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CAMA Assignment

The factors that have resulted in changes to management accounting practices in recent years include: 1) intensive global competition, 2) integration of businesses with information technology, 3) embracing Industry 4.0, 4) advancements in manufacturing processes, 5) embracing high standards of ethical behavior, 6) environmental and sustainability issues, and 7) corporate social responsibility. Management accounting looks at various areas of decision making including: 1) formulating product and service costs, 2) performance evaluation and optimization, 3) sales and quantity forecasting, 4) cost estimation, and 5) profit planning. Examples of decisions related to cost determination and comparing actual vs budgeted numbers are provided.

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41 views3 pages

CAMA Assignment

The factors that have resulted in changes to management accounting practices in recent years include: 1) intensive global competition, 2) integration of businesses with information technology, 3) embracing Industry 4.0, 4) advancements in manufacturing processes, 5) embracing high standards of ethical behavior, 6) environmental and sustainability issues, and 7) corporate social responsibility. Management accounting looks at various areas of decision making including: 1) formulating product and service costs, 2) performance evaluation and optimization, 3) sales and quantity forecasting, 4) cost estimation, and 5) profit planning. Examples of decisions related to cost determination and comparing actual vs budgeted numbers are provided.

Uploaded by

Kshitij Maheshwary
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CAMA Assignment

Question-1: There are certain factors, which has resulted changes in management
accounting practice in recent years. What are they?

The factors, which has resulted changes in management accounting, practice in recent years
and which has significantly changed the way in which firms used to operate are:

1) Intensive Global Competition – Before the advent of LPG policy in 1991, firms used
to compete with each other in the domestic market only and since there was less
competition, so they focused less on prospects like maximizing efficiency, improving
management practices or minimizing costs but as the economy became more
liberalised, domestic firms started facing competition from global firms. Therefore,
this change led the domestic companies to demand information relating to quality
and customer satisfaction, cost and profitability analysis to be able to compete with
global firms successfully.

2) Integration of businesses with Information Technology – As more and more firms


have started depending upon Information Technology to support business activities,
managers now do not depend upon management accounts for gathering and
processing information as that can be done now by just a click of mouse. Due to this
development, scope of management accountants have increased further as they can
now focus more on analysing and interpreting management information thereby
providing support to managers.

3) Embracing Industry 4.0 – The fourth industrial revolution, known as Industry 4.0, is
not a new term in business circles. With the advent of cyber, physical systems that
help real & virtual world merge for a higher degree of precision and efficacy,
Industry 4.0 is now more than just a manufacturing process. The technology
interface has found relevance and application across all downstream areas
irrespective of these being either an internal process or external one.

4) Advancements in Manufacturing Processes– Firms now have to focus on adopting


high class and advanced manufacturing technologies to have sustainable competitive
advantage. Firms should be able to provide high quality products to customers at a
lower price along with focusing on providing more variety and coping with short
product life cycles.

5) Embracing high standards of ethical behaviour – Maximizing the profit or the


wealth of the shareholders is not the sole purpose of a business enterprise; instead,
it has to focus on adopting ethical and professional accounting practices. A firm
should be able to differentiate between what is wrong and what is right! Abiding by
the social responsibilities and ensuring that the employees follow the ethical code of
conduct is a major task that a firm should work upon. Management accountants also
have an important role to play as they have to ensure that the practice of accounting
is followed keeping in mind the issued ethical code of conduct and ethical
mechanisms of observing and imposing ethics.
6) Environmental and sustainability issues – Since the resources are scarce and need
preservation for future generations, therefore the managers are required to put
more focus on social responsibility, environmental and sustainability issues.
Therefore, Management Accountants have to focus on determining environmental
costs, consumption of scarce resources and pollutants emitted in the environment as
this information is useful to managers to adopt more sophisticated technologies
which are environment friendly.

7) Corporate Social Responsibility: The pressure on organization to be socially


responsible for impactful image and compliance with duties creates the need for the
managers to minimize environmental costs and redesign policies for optimal
utilization of resources.

Question-2: What are the areas of decision-making – a management accounting systems


looks at. Illustrate with examples in two areas.

There are various areas of decision making which management accounting techniques
governs. Some of which are –

1) Formulating the cost of a product or a service – A management accountant has to


determine the cost of a product or service on the basis of fixed, variable and semi-
variable cost incurred on producing a product or service.
2) Performance evaluation and optimization– Management accountancy has to deal
with measuring the actual performance and comparing it with the budgeted
performance and thereby trying to optimize it from the next time.
3) Sales and quantity forecasting – A firm has to determine a level of sales i.e. revenue
generated from a product and the quantity to be sold to determine the decision to
shut down or continue based on actual data.
4) Cost Estimation– Decisions related to whether the firm should produce the product,
get it supplied from somewhere else, whether to supply a product at a given price,
or not, are all included in this decision.
5) Profit Planning – Management accountants have to foresee and evaluate the profit
earned by a division, whether the division is reaching at least the breakeven point or
not, whether the division is contributing more to the firm as compared to the cost
involved. All the decisions were made under this aspect.

Examples

1) Decisions related to cost – Determination of which machine to purchase based


on cost and depreciation information provided to reduce the overall cost of
production.
Machine A Machine B
Cost 250000 2000002
Residual Value 25000 20000
Expected life in years 10 5

Based on the information, a Management Accountant has to decide which


machine he should purchase. By determining the annual depreciation value using
the above information, it can be concluded that Machine A should be purchased
as depreciation of machine A is lower than that of Machine B.

2) Comparing actual and budgeted numbers - Management accountant always has


to compare the data related to profitability, number of employees, cost etc.
between budgeted and actual to compute the variance.

Number of employees Project A Project B


Budgeted 10 8
Actual 7 12
Variance 30% -50%

Using the above information, it can be concluded that project A’s actual performance require
less resources because of the positive variation which is not there in B which therefore require
more resources than what was projected.

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