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Traditional Management Accounting Essay

1316 Words6 Pages

Question (a)
Management accounting is the provisions of financial and non-financial decision making information to managers. According to the Institute of Management Accounting (IMA), management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization's strategy. Traditional standard costing is a fundamental method in management accounting practiced today. However, the traditional approaches limit the companies by defining cost behavior in terms of sales volume or production only.
Traditional management system has many limitations …show more content…

The health and medical industry is the first service providers industry that adopts cost accounting. This industry has been able to applied cost accounting to increase their profitability ad it allows them to charge on their patients for the services and materials that they actually used. Other than that, banks and other financial providers also started to adopt cost accounting as it allowed the banks to charge tailored rates to their customers. Therefore their customers now pay for the specific services that they use instead of paying the blanket fees. This gave the banks a better picture of the direct costs of each service they provided.
Due to the inconvenient and unsuitability of traditional management accounting for most of the industries, strategic management accounting emerges to solve those problems that face when using traditional management accounting. Strategic management accounting is the merging of strategic business objectives with management accounting information to provide a forward looking model that help management in business decision making. It provides information on external as well as internal of the …show more content…

This analysis enable managers to relate the profit variances to their companies’ or SBU’s business strategic and then analyze the performance from strategic perspectives. Profit variance can be compared between actual and budgeted sales volume, contribution margin, manufacturing costs. (Cheong) Variance analysis provides reasons for off-standard performance. Through this, managers can know what when wrong and why went wrong. Hence, management can improve operations, correct errors and deploy resources more effectively to reduce costs. (H.Johnston &

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