Management Accounting Techniques a Tool for Decision Making in an Organization
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Chapter one on Management Accounting Techniques: a Tool for Decision Making in an Organization
Background to the study
Management process is a set of interdependent activities used by an organization to carry out their functions which include, planning, organizing, staffing, leading, and controlling. Brech (2010) recommends the following definition of management as the most appropriate for general usage: “A social process entailing responsibility for the effectiveness and economic planning and regulations of the operation of an enterprise in fulfillment of a given purpose of task.” Such responsibilities involve: Judgment and decision in determining plans and in using data to control performance and progress against plans; and the guidance, integration, motivation and supervising the personnel comprising the enterprise and carrying out its operations. Management Accounting refers to that part of the management process which is focused on adding value to organizations by attaining the effective use of resources by people, in dynamic and competitive contexts. It is an integral part of the management process, distinctly adds value by continuously probing whether resources are used effectively by people and organizations – in creating value for customers, shareholders or other stakeholders. (Adelegan, 1998). Without the application of management accounting techniques, no business can succeed in its operations and attain its set objectives (Adeniji A. 2015). Moreover, its decision making will not be guided as management accounting techniques provide adequate guide to decision making at all levels. Management accounting is the application of accounting knowledge, techniques and skills to the provision of information designed to assist all levels of management in planning and controlling the activities of a business enterprise. The managerial function of controlling is the measurement and correction of the performance of activities of subordinate in order to make sure that enterprises objectives and plans devised are being accomplished. It is therefore not surprising that many manufacturing companies particularly the large scale enterprises are showing more interest in the application of management accounting techniques. Management accounting is the use of accounting data to assist the management team with information useful in the decision-making process. This makes decision making more of a scientific process and less of a guess. Management accounting is inward-focused and does not focus on the reporting issues or compliance requirements. As stated above that “without the application of management accounting techniques no business can succeed in its operations and attain its set objectives. Moreover, its decision making will not be guided as management accounting techniques provide adequate guide to management making at all levels” the objective is to point out the weaknesses and errors (if any), so as to rectify and prevent re-occurrence. It is therefore, the function of every enterprise to ensure accuracy, completeness and reliability of accounting records and this is the most important control measures as far as the management is concerned. For an enterprise to conform to its plans there is need for an effective management accounting techniques in operation, this will help the organisation in the control, financial or otherwise, established by the management in order to carry on the business of an enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard of assets and promote the operational efficiency of all aspect of the company’s activities and communicate managerial policies and to encourage and measure compliance therewith.
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