Question

How does managerial acconting benefit an organization's decision making? Please explain with supporting references

Answer 1

Managerial accounting uses information from our operations to produce reports that provide ongoing insight into business performance, such as profit margin and labor utilization.

The following are the areas where managerial accounting can help improve decision making and thus making a greater competitive advantage.

Relevant Cost Analysis

Managerial accounting information is used by company management to determine what should be sold and how to sell it. For example, a small business owner may be unsure where he should focus his marketing efforts. To evaluate this decision, an accounting manager could examine the costs that differ between advertising alternatives for each product, ignoring common costs.

Activity-based Costing Techniques

It is based on the company decision to decide what products to sell, the business needs to determine to whom they should sell the products. By using activity-based costing techniques, small business management can determine the activities required to produce and service a product line. Deciding which customers are more or less profitable allows the business owner to focus advertising toward the consumers who are the most profitable.

Make or Buy Analysis

A primary use of managerial accounting information is to provide information used in manufacturing. By completing a make or buy analysis, we can determine which choice is more profitable. While this technique is certainly useful, small business owners should only use these analyses as a factor in the decision. There could be other non-financial metrics that are important to consider that would not be part of the analysis.

Utilizing the Data

Managerial accounting information provides a data-driven look at how to grow a small business. Budgeting, financial statement projections and balanced scorecards are just a few examples of how managerial accounting information is used to provide information to help management guide the future of a company.