I.

Introduction to Managerial Accounting

Management accounting can be viewed as Management-oriented Accounting.

Basically it is the study of managerial aspect of financial
accounting,"accounting in relation to management function". It shows how
the accounting function can be re-oriented so as to fit it within the
framework of management activity. The primary task of management
accounting is , therefore, to redesign the entire accounting system so that it
may serve the operational needs of the firm. If furnishes definite accounting
information, past, present or future, which may be used as a basis for
management action. The financial data are so devised and systematically
development that they become a unique tool for management decision.
Managerial accounting is a form of accounting that deals not only with
financial information, but information that is not always easy to quantify into
numbers and reports. Things like employee performance, efficiency, product
rates and customer satisfaction stats are all things that managerial
accountants deal with. They take that information and put it into reports that
are easy for managers to understand. By doing this, managerial accountants
help managers make the important decisions to turn the company in a new
direction, or help it continue on as a profitable and respected organization.
Financial accounting looks at the company as a whole. It focuses on the net
profit, the revenue and expenses of the company. It does not look at the

parts that make up the whole. This is what managerial accounting does. It
takes the company and breaks it into parts that can be studied and
analyzed. Maybe one department is bringing down the rest like a lead weight
attached to a strong chain. If this is happening, the methods of managerial
accounting will find it and that will help managers take the information and
use it to make the company better and more efficient as a result.
Managerial accounting is not new, but it is revolutionary and despite
originating over 100 years ago, companies are only now realizing the true
power of this amazing form of company management.
The purpose of both managerial accounting and financial accounting is
providing useful information to decision makers. They do this by collecting,
managing, and reporting information in demand by their users. Both areas of
accounting also share the common practice of reporting monetary
information, although managerial accounting includes the reporting of
nonmonetary information. They even report some of the same information.
For instance, a companys financial statements contain information useful for
both its managers (insiders) and other persons interested in the company
(outsiders).
The remainder of this book looks carefully at managerial accounting
information, how to

gather it, and how managers use it. We consider the concepts and
procedures used to determine the costs of products and services as well as
topics such as budgeting, break-even analysis, product costing, profit
planning, and cost analysis. Information about the costs of products and
services is important for many decisions that managers make. These
decisions include predicting the future costs of a product or service.
Predicted costs are used in product pricing, profitability analysis, and in
deciding whether to make or buy a product or component. More generally,
much of managerial accounting involves gathering information about costs
for planning and control decisions.

Planning
is the process of setting goals and making plans to achieve them. Companies formulate long-term strategic plans that usually span a 5- to 10-year horizon and then refine
them with medium-term and short-term plans. Strategic plans usually set a firms longterm direction by developing a road map based on opportunities such as new products,
new markets, and capi-tal investments. A strategic plans goals and objectives are broadly
defined given its long-term orientation. Medium- and short-term plans are more
operational in nature. They translate the strategic plan into actions. These plans are more
concrete and consist of better defined objec-tives and goals. A short-term plan often
covers a one-year period that, when translated in monetary terms, is known as a budget.
Control
is the process of monitoring planning decisions and evaluating an organizations
activities and employees. It includes the measurement and evaluation of actions,
processes, and outcomes. Feedback pro vided by the control function allows managers to
revise their plans. Mea surement of actions and processes also allows managers to take
corrective actions to avoid undesirable outcomes. For example, managers periodically
compare actual results with planned results. Exhibit 1.1 portrays the important
management functions of planning and control.