Introduction to Management Accounting Coursework Due: 13/12/19
Task – Prepare a proposal for the board of Ecolife Pharmaceutical Group Ltd
Candidates: Maidah Amir 214742, ……
Until recent years, Ecolife Pharmaceuticals Group Ltd dominated its competitors with an impressive
market share, consumer loyalty and thus profitable turnovers. Yet currently, the organisation is facing a
decline in performance with the absence of a management accounting (MA) system only accelerating
Ecolife’s downfall. Without the implementation of MA, the organisation has encountered a number of
issues including the inability to pinpoint cost efficiency within the production process and a lack of
knowledge regarding cost reduction opportunities. If MA was adopted by the business, the accounting
information it would provide would grant substantial benefits. The board of Ecolife would not only see
an increase in margins but would also have a more accurate and comprehensive understanding of the
finances concerning their business operations.
Before we continue on advocating the significance of MA, it is important to differentiate MA and
financial accounting (FA). MA is defined as the information that internal users utilise to make important
decisions, while FA is defined as the information provided to external users (Caplan, 2006). Next, MA is
concerned with both future and past information in order to make decisions concerning future events,
while FA is only concerned about information from the past (Drury, 2015). Furthermore, MA focuses on
process rather than cash flow, profit or other financial metrics and will mostly depend on the internal
manager. In comparison to the previous point, FA’s main focus is on compiling transactions in the form
of various financial statements and must follow the established generally accepted accounting principles
(GAAP) (Shpak, 2018).
There are a lot of benefits that can be derived by using MA in an organisation. Firstly, it is usually
associated with being the main aid for internal (e.g. production) managers in decision-making processes
(Shah, et al., 2011). MA also plays a major role in the evaluation of manufacturing performance (Caplan,
2006). For example, evaluating the profitability of different products and determining the relative
contribution of managers and various parts of the organisation (Caplan, 2006). As per the views of Ittner
and Larcker, MA is able to provide the organisation’s managers with information about future profits or
firm value that is unavailable in current financial statements (Ittner & Larcker, 1998). Moreover, a
plethora of modern MA skills such as activity-based costing, target costing and benchmarking, serve as a
bridge between operations to the organisation’s strategies and objectives (Hyvönen, 2005).
As a precaution for Ecolife to avoid repeating the same mistakes, the managers are encouraged to also
be reminded that as everything else, MA also has its own limitations. From Kaplan and Norton,
information overload can be avoided by keeping note of the ‘Balanced Scorecard’ that consists of four
perspectives: customer, innovation and learning, financial and internal (Kaplan & Norton, 1992). In other
words, in order to maximise efficiency in the organisation’s performance, MA should also be supported
by other essential factors and cannot be a standalone pillar (Kaplan & Norton, 1992). Other than that, it
has been stated above that MA also uses future information for decision-making (Drury, 2015). This,
however, becomes a problem as obtaining future information means using predicted information.
Hence, the decisions made using these predicted data are bound to be inaccurate and may cause even
greater losses (Drury, 2015).
Analysis and Discussion
From a case study, the company has given less area of interest in management accounting system. The
company’s production operation shows a proportion of damaged final product that has to be scrapped
and there are lack of accounting information to identify the problems and alternative cost potentiality.
Besides, accountants have no conception of management accounting and could not help in making
Management accounting system provide information context that is essential for strategic decision
making. Management information is given to the people who are running an organisation to help them
make better decisions including planning, control, performance measurement and continuous
improvement. Furthermore, information generated helps the company to evaluate the performance of
the manufacturing as management accounting focuses on process rather than cash flow, profit or other
financial metrics and will mostly depend on the internal manager. By assessing the manufacturing
performance, with an adequate information, problems emerged in production can be identified.
The information needs to be reliable, up-to-date, and relevant to be able to assist in planning, control,
decision making. Decision-making process requires both future and past information.
Management accounting function is able to provide the organisation’s managers with information about
future profits or firm value that is unavailable in current financial statements, therefore, management
accountant plays an important role to ensure data produced from the system is accurate and reliable.
Management accountant provides a wide range of essential financial analysis service to organisation.
They prepare, develop and analyse financial information for managers to have reliable figures on which
to base their critical strategic decisions. Besides, technology has become more influential in decisionmaking and business intelligence is crucial in the provision of decision-making. This shows that the input
will be driving the successful growth and profitability of the company. However, increasing amounts of
data do not overwhelm the accountants. Overloaded data may give excessive burden and create
inaccurate information. This issue can be avoided by keeping a note of the Balanced Scorecard.
Balanced Scorecard is a strategic planning and management system that organisations use to deliver
what they are trying to accomplish, align the day-to-day work of every worker with strategy and monitor
the progress towards strategic targets. In addition, management accountants need to come up with
supplementary insight as reporting may not be enough, they should provide professional insightful
advice to managers and directors. This may help to support the decision-making which is based on
predicted data and predicted information might give inexact results.
Caplan, D., 2006. Management Accounting Concepts and Techniques. 1st ed. New York: Accounting and
Law Faculty Books.
Drury, C., 2015. Management and Cost Accounting. 9th ed. Andover, Hampshire: Cengage Learning
Hyvönen, J., 2005. Adoption and Benefits of Management Accounting Systems: Evidence from Finland
and Australia. Advances in International Accounting, Volume 18, pp. 97-120.
Ittner, C. D. & Larcker, D. F., 1998. Are Non-financial Measures Leading Indicators of Financial
Performance? An Analysis of Customer Satisfaction. Journal of Accounting Research, Volume 36, pp. 01-
Kaplan, R. S. & Norton, D. P., 1992. The Balanced Scorecard – Measures That Drive Performance. Harvard
Business Review, pp. 71-79.
Otley, D., 2001. Extending the Boundaries of Management Accounting Research: Developing Systems for
Performance Management. British Accounting Review, 33(3), pp. 243-261.
Shah, H., Malik, A. & Malik, M. S., 2011. Startegic Management Accounting – A Messiah for Management
Accounting. Australian Journal of Business and Management Research, 1(4), pp. 01-07.
Shpak, S., 2018. Chron; Small Business. [Online]
Available at: https://smallbusiness.chron.com/differences-between-financial-accounting-managementaccounting-3985.html
[Accessed 22 November 2019].
Introduction to Management Accounting Coursework Due: 13/12/19