Strategic Management Accounting Essay Example | Topics and Well Written Essays - 3000 words - 1

Strategic Management Accounting - Essay ExampleSuccess foundation be musical rhythmd by ensuring that the output is as per the desired estimation from the pre-decided input and effort (Rathore, 2009 Siddiqui, 2006). In such situation, obligation accounting signifies classifying the monetary information that is related to the areas associated with the makeupal activity. After considering these financial aspects the responsibilities are allocated for compulsive different areas of operations. These areas are also known as responsibility centres. There are heterogeneous types of responsibility centres, such as cost centre, profit centre, revenue centre, and investment centre (Rao, 2007). The financial performance in the organisation are measured and monitored by the managers by considering the relative measures of profitability. ROI is also a relative measure of financial performance that can be utilised for comparison with the other investments. It also assists in providing a sum mary of the post return on the capital employed. The concept of ROI is based on the yield or benefit that investors reap on investments (Megginson and Smart, 2008). ROI = (Revenue Investment) / Investment * 100 (Jupri, n. ... The focus of ROI is towards profit, and the data required for such reason is easily available. Apart from this, the size of the divisions does not affect the calculation, and the managers can easily choose the projects with higher ROI. However, ROI ignores various risks, and considers historic measures. In this case the projects which shake off slow payoff are generally rejected. This also encourages managers to work shift their focus towards short-run than long-run (Kimmel, Weygandt and Kieso, 2008). Apart from ROI, EVA is another tool for measuring financial performance that has baffle popular among the managers. In this case the performance is calculated on the basis of the residual wealth of the organisation that is deducted by the cost of capital from the operating profit. This is also referred as the economic profit. The formula for calculating EAV is declared below EVA = NOPAT (Net Operating Profit after Taxes) (Capital * Cost of Capital) The organisation having a positive EVA is said to have yielded profit or wealth, while organisation with negative EVA is said to have consumed the capital. The strength of EVA is that it acts as a major indicator of wealth creation and accordingly assists the managers in streamlining the goals of the division or plant with the corporeal goals (Ingram, Albright and Ingram, 2006). However, there are certain limitations in this method, especially when it comes to the size of the division or organisation, or financial orientations. Both the methods discussed here suffer from the drawback of tempting managers with short-term profits. EVA is particularly used for aspects like incentive compensation, investor relations, and vision allocation. The premise in this case is