THE USE OF MANAGEMENT ACCOUNTING TECHNIQUES AS A VERITABLE TOOLS FOR ORGANISATIONAL DECISION MAKING

CHAPTER ONE

INTRODUCTION

1.0      BACKGROUND TO THE STUDY

Prices of goods and services are gradually increasing day by day, and due to the fact that the sole aim of a businessman, producer or manufacturer is to make profit they end up making use of low quality materials for production so as to reduce cost of production and maximize profit. Moreover, with the increase of competitors around, most of the producers have thought it wise to manufacture or package a quality product and also enhance their profit level, prevent wastage and utilize available resources, management decision decision needs to be made both mostly in the financial aspect.

The precarious situation of the economy requires to major participants in economic life, policy makers in particular, to take immediate action. However, these measures delays to occur. On the economic level, the decision is at the discretion of the manager. Therefore, a manager cannot achieve its intended objectives, without taking into account information obtained from management accounting techniques. For efficient management of the economic entities having as its object of activity the production of goods, information is needed to calculate product costs. Cost accounting techniques are being applied to collect information on production, to allocate specific spending lots of product and unit cost calculation. Also, as the deployment of production and generation of costs, strict quality control procedures are being applied to compare actual costs with planned costs. Through these methods it can be determined the efficiency of exploitation activity and management. Finally, managers need special financial reports and analysis to substantiate their decisions. Therefore, at the base of management decisions must stand the analysis of alternative lines of action.

Management accounting techniques has been equipping organizational managers with important information to take decision and deals with both constant timely and frequently changing business dealings i.e. order received, order backlog, capacity utilization, and sales. Other analytical reports are prepared for decline in profitability, market share shrinkage, customer loyalty disruption towards the organization. In both cases, it is usually done through comparing actual results with the planned results or benchmarks. Management accounting techniques is about “the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information” (D. Colin, 2000). Management accounting techniques usually plays as an influencing role for planning, organizing, leading and controlling through managers of the organization. Planning activity is done mostly through budgeting, standard costing, target costing, cost-volume-profit analysis and directing or organizing through process reengineering, just in time (JIT), activity based costing (ABC), flow direction, value proposition. Leading and controlling through total quality management (TQM), balance score card (BSC), actual and budgeted performance comparison, benchmark analysis.

Management accounting techniques is renowned to be very useful accounting resources that extensively help organizations incorporate cost accounting data, financial and non-financial information.  Knowing this information is essential for managers to do their jobs, in the present day today, organizations need development and continual improvement in their performance for maintaining their activity and survival in the dynamic competitive environments. The abilities and capacities of an organization through efficient and effective use of the organization’s resources are introduced as the important tools for improvement of organizational performance that benefiting from it requires aware management. Therefore, collecting and providing relevant information to the performance is indispensible for organizations that the need can be satisfied with employing management accounting techniques.

Furthermore, management for achieving the organization’s objectives requires firm plans that management accounting can employ different solutions in the plans through appropriate operating methods as well as help managers in achieving the objectives. The recent progress of researchers in the field of competitive markets indicates that organizations needs management accounting in order to improve their performance according to the changing competitive conditions.

The conducted research indicates that management accounting techniques can be used in the following ways:

·        Serves as a catalyst for decision making process

·        Use as a financial tools for management decision making

·        provide the managers’ needed information

·        to improve the organization’s performance

·        Sustain company growth and profitability.