How relevant is managerial accounting for a firm’s decision making process? Is managerial accounting more than...

How relevant is managerial accounting for a firm’s decision making process? Is managerial accounting more than just estimating a cost for the financial accounting systems of a firm?

Does managerial accounting systems have an impact the value of a firm? If so, how?

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Expert Solution

Answer (a) - Management accounting provide various type of reports to top management to take their important decision. For their decision this branch of accounting provide various information regarding to business process and operation like costs, sales quantity, production, sales volume, profit margin, contribution margin etc.

In following decisions of firm, management accounting provide information and data to a firm’s decision making process.

• Relevant cost analysis provide information to a firm that what should be sold, how to sell it and In how much quantity should be sell to make maximum profit.

• Activity based costing techniques provide information to firm regarding cost driver, important activities of cost and production etc. so that firm can eliminate their unnecessary activities.

• Make or Buys Analysis provide information to firm regarding make or buy form outsider which use by firm in their production or service.

Answer (b) Management accounting is not limited to estimating cost for the financial accounting systems of a firm, however this branch of accounting used in different field for different decision making by management like :-

It’s used in financial accounting for financial statement analysis, cash and fund flow analysis etc.
It’s used in mathematical analysis like operations research, linear programming, network analysis, game theory, and simulation theory.
It’s also used in future based analysis like budget, budgeting & budgetary control, business forecasting, project appraisal or evolution.

Answer (c) Yes, Management accounting gives indirect contribution in increase values of firms.

Value of firm= Market value of share capital of firm + market value of debts

Management accounting provides useful and important information’s to firm to control their products costs, improve performance & productivity, increase overall profitability etc. These factor increases in value of firm assets and this increase value of share capital & market value of firm in such indirect way.

ekkarill92 answered 7 months ago

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