Impact of Management Accounting- HI5017

Impact of Management Accounting- HI5017

Managerial Accounting
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Managerial Accounting
Name of the Student
Name of the University
Author’s Note
The main purpose of this report is to discuss about the important aspects associated
with the management accounting pro fession and hybrid costing. Findings of the report
show that the skill required in the management accounting professionals are
demanded by the Australian orga nizations. Findings also show that a hybrid costing
system is appropriate in the organizations where batch production is undertaken.
Table of Contents
Introd uctio n ………………………….. ………………………….. ………………………….. …………………………. 3
Part A ………………………….. ………………………….. ………………………….. ………………………….. ……… 3
a) Impac t o f Ma nageme nt Accounting o n Organisatio ns ………………………….. ………….. 3
b) Two Significa nt Deve lopme nts i n Manage ment Acco unti ng ………………………….. …. 4
c) Eva luatio n of Job Ad vertiseme nts ………………………….. ………………………….. ……………. 4
(i) Eva luation of the Req uired Skill -Sets of Ma nageme nt Accounta nts ……………… 4
(ii) Do the y re flect the Demand by Today’s Orga nisation? ………………………….. ……. 5
d) Two Recomme ndatio ns to the Aus tra lian Orga nisations ………………………….. ……… 5
Part B ………………………….. ………………………….. ………………………….. ………………………….. ……… 5
a) Hybrid Costi ng a nd Its Suitability to Batc h Ma nufac turing Produc tion ………………. 5
b) Chose n Compa ny’s Opera tions , Prod uctio n E nvironment a nd Prod uc ts ………….. 6
c) Hyb rid Costing S yste m ………………………….. ………………………….. ………………………….. ..6
(i) Demons trati ng the Suitability of Hybrid Costi ng S ystem ………………………….. …… 6
(ii) Flow C hart of the Produc tion Process a nd Compone nts ………………………….. …. 7
Conclusion ………………………….. ………………………….. ………………………….. ………………………….. 8
Refere nces ………………………….. ………………………….. ………………………….. …………………………. 9
Management accounti ng can be regarded as a process to supply the managers
and employees with relevant financial and non -financial information for the purposes
to make decisions, allocate resources, and to monitor, evaluate and reward
performance ( Napitupulu 2015, p75(1) ). The main aim of this report is to discuss about
the key aspects associated with management accounting. The report is divided into
two parts. The first par t assesses different published articles in order to identify and
analyse the recent developments in management accounting and its relevance in the
Australian business organizations. This part also assesses three management
accounting -related job advertisements to shed light on the required skill -sets of these
professionals. The second part discusses hybrid costing and it suitability to the batch
manufacturing production environments. This part is involved in assessing the
suitability of this costing system in the production process of an Australia n
manufacturing organization. A conclusion is provided based on the wh ole discussion.
Part A
a) Impact of Management Accounting on Organisations
Management accounting impacts o rganizations in different ways, and one of
them is the impact on the organiz ational decision -making process. Within the business
organizations, the management accountants have continued to be the key suppliers
of both financial and non -financial information and related analytical reports on whic h
managers depend to make decisions. The role to assist in decision -making makes the
operational managers the main clienteles of the management accountants. Here,
these professionals positively impact the organizations by provid ing the managers with
the required data and information to assist in decisions -making. The key advantag e
allied with this approach of management accounting is its involvement in business
decision -making (Kidane 2012, p 14(2) ).
Another area in which the impact of management accounting is evident is
organizational performance measurement. The role of management accountants is
well position ed in providing the necessary information for developing releva nt
performance measures. It follows from the recognized role of the management
accountants to assess both organizational and managerial performance. It suggests
that the management accountants have valued experience to identify the manne r
definite actions affects the overall organ izational performance. Lately, there has been
the promotion of a wide range of accounting techniques to improve the manner in
which the management accountants assist in measuring both organizational and
managerial performance. It implies that the management accountants impact the
organizations by monitoring the factors critical to organizational performance ( Cadez
and Guilding 2008, p 857(10) ).
Strategic management accou nting is a key branch of management accounting ,
and it has many positive impacts on the organizations. Strategic management
accounting mechanism assists the organizational managers by collecting and
providing information on the competitors, exploiting the opportunities to reduce costs,
and emphasising accounting with strategic position. As a result, the strategic
management accountants have certain key roles to play in the organizational strategic
management (Langfield ‐Smith 2008, p206(1) ). Therefore, manag ement accounting
and strategic management accounting has an important role to play in analysing the
competitors in order to obtain the required strategic advantage (Guilding, Cravens and
Tayles 2000, p128(1) ). All these imply that management accounting impacts the
organizations in some major positive manner.
b) Two Significant Developments in Management Accounting
Over the years, there has been many developments in management accounting
pract ices that have i nfluenced the focus of the work of management accountants in
today’s organizations. The following discussion shows two of these significant
1. The introduction of Activity -Based Costing (ABC) system has been a significant
development in the mana gement accounting practice. In 1987, Robert S.
Kaplan and W. Bruns first clearly defined this costing method as a chapter in
their book named Accounting and Management: A Filed Study Perspective
(Zabiullah, Bhargava and Reddy 2017, p1070(2) ). ABC system ha s been able
in assisting the management accountants in overcoming many traditional
problems, like increased complexity in cost accounting, increased
compe titiveness in the market place, augmented need for financial reporting
and others (Neely, Gregory and Platts 2005, p1237(6) ). Through all these steps
and initiatives, ABC system has shifted the focus on the work performed by the
management accountants in the organizations.
2. Another key development is the expanding role of management accounting with
the ente rprise performance management (EPM). A key example of the
application of management accounting to EPM is the execution of s trategy. For
example, the management accountants use the widespread method of
‘strategy map’ for detailing and visualising the connec tion of strategic objectives
and balanced scorecard. The key performance indicators (KPIs) and flowed
operational performance measures of a balanced scorecard have become the
acknowledged methods for implementing strategies (Cokins 2013, p 26(2) ). It
implie s that management accounting helps in measuring and managing the
organizational performance.
c) Evaluation of Job Advertisements
(i) Evaluation of the Required Skill -Sets of Management Accountants
In the selected job advertisements, the employers have de manded for specific
skill -sets which should be possessed by the potential management accountants .
These skill -sets are evaluated in the following discussion :
As per the job advertisement published in SEEK, the management accountants
must have the required commercial and business awareness, and they must own the
ability of working productively, effectively and efficiently. They must be able to work
for multiple projects under tight timescales while maintaining their attention to details
and quality. Other key skills inc lude analytical skills, ability to solve problems, excelle nt
written and communication skills, and experience in advanced Excel and Power BI,
work ing knowledge on business ERP systems, legislative compliance and others
( 2022) .
As per the job ad vertisement in INDEED, the management accountants mus t
know to use different types of software, such as MS Excel, Outlook, Oracle, SAP and
others . They must have concrete experience to work within a management accounting
environment, preferably manufacturing. They must have excellent interpersonal and
communication skills for delivering clear and concise feedbacks to management and
other parties. T hey must be flexible to work out of hours as needed in different projects
( 2022) .
As per the job advertisement in JORA, the management accountants must have
strong skills in reporting. He must be able to put strong attention to small details for
maintaining the quality of work delivered. They must possess the organizational skills
and problem -solving skills. They must be able in thinkin g critically and analytica lly.
They must have adequate knowledge in the areas of management reporting ,
forec asting and budgeting. Proficiency in MS Excel and PowerPoint is needed as well
( 2022) .
(ii) Do they reflect the Demand by Today’s Organisation?
Today’s business organizations operate in a complex business environme nt
which is full of uncertai nties. Therefore, they seek the management accounting
professionals who are well capable of handling the critical accounting issues to provide
the required data and information to the organisational managers. This is the reason
why they want their manageme nt accountants to possess the skills of working unde r
pressure by providing strong attention to small details to maintain quality work.
Managing aspects like ABC system and EPM requires these professionals to have
both com mercial and business awareness so that they can understand these aspects.
Today’s organizations face complex and critical issues, and thus, they require the
management accountants to possess the skills of critical and analytical thinning ,
solving critical problems. Most importantly, accoun ting operations within the
organizations have become fully automated thanks to rapid technologica l
developments. As a result, these organizations demand that the management
accountants must have the skills to operate various accounting software like Excel,
PowerPoint, Power BI, SAP and others. Based on this discussio n, it can be said tha t
the skill -sets demanded in the job advertisements reflect the demand by today’s
d) Two Recommendations to the Australian Organisations
Based on the find ings, two recommendations to the Australian organisations on
the changing roles of today’s management accountants are provided below:
1. The Australian organizations are recommended to be aware of the rapid
progress of information technology which has made th em increasing ly
conscious of the a vailability of more information. As a result, the management
accountants are expected to provide the managements with this information to
aid in the decision -making process.
2. It is recommended to the Australian organizations to have adequate informatio n
on the key role played by the management accountants in the areas of ABC
system and EPM so that they can use these professionals for these purposes.
Part B
a) Hybrid Costing and Its Suitability to Batch Manufactu ring Production
A hybrid costing system can be viewed as a cost accounting system tha t
consists of the features of both the process costing and job costing systems. Unde r
this costing system, business organizations combine job order activities with the
process costing activities. This costing system is frequently referred to operation
costing which the companies use in producing good s. For example, in a healthca re
organization, a hybrid costing method employs both process costing system for
assigning cos ts to routine procedures and treatments, like imaging, recovery room
cost, physical examination and others, and the job order costing for capturing the cost
of care for the use of unique resources by every parent. Companies can easily learn
and apply this hybrid costing approach to the healthcare setting with different sizes
(Abualhaija 2020, p1006(3) ). In another example, manufacturing of a fruit juice can be
mentioned as it has comparable conversion processes in the presence of different
direc t materia ls. In a hybrid system in this setup, job costing would help in tracking the
direct materials whereas it would be more efficient to track other cost elements using
a process costing system. This system would apply the conversion costs using a
predetermined ap plication rate. In this context, it is important to mention that no
separate costing system is represented by a hybrid system, but rather it represents
the modification of existence of the job and process costing systems to achieve the
A hybr id costing system has an exceptional suitability to the batch
manufacturing production environments because of its usefulness when a
manufacturing facility manages groups of products in batches and costs of materials
are charged to those batches, while it accumulates overhead and labour costs at the
work centre or department level and allocates these costs at the individual unit level.
b) Chosen Company’s Operations, Production Environment and Products
The chosen company for this purpose is O rora Ltd whic h is an Australia n
manufacturing company. The principal activity of this company is to manufacture and
deliver tailored packaging and visual communication solutions. It includes designing
and manufacturing various packaging products like beverage cans, gla ss bottles ,
corrugated boxes, multi -walled paper bags, recycled paper, and point of purchas e
displays. At the same time, the end -to-end packaging solutions are also provided by
this company along with the complementary services, such as global product sour cing ,
design, printing, distribution and warehouse optimisa tion. The company operates
through Beverage Australasia, Ops North America and Orora Visual North America
(Appendix 4E and 2021 Annual Report 2022, p5) . The main products of the company
include gla ss bottles, aluminium cans, closures and caps, boxes and cartons, point –
of-purchase displays, packaging equipment, rigid packaging, flexible packaging, and
general packaging materials and supplies ( 2022) .
It can be observed from the above d iscussion that Orora Ltd operates in the
manufacturing industry of Australia and the nature of its operation is the production of
similar types of products. The production environment includes the strategy of batch
production. It is because this company is involved in the production of different groups
of identical products instantaneously instead of producing one produ ct at a time. It is
on the management of the company to decide the size of these batches and how
frequently they will make these batches.
c) Hybrid Costing System
(i) Demonstrating the Suitability of Hybrid Costing System
A hybrid costing system which incorporates both the process and job costing is
suitable for the production process undertaken by Orora Ltd . The company is involve d
in producing similar types of products in large numbers. A hybrid coting system is
specifically useful in Orora Ltd as it conducts its production process in batches and
then, it charges the costs of materials to those bat ches to o btain the cost per uni t
(ElMaraghy and Alami 2020, p1(2) ). At t he same time, process costing is also largely
applicable in the production process carried out by Orora Ltd because of the suitability
of this costing method in its manufacturing facilities whe re its continuously mass –
produces the units through identical processes. All these imply that the manufacturi ng
processes of Orora Ltd require the applicat ion of both of job costing and process
costing, and a key way to incorporate both these costing syste ms in its manufacturi ng
process is through a hybrid costing system.
(ii) Flow Chart of the Production Process and Components
Figure 1: Hybrid Costing System
(Source: As created by Author)
A hybrid costing system has the most suitability in the production process
conducted by Orora Ltd . The above diagram helps in demonstrating the productio n
process and the components of the hybrid costing system in Orora Ltd.
Under a hybrid costing system, the production process in the company is
divided into two main parts: the processing of raw materials and the manufacturing of
products. The main activities under the process stage are the raw material processing
in large volumes, works uni que to the indiv idual batches and customer order, and
many successive redistribution processes to process a large volume of raw materials.
It is not possible for the comp any to track the incurred costs for every specific ton of
raw materials. It requires aggregating the c osts for a large batch so that they can be
distribute easily. This is part of the process costing which aid in accumulating costs
during the production and reporting period so that they can be distributed to the
production volume at the end. It helps in as certaining the average cost of a productio n
unit. This costing method requires dividing the costs associated with the processes
into direct and indirect costs (Drobyazko et al, 2019, p4(2) ).
In the production or manufacturing process, the cost accounting s ystem is used
which intends in accumulating costs in individual units of production batches. It
requires putting more attention on writing -off the costs (Drobyazko et al, 2019, p4(6) ).
After that, the processed raw materials are stored in the warehouse whe reas the used
raw materials are written off. It requires calculating and writing off the direct labour
costs. Batch costing does not require writing off the overhe ad costs in the variable
parts. In the final stage, a hybrid costing system requires accumula ting all costs in the
production account. Lastly, the company sends the products to the customers after
the end of the production process and quality check. The adoption of a hy brid costing
system ensure that income and cost incurred are in line with the p eriod of financia l
reporting (Drobyazko et al, 2019, p5(4) ).
Pr oduction Pr oce s s
Processing of
Raw Materials
Manufacture of
Large Volume
Unique W ork
Successiv e Redistributions
Accumulation of
Cost W riting -Off
Closing the Order
or Assignment Process Costing System
Costing System
The above discussion shows that management accountants positively impact
the organizations in the areas of performance measurement , decision -making and
others. There have been some key developments in management accounting
practices which the Australian organizations should be aware of to understand the
management accountants’ roles and responsibilities in a better manner. The
discussion also shows that a hybrid costing system is sui table for the manufacturi ng
operations of Orora Ltd because this costing method incorporates both job costing and
process costing to measure and allocate costs. Companies where batch production is
undertaken are most suitable for a hybrid costing method.
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