managerial accounting information

managerial accounting information

The Role and Impact of Managerial Accounting Information in Business Decision-Making

1. Introduction to Managerial Accounting

Accounting information has an important role in assisting managers in establishing strategic goals and in the decision-making process. Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and economic decisions by users of the information. As such, it not only reflects the terminology and classifications made by the business, which in turn describes the characteristics relevant to managers and stakeholders, but also determines the characteristics that business will exhibit in the future.

Managerial accounting is the process of identifying, measuring, analyzing, interpreting, and communicating information for those who need it to achieve the organization’s goals. It is a service function that produces such reports as profit and loss statements, forecasts, budgets, and the costs of the organization’s products and services. Although management is a distinct area of study with a specific body of knowledge, the aggregate body of knowledge called “accounting” is not but a mere subdiscipline of management at its current stage of development. Hence, the empirical integration of managerial accounting theories and practice within the context of the organization, and as part of the process of enhancing the management decision, have direct implications for understanding management control strategies, the behavior of managers, employee morale, quality improvement, and the organization’s structure.

2. Key Concepts and Techniques in Managerial Accounting

All of these managerial accounting methods provide management with cost accountability information and financial and operating guidelines. Some of the techniques are of a basic or foundational nature, others constitute useful extensions or evolutions of certain of the more elementary methods. However, each process is designed to help balance the technical and non-technical aspects of managerial decision-making, which is an essential managerial function that is also an integral part of administrative control. In most of these areas, managerial accounting provides periodic operating feedback such as a monthly or quarterly cost of goods sold and operating expense control report, and a less regular yet equally important financial and operational evaluation of major longer-run decisions such as a capital investment decision.

I am going to focus on twelve specific types of techniques and concepts that are used by managerial accountants to help companies continually evaluate the cost and operating consequences of various short-term and longer-run programs and decisions. The twelve areas are: cost of goods sold and operating expense control reports, standard cost and variance analysis, operating and financial budgeting, responsibility accounting and flexible budgeting, overhead cost control, make-or-buy decisions, customer and product line profitability analysis, service department charge rates, pricing and product planning decisions, internal profit center financial statements, direct costing, and capital investment analysis.

3. The Use of Managerial Accounting Information in Decision-Making

The first is to aid managers in discharging their stewardship function. As stewards of the organization’s assets, the decision makers are charged with making decisions on an ongoing basis about the best uses of these resources. These decisions have the potential to benefit those who have contributed resources to the firm and be identifiable to the decision makers. The information provides a link between the underlying systems and the organization’s decision makers, assisting managers in the discharge of their stewardship obligations. The opportunity is available to take an insider’s view of this stewardship responsibility. This paper considers the decision-making process and discusses the role and impact of accounting information in the process.

Competing in today’s business environment is more complex than ever, requiring detailed organization and the effective use of resources. In the process of making daily decisions, each manager needs to have input to help ensure that his or her choices meet the requirements of the firm and are made with knowledge of the impact of the decision. The assistance provided by the managerial accounting function is a major source of input into the business decision-making process. The information provided by the managerial accounting system has the potential to fulfill two main roles in the decision-making system.

4. Strategic Cost Management and Performance Evaluation

The value chain of the business should bring to the enterprise the contribution that significantly exceeds the sum of the costs of the enterprise structural units. Business needs to ensure the information support of cost accounting, capable of reflecting the complexity and heterogeneity of today’s business environment. So far, the questions and answers to the methodological and practical support of the managerial management accounting tools and systems are not enough in sufficient detail and are fragment different areas of the business model of foreign economic activity.

The strategic cost management concept was introduced by Olve. The development of the list of cost management tools is used for the creation of product costs based not only on the traditional accounting system data, but also on the information about operational activities and business processes. The effect from mastering such methods of strategic management of costs can be achieved if the new management accounting system takes into account the life cycle of the new products, a range of indirect costs of product using procedures of shared services, based on the prospects of quality related to the volume and timing of sales. Introducing a standard system of the five main functional requirements or the use of approaches to determine the cost of building non-financial incentives.

5. Emerging Trends and Technologies in Managerial Accounting

Data concerning emerging management accounting trends and what factors will drive changes has been collected from various reports and surveys during the late 1990s. This data describes management accounting as a versatile set of information, while providing new models of thinking such as the “balanced scorecard” and “activity-based costing.” These new models of thinking, in combination with innovative enabling technology, demonstrate the advance of technology and challenge management accountants to advance with it.

In today’s changing business environment, both management accountants and the information they provide are evolving to meet the changing business needs of organizations in an accelerated way. Bernie McKillop, President of the Institute of Management Accountants, begins a list of emerging management accounting trends and technologies with the statement, “We are at the beginning of a new era in managerial accounting.” Advances in management accounting have been driven by the globalization of business, accelerated rates of business change, and the growth of enabling technology. Advances require that accountants change the way they think about management accounting as well as what they do. Continuous education and the commitment to keep pace are required.