wild managerial accounting pdf

wild managerial accounting pdf

Exploring the Wild World of Managerial Accounting: A Comprehensive Guide

1. Introduction to Managerial Accounting

The future of managerial accounting will begin to be defined as we proceed through the various topic areas. We have made a good deal of progress since the days when only financial accounting information existed, and because of that, we had nothing to help us evaluate what those financial measures were telling us about performance or to help us properly manage our costs, our operations, and revenue, or our cash flows. Although we are in a good position with respect to financial accounting and the judgments we as users must make based on that financial information, we still have some work to do in the remaining areas just discussed. We predict that future work in managerial accounting will become a significant part of financial research and theory. After careful thought, we propose that managerial accounting in a more theoretical vein is the future of managerial accounting. Users of accounting information, both present and future, need to understand that the financial accounting history of the past 40 years primarily has been one of standards setting. With that setting of standards, we now pay attention to disclosures, the nature of the disclosures, and the message that those disclosures tell us about the financial health of corporations. Based on that information, users of the disclosures make earnings forecasts, make equity holding decisions, and pass judgment on how managers are discharging present and future duties.

Welcome to the wild world of managerial accounting. You are about to embark on a journey that will take you into the world of accounting information systems, cost management, performance evaluation, and corporate governance. This journey will involve a study of the accrual accounting system used in both manufacturing and service environments. Cost systems will be studied and analyzed. Performance evaluation will be considered from the various perspectives of individuals who have occasion to judge the performance of an organization.

2. Key Concepts and Techniques in Managerial Accounting

What constitutes proper classification of costs? Proper cost classification is very important. When costs are not classified by area or subject of relevance, information is not provided to help identify cost behavior or control points. If we understand our costs of doing business by specific area, the information can be helpful in achieving the firm’s strategic and tactical objectives. For example, if a company operates a chain of luxury hotels, top-quality services must be provided and attention directed towards minute details in order to attract and keep its high paying customers. Providing such quality can be costly. The cost of room furnishings, landscaping, the floral supplies, the maintenance and improvement of the exterior and interior of the hotel facility, and customer service are part of the trust between a hotel chain and its potential guest clientele (probably business) is established. However, not all costs can be of the noncontrollable type and be acceptable no matter what. Other costs must be closely monitored and controlled in order to operate in highly competitive industry. The costs of reservation materials, sales and marketing efforts, telephone costs, nonpayroll support costs, cable television supplies, and some types of payroll costs must be closely monitored and controlled in order to maintain the chain’s competitive edge.

Cost classification requires a different approach than financial accounting. Remember that financial accounting is limited to summarizing historical data. The reports produced for managers and employees working in the financial accounting function are not terribly useful for the performance of the proper management of a business. Further, managerial accounting information cannot be subject simply to rules, as the rules established by the Securities and Exchange Commission (SEC) and Financial Accounting Standards Board (FASB) for financial accounting correspondence. The information provided to management must be malleable or useful for decision and implementation purposes. Such information will be specific to the circumstances surrounding its creation and use and must be the result of considered judgment. This does not mean that anything goes in managerial accounting. Cost concepts must still be clearly identified and treatment of certain costs from financial accounting must be understood and properly addressed.

3. Applications of Managerial Accounting in Real-World Business Scenarios

What are the limits of application of managerial accounting? In the narrowest sense, the answer to this question seems simple enough. In the broadest field of business activity, managerial accounting techniques are focused on the problems of providing direction to planning, cost control, and performance analysis. We wish to lay a foundation for the orderly development of policies, actions, or operations which will accomplish most effectively the purpose of the enterprise. Then we carry out these policies, actions, or programs, and have in the end a store of accumulated data on the costs and results achieved. We therefore establish a system embracing the recorded information and its uses suitable for specific purposes – one which lends itself to orderly and useful guidance.

In every business unit, the power and ability of managerial accounting are crucial, but nobody can fully appreciate how useful they can be until they see them put to work. Managerial accounting concepts can be applied individually or in various degrees of combination to provide direction and dissection for tasks as varied as market planning, cost and analytical programs, establishment of stock ranges, formulation and maintenance of insurance reserves, development of exploration practices, estimation, regulation of cost status, tax analysis, improvement of time analysis, surveillance of governmental contracts, stimulation of efficiency, and so on. In view of its potential for useful results when properly applied, every administrator is most likely to be aided by the services of the managerial accounting organization. He must not only recognize its place in the administrative scheme, but also reach a position of sufficient knowledge of its uses so that his efforts will be coordinated for maximum effectiveness.

4. Advanced Topics and Emerging Trends in Managerial Accounting

These advanced topics are not typically present in an introductory accounting course but are of interest to those who are making accounting decisions or working in an accounting function. As a result, this may be the first place that the seasoned professional would like to start since terms including data warehousing or data mining would not typically be covered in an introductory course.

In the first three chapters, “The Building Blocks,” “Tools for Enterprise,” and “Topics in Managerial Accounting,” you have been introduced to the basic concepts of managerial accounting and the tools used to make decisions. Before concluding this book, we explore some more advanced topics in managerial accounting that are important to understand in an increasingly complex business world. You can consider skimming this chapter the first time you read this book and then returning for additional insight in the future.