Question

In: Accounting

The topic will be "Are Different Methods of Accounting for Variable Cost Necessary?"

The topic will be "Are Different Methods of Accounting for Variable Cost Necessary?"

Solutions

Expert Solution

Managerial accounting is quite different from financial accounting. External reporting rules are
replaced by internal specifications as to how data are to be accumulated and presented. Hopefully, these internal specifications are sufficiently logical that they enable good economic decision making. For example, specific reporting periods may be replaced with access to real-time data that enable quick responses to changing conditions. And, forecasted outcomes become more critical for planning purposes. Likewise, cost information should be disseminated in a way that managers can
focus on (and be held accountable for!) those business components (“segments”) under their locus of control.A business must plan for success. What does it mean to plan? It is about thinking ahead -- to decide on a course of action to reach desired outcomes. Planning must occur at all levels. First, it occurs at the high level of setting strategy. It then moves to broad-based thought about how to establish an optimum “position” to maximize the potential for realization of goals. Finally, planning must be
undertaken from the perspective of thoughtful consideration of financial realities/constraints and anticipated monetary outcomes (budgets).


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