Management Accounting for Planning and Control
Introduction
Management accounting is usually involved in the planning and control since it is usually concerned with providing vital information to the managers as well as the people within an organization who are directly in the control its operations. Alternatively, this managerial accounting information is also crucial in providing information to creditors, stockholders as well as other stakeholders both inside and outside an organization (Drury 2008, p. 112). Additionally, the managerial accounting is also responsible in providing essential information with which most of the organizations are usually operated and controlled. Hence the managerial accounting is crucially vital in the planning as well as control of the organisations as a result of their significance. Additionally, management accounting is involved in preparing various reports mainly focusing on indicating how better the business units and their managers have performed after the comparison of the actual plans achieved on the plans that have been put in place as well as to the benchmarks (Drury 2008, p. 116).
Apparently some of the reports that are provided by the management accounting are very vital in providing information that is essential in the planning as well as control of the information which is timely as well as frequently updating the organisation management on key indicators of the performance such as orders received, capacity utilization, order backlog, and also the achieved sales (Drury 2008, p. 118). Additionally some of the reports produced by the management accounting are usually analytical in nature since they are prepared whenever needed with an aim of investigating specific problems facing an organisation such as profit decline of a product line or service within a range of others offered by the organisation. Moreover, some of the reports are responsible for analysing situations or opportunities capable of being utilised for developing business. However, the managerial accounting is mostly meant for the managers since it is oriented for the carrying out of tasks that are actually managerial in nature therefore it requires to be preceded by an understanding of the roles of managers, the information needed by managers as well as the entire business environment (Drury 2008, p. 122).
Interpreting basic variances: Direct material and labour variances
The management accounting is undoubtedly very important in the planning as well as control of the respective organisations mainly as a result of the role they usually play in providing variances that are essential in the evaluation and monitoring of the performance of such organisations. For instance, the material usage variance (MUV) is very crucial in determining whether it is adverse or favourable hence giving out information vital for understanding the organisation performance (Drury 2008, p. 182). This is mainly because when this variance is adverse it is an indication that there has been excess utilisation of materials in the production than initially envisaged which ends up resulting into an increasing the budget allocation for such materials.
Therefore, in case of this it is usually evident that either one of these explanations have happened resulting to such an explanation. That the quality of materials used are inferior leading to more wastage in the process of production due to the increased levels of defects. Also inferior quality of labour is likely to result into this scenario since the unskilled as well as poorly trained or inexperienced labour is likely to cause more wastage in the production line. Machinery that are poorly maintained or outdated is also another possible reason for this scenario as well as abnormal losses occurring in case of accidents and also pilferage (stealing) due to lack of proper supervision mechanisms (Drury 2008, p. 185). In addition when this variance is favourable it is an indication that the materials used are less than the budgeted hence the opposite of either of the above reasons given for the adverse may be the reason.
Material price variance is also another data that is provided by the management accounting and responsible for the planning as well as control of the organisation. This is mainly because at time when it is adverse the organisation is supposed to have paid more that the budgeted amount whereas when it is favourable it is an indication that the amount paid by the organisation is less than budgeted (Drury 2008, p. 189). The reasons for and adverse material price variance may be general increase in prices, inefficient purchasing, emergency shortage of the materials as well as purchasing of superior materials that are more expensive. Moreover, the opposite of all these factors may be responsible for the favourable material price variance. Therefore a combination of these two variances gives the total material variance which gives an overall use of materials thereby greatly helping in the planning and control of such organisation (Drury 2008, p. 191).
Furthermore, the management accounting is also responsible for ensuring that utilised labour is accounted for by providing labour variances responsible of indicating whether the labour was appropriately used. For instance, when labour efficiency variance is favourable it is an indication that less than budgeted labour hours have been used thereby indicating efficient use of labour due any of the reasons such as use of skilled workforce, good management and supervision, use of quality materials and efficient machinery (Drury 2008, p. 212). Alternatively when the labour efficiency variance is adverse it usually indicates that the opposite of the above reasons applies.
Additionally all the variances discussed above indicates how management accounting can actually be critically significant in ensuring that the planning and control of the organisation is effectively carried out. Therefore the management accounting is crucially important at every step planning, controlling and decision-making within an organisation. Thus in all organisations there is always the responsibility of the managers in planning , organising resources, directing the staff as well as controlling operations. Thus in order to execute these roles they heavily rely on the information obtained from the management accounting. Hence the planning involves the selection of the course of action as well as specifying the way in which the action will be implemented whereas controlling ensures that all the laid down plans are strictly adhered to as well as seeking alternatives whenever needed (Drury 2008, p. 222).
Conclusion
Management accounting is undoubtedly the most crucial aspect in the planning as well as controlling of the entire operations within an organisation. This is mainly because it provides crucial information that is always relied on to make vital decisions within the organisation (Drury 2008, p. 232). Additionally the obtained information is also very crucial in ensuring that there is constant monitoring and evaluation of the organisation performance which is also of great importance since it helps in determining whether the organisation of doing well or bad.
Works Cited
Drury, Colin, Management and Cost Accounting, 7th ed, Stanford: Cengage Learning, 2008.
