Essay on Accounting Management Tools

751 Words Dec 5th, 2015 4 Pages
What is management accounting? Management accounting or managerial accounting is the process of identifying, analyzing, recording and presenting financial information that is used for internally by the management for planning, decision making and control. In contrast to financial accounting, managerial accounting is concerned with providing helpful information and reports to internal users such as managers and entrepreneurs, so that they can control and plan the business activities. According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, …show more content…
The second management accounting tools and techniques contribute to the attainment of organizational objective is cost volume profit (CVP) analysis. CVP analysis examines the behavior of total revenue, total costs and profit as changes occur in the output level, selling price and variable costs per unit or fixed costs. Cost volume profit analysis is a powerful tool that helps manager understands the relationships among cost, volume, and profit. CVP analysis focuses on how profits are affected by the following five factors which is selling price, sales volume, unit variable costs, total fixed cost and mix of product sold (Garrison, Noreen & Brewer, 2009 – 2010). Small business that are considering expansion can use cost-volume-profit, or CVP analysis to project how changes in either cost, volume or profit will affect the other two metrics in the business. This technique, while simple to implement, is a powerful tool. CVP analysis can show, in a graphical format, what level of sales the company requires to avoid a loss, what price the product must be sold at, or how to achieve a target profit.

The third management accounting tools and techniques contribute to the attainment of organizational objective is Activity Based Costing (ABC) . Activity Based Costing (ABC) is a costing system that identifies the various activities performed in a firm and uses multiple cost drivers

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