Question

Predictive accounting is a trend in that management wants to know not only how product costs were derived but also more about what future costs and profits will be. How can managerial accountants provide this information to management?

Answer 1

Managerial Accounting provides the information about the business to the management in detail for making improvements in its internal performance. It is different from financial accounting as it helps the internal users to make correct business decisions. Managerial accountants help the management by providing quality information about the business metrics. It allows business to reduce unnecessary expenses and maximise profits. Managerial accounting can modify according to the needs of its intended users. Managerial accountants meet the needs of each department by providing information in whatever format each require. Management accounting encompasses various accounting techniques like budgeting, forecasting etc.

Product Costing - Product costing determines the overall cost in the production of any goods or services. Cost accounting analyses those costs in addition to the overhead that the business incurs. Managerial accountants calculate and allocate overhead expenses to the costs to determine the total expenses of a good. In addition to the overhead costs, managerial accountants determine direct costs for finding out the cost of goods sold and the inventory in the production of goods. Marginal costing is the impact on the cost of a product by adding one additional unit to production. Break even analysis is used to determine price points for goods and services.

Budgeting and Forecasting - Budgets are extensively used for quantitative expression of company’s plan. The positive or negative deviation from budget also known as budget-actual variance analysis helps the management in determining the performance of business. Managerial accounting helps to make capital expenditure decisions. It also outlines payback periods so that management is able to analyse future benefits. Managerial accounting helps in reviewing the trend lines for various expenses to determine the estimated future costs.

Managerial accounting  focuses on internal users - executives, product head, management to make important decisions from accounting. For internal decision making, it consider both production costs as well as non production costs. Managerial accounting often focuses on making future decisions for a business. Preparing projections like the future costs and profits for a new products is the job of managerial accountants. One important characteristic of managerial accounting is its high level of detail. Information such as product profitability will come from management accounting. Finally, managerial accounting also takes the form of non financial measures. The kind of non financial information comes from managerial accounting. Managerial accounting provides information for future projections and of different segments. It helps in non financial detailed measure of defective products. Managerial accounting provides detailed information monthly, quarterly and annually as the management wants.

Hence, managerial accountants help the management with the information of product costs as well as its future costs and profits.