Unit 2 Management Accounting

The knowledge of cost behavior is used to forecast the level of cost at a particular level of activity. An understanding of the organization’s cost behavior enables managers to anticipate changes in cost when the organization’s level of activity or cost driver changes. There is a entire range of cost behavior patterns, from simple variable to fixed costs to the complex variable and curvilinear costs. Cost Volume Profit Analysis helps the organization to identify the impact of any changes in the level of output on the costs, sales and profits. This analysis helps in identifying the break-even point for the organization. Use of Standard Costing system for cost control process. The work of management accounting is to identify the standard costs of labor, material and overheads through the use of past data or through the use of task analysis. This standard cost is then used as a benchmark against which the actual costs are compared. The cost control process will include the identification of the variances from the budgets; material variance, price variance, labor variance and total variance. Use of Balanced Scorecard System in the organization will help in a better strategic planning as all the facets of the organization will be effectively analyzed and studied. It helps in the control process as it gives a holistically picture of where the organization should be and where it wants to be. In the control process, the flexible budgeting technique can be used to control the overhead costs. The amount of overhead as given by this technique is taken to be the standard overhead costs and variations are noted and analyzed accordingly. The above mentioned techniques help in controlling the business activities and ultimately add to the sustainability of the business. However, there are various other aspects of Management Accounting through which a business can look to sustain its presence in the market. Businesses are made sustainable with a lot of hard efforts by the management. Integrating a more sustainable approach into the way an organization does business requires change and leadership from senior management. This aspect looks at the vision of the management and their leadership to create a sustainable business. Given the support and guidance of the senior management, the managers and professional accountants can significantly change the way an organization operates. Professional accountants in CFO and other executive positions are increasingly placed in organizations to be partners or co-pilots in developing and executing sustainable growth strategies. This requires professional accountants to use their knowledge and leadership skills to integrate sustainability into the strategy, management, operations, and reporting of their organization, with the aim of achieving long-term sustainable performance. The traditional role of management accounting was to aid the management process through providing timely information for decision-making and control activities. However, increased focus on environmental issues, changing consumer behavior and organizational responsibility has led to the requirement of environment-related management accounting. Environmental related management accounting is ‘the generation, analysis and use of financial and non- financial information in order to improve corporate environmental and economic performance’. Environment-related management accounting helps the businesses to identify the different types of costs a business decision incurs in terms of its effect on the society and the environment. The corporate houses have to find an optimum level where the societal and environmental costs are low and the impact on the environment is low. Per se, it is not a part of management accounting, but it cannot be overlooked when the question of business sustainability arises.