Managerial Accounting information

Wt type of job will u hold in the future? U may b a marketing manager 4 a

consumer electronics firm, u may b d director of human resources 4 a
biotech firm, or u may b d president of ur own company. In these and other
managerial positions u will have to plan operations, evaluate subordinates,
and make a variety of decisions using accounting information. In some
cases, u will find information from ur firm’s balance sheet, income
statement, statement of retained earnings, and statement of cash flows to b
useful. However, much of d information in these statements is more relevant
to external users of accounting information, such as stockholders and
creditors. In addition u will need information prepared specifically 4 firm
managers, the internal users of accounting information. This type of
information is referred to as managerial accounting information.

Define Management Accounting:- Management accounting provide d

relevant information to d concern manager 4 taking effective decisions on d
basis of contemporary information. In other words we can say- management
accounting helps d management to conduct d business in more efficient
manner. It helps d management in planning, controlling and analyzing d
performance of d organization in order to follow d path of continuous
improvement.

Goal of Managerial Accounting

Virtually all managers need to plan and control their operations and make a
variety of decisions. D goal of managerial accounting is to provide d
information they need for planning, control, and decision making. If ur
goal is to b and effective manager, a thorough understanding of managerial
accounting is essential.

Planning:- planning is a key activity 4 all companies. A plan communicates

a company’s goals to employees aiding coordination of various functions
such as sales and production. A plan also specifies the resources needed to
achieve company goals.
How budgets r used in planning:- D financial plans prepared by managerial
accountants r referred to as budgets. These plans help employees understand
company goals nd wt resources r needed 2 achieve them. A wide variety of
budgets may b prepared. For example, a profit budget indicates planned
income, a cash-flow budget indicates planned cash inflows and outflows, nd
a production budget indicates d planned quantity of production nd d
expected costs.

Control:- Control of organization is achieved by evaluation d performance

of managers nd d operations 4 which they r responsible. D distinction b/w
evaluation managers nd evaluating d operations they control is important.
Managers r evaluated 2 determine how their performance should b rewarded
or punished, which in turn motivates them 2 perform at a high level.
Operations r evaluated 2 provide information as 2 whether or not they
should b changed. An evaluation of an operation can be negative even when
d evaluation of d manager responsible 4 d operation is basically positive.
Performance Reports 4 Control :- D reports used to evaluate d performance
of managers nd d operations they control r referred 2 as performance
reports.

Decision Making:- decision making is an integral part of d planning nd

control process-decisions r made 2 reward or punish managers, nd decisions
r made 2 change operations or revise plans. Should a firm add a new
product? Should a firm add a new product should it drop an existing
product? Wt price should a firm charge 4 a new product these questions
indicate just a few of d key decisions that confront companies. Nd how well
they make these decisions will determine future profitability nd, possibly,
the survival of d company.

Distinguish b/w Financial and Managerial accounting

Managerial accounting differs from financial accounting in many ways. A

key difference is that managerial accounting stresses information that is
useful to firm managers, whereas financial accounting stresses information
that is useful 2 external parties. In addition, financial accounting information
must b prepared in accordance with GAAP, but managerial accounting
information need not be.
• Managerial accounting is directed at internal rather than external
users of accounting information.
• Managerial accounting may deviate from generally accepted
accounting principles (GAAP).
• Managerial accounting may present more detailed information.
 • Managerial accounting places more emphasis on the future.

Cost terms used in discussing planning, control and decision making

Variable Cost:- costs that increase or decrease in proportion to increases or

decreases in d level of business activity r variable costs. Material and direct
labor r variable cost because they fluctuate with changes in
production.

Fixed cost:- costs that do not change with changes in d level of business
activity r fixed costs. Depreciation and rent r costs that typically do not
change with changes in business activity.

Sunk costs:- costs incurred in d past r referred to as sunk costs. These costs
r not relevant 2 present decisions, because they do not change when these
decisions r made. For example, suppose u buy a ticket to play 4 $30. before
d play, u run into a friend who invites u 2 a party. If u go to d party u won’t
be able 2 attend d play. D cost of d ticket is irrelevant 2 d decision as 2
whether or not u should go to the party. Whether u go to d play or go 2 d
party, u r out $30(d price of d ticket 2 d play, which is sunk).

Opportunity costs:- d values of benefits foregone when one decision

alternative is selected over another r opportunity costs.