Free Accounting Dissertations - Cima Defines Management Accounting As The Process Of Identification,
CIMA defines Management Accounting as the process of identification, measurement, calculation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to ensure appropriate use of and accountability for its resources. An important contrast between the two segments of accounting is that management accounting is not mandatory in the sense that a company is free to do as much or as little as it likes and no regulatory bodies or agencies specify what is to be done, or, for that matter, whether anything is to be done at all.
The sole objective of management accounting is to provide the managers with a detailed analysis of the cost incurred and to assist them develop strategies to increase profits and reduce costs. Costing is a function which links both financial and management accounting. Without proper product cost information a manufacturing, wholesale or retail organisation would be unable to segregate the cost of sold and unsold outputs. Such segregation is essential to obtain periodic profitability measurement.
In this study, we are primarily concerned with management accounting and the strategies and techniques adopted and used in its estimation. We aim to look how superior is Activity Based Costing is to Traditional Costing and to what extent Activity Based Management is relevant to Management Accounting.
2.0 Cost Estimation Using Traditional and Activity Based Costing (ABC) systems.
In order to have a greater understanding of ABC systems and its significance it is essential that we assess traditional costing systems and look at the techniques adopted briefly. In doing so, we may be able to look at the merits and demerits of traditional method and the emergence of ABC systems as an alternate choice to the traditional costing system. Activity based Cost estimation has gained immense foothold in most company accounting systems largely due to its preciseness and accuracy. But such accuracies have come with question marks over its feasibility and complexities of identifying each and every activity.
Costing has remarkable influence over the product’s saleable properties in the market. Consumer’s purchasing powers have significant affect on the product life cycle. It is, therefore, necessary that manufacturers give importance to factors that influence the cost of a finished product not only from the point of view of selling but also from profitability, market share point of view. To do this, we need to look at the very early stages of production and work our way out to a stage where we may be able to list a list of reasons that leads to pricing of a product.
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