Question

Introduction The purpose of this project is to consider the practical application of a managerial concept in a real life situation, preferably in the industry in which you expect to pursue your career. You will need to consider an operational issue that you believe could potentially be improved by the effective application of a managerial accounting concept that you have been exposed to in ACCT3000. This is a group project, please be sure to include all group member names on the cover sheet of your final report (I recommend you work in the same groups you’ve formed for the weekly MiniCases). Method You can choose any managerial accounting concept from the textbook that is related to what we have studied in this course. Based on your knowledge of a specific company in the industry you have picked (possibly gained through part-time employment or a summer job experience), you will highlight a situation where you believe the application of a managerial concept would benefit the company. More specifically, your work will describe a key operational issue within the company and demonstrate how the company would benefit from the appropriate application of the managerial accounting concept. Your analysis should be sufficiently detailed to clearly show how the concept would be applied and how management decision making would benefit from the change. If you wish you may also draw on resources outside of the class to enhance your analysis. You could do this by making use of the Humber library and research other resources regarding the topic of managerial accounting, such as professional journals and magazines. Format A report should be typed and a hard copy handed in to be marked. The format of the report could be organized as follows: Introduction of the topic (textbook definition and description of the concept), background on the chosen industry/company and the issue addressed, description of how the managerial accounting concept could be applied, and a summary of how successful application of the concept would lead to better management decision making in the future. The expected length of this report is 5 to 10 pages, double spaced. Grading Marks will be awarded for: 1- Description of industry/company and managerial accounting concept (1). 2- Application of the managerial accounting concept .

Answer 1

When Is Managerial Accounting Appropriate?

Managerial accounting is the type of accounting that provides financial information to managers and decision-makers within a company or organization. Managerial accounting, such as weekly or daily budgeting, is used to help managers make decisions that increase the organization's operational effectiveness and efficiency.

Managerial accounting is different from financial accounting in that financial accounting is centered on providing quarterly or yearly financial information to investors, shareholders, creditors, and others outside the organization. Conversely, managerial accounting is used internally to make efficiency improvements within the company.

Understanding When to Use Managerial Accounting

There are a number of common scenarios in which managerial accounting is appropriate. The first applies to those situations in which a company competes in a fast-paced and highly-competitive business environment.

Managerial accounting often involves several aspects of the company's financial results, including revenue, sales, operating expenses, and cost controls. A company's executive management team needs to plan and forecast at an enterprise-wide level. Below are three high-level areas that managerial accounting is often employed to enhance the internal financial metrics of a company.

Planning, Forecasting, and Budgeting

Managerial accounting involves forecasting and planning to project the financial direction of the company in the coming months and years. These plans often involve projections for revenue but also costs as well. Typically, this high-level planning involves creating a capital budget, which details the costs of any investments to be done in the future. The budget might outline the costs and projections for new equipment purchases and acquisitions.

Project Management Decisions

Managerial accounting is used to perform cost-benefit analysis for new projects and provide ongoing reports for existing projects. These projects might involve significant outlays of cash or capital as well as new debt to finance them. As a result, managerial accounting is critical to ensuring that these projects are delivered within budget and in a timely manner while also being profitable.

Performance Tracking

Measuring and tracking performance using managerial accounting can help executive management make decisions in real-time. Measuring performance against the forecasts and budgets helps to avoid costly overruns and allows a company to remain competitive.

Service

Service companies, such as transportation, business, professional, restaurants and maintenance services, use managerial accounting to calculate certain business functions costs. These companies determine how much labor is used and the amount of materials used. Managerial accounting helps decide the amount of time spent on each customer to maximize profit. These companies also use break-even analysis and forecasting to create plans for generating revenue and planning sales goals.

1.Chart Of Accounts

Chart of Accounts is the term your accountant uses to describe the buckets used to categorize the money that flows in and out of your business.

The Chart of Accounts includes assets, liabilities, revenue, expenses, and equity.

Then all of these are broken down into subcategories… things like marketing, restaurant supplies, and sales are all items you would typically find in a restaurant Chart of Accounts.

Why you should care…

The Chart of Accounts is the source of a business’s financial statements.

Without it, getting insights into anything related to your restaurant’s moneymaking & spending will be a headache… and getting your taxes done will be especially difficult.

2 Cost Of Goods Sold

Cost of Goods Sold (COGS) refers to the total cost that goes into making the product someone is selling.

It basically means the cost of all of the ingredients & items on your menu.

You can calculate COGS the hard way… how many you sold of a menu item X how much it cost to make it.

OR you can calculate your COGS when you take your weekly restaurant inventory… Beginning Inventory – Ending Inventory = COGS.

Note, your COGS should not include labor costs or utilities…

It only includes the cost of the actual ingredients that make up the dishes on your menu.

Why you should care…

Your COGS is the cost of your food and beverage inventory, which directly ties to the profit you make per plate sold.

Keeping tabs on this number will help you keep pricing where it needs to be.

And that will let you make a healthy profit on each plate of food sold at your restaurant.

3 Restaurant Labor Cost, Occupancy Expenses And Operating Expenses

Restaurant labor cost, occupancy expenses, and operating expenses are all different categories of restaurant expenses and they’re slightly different from those of other kinds of small businesses.

Restaurant labor cost is pretty straightforward.

It’s where you account for the labor it takes to run your restaurant (remember, not in Cost of Goods Sold).

This means your cooks, busboys, servers, hosts, and anyone who’s on your payroll – from front-of-house to back-of-house.

And payroll taxes and employee benefits are included in labor costs.

Occupancy expenses are all of the costs related to… well, where you’re at.

What’s included: Rent, property taxes, utilities, and even property insurance.

Occupancy expenses are fixed costs… meaning you can’t reduce the cost of them in order to increase profits.

Operating expenses are pretty much everything else it takes to run your restaurant on a day-to-day basis.

Operating expenses are not the cost of the people on your payroll OR the cost of the ingredients or rent.

It’s just everything else from napkins and flatware, to marketing and advertising.

Why you should care…

Restaurants are the only type of small business that has occupancy expenses as a category on their income statements.

That means knowing the difference between occupancy expenses and operating expenses…

Well, let’s just say it’s mucho importante for restaurant owners.

And since labor costs are one of the largest expenses for a restaurant, it’s important to know what it is so you can invest money wisely and increase profits.

4 Prime Cost

Simply put, a restaurant’s prime cost is COGS + labor costs.

The prime cost constitutes a majority of a restaurant’s expenses because it includes all of the food and beverage ingredients, as well as all payroll costs, taxes, and benefits.

Why you should care…

Prime cost is an important accounting term to know as a restaurant owner.

It’s where you have the biggest chance to avoid accounting mistakes, cut costs, and increase profits.

The other fixed costs (occupancy expenses and operational expenses) aren’t as easy to cut back on, and they usually make up a smaller portion of your overall expenses anyway.

5 Cost-To-Sales Ratio

When analyzing the financial health of your business, something to keep in mind is that no number on its own can tell you everything you need to know.

For example, a large restaurant will have a high prime cost.

And a small restaurant will probably have a low prime cost in comparison.

But you can’t compare the two since the large restaurant is probably doing much more in sales than the small restaurant.

It’s apples and oranges.

In order to figure out the financial health of your business, you or your accountant should look at your Cost-to-Sales Ratio.

This puts your expense categories as a percentage of sales.

For example:

Food Cost-to-Sales Ratio = (Food Cost / Food Sales) X 100%

What’s A Good Food Cost-To-Sales Ratio To Aim For?

Well, the restaurant industry average is between 26% and 36%… so anywhere in between those numbers is where you want to be.

Why you should care…

Calculating Cost-to-Sales Ratio allows you to compare your business to other businesses without sacrificing accuracy.

It allows you to see how your business is really doing…

Instead of just seeing scary-high prime costs or deceiving sales numbers on their own.

Food cost management enables you to see where you’re doing well… and what areas need improvement.