Practical Application of the Management Accounting Tools for Decision Making During Recession - Survey and Analysis

Abstract

In this paper, we present the results of a survey among 30+ Medium Sized Auto and Engineering units on use of Management Accounting techniques like Standard and Marginal costing techniques, Funds flow analysis and Ratio analysis, Budgeting and Variance reporting etc. This was unique attempt focused on Medium sized Auto and Engineering units. We document interesting insights on how theoretical concepts are applied by owners / decision makers in practice. We observed glaring variations between Auto and Engineering unit practices and use of Management Accounting techniques based on ownership pattern. While Private and Public Limited units with professional Management ensure proper use of budgeting, standard costing, funds flow analysis and variance analysis reporting while assessing the financial feasibility of any decision. At the same time, it was observed that owner based firms use budgeting and ratio analysis, but still continue with best judgement policy. Usage of standard costing was observed to be more popular in Auto units while Engineering units prefer marginal costing over standard costing for pricing. Cash flow/liquidity, appears to be the most important consideration while taking any decision, especially during recessionary period. Although the result is restricted to Pune district, for H1 financials, they are expected to be symmetric for other geographical areas. Corporate finance practice for application of various Management Accounting techniques appears to be influenced mostly by involvement of owners, monitoring/review pattern, firm size, nature of industry etc.