Management Accounting

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Jaymit Patel

AVCE Business

Unit 10 Management Accounting (E1)


Jones’ Compact cars, is a small family run business in rural Southgate. The business was established 40 years ago by old Mr. Jones and during that time, a Jones Compact car has become a well-known manufacture of classic remote control cars, its start product being the flame red MG.

Old Mr. Jones has recently has taken his nephew, young Ken, into the business, in the hope that he will carry on the firm in the family tradition when he himself retires.

Young Ken is a business graduate of Durham University, is excited at the prospects of taking over Jones’ Compact car, but realises that the firm is not functioning particularly efficiently and that there is much room for improvement.

One of the main objectives for Jones’ Compact cars is of meeting a target of increasing profits by at least 10% per year over the next five years.


What is Management Accounting?

Management accounting is those areas of accounting concerned with financial planning, principally through the interpretation and use of financial data for important management of the business. The role of accounting is to provide relevant information, which will assist management with decision-making, planning economic performance, controlling costs and improving profitability. However, note that the information generated by the management accounting function is just one component part of the decision-making process. It is not the ‘be all and end all’; it must be used in conjunction with other data.

The aim of management accounting is to provide management with information, which will help them to:

  • Achieve their objectives/goals.
  • Formulate policy.
  • Monitor and assess performance.
  • Appreciate the financial implications of changes in the internal and external environment in which the organization operates.
  • Plan for the future.
  • Make comparisons between alternative scenarios.
  • Manage more efficiently the scarce resources, which are at their disposal.
  • Control the day-to-day operations.
  • Focus their attention on specific issues, which really need their consideration.
  • Solve a variety of problems, e.g. investment decisions.
  • Take account of behavioral factors.
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Differing from financial accounting, the focus of management accounting is usually on the information at a more details level, on results for any products and on costs for particular productive operations. Understanding the role of management accounting requires an appreciation of what is involved in management and the kinds of decision that management is faced with.

The objective of the management accounting system is to provide the best information for assessments of the amounts, timing and uncertainty of cash flows to the business from each alternative course of action available to the business.

The purpose of ...

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