Question

Financial Statement Analysis typically represents the transition point between the study of Financial Accounting, which presents an external view into the organization, and the dive into the internal focus of Managerial/Management Accounting. After a few days in Chapter 12 (Management Accounting and cost volume profile relationship), I suspect you are seeing that change of direction with the topics of cost behavior, cost classifications, contribution margin and that type of an income statement, cost-volume-profit analysis, break-even analysis, and operating leverage.

Please reflect on that difference shifting from a financial to managerial focus and discuss examples of any of these tools presented in Chapter 12  (Management Accounting and cost volume profile relationship) that you may have experienced in organizations that you have worked for, provide any highlights of the effectiveness, or if you can’t identify anything from experience, please suggest how you see any potential opportunities for use.

Answer 1

Under the financial accounting, the main objective is to safeguard the interest of shareholders and outsiders like supplier and other creditors. In financial accounting, there is only accounting but no control and improvement of effectiveness of the production or operational system.

Thus, as the time passes, the company’s and its management starts concentrating on the Management accounting or the cost-volume relationship, which do the services of getting and providing informations, controlling and improving the processes, planning and decision making.

The management accounting helps the financial accounting and the shareholders and the creditors to feel secure and have have higher earnings as Management concentration on Management accounting and costing will makes the system more effective and increases the profitability of the firm.

The management accounting or costing through its methods and techniques like cost behavior, contribution margin, cost-volume-profit analysis, break-even analysis, and operating leverage, keeps an eye on the effectiveness and profitability.

The management accounting is improving the processes or operation through its Process costing and evaluating the reasons of wastages and losses.

The management accounting is also futuristic also because it runs the control system through the use of techniques like budgetary control, standard costing and Marginal costing. These techniques brings the products costing in control under the inflationary period and improve profitability.

Therefore, the companies are having internal controls on the operations through the use of Management Accounting and Cost-Volume relationship for the benefits of the shareholders and outsiders.

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