MZUMBE UNIVERSITY DAR ES SALAAM CAMPUS COLLEGE

DEPARTMENT OF BUSINESS STUDIES

STUDENT NAME: FRANK LOTY

REGISTRATION NO: 221050249/T.19

COURSE: MBA - CM

SUBJECT: FINANCE FOR MANAGERS

CODE: FIN 5107

LECTURER NAME: Dr. SEIF MUBA

DATE OF SUBMITION: 7TH FEB 2020

QUESTION.
Refer course outline, a topic ‘Introduction to Management Accounting’; in not more than 10 pages,
prepare your own summary that covers the contents of the topic, which will help a learner to:-

 Provide the differences and or Similarities between Management Accounting and Financial

Accounting

 The Need and Objectives of Management Accounting within the Business Organizations

 The Roles of Management Accountants in the Business Organizations

 The Advantages and Limitations of Management Accounting within the Business Organizations

 An Ideal Relationship that might exist between the Management Accounting and Value Chain &

Supply Chain

 Ethical Issues that are prevailing in Accounting for Management Accountants

 Give a case study (of your organization if employed or your own/family/relative business if

unemployed) and show how the management accounting is or has been performed.
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TABLE OF CONTENTS

1.0 Introduction………………………………………………………………………….Error!
Bookmark not defined.

2.0 Provide the differences and/or Similarities between Management Accounting

and Financial Accounting………………………………………………………..…3

3.0 The Need and Objectives Of Management Accounting within the Business

Organisations…………………………………………………………………..….4

4.0 The Role of Management Accountant in the business Organisations……………...5

5.0 The Advantage and Limitations of Management Accounting within the business

Organisations………………………………………………………………….......6

6.0 An ideal Relationship that might exist between The management Accounting

and Value Chain& supply Chain……………………………………………...….7

7.0 Ethical issue that are prevailing in Accounting for Management Accountants.…8

8.0 A Case study showing how the Management accounting is or has been

performed………………………………………………………………………9
1)INTRODUCTION

Financial Accounting is the process of recording revenues, expenses, assets and liabilities which are
generally connected with the running business enterprise.

Management Accounting has been defined by, the application of accounting and statistical
techniques to the specific purpose of producing and interpreting information designed to assist
management in its function of promoting maximum efficiency and in envisaging, formulating and
coordinating future plans and subsequently in measuring their execution.

2)Provide the differences and/or Similarities between Management Accounting

and Financial Accounting

Management accounting is used primarily by those within a company or organization. Reports can
generate for any period of time such as daily, weekly or monthly. Reports are considering to be
“future looking” and have forecasting value to those within the company. The main function of
management accounting in the enterprise is to establish a variety of internal accounting control
system and provide internal management needs of a variety of data and information at the aim of
improving operational efficiency and effectiveness.

Financial accounting is used primarily by that outside of a company or organization. Financial

reports are usually created for a set period of time, such as a fiscal year or period. The reports are
historically factual and have predictive value to those who wish to make financial decisions or
investments in a company.

However, the reality is that financial and management accounting has been completely separated by
an increasing number of companies, which according to their own accounting methods to double
account the data at the aim of external reporting and internal management. It is hard to achieve
information sharing between the two sets of data, resulting in the waste of resources and duplication
of effort.

Therefore, companies should integrate both accounting effectively together, and give full play to
the function of the accounting information system to enable enterprises to obtain the dual needs of
management and finance at the lowest financial cost.

Similarities Between Financial and Management Accounting

Financial accounting:

They focus on external services, but internal services are also including. The information which
financial accounting provided on the funding, costs, profits, and other information is very important
for business management. In particular, financial statements can comprehensive and reflect all
aspects of the enterprise’s financial position and operating results. Study of the financial statements
can grasp the overall situation of the enterprises, managers must first be aware of the overall
situation, so that guide enterprises to continuously move forward.

Therefore, managers must pay close attention, and be very concern about the information providing
by financial accounting. At the basis of the analysis of financial accounting, the plan could develop
to enhance control and make a scientific decision, how to further improve management and increase
economic efficiency could also study. So we can not say financial accounting is just the external
services, not domestic service, we can only say that financial accounting focuses on external
services.

Management accounting:

They focus on internal services, but it also contains external services. Investors and creditors
concern about the enterprise’s financial position and operating results. In order to improve the
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 enterprise’s financial position and operating results. Precondition can only base on strengthening
internal management and improving. The works quality and effectiveness at the aspects of
production and management. In this regard, management accounting contributes a lot to correct
business decision and timely provision of useful information. At the same time, investors and
creditors in their decision-making. Also, need to know a number of economic information provided
by management accounting. Which has important reference value when they make the right
judgments and policy decisions.

Management accounting must obtain a variety of information from the different channels for
planning and control of production and business activities. Such as financial information, statistics,
business accounting information, and other relevant information. The most basic of which is
financial information. Financial accounting has a fixed set of procedures and methods. Information
will form according to some time production and business activities and their results through the
registration books, weaving statements, etc.. Which is not only for external use but also for internal
use. Management accounting can develop base on financial information, making management
accounting information to facilitate regulation, control and decision making.

Similarity:

Functions of accounting are accounting and supervision. They have agreed to subordinate to the
general requirements of a modern enterprise accounting. Which means the users of accounting
information provide relevant information, to achieve enterprise internal objectives and meet the
requirements outside the enterprise. So the ultimate goal of accounting both is the same.

Both accounting is facing with self-improvement and development. They have to confront the
reality of a common problem: how to use modern computer technology to collect, process, store,
transmit and report the accounting information; at the same time. They need to handle the demands
of modern management properly according to the organization and implementation of accounting
management.

Difference between Management Accounting and Financial Accounting

Sr.
Management Accounting Financial Accounting
No.

For external reporting to various stakeholders and

1 Only used for internal purposes of the firm
mandatory by law in most cases

2 Is not under the regulation of any law or regulations Is governed by Standards, Laws, regulations, etc

The main purpose is to help internal management take

3 Helps investors, creditors, etc. take investment decisions
decisions

4 Includes both financial and non-financial information Is only concerned with financial information

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3) The Need and Objectives Of Management Accounting within the Business

Organisations

Management accounting helps in create suitable structure. By maintaining the total budget, cost
controlling system and internal expense, it organizes the company. The most important purpose of
management accounting is to take decisions according to data. It also able to transfer the ownership
of making decisions.

Objectives of accounting are most important and expanded topic of accounting. The objectives of
management accounting are mainly referred to make your business smoother and profitable. It helps
to make a future plan for beginners or small business owner. Management account is the collection
of accounting report. The manager should have to read these regularly and use it for ongoing
improvement. It’s actually focused on the future development of a business. I am writing about the
main objectives of this important topic from my own experience so that you can be aware of it.
Moreover, you can know the advantages of management accounting.

There are many logical reasons for management accounting. Actually, it is able to gain the other’s
objectives of accounting. But all the objectives do not carry the same importance. The most notable
and common objectives are highlighted here. These are basically called the main purpose of
management accounting.

Description and presentation of data:

In accounting, decisions are not made only with the profit or loss. Management accounting explains
the different information and data according to their needs. As like month base buying statistics,
product base and supplier base information have to be modified. The financial accounting is change
and refines these data of profit or loss. It helps the management accounting to take a new decision.

Future planning and manufacturing:

Managerial accounting is accommodating of the future plan for the small business owner. The small
company’s future plan includes the management account where the financial account is working for
the collection and save the past performance of work. Management accounting mainly looks at the
future plan. So, it is clearly indicating that future planning and manufacturing is the most important
objectives of management accounting. For this reason, the management accounting focuses on
checking the information at the right time. It always estimates the company’s future and emerging
costs. As a result, the small business owner can easily get a modified idea of the future.

Controlling execution of organization:

The management accounting is able to make real representations within a short time. Controlling
budget and costs is the vital part segments of management. That’s why it can control the whole
organization. Every businessman has own plan for achieving the target. There have some rules and
regulation. They have to think the easier way. They should have analysis the path by which he can
fulfill the organization’s target perfectly. The business system is always reporting the results of the
work performed and mostly compare the planned work and successfully completed work. The
management accounting is always flexible in this matter.

Organizing and decision making:

Every organization has a reasonable structure. There is a lot of research required to organize the
structure of the company properly. Management accounting helps in create suitable structure. By
maintaining the total budget, cost controlling system and internal expense, it organizes the
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company. The most important purpose of management accounting is to take decisions according to
data. It also able to transfer the ownership of making decisions. Small business owners often have
to make decisions and sometimes have to make changes. Even a business owner also has to think
about before starting his business about the product which can be more sold and the customer wants
more. Management accountants are notified about these things to the owner. That’s why he
analyses provides the correct information. It helps a business to be more successful.

Internal News Report:

Managerial accounting gives a report on financial compatibility. It is another objective of

management accounting to create an internal uses report. It is an effective and fixed process. As a
small business owner, you have to know about the most important matter like a report. Because of
the right internal information can make your company stronger. It helps to analyze all the facilities
as per the report for the improvement of your business.

Profitability of Business:

Profit and loss report is very important to understand how much profit or loss your business has
been facing every day. The management accounting report never encounters profit or loss to the
company but it just indicates to see. If management accounting noticed any possibility of loss in
your company, then it can be conscious to reduce the selling product cost. On the other hand, if it
noticed the possibility of profit, it can invest more in that sector. These reports are useful to find out
the recent problem of your business and help to solve this problem. By using these report, you will
be able to know every detail of your business and the possible problem.

Financial Objectives:

Sometimes management accounting works for the financial sector of a company. It helps to manage
commodity and financial part. The financial statement shows the amount of the money which is
coming to your company or expense from the company. This information will help you to eliminate
the small problem and also helps to use the opportunity perfectly. If you want to monitor your
business for a specific period of time, these managerial accounting reports are able to give you a
clear idea.

Communication with Information:

Management accounting exposure the expedition information to the interested people. So that they
can communicate with the management to take decisions and be able to move forward the business.
The management information is an undeniable part of managing the company with information.
Needed reports help to be conscious at the right time.

Coordinating Operation:

Initially, management accounting formulation the effective budget. The management helps to
combine all the important budgets. The coordinating of all budgets is called the master budget.
Management accounting plays an important role in coordinating various business activities.

The motivation for Employees:

Management accounting helps to provide inspiration to employees of the organization. It works for
new effective planning, the best uses system of work and inspired the member of the organization.

4)The Role of Management Accountant in the business Organisations

Main objectives have to notice for your business. It will help you to improve your business. The
following points will highlight the seven roles of management accountant in decision-making
process of the organisation. The seven roles are: 1. Stewardship Accounting 2. Long-term and
Short-term Planning 3. Developing Management Information System (MIS) 4. Maintaining
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Optimum Capital Structure 5. Participating in Management Process 6. Control and 7. Decision-
making.

i) Stewardship Accounting:

Management accountant designs the frame-work of cost and financial accounts and prepares reports
for routine financial and operational decision-making.

ii)Long-term and Short-Term Planning:

Management accountant plays an important role in forecasting future business and economic events
for making future plans i.e., long-term plans, strategic management accounting, formulating
corporate strategy, market study etc.

iii) Developing Management Information System (MIS):

The routine reports as well as reports for long-term decision-making are forwarded to managerial
personnel at all levels to take corrective action at the right time.The management accountant also
uses these reports for taking important decisions.

iv)Maintaining Optimum Capital Structure:

Management accountant has a major role to play in raising of funds and their application. He has to
decide about maintaining a proper mix between debt and equity. Raising of funds through debt is
cheaper because of tax benefits.

However, it is risky as because interest on debt has to be paid whether the firm earns adequate
profits or not. Management accountant has, therefore, to maintain an optimum capital structure and
give due consideration to various cost of capital theories, leverage and possibility of trading on
equity.

v) Participating in Management Process:

The management accountant occupies a pivotal position in the organisation. He performs a staff
function and also has line authority over the accountant and other employees in his office. He
educates executives on the need for control information and on the ways of using it. He shifts
relevant information from the irrelevant and reports the same in a clear form to the management and
sometime to interested external parties.

vi) Control:

The management accountant analyses accounts and prepares reports e.g., standard costs, budgets,
variance analysis and interpretation, cash and fund flow analysis, management of liquidity,
performance evaluation and responsibility accounting etc. for control.

vii) Decision-Making:

Management accountant provides necessary information to management in taking short-term

decision e.g., optimum product mix, make-or-buy, lease or buy, pricing of product, discontinuing a
product etc. and long-term decisions e.g., capital budgeting, investment appraisal, project financing
etc.

However, the job of management accountant is limited to provision of required information in a

comprehensive as well as reliable form to the management for decision-making purposes. But the
actual decision-making responsibility lies with the management. In other words, neither the
management accountant nor the internal accounting reports can make the decisions for the
management.
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5)The Advantage and Limitations of Management Accounting within the business
Organisations.

Maintenance of business records: All financial transactions are recorded in a systematic manner in
the books of accounts so that there is no need to rely on memory. Human memory is limited by its
very nature. Accounting helps to overcome this limitation.

i)Advantages and Objectives of Management Accounting

There are many objectives of but the prime objective is to assist the management team of an
organization in improving the quality of their decisions. Purpose of management accounting is to
help the managerial team with financial information so that they can execute business operations
and activities more efficiently. Following is the list of all benefits of management accounting –

Decision Making

Planning

Controlling business operations

Organizing

Understanding financial data

Identifying business problem areas

Strategic Management

Decision Making

This is the most important benefit of the process of management accounting. In fact, it is the main
purpose of it. In this form of accounting, we use techniques from all fields like costing, economics,
statistics, etc.

It provides us with charts, tables, forecasts and various such analysis that makes the process of
decision making easier and more justified.

Planning

Managerial accounting does not have any strict timelines like financial accounting. It is, in fact, a
continuous and ongoing process.

So financial and other information is presented to the management at regular intervals like weekly,
monthly or sometimes even daily.

Hence managers can use this analysis and data to plan the activities of the organization. For
example, if the recent data shows a dip in the sales for a certain region, then the sales manager can
advise his team and plan some action to rectify the situation.

Identifying Business Problem Areas

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If some product is not performing well, or some department is running into unexpected losses, etc.
managerial accounting can help us identify the underlying cause.

Actually, if the management is diligent and their data and reports are frequent, they can identify the
problem very early on. This will allow the management to get ahead of the problem.

ii)Limitations of Management Accounting

Data based on Financial accounting – Decisions taken by the management team are based on the
data provided by Financial Accounting

Less knowledge – Management has insufficient knowledge of economics, finance, statistics, etc.

Outdated data – Management team receives historical data, which may change eventually when
management is taking the decisions.

Expensive – Setting up a management accounting system requires a lot of investment.

6)An ideal Relationship that might exist between The management Accounting

and Value Chain& supply Chain

Management accounting for supply chain management

Management accounting, including cost accounting, provides and analyzes

information to support managers in undertaking and controlling management. Cost

management means supporting organization in achieving goals, which are higher

profits while reducing the level of costs. However, in order to reduce

costs and increase profitability, an appropriate measurement system is needed

with ordered data and appropriate tools and methods. Many foreign authors have

recognized the essence of management accounting in SCM issues, pointing to the

benefits that may result from the implementation of management accounting tools

The context of cost management in the context of SCM is based on the following methods and
approaches: supply chain costing, total cost of ownership, value chain analysis, balanced scorecard,
activity-based costing and supply chain operations reference.

Regardless of the used method, information provided by management accounting

under the SC should provide relevant financial and non-financial information to

managers on time so that they can conduct the process of control, planning and

decision-making regarding the further shape of processes in this business model.

In the literature researchers undertake discourse, pointing out specific methods

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that, by their specificity, correspond to the supply chain environment and could

support it effectively. For example distinguish such methods as open-book accounting, target
costing and kaizen costing.

Open-book accounting creates access to information on buyer by supplier.

Therefore, the buyer is often pressured to lower the price, but often this correlation

The measurement of costs and results in supply chain management:

does not work the other way, i.e. providing data on how the cost reduction is

implemented by the supplier. In target costing, the value of target cost should cover all expenses,
i.e. the cost of purchase, production and distribution (sales, logistics, marketing), so such abroad
approach to the cost category is even more appropriate in managing the SC.

A similar function in managing costs, and thus supporting management in inter-

organizational relations, is kaizen costing. The suppliers use this system to establish

areas to reduce costs and in this way also transfer the same approach to their business

partner Activity – based costing streamlines.

7)Ethical issue that are prevailing in Accounting for Management Accountants

Management accountants work inside a company, handling all internal accounting data. These
individual often allocate production costs, create management reports and provide support for
managerial decisions. Ethical issues can result from managerial accounting activities. Like all
professionals, management accountants must be sure to be ethical when working for a company.

Overproduction

Overproduction occurs when management accountants work in tandem with operational managers.
Accountants can select a method that improves operating profits through recording more
expenditures as production costs. This lowers period expenses and increases finished goods
inventory. Absorption costing is the common method abused during overproduction. Operating
managers and management accountants report higher profits by using absorption costing to record
fixed costs in final inventory accounts.

Cost Allocation

Cost-plus contracts are common areas where management accountants can shift overhead costs
from the income statement to contracts. This forces a client to pay higher prices for the same
amount of goods or services. Accountants again work in tandem with operational managers to shift
these costs to contracts. This incorrect allocation distorts the company’s accounting statements and
potentially damages client relationships due to inappropriate contract billing.

Conflicting Interests

Accountants typically work for the best interest of the company, not individual managers or
executives. A conflict of interest arises when a management accountant can better his personal
position by violating this principle. For example, a management accountant who helps operational
managers fudge numbers can better his personal position rather than ensuring the best operational
capacity for the business. Offering suggestions to improve the company rather than one segment
helps reduce conflicts of interest.
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Asset Replacements

Companies often need to replace assets at some point during business operations. Management
accountants often review equipment and make suggestions as to which assets need replacing.
Ethical issues arise, however, since new asset will often lower the return on investment a company
receives from certain business projects. This occurs because the new asset has a higher cost,
automatically reducing the ROI. Management accountants who do not make recommendations
based on ROI impact often acts unethically.

8)A Case study of ALAF LTD showing how the Management accounting is or has been
Performed

ALAF LIMITED management accounting is performed and helping in decision making and
performance by

i)Weekly reports,ii)management reports,iii)Group report iv)variable cost analysis

v)fixed cost analysis,vi)control accounting analysis,vii)stock reconciliation,viii)fixed

monitoring,viii)Analysis between actual cost and budget,ix)Preparation of Annual
budget,x)Products costing analysis,xi)Profitability analysis.

1. Designing and Compiling

Accounting information, records, reports, statements and other evidence of past, present or future
results should be designed and compiled to meet the needs of the particular business and/or specific
problem.

It means that management accounting system is designed in such a way presenting the relevant
data. If so, a particular problem is to be solved. Moreover, accounting information can be modified
and adopted to meet the requirements of management.

2. Management by Exception

The principle of management by exception is followed when presenting information to

management. It means that budgetary control system and standard costing techniques are followed
in the management accounting system.

In thiway, the actual performance is compared with pre-determined one for finding the deviations.
The unfavorable deviations alone are informed precisely to management as what is going wrong. If
so, the management has spent less time to read and study the information and more time to take
action.

3. Control at Source Accounting

Costs are best controlled at the points at which they are incurred – control at source accounting. The
performance of individual workers, details of materials issues and utilization and usage of services
such as machine, power, repairs and maintenance, vehicles etc. are prepared in the form of
quantitative and qualitative information. In this way, control can be exercised over employees,
materials and service providing devices.

4. Accounting for Inflation

A profit cannot be said to be earned unless capital is maintained intact in real terms. It means that
money value is not stable. Hence, it is necessary to assess the value of capital contributed by the
owners of the business concern in terms of real value of money through revaluation accounting. In
this way, rate of inflation is taken into account to judge the real success of the business concern.

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5. Use of Return on Investment

Return on investment is otherwise called as Return on Capital Employed. The rate of return shows
the efficiency of the business concern. For this purpose, the capital employed is calculated in terms
of real money value.

6. Utility

Management accounting systems and related forms should be used only as long as they serve a
useful purpose.

7. Integration

It means that all the required information of the management is integrated so that they can be used
effectively at the maximum and at the same time, the accounting service is provided at minimum
cost.

8. Absorption of Overhead Costs

Overhead costs are absorbed on anyone of the predetermined basis. The overhead costs are the
combination of indirect materials, indirect labour and indirect expenses. Hence, the selected method
or methods for the absorption of overheads should bring about the desired results in the most
equitable manner.

9. Utilization of Resources

The available resources should be effectively used. The reason is that some resources are available
in plenty only in reason and some other resources are available in scarcity throughout the year.
Hence, the management accounting system should be ensure proper utilization of available
resources.

10. Controllable and Uncontrollable Costs

On the basis of controllability of costs, the costs are classified into two types i.e. controllable and
uncontrollable. There is no meaning of taking steps to control the uncontrollable costs. Hence,
the management accounting system can provide techniques to control the controllable costs.

11. Forward Looking Approach

The management accounting system can guess the future problems through standard costing
techniques by means of fixing standard. In this way, the future problem may be prevented to occur.

As stipulated above ALAF LTD use the above approach to help managements to make decision
on either pricing of items or controls.

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