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What Is Managerial Accounting?


The Northwest Missouri State University MBA in General Management Online includes a course in managerial accounting that teaches the foundational concepts in managerial decision-making. This course is a vital component of most MBA programs.

Managerial vs. Financial Accounting

Managerial and financial accounting are often thought of as two names for the same discipline, but they have unique histories and purposes.

Managerial accounting was introduced in the late 1800s to provide the information needed to manage production of items like steel and textiles. It is focused on operating segments and is geared toward planning the financial future of a business. It provides managers within an organization the operation metrics they need to plan business growth strategies, make informed economic decisions and improve operational efficiency. Managerial accounting reports, such as daily and weekly budgeting reports, are often used to support decisions on company expenditures. Professionals who use this discipline need these reports to track deviations from budgets to actual results.

Financial accounting came about in the early 1900s to support the growth of credit, governmental regulations and taxes. Companies use financial accounting to provide quarterly and yearly financial reports to parties outside of the organization, including the media, shareholders, investors, tax professionals and creditors. This information is used to support investing and lending decisions.

What Is Involved in Managerial Accounting?

The process of managerial accounting includes identifying needs, analyzing scenarios, interpreting data and communicating findings. There are several ways in which managerial accounting is applied:

  1. Capital Budgeting: In order for organizations to determine which capital-intensive projects or purchases to consider, managerial accountants apply metrics including net present value and internal rate of return to help in decision-making. Capital budgeting involves reviewing proposals, determining what products and services are needed and evaluating ways of financing purchases.
  2. Trend Analysis and Forecasting: Trend lines differ over time for various expenditures. Managerial accounting involves investigating these differences or variances in order to calculate and project what will happen in the future. This involves reviewing sales volumes, customer tendencies, historical pricing and other financial information.
  3. Product Costing and Valuation: In order to determine the true costs of production, managerial accountants must calculate and allocate overhead charges like monthly rent and utilities. To assess the costs of inventory and goods sold, they also apply direct costs attributed to the production of goods and services, such as machinery.
  4. Margin Analysis: This application of managerial accounting involves understanding profits and cash flow generated from a specific product, service, customer, store or region. It includes analyzing incremental benefits attained by increased production and breakeven analysis, which is the point at which a business's gross sales and expenditures align. Margin analysis is vital in determining price points for products and services.
  5. Constraint Analysis:To optimize the cost efficiency of manufacturing processes, managerial accounting applies constraint analysis to determine where bottlenecks occur. This work reduces the impact of constraints on production, revenue, profit and cash flow.

Managerial accounting is at the heart of sound business decision-making. With expertise in this discipline, businesses can move forward and grow with confidence.

Learn more about Northwest Missouri State University's MBA in General Management Online.


Sources:

Investopedia: Managerial Accounting

Investopedia: What Are Common Scenarios in Which Managerial Accounting Is Important?

Houston Chronicle: Management Accounting vs. Financial Accounting


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