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Unformatted text preview: Management Accounting | 15 Management Accounting and Decision-Making Management accounting writers tend to present management accounting as a loosely connected set of decisionmaking tools. Although the various textbooks on management accounting make no attempt to develop an integrated theory, there is a high degree of consistency and standardization in methodology of presentation. In this chapter, the concepts and assumptions which form the basis of management accounting will be formulated in a comprehensive management accounting decision model. The formulation of theory in terms of conceptual models is a common practice. Virtually all textbooks in business administration use some type of conceptual framework or model to integrate the fundamentals being presented. In economic theory, there are conceptual models of the Frm, markets, and the economy. In management courses, there are models of organizational structure and managerial functions. In marketing, there are models of marketing decisionmaking and channels of distribution. Even in Fnancial accounting, models of Fnancial statements are used as a framework for teaching the fundamentals of basic Fnancial accounting. The model, A = L + C , is very effective in conveying an understanding of accounting. Management accounting texts are based on a very speciFc model of the business enterprise. For example, all texts assume that the business which is likely to use management accounting is a manufacturing business. Also, there is unanimity in assuming that the behavior of variable costs within a relevant range tends to be linear. The consequence of assuming that variable costs vary directly with volume is a classiFcation of cost into Fxed and variable. A description of the managerial accounting perspective of management and the business enterprise will help put in focus the subject matter to be presented in later chapters. 16 | CHAPTER TWO Management Accounting and Decision-Making The Management Accounting Perspective of the Business Enterprise The management accounting view of business may be divided into two broad categories: (1) basic features and (2) basic assumptions. Basic Features The business frm or enterprise is an organizational structure in which the basic activities are departmentalized as line and staff. There are three primary line functions: marketing, production, and fnance. The organization is run or controlled by individuals collectively called management. The staff or advisory functions include accounting, personnel, and purchasing and receiving. The organization has a communication or reporting system (e.g. budgeting) to coordinate the interaction of the various staff and line departmental functions. The environment in which the organization operates includes investors, suppliers, governments (state and federal), bankers, accountants, lawyers, competitors, etc.) The organizational aspect oF the business frm is illustrated in igure 2.1. This descriptive model shows that there are different levels of management. A commonly descriptive model shows that there are different levels of management....
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- Fall '10