Subject: Managerial Accounting

Topic: The Effect of Managerial Accounting on the Quality of Decision-Making

Submitted by: Md Shahib Hasib Hridoy

ID Number: 112191007
Submitted to: MdQ Md. Qamruzzaman
Submission Date: 21 August 2020
 Introduction

Managerial accounting aids administrators in making decisions using financial data

from an enterprise. Managerial accounting understanding let you find out how much a product
costs, determine when your company breaks even, and prepare for expenditure and potential
growth. Unlike financial accounting that is structured for external users, internal administrators
are the subject of management accounting. Management accounting is designed to help
managers prepare for the future, make decisions about the organization and assess if their plans
and decisions are correct. The distinction between financial and managerial is that, financial
accounting is the compilation of accounting data to produce financial statements, while
managerial accounting is the mechanism used to account for company transactions. There is
always a subtle connection between management accounting and decision making. In
management accounting, decision-making may be simply defined as choosing a course of action
from among alternatives. If there are no alternatives, then no decision is required. A basis
assumption is that the best decision is the one that involves the most revenue or the least amount
of cost.

Literature Survey

This paper contributes to nascent literature that explores relation between managerial accounting
and decision making. The cost information system plays a major role within the decision-making
process of any company. Detailed cost analysis, production cost calculation, loss quantification,
work-efficiency estimation provides a solid basis for financial control. When deciding between
two or more alternatives. So, you have to pick one, you know. When there is no option, you'll
either have to comply or obey. So, a decision implies a decision, a judgment or a nod. Decisions
are taken in day to day life. A personal preference Influences person but organization's decisions
change, good or bad, for many knots. The entire literature is all about connection between the
managerial accounting and how MA effects the quality decision making of an organization.
However, after reviewing almost 35 journals along with 40 industries, there is almost every
decision making of an organization requires managerial accounting. Analyzing all the literature
in details I have found six steps which proves that how much managerial accounting contributed
in the adequate decision making. The steps are given below:

1. Clarify the decision problem. One must be clear about the problem. One must look for the
root cause or hidden problem rather than the apparent problem. Some skill is required to define a
problem in such terms that can be addressed effectively.

2. Specify the criteria. After clarifying a problem, criteria must be specified for decision-
making. What is the objective: maximize profit, increase market share or social service?

3. Identify alternatives. Explore all alternatives, their pros and cons. This is a critical step in the
decision-making process.

4. Develop a decision model. This is a simplified version of the problem. No irrelevant

information, only factors relevant to the problem is highlighted. It brings together all elements of
a problem like the criteria, the constraints, and the alternative.

5. Collect the data. Relevant data must be collected to incorporate objectivity in the process. It
may be primary data or secondary data. But it must be up-to-date, timely and accurate.

6. Select an alternative. One all formalities are completed, requisite information obtained and
processed, a most suitable or appropriate choice should be selected. (Khatami Mohamad, 1996).

Final thoughts

Quality decision making of an organization completely depends upon with managerial

accounting. The literature enlightens me about the five-step process for decision-making that can
be used to make all kinds of decisions. The steps are:

 Define the problem

  Identify possible alternatives
 Develop criteria and a ranking system
 Evaluate alternatives against the criteria
 Make a decision.

However, Managerial accounting is the key tool for an organization when it comes about
decision making. The reason behind this is, Managerial accounting understanding let you find
out how much a product costs, determine when your company breaks even, and prepare for
expenditure and potential growth. Unlike financial accounting that is structured for external
users, internal administrators are the subject of management accounting. A basis assumption is
that the best decision is the one that involves the most revenue or the least amount of cost.
Decision taking is necessary if the organizational goals objectives are to be accomplished within
a given time and budget. This searches for the right solution, correctly uses the capital and
attracts the workplace employees. As a result, organizational goals or objectives will be
accomplished according to the desired outcome. Moreover, there are elements of an effective
decision-making process such as: problem rationalization, Boundary conditions, right thing to
do, Action and feedback. While making a decision these factors help a manager to construct a
decision. On the other hand, the accounting system of the company work parallelly for a
manager to determine a quality decision for the company which would become fruitful for the
organization in near future.

Reference

In the study of Mohammad (2020), he performed a study considering 40 industries for

investigating the effects of MA on decision-making. He established that the quality information
assists in quality decision making process.ef