1.1. Managerial Accounting and the Business Organisation

Question 1

What are the essential requirements on an Accounting System?

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Answer 1

1. Cost-benefit balance |weighting estimated costs against probable benefits, i.e. value of a system must be seen as exceeding its costs
2. behavioural implications | accounting systems have effects on the behaviour of managers. a trustworthy system will be used more in making decisions than one they distrust

Question 2

What is a Management Accountant´s Role as Consultant?

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Answer 2

• collecting and compiling information
• preparing standardized and ad hoc reports
• interpreting and analyszing information
• being involved in decision making but not making the decision

Question 3

What are the pros and cons of a functional organisation based on primary activities (functions)?

Pros:
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Cons:
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Answer 3

Based on Primary (function) - organised in sales, production, personnell etc, and everyone has product A or B or Market A or B on own

Pros:
1. clear lines of command, specified tasks and responsibilities
2. economics of scale, stadartisation of processes
3. synergies

Cons:
1. little communication and ineraction with other units
2. low product and market orientation / idetification
3. decision process may take too long

Question 4

What are the pros and cons of a functional organisation based on division, business units?

Pros:
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Cons:
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Answer 4

Business units: many divisions; every division has own sales, production, controller, etc… (finance and accounting directly below management board and alone)

Pros:
1. higher degree of autonomy, identification with a product or market, employee motivation
2. quick responses to market changes
3. flexibility

Cons:
1. divisional selfishness
2. loss of synergy, risk of dublicating activities
3. higher needs to coordinate

Question 5

What are trends in managerial accounting that require adaption to change?

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Answer 5

• shifting from a manufacturing-based to a service based economy
• advances in technology (such as digitalization, software solutions)
• changes in business processes
• increased global competition
• changes resulting from the new government regulations and public awareness

Question 6

What is accounting information used for?

Answer 6

• in decision making for planning and control

Question 7

What is a performance report?

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Answer 7

• compares actual results with budgeted amounts
• provides feedback by comparing results with plans
• highlights variances

Question 8

Cycle of Planning and Control | What are the key components?

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Answer 8

• Management process side (P&C) and internal accounting side (budgets, accounting system, performance reports)
• planning: objectives and how to reach
• control: actions intended to reach objectives
• ## control: management evaluates actions based on performance measures; will be used for further planning and implementation
• accounting system formalizes plans as budgets; which discipline management planning
• accounting system measures, classifies and record actions to produce performance reports
• performance reports provide feedback by comparing result with plans and highlighting variances; used to judge managers decisions and motivate them to achieve the objectives
• other information system help budgeting, e.g. competitor analysis, customer surveys

Question 9

What should be considered in the selection of an accounting system?

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Answer 9

1. behavioral effects of the system on managers
2. costs of buying and operating the system
3. improved decision making power resulting from the system

Question 10

What is the Operating Leverags?

Answer 10

• a firms ratio of fixed costs to variable costs
• highly leveraged firms have high FC and low VC (high contribution margin per unit)
• small change in sales volume -> large change in net income