Management Accounting Techniques for Competitive Advantage

caution history Techniques for Competitive AdvantageHadika plcA ReportThe social function of Management story Techniques for Achievement of Competitive AdvantageTable of Contents (Jump to)1. IntroductionThe current pecuniary crisis has in the space of one year radic each(prenominal)(prenominal)y changed the global business organization environment. Resulting in failures and bankruptcies of international banks and financial institutions, sharp increases in mortgage failures and home repossessions, drastically reduced availability of mention, termination of thousands of job, and increasing unemployment, the crisis is anticipate to impact the grocery for cars, Hadika plcs main product, significantly. Demand for cars is already showing signs of reducing, leading to their businesspiling at factories, dealers, and ports. Whilst gross revenue of cheaper cars, which form Hadikas major product range, have not until now experienced disturbing drops, future prospects remain uncerta in and the market is expect to become far more competitive.Company focal points, peculiarly those of smaller firms, need to become more conscious of be and efficiencies, and awargon of management be techniques, in order to improve their operational efficiencies, product addresss and internal reporting.This management report foc pulmonary tuberculosiss first on (a) the need for operational managers to understand and implement management chronicle techniques, (b) the similarities and differences between financial and management account principles and methods, (c) the roles played by management accountants, (d) the most suitable classification of personifys for the attach to and (e) the application of management accounting techniques in destine decisions, and thereafter takes up the appropriateness and use of management accounting techniques to support and increase the companys market sh ar.2. Management AccountingManagement accounting (MA) essentially involves the use of financial and accounting instruments and techniques by managers of business firms to improve operational efficiencies, check out and reduce costs, improve gross sales majoritys and sales mix, and increase productivity, profitability, market share, and competitive advantage.1Whilst based upon similar accounting fundamentals, MA is essentially diverse from financial accounting. financial accounting is primarily a recording method that aims to present a rightful(a) and fair skeleton of (a) the revenues, expenses and profits of businesses during specific determined periods, and (b) the value of their assets and liabilities on a specific date, for all users of prepared financial statements. This aim of financial accounting to provide a true and fair picture of the operations and the assets of businesses has resulted in the development of a vast and intricate system of accounting that has been shaped by influences from accountants, auditors, taxation authorities, regulatory bodies, stock exchanges, company managements, and other stakeholders.2 Whilst financial accounting has evolved in different directions in different regions and countries, globalisation is leading to the convergence of these different methods and to the gradual evolution of a single measure global financial accounting system.3MA, like financial accounting, encourages in providing a picture of the companys operations. Its basic approach is however very different and it serves more as an internal accounting tool that helps managements to improve their costs and cost structures, productivity, operational efficiency, sales accomplishment, and profitability.4 Based upon the same time tested accounting methods as financial accounting, MA uses more of cost accounting techniques and has essentially evolved and enlarged from the cost accounting methods that were pioneered by John Wedgwood during the vast recession.5The use of MA as an internal management tool allows for great flexibility in its usage and scope and encourages its shaping and modification by the needs of operating processes, businesses, and physical accounts.6 MA uses accepted costing methods like batch, process, standard and activity based costing. It helps managements to determine unit of measurement costs, variable costs, dogged costs, and breakeven points. Processes like marginal costing, Make or Buy and Cost Volume Profit (CVP) analyses help in decisiveness of product profitability and optimisation of sales mix budgeting techniques aid in optimising operational performance and cash flows through comparison of actual performance against budgets and analysing positive and negative variances.7The company currently determines unit costs by absorbing all costs incurred by the company into individual products and dividing such costs by simple parameters like production or sales numbers.8 Such a system, whilst in use in many firms, is likely to lead to erroneous costing build-ups, misleading information a nd inappropriate pricing decisions.9Classification of Hadikas costs into Variable Costs, (those that are dependent upon production volume like literal and direct labour), and Fixed Costs, (those that are incurred irrespective of production volume like salaries, rents and depreciation), exiting modify the organisation to ascertain breakeven points at different sales footings and sales volumes and make appropriate pricing decisions, which in go game pull up stakes help in achieving competitive advantage, market penetration, and profit optimisation.10CVP analyses will allow the firm to determine the effect of various cost, price and volume combinations upon organisational profitability and assist significantly in taking decisions regarding determination of sales mix, introduction of new products and phasing out of unprofitable products or product lines.11 Sensitivity analyses and cost and volume simulations will help Hadika in forecasting the impact of changes in costs and volum es upon profitability.12Management accountants are judge to compile records, statements, and forecasts, on the basis of historical and projected figures for sales, costs and other expenses, with the use of current cost and management accounting techniques.13 Their job, whilst being grounded in basic accounting and cost accounting concepts, is essentially interdisciplinary and interdepartmental, needing them to investigate the nature of different costs and revenues and analyse them in a user friendly modal value for the use of management, as well as for the sales, and production departments.14Whilst management accountants make use of normal reckon aids like Excel spreadsheets for their computation and analysis, the development of sophisticated ERP software has empowered them significantly and they are now able to provide far more complex analyses of the impact of developments in various business areas upon organisational productivity, cost efficiency and profitability.3. Applicatio n of Management Accounting Methods at HadikaWith the current financial crisis reducing credit availability, employment, and incomes, across the advanced nations, the market for cars is likely to be affected drastically in the coming months buyers are expected to increasingly look for products that are cheap, stinting to run, and provide value for money.The crisis is expected to be oddly hard on people in higher income groups, consequent to their wealth evaporating in the face of stock market meltdowns. The market for larger cars is forecasted to shrink much faster than those of smaller compacts and sub-compacts which are cheaper and more economical to operate and maintain.Management accounting techniques in this scenario should be employed to examine and analyse costs, sales prices, sales volumes, and sales mixes, in order to empower the company management to take appropriate action for overture of competitive advantage, and for maintaining and improving market share.The use of va riable costing will enable managers to know the composition and amount of direct costs for each component and each product, as well as the expected contribution from each product. Products with higher unit contributions being more profitable than others, contribution analysis will enable the management to localise more profitable products and determine the thresholds to which prices of these products can be reduced.Such initiatives will also help the management in investigating and analysing make or buy options, and if possible in outsourcing the production of some components from more economical sources thus driving down the companys cost of production. Outsourcing of components from more economical producers will in turn lead to the acknowledgment of surplus employees, who can wherefore either be deployed effectively in other activities, or let go, both options leading to cost savings and improvements in efficiency.The segregation of costs into fixed and variable will also bring all fixed costs into focus and provide numerous other opportunities for cost savings through the identification of (a) unutilised or underutilised workforce, rent, or machinery, and (b) excessive costs in administration, travel, entertainment, external consultants, electricity, canteen expenses and legal fees, thus fountain up numerous areas in which costs could progressively be reduced without upsetting the working of the company or employee morale.Comparison of sales forecasts with actual achievements, accompanied by analysis of variances and study of product contribution, could help the company in focussing on poorly performing products, followed by identification of reasons for poor performance, and the possibilities and consequences of introducing price or even, (if the situation so warrants), production cuts.CVP analysis will allow managers to gain instant penetration to the results of numerous permutations of sales mix, in terms of individual and composite break even point s and profitability, thus allowing them to stern on the optimum sales mix, both from the point of view of the market and of the firm.Application of MA techniques will help the company to (a) control and reduce costs (b) focus on profitable and unprofitable segments by way of contribution analysis, (c) decide upon price reductions and (d) strategically pass on cost advantages to the customer or dealer to increase competitive advantage and market share.Analysis and simulation of Cash Flows, another full component of MA, will help the management to understand the effect of these changes on the cash flows of the company and enable timely corrective action.4. Conclusion and RecommendationsManagement Accounting methods help managements of firms in improving understanding of costs, control and management of costs, and the effect of changes of costs and volumes on profits and cash flows, and by doing so help in the taking of complex decisions that can significantly affect organisational w orking.Whilst the use of MA techniques prove to be face-saving at all points of time, they become imperative in times of increased competition or market recession, not just for improvement of competitive advantage but for simple survival. Their use in these deprecative times is deemed to be essential, as is their knowledge at all decision making levels of the company.Word deem 1614 (Excluding Title Page and Table of Contents)BibliographyBell J, and Ansari, S, 1995, Strategy and Management Accounting, Houghton Miffin Company, Retrieved November 24, 2008 from college.hmco.com/accounting/ansari/management/1e/students/modules/mod11.pdfBhimani, A, (2003), Management Accounting in the Digital Economy, Oxford Oxford University PressGuidry, F., Horrigan, J. O., Craycraft, C. (1998), CVP Analysis A late Look. Journal of Managerial Issues, 10(1), 74+Gul, F. A., Tsui, J. S. (2001), throw in the towel Cash Flow, Debt Monitoring, and Audit Pricing Further Evidence on the Role of Director Equity Ownership. Auditing A Journal of Practice Theory, 20(2), 71Heymann, H. G., Bloom, R. (1990), Opportunity Cost in Finance and Accounting, Westport, CT Quorum BooksLawrence, C. M. (2006), Cost Management A Strategic Focus, 3d Ed. Issues in Accounting Education, 21(3), 324+Mascha, M. F. (2002). Cost Management Strategies for blood line Decisions. Issues in Accounting Education, 17(4), 451+Riahi-Belkaoui, A. (1992). The New Foundations of Management Accounting, New York Quorum BooksRiahi-Belkaoui, A. (2002). Behavioural Management Accounting, Westport, CT Quorum BooksRoberts, C, Westman, P, and Gordon, P, 2005, International Financial Reporting A Comparative Approach, 3rd edition, FT Prentice Hall, USAThompson, R. (1986). Understanding Cash Flow A schema Dynamics Analysis, 23+11 Bhimani, A, (2003), Management Accounting in the Digital Economy, Oxford Oxford University Press2 Roberts, C, Westman, P, and Gordon, P, (2005), International Financial Reporting A Comparative Approac h, 3rd edition, FT Prentice Hall, USA3 Roberts Others, (2005)4 Riahi-Belkaoui, A, (1992), The New Foundations of Management Accounting, New York Quorum Books5 Riahi-Belkaoui, A, (1992)6 Lawrence, C. M, (2006), Cost Management A Strategic Focus, 3d Ed. Issues in Accounting Education, 21(3), 324+7 Lawrence, (2006)8 Mascha, M. F, (2002), Cost Management Strategies for Business Decisions. Issues in Accounting Education, 17(4), 451+9 Mascha, (2002)10 Mascha, (2002)11 Guidry, F., Horrigan, J. O., Craycraft, C. (1998), CVP Analysis A New Look. Journal of Managerial Issues, 10(1), 74+12 Mascha, (2002)13 Riahi-Belkaoui, A, (1992)14 Riahi-Belkaoui, A, (1992)