Performance Management and Reporting

Master of Accounting

Siska Tifany K, 2001904992

Dear All, 

Please learn the chapter related to Financial Performance Management. Then answer the
following questions: 

1. The 2003 Survey of Best Accounting Practices, conducted by Ernst & Young and the
Institute of Management Accountants, showed that 98% of the top financial executives
surveyed believed that the cost information they supplied management to support their
decisions was inaccurate. It further revealed that 80% of those financial executives did
not plan on doing anything about it. 
Please give your comment on above survey. 
2. Management Accounting supports management decision making process. Give some
examples in what circumstances management accounting provide such supports. 
3. Why Activity Based Costing considered as more superior compared to traditional
costing. Give some reasons. 
4. Explain, how management measure financial performance? 
Please post your answer by 21 April 2020 at the latest. 
Cheers 

TR 

ANSWER

1. The calculation of production costs incurred by companies to produce a

product must be accurate, so companies can determine competitive selling
prices in this global market. Management often ignores the calculation of
production costs accurately which can result in the company being unable to
compete in the market. Therefore, managers of a company need information
about the costs that must be spent to produce a product accurately. The
imposition of each production cost incurred for one product unit with a method
can help management obtain information about the production cost of one
product unit more accurately.
 In this case, the company must of course understand about the activity based
costing (ABC) method to calculate the cost of goods sold that is accurate and
accurate. By using the ABC method company can: reduce market economic
instability caused by the traditional allocation of costs incurred by companies;
describe the company's expenses in an informative, clear, and detailed; help the
management in determining and managing the company's strategy in the
future; get the right and accurate cost of goods sold using the activity based
costing method in calculating company costs; has the opportunity to compete
globally with other companies at competitive prices on the market; do a more
structured and systematic cost mapping related to company activities and
resources; use funds efficiently with clear financial mapping.

2. Managerial accounting provides the information needed to fuel the decision-

making process. Managerial decisions can be categorized according to three
interrelated business processes: planning, directing, and controlling. Correct
execution of each of these activities culminates in the creation of business
value. Management accounting is the process of preparing reports and accounts
which help in everyday decision making.
Management accounting provide : generally reports about sales revenue,
available cash, accounts receivable, raw material and inventory, accounts
payable and outstanding debts. These reports further include variance analysis,
and other statistics which will help managers in the decision making process.
The scope of Management accounting is beyond the numbers or the charts. It
involves:
• Identifying key performance metrics for all the departments,
• Collecting the data on current performance,
• Comparing and reporting the current performance vis-a-vis expected,
• Analyzing the reasons for deviations and
• Suggesting corrective measures.

3. Activity based costing systems are more accurate than traditional costing
systems. This is because they provide a more precise breakdown of indirect
 costs. Activity based costing identifies all of the specific overhead operations
related to the manufacture of each product. Not all products require the support
of all overhead costs, so it is not reasonable to apply the same overhead costs to
all products.
Accountants created the ABC method to solve the problems of inaccuracy that
result from the traditional costing approach. Managers needed more accurate
costing methods to determine which profits were actually profitable and which
were not. A fundamental difference between traditional costing and ABC
costing is that ABC methods expand the number of indirect cost pools that can
be allocated to specific products. The traditional method takes one pool of a
company's total overhead costs to allocate universally to all products.
Companies implement activity-based costing to:

 Identify specific products that are unprofitable.

 Improve production process efficiency.

 Price products appropriately, with the help of accurate product cost

information.

 Reveal unnecessary costs that become targets for elimination.

4. Performance measurement is used by companies to make improvements over

their operational activities in order to compete with other companies. Financial
performance analysis is a critical review process of reviewing data, calculating,
measuring, interpreting, and providing solutions to the company's finances in a
certain period.
Financial performance can be assessed with several analytical tools. Based on
the technique, financial analysis can be divided into (Jumingan, 2006: 242):
i) Comparative Analysis of Financial Statements, an analytical technique by
comparing financial statements of two or more periods by showing
changes, both in number (absolute) and in percentage (relative).
ii) Trend Analysis (position tendency), is a technique of analysis to determine
whether the financial situation is showing an increase or decrease.
 iii) Percentage Analysis per Component (common size), is an analysis
technique to find out the percentage of investment in each asset against the
whole or total assets or debt.
iv) Analysis of Sources and Use of Working Capital, is an analysis technique
to determine the magnitude of sources and uses of working capital through
two time periods that are compared.
v) Analysis of Cash Sources and Uses, is an analysis technique to determine
the condition of cash accompanied by changes in cash in a certain time
period.
vi) Financial Ratio Analysis, is a financial analysis technique to determine the
relationship between certain items in the balance sheet and the income
statement both individually and simultaneously.
vii) Analysis of Changes in Gross Profit, is an analysis technique to determine
the position of earnings and the causes of earnings changes.
viii) Break Even Analysis, an analysis technique to determine the level of sales
that must be achieved so that the company does not experience losses.