Question

Think about the purpose of managerial accounting and the purpose that the information serves. In today’s business environment what type of accounting information do you believe a manager needs to make decisions that are important for the success of a company?

Answer 1

Managerial iaccounting iis ithe ipractice iof iidentifying, imeasuring, ianalyzing, iinterpreting, iand icommunicating ifinancial iinformation ito imanagers ifor ithe ipursuit iof ian iorganization's igoals. iIt ivaries ifrom ifinancial iaccounting ibecause ithe iintended ipurpose iof imanagerial iaccounting iis ito iassist iusers iinternal ito ithe icompany iin imaking iwell-informed ibusiness idecisions.

Managerial iaccounting iencompasses imany ifacets iof iaccounting iaimed iat iimproving ithe iquality iof iinformation idelivered ito imanagement iabout ibusiness ioperation imetrics. iManagerial iaccountants iuse iinformation irelating ito ithe icost iand isales irevenue iof igoods iand iservices igenerated iby ithe icompany. iCost iaccounting iis ia ilarge isubset iof imanagerial iaccounting ithat ispecifically ifocuses ion icapturing ia icompany's itotal icosts iof iproduction iby iassessing ithe ivariable icosts iof ieach istep iof iproduction, ias iwell ias ifixed icosts. iIt iallows ibusinesses ito iidentify iand ireduce iunnecessary ispending iand imaximize iprofits.

1. Managerial iaccounting iinvolves ithe ipresentation iof ifinancial iinformation ifor iinternal ipurposes ito ibe iused iby imanagement iin imaking ikey ibusiness idecisions.

2. Techniques iused iby imanagerial iaccountants iare inot idictated iby iaccounting istandards, iunlike ifinancial iaccounting.

3. The ipresentation iof imanagerial iaccounting idata ican ibe imodified ito imeet ithe ispecific ineeds iof iits iend-user.

4. Managerial iaccounting iencompasses imany ifacets iof iaccounting, iincluding iproduct icosting, ibudgeting, iforecasting, iand ivarious ifinancial ianalysis.

i i i i i i i i i i i i i i i i i i i i i i i i iManagerial iaccounting iis ivery ieffective iin ihighly icompetitive iand ifast-paced ibusiness ienvironments iwhere iquick idecisions ineed ito ibe imade. iThese idecisions imight ihave ito ido iwith ia isales itactic, ibudgeting ior icash iflow imanagement. iManagerial iaccounting iwill iuse ioperational idata ito imake isense iof ithe isituation iquickly.

The igoal iis ito iuse ithe ibudget ito ihelp imake ishort-term ioperational idecisions ithat iwill ihelp iincrease ithe icompany’s ioperational iefficiency.

Let’s isay ian iinternet icompany isubscribes ito icloud icomputing iservices. iMonthly iprices ito irent iout ispace iin ithe icloud ihave ibeen iincreased. iThe iinternet icompany’s imanagers ican iuse ibudgets ito isee iif ithe iprice iincreases iare icosting itoo imuch iand idecide ito ireduce icost iand iincrease ioperational iefficiencies.

Managerial iAccounting iReports

Managerial iaccounting ireports iuse ibudget ireports ito ihelp iguide imanagers ito ioffer ibetter iemployee iincentives, icut icosts iand irenegotiate iterms iwith ivendors iand isuppliers.

1. ACCOUNT iRECEIVABLE iAGING iREPORTS

Does iyour ibusiness irely iheavily ion iextending icredit? iThen ian iaccount ireceivable iaging ireport iis ivital ito iyour ioperations. iThis ireport ibreaks idown ithe iremaining ibalances iof iyour iclients iinto ispecific itime iperiods iallows imanagers ito iidentify ithe idebtors iand iidentify iissues iin ithe icompany icollection iprocess.

If iyour icompany ihas imany idebtors, iyou imay ineed ito ia icomplete ireal ito itighten iup icredit ipolicies ias icash iflow iis icritical ito ithe ioperations iof iany ibusiness. iA icompany ishould ialways iknow iwho iowes ithem iwhat.

2. PERFORMANCE iREPORTS

The iperformance iof ia iwhole icompany, ieach idepartment iand ieach iemployee iare iconsidered iat ithe iend iof ieach iterm iin iperformance ireports. iThese ireports iare iused ito imake iimportant idecisions iabout ithe icompany’s ifuture. iUnder-performers iare isometimes ilet igo iand iindividuals iwho iachieve ior iover-achieve itheir igoals iare irewarded ifor itheir icommitment ito ithe ibusiness. iPerformance ireports ican ishow iflaws iin iworkflow isetups iif ilet’s isay ifor iexample ia iwhole idepartment iis isomehow inot iperforming ito ia icertain icapacity. iA iperformance ireport iis ian iimportant itool ito istay ion itrack ia icompany’s imission.

3. COST iMANAGERIAL iACCOUNTING iREPORTS

Managerial iaccounting idetermines ithe icosts iof iarticles ithat iare imanufactured. iAll iraw imaterial icosts, ioverhead, ilabor iand iany iadded icosts iare iconsidered, iand ithose itotals iare idivided iby ithe iamounts iof iproducts iproduced.

A icost ireport ioffers ia isummary iof ithis iinformation. iThis ireport ioffers ishowcases ithe icost iprices iof iitems iversus itheir iselling iprices ifor imanagers. iUsing ithese ireports, iprofit imargins iare iestimated iand imonitored.

Better ioptimization iof iresources ican ibe iachieved iby ihaving ithis iunderstanding iof iall iexpenses, iincluding iinventory iwaste, ihourly ilabor icosts, iand ioverhead icosts.

4. OTHER iMANAGERIAL iACCOUNTING iREPORTS

Other imanagerial ireports ithat iare ivital ito ievery ibusiness iinclude iorder iinformation ireports, iproject ireports, icompetitor ianalysis iand imany iother isimilar ireports.

These ireports iare ieither icreated iinternally ior ioutsourced ithrough iprofessionals idepending iupon iyour icompany’s icapability ito ihandle ireporting irequirements. iTo imake ithe imost iinformed idecision icompanies iand imanagers imust ihave iaccess ito iauthentic idata iand icredible imanagerial iaccounting ireports.

Types iof iManagerial iAccounting iThat iAdd iValue ito iYour iBusiness

Management iaccounting ipresents iyour ifinancial iinformation iin ia iway ithat iwill ibe iuseful ifor imaking ioperational idecisions iabout iyour icompany. iKeeping iyour ifinancial irecords iup ito idate iwill ihelp iyou iperform ithe ifollowing imanagerial iaccounting itasks ithat iwill iadd ivalue ito iyour icompany.

1. MARGIN iANALYSIS

Managerial iaccounting ianalyzes ithe iincremental ibenefit iof iincreased iproduction i– ithis iis icalled imargin ianalysis. iThis iflows iinto ithe ibreakeven ianalysis, iwhich iinvolves icalculating ithe icontribution imargin ion ithe isales imix ito idetermine ithe iunit ivolume iat iwhich ithe ibusiness’ igross isales iequal itotal iexpenditures. iA imanagerial iaccountant iwill iuse ithis iinformation ito idetermine ithe iprice ipoint ifor iproducts iand iservices.

2. iCONSTRAINT iANALYSIS

Constraint ianalysis iindicates ithe ilimitations iwithin ia isales iprocess ior iproduction iline. iManagerial iaccountants ifind iout iwhere ithe iconstraints ioccur iand icalculate ithe iimpact ion icash iflow, iprofit iand irevenue.

3. iCAPITAL iBUDGETING

Managerial iaccountant’s ihelp ia ibusiness idecide iwhen, iwhere iand ihow imuch imoney ito ispend ibased ion ifinancial idata. iUsing istandard icapital ibudgeting imetrics, isuch ias inet ipresent ivalue iand iinternal irate iof ireturn, ito ihelp idecision imakers idecide iwhether ito iembark ion icostly iprojects ior ipurchases.

The iprocess iinvolves ireviewing iproposals, ideciding iif ithere iis ia idemand ifor iproducts ior iservices, iand ifinding ithe iappropriate iway ito ipay ifor ithe ipurchase. iIt ialso ioutlines ipayback iperiods, iso imanagement iis iable ito ianticipate ifuture icosts iand ibenefits.

4. iTREND iANALYSIS/FORECASTING

Reviewing ithe itrend iline ifor icertain icosts iand iinvestigating iunusual ivariances ior ideviations iis ian iimportant ipart iof imanagerial iaccounting. iDecisions iare imade iby iusing iprevious iinformation ilike ihistorical ipricing, isales ivolumes, igeographical ilocation, icustomer itrends iand ifinancial idata ito icalculate iand iproject ifuture ifinancial isituations.

5. iPRODUCT iCOSTING/VALUATION

Determining ithe iactual icosts iof iproducts iand iservices iis ianother ielement iof imanagerial iaccounting. iOverhead icharges iare icalculated iand iallocated ito icome iup iwith ithe iactual icost irelated ito ithe iproduction iof ia iproduct. iThese ioverhead iexpenses imay iinclude ithe inumber iof igoods iproduced ior iother idrivers irelated ito ithe iproduction, isuch ias ithe isquare ifoot iof ithe ifacility. iAlong iwith ioverhead icosts, imanagerial iaccountants iuse idirect icosts ito iassess ithe icost iof igoods isold iand iinventory ithat imay ibe iin idifferent istages iof iproduction.

i i i i i i i i i i i i i i i i i i i i i i i i i i i i i iThere iare ia inumber iof icommon iscenarios iin iwhich imanagerial iaccounting iis iappropriate. iThe ifirst iapplies ito ithose isituations iin iwhich ia icompany icompetes iin ia ifast-paced iand ihighly-competitive ibusiness ienvironment.

Managerial iaccounting ioften iinvolves iseveral iaspects iof ithe icompany's ifinancial iresults, iincluding irevenue, isales, ioperating iexpenses, iand icost icontrols. iA icompany's iexecutive imanagement iteam ineeds ito iplan iand iforecast iat ian ienterprise-wide ilevel. iBelow iare ithree ihigh-level iareas ithat imanagerial iaccounting iis ioften iemployed ito ienhance ithe iinternal ifinancial imetrics iof ia icompany.

1. Planning, iForecasting, iand iBudgeting

Managerial iaccounting iinvolves iforecasting iand iplanning ito iproject ithe ifinancial idirection iof ithe icompany iin ithe icoming imonths iand iyears. iThese iplans ioften iinvolve iprojections ifor irevenue ibut ialso icost ias iwell. iTypically, ithis ihigh-level iplanning iinvolves icreating ia icapital ibudget, iwhich idetails ithe icosts iof iany iinvestments ito ibe idone iin ithe ifuture. iThe ibudget imight ioutline ithe icosts iand iprojections ifor inew iequipment ipurchases iand iacquisitions. i

2. Project iManagement iDecisions

Managerial iaccounting iis iused ito iperform icost-benefit ianalysis ifor inew iprojects iand iprovide iongoing ireports ifor iexisting iprojects. iThese iprojects imight iinvolve isignificant ioutlays iof icash ior icapital ias iwell ias inew idebt ito ifinance ithem. iAs ia iresult, imanagerial iaccounting iis icritical ito iensuring ithat ithese iprojects iare idelivered iwithin ibudget iand iin ia itimely imanner iwhile ialso ibeing iprofitable. i

3. Performance iTracking i

Measuring iand itracking iperformance iusing imanagerial iaccounting ican ihelp iexecutive imanagement imake idecisions iin ireal-time. iMeasuring iperformance iagainst ithe iforecasts iand ibudgets ihelps ito iavoid icostly ioverruns iand iallows ia icompany ito iremain icompetitive.