep or replace Incremental Fixed and
labor analysis variable
product cost
Utilities Capacity Keep or replace Incremental Fixed and
analysis variable
product cost
Production Capacity Incremental Fixed and
Planning analysis variable
product cost
Purchasing & Capacity Incremental Fixed and
Receiving analysis variable
product cost
Factory Capacity Incremental Fixed and
Insurance analysis variable
product cost
Depreciation, Capacity Keep or replace Incremental Fixed and
equipment analysis variable
product cost
Depreciation, Capacity Incremental Fixed and
Building analysis variable
product cost
Factory Capacity Incremental Fixed and
supplies analysis variable
product cost

2.28 Challenges of Managerial Accounting in the Global Context

41
2.28.1 Trend in Management Accounting:

The usefulness of the management accounting information system has been challenged by a
changing economic environment coupled with increased global competition and the
emergence of new manufacturing technologies. Management accounting contribution is
going to lose the competitiveness of Bangladesh in the global economy. It has been said
about the management accounting practices utilized in some of the developing economies of
the Asian-Pacific region. At present the challenge for management accounting techniques and
practices by globally situated manufacturing firms faced critically.

Over the last decade, critics of management accounting have questioned the relevancy of
many traditional techniques and practices. Traditional accounting techniques may no longer
be valid as the production process changes. These techniques fail to provide relevant, useful,
and timely information about processing activities that management needs for planning and
control purposes. Traditional management accounting systems are often considered
incompatible with modem production. Also, traditional systems have typically used direct
labor as an allocation base, often inappropriately.

Nowadays managerial accounting analysis is considered so crucial in managing an enterprise

that in most cases, far from playing a passive role as information providers, managerial
accountants take a proactive role in both the strategic and day-to-day decisions that confront
an enterprise. Although much of the information they provide is financial, there is a strong
trend toward the presentation of substantial non-financial data as well. Moreover, the
business environment is changing rapidly. For managerial accounting to be as useful a tool in
the future as it has been in the recent past, managerial accounting has to be studied and
improved.

In the 21st century the business environment is changing very rapidly. These changes are
reflected in global competition, rapidly advancing technology, and improved communication
systems, such as the Internet. The activities that make an enterprise successful today may no
longer be sufficient next year. A crucial role of managerial accounting is to continually assess
how an organization stacks up against the competition, with an eye towards continuously
improving. In fact, moving away from a historical cost accounting perspective and towards a
proactive cost management is the challenge that an enterprise has to face. Assigning the costs
to a larger number of cost pools that better represent those activities that are responsible for
their birth, portrays the general idea upon which future managerial accounting will evolve.

One result of the changing economic environment has been the emergence in the literature of
cost management technique. Cost management as an integrative area & combines elements
from three other fields: management accounting, production, and strategic planning.

This broadening of the traditional management accounting environment involves emphasis

on activity based costing, cost management systems, advanced manufacturing technologies,

42
cost planning and control, quality costs, performance measurement, and strategic cost
management.

2.28.2 Challenges for Managerial Accounting System:

The new challenges facing management accounting systems have been a subject of vivid
debate in recent years. Much of the literature seems unfortunately to have ignored such
noteworthy issues as the specific domestic competitive settings or economic conditions like
recessions, which may ultimately prove to be nation specific in their consequences.
Moreover, these studies have largely tended to discuss market changes and competition in a
new environment

Another concern raised here is the interaction occurring between corporate cultural changes
and accounting. Cultural change is actually a phenomenon which might be assumed to occur
more commonly than is generally assumed, for instance, when companies strive for a true
customer-orientation. How to successfully implement corporate cultural change, or of how to
respond to exceptionally aggressive market attacks by domestic competitors may prove fatal.
Modern Management Ideas like TQM, BPR, and ABM have been proposed as feasible
solutions to these new challenges.
Especially in conditions of large scale changes, these ideas may indeed possibly provide
potential parts for new manuscripts to be used in a novel situation. As regards corresponding
information needs, it seems to be justifiable to argue that under these conditions management
accounting information plays an even more important role than usual.

The new challenges and requirements for management accounting and control systems are
actually experienced by the organizational actors in a complex multidimensional change
setting. Another major issue examined was the role of management accounting and control
systems, particularly in a cultural-ideological change process.

2.28.3 Challenge for Merging Management Accounting Tools with Different Discipline:

With the competitiveness of todays business world, several of new model going to
developed for using many useful management accounting tools with human resource
management, that create the challenges for management accounting tools as self-governing
technique . For some insufficiency of management accounting technique, merging developed
by following process:-

Step 1: Identifying relevant product profitability models. Product profitability models come
in all shapes and sizes. The relevant product profitability models to use in human resource
management should involve sales productivity as a key element in determining total
profitability.

Step 2: Applying marginal profitability to actual sales results. Product profitability models
that break down the product's profitability on per unit of sales basis can then be applied to

43
actual sales production.

Step 3: Using regression techniques to analyze trends and predict future sales. Historical
sales and profitability information provide a basis for careful examination of trend.
Regression analysis, especially represented in a graphical format, enables management to
quickly grasp the true trend direction of sales production and efficiencies
Step 4: Comparing regression forecasts to management objectives. If the forecasted sales
production developed by the regression analysis falls short of management objectives, then
management needs to take pro-active steps to meet revenue objectives or revise their
projections downward.

Step 5: Working with human resources to resolve projected revenue variances. Recognizing
revenue variances using management accounting tools is one thing; identifying the cause of
the variances is quite another.

Carefully analyzing the characteristics surrounding sales production trends could suggest
reasons behind the variances. Different management accounting tools is used to help better
understand business, but we shouldn't limit using our tools to just management accounting.
Many techniques used to other functional areas, but certainly not limited at one root, in fact,
the applications are limitless. Taking the initiative to use these tools outside of the accounting
and finance area can have a profoundly positive impact on the value of the management
accounting profession.

2.28.4 Challenges for Managerial Accounting Research:

With the continuing development of business processes, whether the change in various
manufacturing processes, or the automation of most business activities, the cost accounting
procedures that companies use to calculate for the cost of an individual product, service or
activity have also become outdated.

From a managerial accounting perspective, the changes in the economy, in industries and
individual firms alike, must be supported by the firm's accounting and control infrastructure.
Accounting is a financial model of business. When changes occur in the business, accounting
should change to reflect them. Managers of companies that fail to make appropriate
modifications in their accounting systems will find they have inaccurate
product/service/activity cost figures and lack data for making decisions.

They may lose their competitive edge because they do not have the necessary information for
operating in the constantly changing business environment. Systems for accounting for costs
date back several centuries. Accounting for management - accounting done for management
to meet its information needs. One basic difficulty in costing is that an individual product,
service or activity does not drive all the company expenses.
Even within a factory, there are many questionable costs, not directly driven by the type,
number or volume of products. In addition, there are costs that are driven by substantial

44
material vendors and customers. How to go about calculating the cost of an individual
product, service or activity, in par with the marked changes in the field of management
accounting to maximize the benefits that effective costing has to offer. New Challenges for
Managerial Accounting Research:- The traditional cost accounting model developed for mass
production of standardized products needs to be updated to support new operating concepts
such as just-in-time, zero defects, zero inventory, a cooperative workforce, flexible
manufacturing systems, computer aided design and manufacturing, and computer - integrated
manufacturing.

Management accounting must serve the strategic objectives of the company & emphasizes on
financial measurements, needs to include an explicit recognition of the need for information
and measurements in such soft areas as product quality, productivity, product innovation,
employee morale, and customer satisfaction. If management accounting research is to
progress, information needs to be collected from company various updated sources.

2.28.5 Challenges in Organizational Performance:

Under the discipline of management accounting - how budgets, cost models, management
control panel and continuous improvement are used today and what needs to change:-

The challenges in organizational performance related to budgets, cost models, management

control panel and continuous improvement experienced at present by a variety of firm & how
effective the management accounting techniques contribute to organizational performance
management. The rationale for the management accounting techniques tended to hold the
objectives of organization by the four techniques

Budgets were frequently used solely to project financial results; their contribution to
the implementation of corporate strategy was very weak.
The cost models were reduced to simple pricing systems intended to evaluate
inventories, rather than true models representing the organization's activities.
Indicators found in management dashboards are identified and developed by the
company functions and are in no way integrated in financial management.
The same is true of continuous improvement projects or Kaizen projects, which are
implemented completely outside the finance function.

The challenge in this regard was to encourage organizations to use budgets to apply corporate
strategy. Two major roles associated with budgets: monitoring financial projections and
managing strategy, it involve - in forecasts and plans.
The budget also has an impact on manager motivation in that budget targets are often used to
establish compensation. Budgets are used to monitor financial results in nearly all companies.
Only when the anticipated results are stable and easily predictable were, this would not
change anything.
The budget thus contributes to managing financial resources by tracking financial projections.
One such practice that was evaluated favorably is that of the continuous budget, whereby at

45
the end of each month, not only are the projections of the following months adjusted but the
budget of the twelfth following month is added. However, the data we gathered shows that,
for the majority of companies, costs are calculated as part of financial accounting, and
companies haven't developed or implemented a system of management accounting distinct
from financial accounting. In addition, in the context of an innovation and growth strategy
that centers on acquisitions, executives aren't aware of the potential benefits of a cost model
that goes beyond associating direct production costs with products. In addition, executives at
companies that have implemented an integrated management information system don't feel
the need for other cost-related information.

2.29 Problem Foundations in Management Accounting

Fundamental objective of management accounting is to facilitate and support all the aspects
of an organization's decision making. To accomplish this objective, management accountants
should be aware of the kinds and levels of problems and decisions involved in order to
identify those particular areas where management accounting techniques and information
would be most relevant and useful. For this purpose, different conceptual frameworks for
viewing problems, decisions, and decision systems have been proposed in the management,
accounting, and information systems literature. They provide a good basis for viewing the
types of problems, decisions and decision systems, the types of information needed, and the
useful role of management accounting. It is a fact that accounting executives spend a great
proportion of their time defining, formulating, classifying, and solving problems -

The concept of a problem in business, management accounting, or any other context lends
itself to three major phases - Problem definition, Problem formulation, and Problem
classification, which precede the problem solving. The way executives approach each of
these phases can substantially affect information processing, decision making, and behavior.
A moderating effect on this impact is management accounting playing a crucial role of
facilitator by providing the right information needed for the execution of each of the three
stages. Without the right execution of three phases management accounting facing challenges
to exist their acceptance.
Faced with new wealth creation standard, triggered by technology and relentless globalization
of markets, increasing number of companies are becoming knowledge-based enterprises.
Internet and e-commerce have changed forever the way companies conduct their businesses.
Virtual enterprise and efficient supply chain management systems will shape the future of
these enterprises.
Organizations are trying to become agile enterprises with the help of strategic alliances of
firms and integration using information technologies.
Five challenges are identified for management accounting, and in particular for planning and
control-

The first is to foster multiple perspectives

The second is the coordination of complexity

46
 The third concerns competitor analysis and
The fourth concerns resource allocation
The fifth is to overcome centrifugal tendencies, developing a clarity of strategic intent,
binding managers together worldwide and rewarding behavior in the corporate, as opposed to
local interest.

Traditional performance and cost measures are no longer suitable for developing and
managing enterprises in the so-called new environment. In order to remain relevant and to
add value, cost and performance measures must be designed and systematically evaluated to
reduce the often-unnoticed mismatch between strategic goals and operational tactics.
Managerial accounting researchers and practitioners should develop new costing and
Performance Measurement Systems (PMS) taking into account the new enterprise
environment.

2.30 Pushing the Art of Management Accounting

Management accounting practice has developed substantially over the past century, but it
suggests that the practice is no longer making the strides that it once did. Unless management
accountants take a hard look at the effectiveness of current practice, this situation isnt likely
to improve. In some companies, radical changes are needed to the structure of the finance
function, the nature of the interactions management accountants have with other managers
and the performance metrics used to guide the function itself. Todays management
accounting information, driven by the procedures and the cycle of the organizations financial
reporting system, is too late, too aggregated and too distorted to be relevant for managers
planning and control decisions. Management accounting reports are of little help to operating
managers as they attempt to reduce costs and improve productivity. Strategic cost
management techniques, such as attribute costing, seem little known outside academia. The
majority of firms measures apparently dont use them significantly. Balanced
Scorecard researchers have concluded that most users make little attempt to link their
non-financial performance to strategy and that only a small minority attempt to validate the
cause and effect linkages included in their models. Moreover, Balanced Scorecard practice
seems to have developed an independent momentum, excluding the finance function
altogether in some organizations. There is even pressure for management accountants to do
less.

These indications of a slowing pace of management accounting change may be due to a range
of factors. In some cases, new management accounting tools arent adapted to organizational
strategy or structure and cant be used. And in some cases, innovation has failed due to
implementation-related factors. However, the main problems arent technical or structural;
they lie in the need for a better management of the management accounting process itself.
Last the management accounting process requires new metrics. Most accounting functions
measure timeliness, in terms of the delay between the end of the reporting cycle and the

47
issuing of the report, and many measure the cost of the finance function relative to revenues.
Few organizations measure the use or the usefulness of the management accounting
information provided the absence of such measures guarantees that things will remain the
same.

2.31 Application of Inefficient Techniques in Decision Making

As time went on, standard cost lost its usefulness for management decision making due to a
variety of reasons:-

The practice of paying workers on a set-piece basis changed in favor of paying on an hourly
rate. Modern companies tend to have relatively low truly variable costs and very high fixed
costs. Equipment has become more complex and specialized and may be a very significant
proportion of total costs. Changes in the level of full cost inventory create swings in
profitability that is difficult to explain or understand.
An increase in inventory can "absorb" costs of production and increase profits, while a
decrease in inventory level will decrease profits. Organizations with a wide range of products
or services have processes which are common to several finished items, making cost
allocation irrelevant or misleading.

As a result of the above, using standard cost accounting to analyze management decisions can
distort the unit cost figures in ways that can lead managers to make decisions that do not
reduce costs or maximize profits.

Weaknesses of Management Accounting: -Management accounting discipline is still very

much in a state of evolution. It comes across the same obstacle as a relatively new discipline
has to face sharpening of analytical tools and improvements of techniques creating
uncertainty about their application.

1. There is always a temptation to make an easy course of arriving at decisions by intuition

rather than taking the difficulty of scientific decision making.

2. Its information from financial accounting, cost accounting and other records. It derives
Therefore strength and weakness of management accounting depends upon the strength and
weakness of basic records.

3. It is one thing to record, interpret and evaluate an objective historical event converted into
money figures, while it is something quite different to perform the same function in respect of
past possibilities, future opportunities and unquantifiable situation. Execution of the
conclusions drawn by the management accountant will not occur automatically. Therefore, a
continuous effort to achieve the goal must be made at all levels of management.

4. Management Accounting will not replace the management and administration. It is only a

48
tool of management. Of course, it will save the management from being immersed in
accounting routine and process the data and put before the management the facts deviating
from the standard in order to enable the management to take decision by the rule of
exception.

An alternative view of management accounting: - A very rarely expressed alternative view

of management accounting is that it is neither a neutral or benevolent influence in
organizations, rather a mechanism for management control through observation. This
View locates management accounting specifically in the context of management control
theory. Stated differently Management Accounting information is the mechanism which can
be used by managers as a vehicle for the overview of the whole internal structure of the
organization to facilitate their control functions within an organization.

Throughput Accounting: -The most significant, recent direction in managerial accounting is

throughput accounting; which recognizes the interdependencies of modern production
processes. For any given product, customer or supplier, it is a tool to measure the contribution
per unit of constrained resource.

Transfer pricing: -Management accounting is an applied discipline used in various

industries. The specific functions and principles followed can vary based on the industry.
Management accounting principles in banking are specialized but do have some common
fundamental concepts used whether the industry is manufacturing based or service oriented.

For example, transfer pricing is a concept used in manufacturing but is also applied in
banking. It is a fundamental principle used in assigning value and revenue attribution to the
various business units. Essentially, transfer pricing in banking is the method of assigning the
interest rate risk of the bank to the various funding sources and uses of the enterprise.

49
50
METHODOLOGY
This report based on secondary data.

3.1 Type of Data Collected

For smooth and accurate study everyone have to follow some rules & regulation. The study
impute were collected from two sources:

3.2 Primary sources

No primary data are not used.

3.3 Secondary sources

Textbooks, journals, newspapers

Files & Folders
Various publications of companies,
Website
The details of the work plan are furnished below:
3.4 Data collection method

Relevant data for this report has been collected Secondary by Some textbooks, journals,
newspapers website etc.

3.5 Data sources

The secondary sources of information are article reports, websites and different manuals.
Some textbooks, journals, newspapers etc. have been consulted in order to build up the
framework of the study.

3.6 Data processing

Data collected from secondary sources have been processed manually and qualitative
approach in general and quantitative approach in some cases has been used throughout the
study.

51
3.7 Data analysis and interpretation

Qualitative approach has been adopted for data analysis and interpretation taking the
processed data as the base.

3.8 Study period

I started my study on this purpose on 25th October to 25th December.

3.9 Study place

I want to ICMAB to learn various things from this responsible person and I went to
ACNABIL CA firmed i talked with their some employees.

3.10 Sample size

I talked with 100 concerned people about my topic there are my sample.

3.11 Sampling technique

Face to face conversation to the respondent.

52
53
4.1 Findings:

Management decisions are basically based on some measures/techniques traditionally

designed based on quantitative data. However, in recent past to cope with global business
environment, change in business, increase in competition and complexity of decision
making some advanced quantitative techniques like Activity based Costing and Target
Costing and some improved programs like (JIT)Just- in- time , Total Quality Management
(TQM), Process Reengineering and Theory of Constraints (TOC) have been introduced for
application. Now both traditional and advanced management accounting techniques are
shown in the following chart

Traditional Technique Advanced Technique

Financial Statement Analysis Activity-Based costing
Fund Flow Analysis Target Costing
Cash Flow Analysis Just-in-Time (JIT)
Marginal Costing Total Quality Management(TQM)
Absorption Costing Process Reengineering
Differential Costing The theory of Constraints(TOC)
Standard Costing
Opportunity Costing
Budgetary Control
Inter-firm Comparison
Cost-Volume-Profit analysis
Management Reporting

Chart Showing the Management Accounting Techniques

4.2 Extent of Use of Management Accounting Techniques

Against the background of identification of generally used management accounting
techniques the following table shows the use of management accounting techniques in the
sample manufacturing business firms in Bangladesh. A list of techniques was 75 provided to
the respondents and they were asked to point the techniques they use and which they do not
use. The responses have been tabulated and the summarized picture is shown in the table. The
table shows the extent of use of different management accounting techniques in sample firms.
It is seen that the traditional techniques like financial statement analysis, cash flow analysis,
budgetary control and management reporting are being widely used (100%) by all types of
firms followed by standard costing and absorption costing (80% in public, 90% in private and
100% in MNC). Marginal costing and cost-volume-profit analysis are used to some extent by
the 50% in public sector enterprises, 60% by private sector and 70% by multinational
corporations (MNC). Some enterprises of public (30%) and private (20%) sectors use fund
flow statement analysis though it has now been almost replaced by cash flow statement
analysis. Modern techniques yet to be introduced by Bangladeshi firm both in public and
private sector. Few MNC uses JIT (40%) and TQM (20%).

54
None of public or private Bangladeshi enterprises or MNC found to use some traditional
technique like differential costing, opportunity costing and inter-firm comparison as well as
the modern techniques like activity-based costing, target costing, process reengineering and
the TOC. Thus it is seen that management accounting techniques yet to get a firm footing in
Bangladeshi firms and thus depriving these firms in better decision making.

Techniques PB (N = 15) PV (N = 15) MNC (N = 5)

Analysis Financial 100% 100% 100%
Statement
Cash Flow Analysis 100% 100% 100%
Budgetary Control 100% 100% 100%
Management 100% 100% 100%
Reporting
Management 80% 80% 80%
Reporting
Standard Costing 80% 80% 80%
Absorption Costing 50% 50% 50%
Marginal Costing 50% 50% 50%
Cost-Volume-Profit 30% 30% 30%
Analysis
Fund Flow Analysis --- --- ---
Just-in-Time (JIT) --- --- ---
Total Quality --- --- ---
Management(TQM)
Differential Costing --- --- ---
Opportunity Costing --- --- ---
Inter-firm --- --- ---
Comparison
Activity-Based --- --- ---
Costing
Target Costing --- --- ---
Process --- --- ---
Reengineering
The Theory of --- --- ---
Constraints(TOC)
No sample (PL = Public enterprises, PV= Private enterprises, MNC = Multinational
Enterprise)

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Table Showing the Summarized Picture of Management Accounting Techniques Used by
the Sample Enterprises

Now a discussion about the techniques in brief and extent of the use of the same is being
examined below:

4.2.1 Financial Statement Analysis

Financial statement is essentially historical document which provides organized data

according to logical and consistent accounting procedure and conveys an understanding of
some financial aspects of a business firm. Careful analysis of financial statements can help
decision makers to evaluate an organizations past performance and predict its future
financial health. Financial statement therefore, refers to such a treatment of the information
contained in the Income Statement and the Balance Sheet so as to afford full diagnosis of the
profitability and financial soundness of the business. This analysis is accomplished by
examining trends in key financial data, comparing financial data across companies, and
analyzing key financial ratios. All the sample firms use it.

4.2.2 Fund Flow Analysis

Fund flow analysis does not carry any extra meaning basically after the implementation of
International Accounting Standards (IAS)7 in revised form. Nevertheless, some business
organizations are still considering this as an important tool for managerial and financial
decision making. Working capital being life-blood of the business, analysis of fund flow is
thus extremely useful. Financial analysts also have an understanding of changes in the
distribution of resources between two balance sheet dates by analyzing the fund flow
statements. Few sample firms (30% in public and 20% in private sector) still use this
statement.

4.2.3 Cash Flow Analysis

Until recently, many decision makers focused primarily on the income statement and the
balance sheet. But in the IAS-7 (revised), FASB has prescribed for compulsory reporting of
another important statement, the statement of cash flows. A statement of cash flows reports
the cash receipts and cash payments of an organization during a particular period. It is widely
used as a tool for assessing the financial health of an organization. Other important purposes
of maintaining this statement are to predict future cash flows, to evaluate managements
generation and use of cash and to determine a companys ability to pay interest, dividends,
and to pay debts when they are due. All the sample enterprises found to use it.

4.2.4 Marginal Costing

Marginal costing is a technique where only the variable costs are considered while computing
a cost of a product. The fixed costs are met against the total fund arising out of excess of
selling price over total variable cost.

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 This fund is known as contribution in marginal costing. Marginal costing system is
however not a system of cost finding such as job, process or operating costing, but it is a
special technique concerned particularly with the effect of fixed overheads on running the
business. It is an important decision making tool. However, it is found not being widely used
in sample enterprises. Over 50% of public and 60% of private sector enterprises and 70% of
MNC found to use it.

4.2.5 Absorption Costing

Though absorption costing is a traditional approach for costing products for the purposes of
valuing inventories and cost of goods sold, the vast majority of companies throughout the
world use this technique for managerial accounting purposes. Absorption costing, which is
also known as Total, or Full costing, treats all costs of production as product costs, regardless
of whether they are variable or fixed. It allocates a portion of fixed manufacturing overhead
cost to each unit of product, along with the variable manufacturing costs. It is found widely
used in sample firms (80% in public, 90% in private and all MNC) followed by some
traditional techniques like financial statement analysis, cash flow analysis etc.

4.2.6 Differential Costing

In decision-making, the management always compares two or more alternative courses of

action. Making or buying decision, accepting or rejecting certain orders, deciding whether to
discontinue an existing product or launce new one, expanding the existing business etc. are
the decisions required to be taken by the management. In such a case the best alternative that
will maximize profit or minimize loss can be obtained by determining the differential costs
and revenues. Differential cost (revenue) is the difference in total cost (revenue) between two
alternatives. The use of this technique found absent in sample enterprises.

4.2.7 Standard Costing

A standard is a benchmark or norm for measuring performance. Standards are found

everywhere and are also widely used in managerial accounting where they relate to the
quantity and cost of inputs used in manufacturing goods or providing services. Standard
costing is a budgetary control technique with three components: a standard, or predetermined,
performance level; a measure of actual performance; and a measure of the difference, or
variance, between the standard and the actual. All sample MNCs, 90% of private sector
enterprises and 80% of public sector enterprises reported to use it.

4.2.8 Opportunity Costing

Sometimes a proposed investment project may use the existing resources of the firm for
which explicit, or adequate, cash outlays may not exist. The opportunity costs of such
projects should be considered. Opportunity costs are the expected benefits which the
company would have derived from those resources if they were not committed to the
proposed project. In addition to the accounting costs that are explicit as labor, raw materials,
supplies, rent, interest and utilities, some implicit costs are also required for managerial
decision making purpose.
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 The objective in such case is to determine the present and future costs of resources
associated with various alternative courses of action. Such an objective requires that one
considers the opportunities foregone/ sacrificed whenever a resource is used in a given course
of action. The implicit costs, however, consist of the opportunity costs of time and capital that
the owner-manager has invested in producing the given quantity of output. But none of
sample enterprises use it.

4.2.9 Budgetary Control

Budgetary control is the system of management control in which all the operations, as sales,
purchase, production etc. are forecasted in advance and the results, when known, are
compared with the planned targets. The difference between the planned targets and actual
results are analyzed and corrective steps are taken according to the original causes. By
budgetary control attempts are made to make the best uses of resource under the
circumstances and all efforts are coordinated by pin-pointing responsibility. The Budget
Performance and Variation Reports act as communication in between top management and
financial management as also in between functional management and sub-ordinate
management. The system makes everyone conscious and responsible, and thus it is also
termed as Responsibility Accounting. All the sample enterprises reported to use it. But some
research report indicated that this technique is not rigorously followed and thereby the
enterprises are deprived of its benefit.

4.2.10 Inter-firm Comparison (IFC)

IFC is another technique of Management Accounting which is made by some inter-firm

comparison ratios based on the financial and other records of the business. Top management
can make decision by applying this technique and comparing the performance of two or more
similar types of industry. The idea of inter-firm comparison was felt in the year 1889 when
the National Association of stove manufacturer in U.S.A introduced first the scheme of
Uniform Costing. In order to know whether one business/firm is making sufficient profit or
not; whether it is efficient in purchase, sales and production, it is required to compare its own
performance with the performances of other similar concerns and it is easily possible by
applying the technique IFC. But this technique is found not in use by the sample enterprises.

4.2.11 Cost-Volume-Profit Analysis

The relationship between cost-volume-profit is ascertained by the technique Cost-Volume-

Profit Analysis. This technique attempts to find out the impact of change in price, cost, and
volume on the profitability of the business. It aids management to take its decision on
planning and control. The CVP analysis is also termed as Break-even Analysis which
determines the equilibrium point of cost and revenue. The equilibrium point indicates no
profit no loss stage. 50% of sample public sector enterprises, 60% of private sector
enterprises and 70% of MNC reportedly use the technique.

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4.2.12 Management Reporting

Management reporting acts as a media which helps the management to take its decision
accordingly. It is an organized method of providing each manager with all the data which he
needs for his decisions. A good management reporting will include six factors:

a) Evaluation of each managers area of responsibility.

b) Proper flow of information.
c) Proper form & Proper time.
d) Cost benefit analysis, and
e) Flexibility Large concerns found to have a separate Management Information
Division.

This division may be headed by the Accountant himself or the Management/ Cost Accountant
or Information Manager, depending on the size of the business. All the samples reported to
use it in the form of performance report. But the contents found to vary and in many cases
one report includes a variety of information like production, procurement, sales, financial
aspects i.e. these are not segregated and thus pin point reporting for specific responsible
persons is being hampered. This adversely affects intent of the reporting.

4.2.13 Activity-Based Costing

Activity-based costing (ABC) developed to provide more accurate ways of assigning the
costs of indirect and support resources to activities, business processes, products, services,
and customers (Kaplan and Atkinson, 2001:97). Activity-based costing is a method of
assigning costs that calculates a more accurate product cost by identifying all of an
organizations major operating activities. The goal of ABC is not to allocate common costs to
products but to measure and then price out all the resources used for activities that support the
production and delivery of products and services to customers. For this why, ABC is
important to activity-based management. Since its introduction as a viable cost allocation
technique, organizations in the United States and throughout the world have adopted ABC.
This modern technique is found not in use by sample enterprises.

4.2.14 Target Costing

Target costing is a costing tool for decision making. Stratton defined target costing as a cost
management tool for making reduction a key focus throughout the life of a product. They
added that the target cost is based on the products predicted price and the companys desired
profit. Managers must then try to reduce and control costs so that the products cost does not
exceed its target cost. Target costing is most effective at reducing costs during the product
design phase when the vast majority of costs are committed. None of the sample firms use
this modern technique.

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8.2.15 Just-in-Time (JIT)

One of the management-forged operating philosophies for the new manufacturing

environment is JIT. The JIT approach can also be used in merchandising companies. The JIT
operating philosophy requires that all resources, including materials, personnel, and facilities,
be acquired and used only as needed. It has most profound effects on the operations of
manufacturing companies, which maintain three classes of inventories raw materials, work-
in-process, and finished goods. That means according to JIT concept raw materials are
received just in time to go into production, manufactured parts are completed just in time to
be assembled into products, and products are completed just in time to be shipped to
customers. Only 40% of sample MNCs use it and none of Bangladeshi sample firms found to
use it.

4.2.16 Total Quality Management (TQM)

The most popular approach to continuous improvement is known as total quality

management. There are two major characteristics of total quality management (TQM):(I) a
focus on serving customers and (ii) systematic problem solving using teams made up of front-
line workers. TQM is an approach to improving the competitiveness, effectiveness and
flexibility of a whole organization. It is essentially a way of planning, organizing and
understanding each activity, and depends on each individual at each level. TQM is also a way
of ridding peoples lives of wasted effort by bringing everyone into the process of
improvement, so that results are achieved in less time. The methods and techniques used in
TQM can be applied throughout any organization. They are equally useful in the
manufacturing, public service, health care, education and hospitality industries. Only 20% of
sample MNCs reported to use it but none of Bangladeshi sample firms use it.

5.2.17 Process Reengineering

Process reengineering focuses on simplification and elimination of wasted effort. A central

idea of process reengineering is that all activities that do not add value to a product or service
should be eliminated. Basically, in process reengineering a business process is diagrammed in
detail, questioned, and then completely redesigned in order to eliminate unnecessary steps, to
reduce opportunities for errors, and to reduce costs (Garrison and Noreen, 2004-2005:20).
None of sample enterprises use it.

4.2.18 the Theory of Constraints (TOC)

A constraint is anything that prevents one from getting more of what he/she wants. Every
individual and every organization faces at least one constraint. The Theory of Constraint
(TOC) maintains that effectively managing the constraint is a key to success (Garrison and
Noreen, 2004-2005:22). In TOC, an analogy is often drawn between a business processes
the weakest option is always identified first and then improvement efforts are shifted over to
that option in order to bring the biggest benefit. This simple sequential process provides a
powerful strategy for continuous improvement. None of sample enterprises reported to use it.

60
The above findings reveal that some traditional techniques are being used by sample
enterprises. Modern techniques are yet to be introduced. In the use of management techniques
MNCs rank high followed by private sector and public sector enterprises. Due to utmost
importance of use of modern techniques, concerned authorities need to pay attention to this.
Against the backdrop of the extent of use of management accounting techniques, means
status of management accounting practice in Bangladesh, now an attempt is made below to
show the attitude of concerned management personnel, the reasons for low use and prospect
of improving the situation in the following:

Extent of Use of Management Accounting Information by the Sample Enterprises for

Various Decision Making

Decision areas MAI (%) FAI (%) OI (%)

Production 10 30 60
Purchase 5 30 65
Sales 10 25 65
Control 30 20 50
Direction 20 10 70
Motivation 10 15 75
(MAI=Management accounting Information, FAI=Financial accounting Information,
OI= Other Information)

4.3 The Respondents as to Use Status of Management Accounting

Information Techniques in Sample Firms
It was desired to know from the respondents as to whether management accounting
information systems are satisfactorily used in Bangladesh, what are the problem of optimum
use and suggestions they can offer for adequate use of the techniques. The summarized
version of their opinion is tabulated below

Quite Satisfactory Moderate Unsatisfactory Not at all

Satisfactory satisfactory
----- 15(14.28%) 30(28.57%) 45(42.85%) 15(14.28%

The table above clearly depicts that the respondents consider the use of management
accounting techniques in our manufacturing business firms as very much unsatisfactory. Only
14.28% of them consider it satisfactory and 28.57% considers it moderately satisfactory and
seemingly most of them belong to MNC group. The majority (42.85%) considers it
unsatisfactory and 14.28% considers the position as precarious/worse. They put forwarded
some reasons for low use of management accounting techniques.

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Reasons for Low Use of Management Accounting Techniques: Respondents recognize the
importance of the use of management accounting techniques in the factories. But they pointed
out some reasons that act as barriers to this. The reasons pointed out by them are shown in the
following table.

Reasons N %
Historical Information is 20 26.67
given more importance

Lack of awareness, 25 33.33

understanding the benefit of
its u
Consider involvement of 20 26.66
extra cost
Lack of trained and 15 20
experienced personnel
Reluctant to use it and base 35 46.67
decision on personal
experience
Lack of skilled personnel 22 29.33
(N=Frequency of the respondents) (%to total respondents)

The above table indicates that reluctance of use is the main cause. This contradicts the
opinion as to considering the importance of management accounting as an important tool of
decision- making. This indicates that actually our business firms do really not feel the
importance of management accounting information for decision-making. Only lip service is
given to it.

4.4 Suggestions to Overcome the Problem of Low Use

The respondents also offered some suggestions in the way to overcome the flaws and
improvement of the positions. These are now shown in the following table.

Suggestions N %
Organizing seminar, 70 93.33
symposium of
professional bodies
Creating awareness by 40 53.33
respective Manufacturing
Association
Ensuring training and 40 53.33
skill development

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 Introducing management 30 40
audit more extensively
Creating awareness 30 40
among top management
(N = Frequency) (%= To total respondents)

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
accountants as opportunities for growth as well as possibilities of risks increase in the current
and more attractive business world. Management accounting 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 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.

63
64
CONCLUSION
This Report has provided in depth insights into role of management accountant in decision-
making. The role of an accountant is diverse and critical. They can affect the decisions that
the business leaders are going to create. They can also keep their eyes tracked in any changes
that might happen while the decision has been in the process of assimilation. Accountants
job is broad and complex but still, those individuals can handle the presence of the pressure.
The change of their role in a management is another type of approach where they can manage
the challenges brought by the globalization and the change in the world of business.

It has been established that the role of the management accountant in an organization is to
support the information needs of management. The type, size, structure and form of
ownership of the organization will influence the management role, and thus, determine the
complexity of the management accounts role. Such differences in size do not change the
basic role of the management accountant, nor the basic work which he or she does. However,
the size of the organization may change the degree of formality or sophistication with which
the function is carried out, or the level of resources devoted to management accounting. But,
the management accounting function remains essentially the same.

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RECOMMENDATION

To enhance the management accounting practices and to gain competitiveness of the

Bangladeshi companies the following recommendations have been made after analyzing all
major and associated findings-

1. Higher percentage of labor in Jute, Paper & Printing, Tannery and Textile sectors implies
that the factory is not automated enough. So, automation is recommended in order to
reduce production costs and to increase profitability.
2. A higher percentage of firms in all sectors use absorption or full costing principle for
product costing but absorption costing is not useful for internal decision-making. So it is
suggested to use variable costing for internal decision making.
3. Throughput costing and target costing should be used to increase the competitiveness of
the firms within the industry and in the global market.
4. A larger percentage of firms in Cement, Food and Allied, Jute, Paper & Printing and
Tannery do not distinguish between fixed and variable overhead costs, which sometimes
lead to misleading decision. It is recommended to make proper distinction between fixed
and variable portion of manufacturing overhead.
5. As the factories are not automated to a larger extent, it will be appropriate to use direct
labor hours as overhead allocation basis instead of machine hours.
6. Some of the firms do not use CVP for short- term decision-making. It will be helpful to
use CVP to analyze break-even, margin of safety and to increase profitability.
7. It is suggested to assign operational budgetary systems to the controller or director-
finance and accounts instead of managing director because managing director may not
have enough expertise in this area.
8. Frequency of revision of operational budget should be increased to evaluate efficiencies
of the operational level managers and control costs.
9. Instead of actual costing, firms are suggested used. If standard costing is used individual
variance can be helpful for performance evaluation and initiate cost reduction program.
10. Standards are usually set based on average past performance but past is not always the
reflection of future as future is always uncertain. So, it is suggested to set standards based
on expected actual or estimation of future circumstances.

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Internet:
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