Introduction to Managerial Accounting - Research Paper Example

Managerial accounting Part 1 Introduction Managerial accounting is important in providing data that is used in planning and control, and it has many techniques that will aid in decision-making. Managerial accounting or management is the process of identifying, recording, analyzing and presenting financial data that is utilized internally by the Directorate for decision-making, planning, and control. In contrast to financial accounting, management accounting is majorly concerned with coming up with useful data and reports to internal users such as entrepreneurs and managers. The useful information will assist them to plan and control their business activities. Managerial accounting is used in the following areas; · Budgeting and planning. Managers make use of the techniques of managerial accounting in plan what is supposed to be sold, how it will be sold. In addition, what price should be charged to the product to replace the production costs and earn a profit that is optimal? In addition, they have to plan how to finance the operations and how to manage the available cash. That is important in keeping the activities of the business to work smoothly. · Decision making. Managers need managerial accounting information when they decide whether or not to commence a certain project. Managerial accounting will help them compare the benefits of various opportunities and help them decide which ones to choose. · Performance measurement. Managers have to compare the budgeted figures to evaluate the performance of the business to actual results of the operation. They will have to use certain techniques of managerial accounting such as standard costing to assess the performance of various departments (Weygandt, Kieso, & Kimmel, 2010). The Role of Managerial accounting and the management accountant in business or organization The role of the management accountant Managerial accountants keep record financial information for their firms that are used by the management team of the company to aid in the process of decision-making. Managerial accountants do develop budgets, perform asset, cost management, and create necessary reports to be used by the Directorate team. In every company managers to significantly depend on the data provided by managerial accountants to develop business strategies that are effective. Owners of small business make most of the decisions within their company. The data offered by managerial accountants can affect the liability of the owner to make business decisions that are sound (Weygandt, Kieso, & Kimmel, 2010). The role of Managerial Accounting The main purpose of managerial accounting in business is to support decision making by collecting, processing, and communicating helpful information that would assist the managers. The information would help the managers to plan, control, and evaluate the processes of the business and strategy of the company (Albrecht, 2007). Ethical issues/concerns for the management accountant In addition to the company to set up standards of good conduct for their employees and managers, the professional associations could also establish ethical standards. Both the Institute of Management Accountants and the American Institute of Certified public Accountants have set up ethical standards for the accountants. The professional accountants are supposed to adhere to those codes of conduct. However, the largest challenge with ethical issues is that when they come to employees usually do not realize. They do not realize that such a dilemma has arisen or the correction action that should be taken to correct the difficulty. A management accountant is supposed to be skilled at implementing judgments that are moral. The reason is that he or she can put into consideration the welfare of those that are affected by his or her actions (Albrecht, 2007). Being effective in the management of accounting, managers, and supervisors can influence the welfare of his or her ethics. Managers and supervisors are required to demonstrate principles through their teachings and example. Therefore, in addition to the high code of ethics of the company, observing one’s manager or supervisor could lead to ethical behavior. The accounting managers should also contribute to managing the business performance of employees beyond their day-to-day professional work. They need to include their values in all aspects of their operations. Accountants need to bring their personal code of ethics with them into the firm. In addition, management accounts should focus on calling people to excellence. They should do that by presenting the significance of high ethical standards and also by teaching the usefulness of personal integrity that an accountant is responsible to his or her nobility. The view of ethics that is utilitarian states that its consequences determine the wrongness or rightness of an action. Therefore, management accountants should come up with their set of principles by evaluating their effects in comparison to the results. That would follow everyone in the society if acted, in the same way (Weygandt, Jerry, Kimmel, Paul, Kieso & Donald, 2014). Managerial accounting techniques and their application to a business or an organization Three accounting methods could be discussed; Activity-based costing (ABC). The method assigns more overhead or indirect costs into direct costs compared to conventional costing. CIMA defines ABC as an approach to the monitoring and costing of activities that includes requiring final outputs and tracing resource consumption. The resources are assigned to the activities and activities to the objects of value based on estimates of consumption. The latter will utilize the drivers of cost to attach activity costs to outputs. In applying the Activity-based costing, a company can determine the elements of cost of the entire products, services, and activities. That can help in the decision making of an enterprise way (Weygandt, Jerry, Kimmel, Paul, Kieso & Donald, 2014). Cost volume profit analysis The technique is used for short-run decisions in the company and elementary instruction in the enterprise. It elaborates the information provided by the break-even analysis. The critical part of the technique is where the total costs equal the total revenues. At that point, of the break-even point, the firm will experience no loss or income way (Weygandt, Jerry, Kimmel, Paul, Kieso & Donald, 2014). Life-cycle cost analysis (LCCA) It is a technique that is utilized to determine the option that is most cost effective among different alternatives of competition. The alternatives of competition are to purchase, own, maintain, and operate and eventually to process or dispose of an object when each is appropriate to be implemented on technical grounds. LLCA takes into account all the user costs and agency costs related to future activities of the company way (Weygandt, Jerry, Kimmel, Paul, Kieso & Donald, 2014). Part 2 Costing methods Manufacturing costing methods are techniques that are used to assist in the understanding of the value of outputs and inputs in the process of production. In categorizing and tracking the information according to an efficient system of accounting, corporate management can discover with a great degree of accuracy the cost per unit of production. The management needs the information so as to make informed decisions about pricing, levels of production, future investment, competitive strategy and a host of other concerns. Such information is very necessary for the managerial position or internal accounting (Heisinger, 2008). Overview of the current costing methods 1. Process and job-order costing There are two approaches to costing used in manufacturing. There is the process costing which is used in most mass-production settings. A process cost system usually analyzes the net cost of a process of production. The other primary costing method is the job order costing which is concerned with tracking all the costs based on an individual product. That is useful in settings where every unit of production is customized. It is also useful where there are very few units that are to be produced. In the job, orders costing the costs that are incurred in the production of a certain unit are recorded, and they do not need to be averaged with those of any other unit. It is also significantly used outside the manufacturing sector. A manufacturer can make use of both job-order and process costing for different parts of its operation (Heisinger, 2008). 2. Activity-Based Costing (ABC) It is a supplementary to the two traditional techniques of costing. Tradition methods of costing do classify generic categories like labor, direct materials, and other overhead. The Activity-based costing groups any prices that are associated with a single task of manufacturing, not considering if they fall into materials or labor or something else. The advantage of the approach is that can make an observation of which tasks do cost the most and those that add the most value. The analysis might demonstrate the disproportionate amount of money that is being spent on activities that have little value. The use of the method is commonly referred to as activity-based management or activity-based cost management (Heisinger, 2008). An existing example of a firm that has used the above costing methods is Drop box. The costing methods have helped the company to; · Increase the revenue of the business that has reached about $ 116 million, and it is expected to reach $ 300 million in future. · At the beginning of the year the company raised 4 250 million at a $ billion valuation (Heisinger, 2008). Budgeting A budget is a plan that has been expressed in quantitative and commonly monetary term that covers a specified period normally one year. Managerial accounting looks into the financial situation of a company in an operational way providing information in a manner that supports managers in control procedures and planning. Organizations may use various types of budgets concurrently (Heisinger, 2008). Master Budget A master project is an active projection of how management experts to carry out all the aspects of business over the period of budget typically a fiscal year. It concludes expected activity through a cash budget, budgeted balance sheet, and budgeted income statement. Many master budgets include resources that are interrelated from the various departments. Managers usually use the resources to set performance objectives and plan. They are commonly used in larger firms to put managers on the same page (Heisinger, 2008). Operational budgets They cover the expenses and revenues that are witness on the daily core business of the organization. Revenues do represent the sales of services and products. On the other hand are the costs of goods sold as well as administrative and overhead costs that relate directly to producing goods and services. When they are annually budgeted, the budgets are usually broken down into smaller reporting periods, such as monthly or weekly (Heisinger, 2008). Cash flow budget It looks into the inflows and outflows of cash in a firm on a daily basis. It can predict the ability of a company to take in more money than it pays out. Managers use the cash flow budgets to discover shortfalls between sales and expenses. The cash flow budgets also demonstrate levels of inventory and production cycles so that the resources of the company are made available for activity. In addition, so that they are not left on the shelves of warehouses or idle (Heisinger, 2008). Financial budget It demonstrates how a company spends and receives money on a corporate scale. It includes costs from capital expenditures and revenues from core business plus income. Managing assets such as investments, buildings, property, and major equipment may have a significant effect on the financial health of a company. Managers utilize financial budgets to value the firm for public offerings of stock and mergers. They also use it to leverage financing (Heisinger, 2008). Static budget They contain elements where expenditures remain unchanged with variations in the levels of sales. The overhead costs represent one type of the static budget, but the funds are not restricted to traditional overhead expenses. In a company, some departments may have a fixed amount of money in the organization budget. In addition, it will depend on the departmental managers to ensure that such costs are paid without going over-budget. The condition usually occurs in non-profit public sectors, where agencies or organizations are funded greatly by grants (Heisinger, 2008). An example of an organization that has utilized budgeting to improve its performance is the general electric. The company has most of the listed resources that help the body to monitor the daily and yearly operations, and that has helped it to have efficient operations (Heisinger, 2008). Quality control It focuses on maintaining and developing a product and service that is economic, satisfactory, and useful to the customer. It involves the entire process of the business and employees. The functions of accounting are linked integrally to every aspect of the enterprise activity. Quality control is every part of the company, and it must be supported by the corresponding quality control level in accounting. An example of a company that applied quality control is Mercedes –Benz. During the period of recession in the 1990s, the company struggled a lot in cost efficiency, product development, material purchasing and adapting to the changing markets. The luxury carmaker company lost a lot of money for the first time in history. During the process of development, the target costing process was led by cost planners. The company also applied quality control and currently operations are doing very well (Bhattacharyya, 2006). Conclusion Managerial accounting or management is the process of identifying, recording, analyzing and presenting financial data that is utilized internally by the Directorate for decision-making, planning, and control. In contrast to financial accounting, management accounting is majorly concerned with coming up with useful data and reports to internal users such as entrepreneurs and managers. Managerial accountants typically record financial information for their companies that are used by the management team of the company to aid in the process of decision-making. Managerial accountants do develop budgets, perform asset, cost management, and create necessary reports to be used by the Directorate team. The main purpose of managerial accounting in business is to support decision making by collecting, processing, and communicating helpful information that would assist the managers. In addition to the company to set up standards of good conduct for their employees and managers, the professional associations could also establish ethical standards. . The professional accountants are supposed to adhere to those codes of conduct (Bhattacharyya, 2006). References Albrecht, W. S. (2007). Accounting, concepts, & applications. Mason, Ohio: Thomson/South- Western. Bhattacharyya, A. K. (2006). Principles and practice of cost accounting. New Delhi: Prentice- Hall of India. Heisinger, K. (2008). Introduction to managerial accounting. Boston, Mass: Houghton Mifflin. Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2010). Managerial accounting: Tools for business decision-making. Hoboken, NJ: Wiley. Weygandt, Jerry J., Kimmel, Paul D., & Kieso, Donald E. (2014). Financial & Managerial Accounting. 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