Management accounting Essay Example | Topics and Well Written Essays - 1500 words - 5

Management accounting - Essay Example This paper focuses on management via accounting and applies the same for Ryanair. Importance of Management via accounting The main theme of The Visible Hand is that modern business enterprises utilise the market mechanism for allocating resources and coordinating the activities of the economy. According to Chandler, the traditional American business enterprises were single-unit operations and small in size, which used to produce single product within a small geographical area. The activities of the traditional enterprises were monitored and coordinated by the price mechanism and the market. Eventually, the modern business firm evolved which were larger in size and conducted multi-unit operations, which monitored the production of different products from different locations. The activities of those enterprises were not coordinated and monitored by market mechanism, but by the salaried employees. In simple words, the modern enterprises had suspended the market because the administrativ e coordination provided higher profit, better productivity and lower cost, compared to the coordination by market mechanism. He emphasised on the fact that management via accounting has created advantages that gained precedence over all other previous forms. The main advantages that it draws are: Lowering internal transaction costs by ‘routinizing the transactions between units’: The organizations with high value supply chain ends up increasing the transaction cost. This requires paying immediate attention by framing policies for reducing the cost. Properly organizing the information or goods between the units involved in the production of goods and services will lead to decrease in the transaction cost (Spulber, 2009; Swinnen, 2007; Pollitte, 2008). Reducing costs for information on markets and supply sources by ‘linking the administration of producing units with buying and distributing units’: Market failures may result from asymmetric and inadequate info rmation. The appropriate and full information is not always perfect since goods information is also expensive. In a market that deals with good and services, inadequate information can lead to various social costs like, market power, low innovation or inefficient allocation of resources resulting from customer deception. Thus, the cost of information available to the market and supply sources linking between the various units like, administration, production and distribution, should be reduced (Kouvelis et al., 2011; Sunstein, 2002). Faster and cheaper flow of goods or services and of information from one unit to another: Goods and services are seen to travel through manufacturers, warehouses, retailers, wholesalers, distributors and customers. The organization should link the sellers and the buyers together via an ongoing communication that can enable the business to effect the decisions taken by each of the business units. Therefore, the organization should emphasize on the fast a nd cheaper flow of goods, services and information through both down and up the supply chain. By making this flow cheaper and faster, the organization will be able to save lots of cost incurred that can be utilized in other forms (Finch, 2008). Management via accounting provides the organization with lots of value added benefits. They provide information for decision making and