managerial accounting wild pdf

managerial accounting wild pdf

Exploring the Principles and Applications of Managerial Accounting: A Comprehensive Guide

1. Introduction to Managerial Accounting

Definition Managerial accounting is the process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization’s goals. The emphasis of managerial accounting is not on precision but on relevance. Progress is measured by improvement in decision making. Unlike financial accounting, which is governed by generally accepted accounting principles, or U.S. GAAP, managerial accounting is not subject to rules issued by confidential standard-setting bodies such as the Financial Accounting Standards Board and the Securities and Exchange Commission.

In hindsight, what happened was clear. Wendy knew that the renovated store would generate increased revenues, but she had “no clue” about its effect on costs. By the end of the semester, you had better know something that Wendy did not. You should be able to determine how costs will be affected by managerial decisions. This is a basic problem faced by all managers, and managerial accounting is the answer. Managerial accounting is defined as follows.

What does the chief executive officer (CEO) of The Pantry, one of the biggest convenience store chains in the United States, really know? “Not as much as I would like,” says Peter Sodini. Just last year, The Pantry spent $50,000 to renovate one of its locations. President Sodini thought it was money well spent, and so he instructed his manager to renovate another location. That manager “didn’t know what she was doing,” Sodini points out, and the costs of the project quickly spun out of control topping $400,000.

2. Cost Concepts and Analysis

In addition, cost knowledge also plays a part in the evaluation of the level of performance of both an organization and its subunits. As the writing within the framework stressed, cost and other kinds of data, whether financial or nonfinancial in nature, are interconnected. The information in these related files that is to be included in an organization’s managerial accounting database is varied and drawn from both internal and external data sources. Cost data is a significant part of the information that is, in all likelihood, most frequently used from this database. The nature of these data files, as well as the kind of analyses that stem from the information contained therein, will be elaborated upon in the present and all subsequent chapters, being explicitly demonstrated through the use of numerous examples, one or more mini-cases per chapter, and perusal of real-world annual reports of actual companies.

As you read through this chapter, you will gain a better understanding of the management of costs within the context of managerial accounting and the determination of cost data for decision-making. At the end of this chapter, you should be able to explain what is meant by cost and discuss how product costs and period costs are entered into an organization’s accounting system. In Chapter One, the conceptual framework related to management’s use of managerial accounting was presented. This framework addressed the role of cost information as being a key point of support for decision-making, planning, and control by management. In analytical terms, cost information occupies a central place when management is addressing such operating decisions as those related to pricing of goods and services, cost management, and the valuation of products made by an organization. These cost-related decisions are made as management plans, organizes, and coordinates the organization’s activities in order to efficiently achieve its goals and objectives.

3. Budgeting and Forecasting

Budgeting is the process of planning for future events and activities to develop goals set by upper management and the company as a whole. It is defined as a quantitative expression of a plan of action and an aid to the coordination and implementation of the plan. Budgeting is important in most managerial accounting companies because decisions are made continuously and represent the future plans of the company as a whole. Budgets are made throughout the company such as advertising budgets and equipment purchase budgets, but are typically collected and prepared into a comprehensive company budget annually. Budgeting reflects implementation of a company’s long-range plan.

After studying this chapter, you will be able to: 1. Explain why budgeting is important in most managerial and management accounting settings. 2. Contrast operating budgets with financial budgets. 3. Describe how companies prepare sales, production, direct labor, direct materials purchases, and selling and administrative expense budgets. 4. Explain the purpose of each budget presented in this chapter. 5. Build a comprehensive company budget and explain how the budgets are prepared, reviewed, and refined. 6. Discuss the importance of corporate strategic plans and the role that budgets play in corporate planning and performance assessments. 7. Describe the ethical and social responsibility aspects of budgeting and the potential problems that accompany their preparation.

4. Decision Making with Managerial Accounting Tools

The detailed road map for the rest of the chapter is provided at the beginning and within each topic. Examples, end-of-chapter problems, and web-based problems give practical application to the concepts and techniques. An ethical focus appears in each subsection, guiding principles, and therefore business decisions for managers.

Key Topics. Located within the major topics are the following important decision-making tools: – Breakeven analysis – Relevant cash flow concepts – Make or buy decisions – Eliminate or retain products – Process further or sell – Special orders – Constraints – Limiting factors and profit maximizing – Short run and long run pricing – Product mix – Cost of direct labor – Lower product cost permanently and sustain the improvement – Transfer pricing

Introduction – Our focus in this chapter will be how managerial accounting meets the information needs of managing today and providing accountants and managers a step-by-step decision-making rules for routine business practice. Emphasis is on how business managers armed with managerial accounting tools, techniques, and information can use their knowledge of the future cost, revenue, and savings implications of alternative courses of action to make informed decisions.

5. Performance Evaluation and Control Systems

In conclusion, managerial accounting plays a central role in performance evaluation, which consists of undertaking periodic comparisons of organizational plans and actual organizational activities, and then using feedback to spur improvement. A large part of this performance evaluation involves the manager. The concepts known as basic control applications discussed in this chapter have important relationships with providing information for and assessing the performance of managers. Besides the use of basic control applications by the management accountant, these important concepts are widely used as decision aids in capital budgeting. Small business management also uses them to narrow down the scope of investment decisions. Control systems exist to save us from chaos. They provide the critical feedback that lets us know if what is happening is what should be happening. The chapter also uses cost accounting data to explain many of the major background concepts that subscribers need to understand about the applications.

This chapter talks about performance evaluation. It provides a description of some specific performance indicators in a number of organizational forms. It briefly describes the most important control systems in organizations. It specifies the main characteristics of some basic responsibility centers and discusses the important control applications in managerial accounting. The measurement of the performance of all firm’s employees is an important activity in every business. The success of an organization relies on how well managers at all levels make decisions. The financial and non-financial measures allow professionals from different corporate areas to organize themselves and work together efficiently in the organization’s best interest. Also, it is important to make sure that individuals are evaluated on the basis of some form of a comprehensive set of criteria. Financial and non-financial performances have to be combined, at different levels, as indicators of managerial success.