managerial accounting 16th edition

managerial accounting 16th edition

The Evolution and Importance of Managerial Accounting: A Comprehensive Analysis of the 16th Edition

1. Introduction to Managerial Accounting

Many managers possess knowledge in such disciplines as engineering, marketing, finance, law, and human resource management, but have relatively little formal training in accounting or in learning how to use accounting information to help them control costs and improve performance. Many entrepreneurs have developed successful small businesses without formal training in managerial accounting and consequently lack the ability and discipline needed to analyze, interpret, and comprehend accounting reports such as income statements, balance sheets, or cash flow statements. These same deficiencies hold true for many employees who perform the activities for whom they report performance measures. What these people might lack are the basic tools to enhance their accounting-related skills, as well as a lack of discipline to use such tools effectively.

Managerial accounting focuses on the measurement, analysis, communication, and improvement of economic information that helps managers fulfill their responsibilities. Managers use managerial accounting methods for planning, directing, and controlling ordinary business operations. Although managers do not have to be accountants, they must be able to read and comprehend reliable, timely accounting information. As companies strive for competitive advantage, fundamentally new and different business models are emerging. Businesspeople must continue to learn throughout their careers in order to stay competitive, and the principles of managerial accounting have become more sophisticated in recent years as business experiences have expanded.

2. Key Concepts and Principles in Managerial Accounting

Managers of both nonprofit and for-profit organizations are expected to apply resources efficiently, create value for their shareholders or stakeholders, ensure that the organization is able to adapt to its environment, and achieve their objectives. Managerial accounting is designed to help managers accomplish these ends. Because managers throughout an organization carry out these distinctive functions, different types of managerial accountants are needed at various levels of an organization. Managerial accounting’s internal focus implies that value is separately measured for individual responsibility centers, and differences in measurement often occur when describing total organizational performance. Key ideas from economics and behavioral sciences expand the traditional quantitative approach to managerial accounting. This approach helps to better explain the motives that underlie information creation and usage. Many key terms and concepts in this text help to frame both the normative and descriptive aspects of managerial accounting. Normative concepts describe those things that decision makers should control and use a language of obligation and determination. On the other hand, descriptive concepts portray decision makers in a more passive role, where they are influenced by situational factors and use a language of skepticism.

Key Characteristics of Managerial Accounting

Managerial accounting is concerned with providing information to managers—that is, people inside an organization who direct and control its operations. Managers make numerous decisions, both routine and nonroutine, which require current and future data about the organization’s costs and revenues. Managers use this information to help decide: what products to make, what customers to serve, what assets to acquire, what other organizations to merge with, how to finance, what and when to produce, the most appropriate way to distribute, cost reduction and process improvement efforts, how to measure and manage risk, how to evaluate performance, and how to report information and communicate the implications of reported information.

Managerial Accounting Definition

– 1. Contrasts between financial and managerial accounting – 2. The role and behavior of costs – 3. Cost accumulation for product and service costing – 4. Planning, decision, and control – 5. Incremental analysis – 6. Here to setting and management control – 7. Behavioral aspects of budgeting – 8. Strategy, balanced scorecard, and strategic profitability analysis – 9. Capital budgeting

Key Concepts and Principles

3. Tools and Techniques for Decision Making

(Accounting data – current financial accounting information – out of context, irrelevant, or result from arbitrary allocation mechanisms) Chapter 2 discusses that costs are not naturally within the accounting model but are estimated. Chapter 3 develops additional detail required to better assess different estimation mechanisms since (essentially) nothing is attributed exactly. The particular objective of the material in Chapter 3 is to draw attention to Twight’s concept that a cost accounting system performs two functions: control and valuation. Additional sophistication, much of it benefits brought into accounting by using computers, is required to substantially benefit either need. It is emphasized that computer sophistication will only benefit marginal improvements in a system and may not help everyone involved.

(1) The confusion in measurement and the difficulty in visualizing how costs behave in reality is the subject of Chapter 2.

(1) Decisions are made in every area of business and to make them effectively, accountants need to be able to measure real costs. These costs are rarely those that are initially recorded and are usually irrelevant measures.

(Scm) Chapter outlines and objectives begin and end each chapter. They tell the student what is ahead and help them measure what has been learned.

4. Strategic Cost Management

Ensuring continued growth and obtaining an acceptable return requires careful planning and cost-effective operations. Therefore, strategic cost management should be a high priority for all managers. This high level of commitment suggests that the manager’s focus might shift from short-term profit maximization to achieving growth and long-range profitability. Strategic cost management is a management philosophy that will strengthen the company’s competitive position. During the last decade, much pioneering work has been done using Japan in developing this approach. This has been termed strategic management accounting. The role of management accounting is used to influence managing decision making to achieve the organization’s strategic objectives within the context of a total business environment. Unlike financial accounting systems, which focus on externally-based accounting data, strategic management is concerned with the provision and analysis of various types of information to assist organization decision-makers in setting out targets and in formulating and implementing strategies.

Show how to apply cost concepts to make decisions. Demonstrate why companies sometimes choose not to use cost information. Discuss the simplistic assumptions economists make when analyzing business decisions. Illustrate some ways that a system of information can be viewed. Support a discussion of management by strategic concepts to gain a strategic cost management perspective.

5. Performance Evaluation and Reporting

Managers need an abundance of both financial and non-financial reports to help in efforts to achieve their assigned responsibility levels. Reporting practices that surface while meeting reporting standards often influence behavior of managers throughout an organization. Control policies capture collateral benefits from policies requiring the use of management accounting reports. Control policies also add value to organization reports in various major areas including member identification, problem clarification, defining the work environment, building and crediting teamwork, enhancing trust in the organization, recognizing current and future financial success factors, and reinforcing ethical and moral attitudes inside and outside of the organization. In general, all practical reporting applications and standards are tailored in adapting to general principles.

In actual operations of the company, control is a major activity. Managerial accountants are often involved with control issues. Today’s managers are expected to implement management control policies, control specific events or conditions, tell top management whenever specific goals can’t be attained, motivate employees to achieve goals efficiently and effectively, know when to change goals, and know who and how many should be accountable for perceived success and failure. It is a complex and dynamic chore that requires both a good information system and great detective skills.