Management Accounting
Management Accounting Checklist
The role of management accounting in strategic management
Management accounting provides information to guide the strategic direction of a business. This will include helping a business decide on which potential investments to pursue, setting selling prices, marketing strategy, funding, dividend policy and financial strategy. The most important interfaces between management accounting and strategic management are discussed below.
Setting selling prices
Selling prices are determined by external market forces. However, internal management accounting information will enable decisions to be made concerning which products to sell and how profitable they will be. It will also help with product sales/mix decisions. The process for setting selling prices involves a comparison of market prices obtainable with internal costs of sales. This will enable decisions to be made regarding the whole spectrum of internal processes from buying to manufacturing and distribution. Pricing strategies are a part of business strategy and management accounting information will help identify the benefits of each strategy.
Investment appraisal
Management accounting can provide a process for analysing and deciding upon various investment decisions. The most important thing to remember in any investment decisions is relevant cash flow. It is important not to get confused by information and values that are simply not relevant. Management accounting will use a number of techniques to evaluate and prioritise potential investments. These techniques will include pay-back period, return on capital, accounting rate of return, discounted-cash-flow, the internal rate of return and capital rationing techniques.
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