Managerial accounting is a branch of accounting that deals with the process of identifying, analyzing, interpreting and communicating accounting information in order to aid in better managerial decision making for attainment of organizational goals. Managerial accounting is the internal use of financial information for better decision making while financial accounting prepares accounting information for external users. Managerial accounting is important to any organization since it provides a basis for arriving at effective and informed decisions.
Managerial accounting technique is mandatory for accounting and finance students. In most cases, students are provided with accounting information and then are asked to interpret and advice the company. We provide our clients with managerial accounting assignment help to ensure that they have an easy time understanding and interpreting key concepts. Our team comprises of experienced and highly qualified that are ready to deliver on diverse topics in managerial accounting.
It is important for financial accountant to provide true and accurate information. Any misleading information or data provided to managerial accountant will lead to misinformed decisions that will be costly and not useful to the organization. To avoid misleading the managerial accountant, the information provided should meet the following attributes.
- It should be reflection of economic reality
- It should be sufficiently accurate
- It should be relevant for the intended purpose
- It should be provided at the right time
- It should be easy to understand.
Decision making environment
Managerial accountant decision making process involve identification of objectives, search for alternative course of action and gathering data about the identified opportunities. Decisions made pertain to specific markets that are characterized by different levels of risks. There are four main decision making environments:
- Certainty environment- represents a market environment where certain or predictable information is available.
- Risky environment- likelihood of an event occurring in the market has an associated level of probability.
- Uncertain environment- in this case, the likelihood of an event occurring cannot be predicted with a statistical confidence.
- Competition environment- in this kind of decision making environment, the decisions made by a firm are affected by decisions of other firms with the same interests.
Functions of managerial accounting
The main role of managerial accounting is to collect, analyze and interpret financial information for better decisions in the organization. The managerial accountant produces a report to be used by top level management in coming up with strategic course of action. The functions of managerial accounting can be specifically categorized into the following main areas.
- Margin analysis
Marginal analysis is the process of determining incremental profits and benefits that arises from the sale of a specific product, region or a customer. It involves determining the additional benefits that arises from the addition of a new product or customer. This information is useful since the company can gauge on the profitability of an additional product, customer or a new market region and decide whether to continue with it or terminate.
- Break even analysis
Breakeven is a point in which the cash received by the company is sufficient to cover for production costs without making any profit or loss. At breakeven, the total costs is equal to the total revenue. Breakeven analysis is useful to any organization when it comes to setting the price of a product. The company will be informed on the price that is required to meet the production costs incurred and an additional margin for profit generation.
- Inventory valuation
Inventory valuation refers to the process of determining the costs associated with inventory, costs of goods sold and allocating overhead costs at the end of a trading period. Inventory valuation is important since it allocates costs and profits to individual items that were handled in a given period. A company can use this information in determining the appropriate inventory levels that minimizes costs and maximizes benefits.
- Capital budgeting analysis
Managerial accounting analyses the costs and benefits of a fixed asset before its acquisition. This is in order to determine if the fixed assets are really required in the organization and different financing options available. Some of the techniques used in examining the fixed assets include net present value and internal rate of return. Managerial accountants evaluate fixed assets proposals and the payback periods in order to determine if the proposal should be implemented.
- Trend analysis
Managerial accountants also perform trend analysis of costs over a given time period to determine any variation from the normal cost trend. Trend analysis involves the use of past cost information in order to predict and project future expected cost patterns. Reviewing of the historical trend lines help in coming up with reasons for variation in order to understand the causes for variation.
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