John Buco Colegio de Jimenez, Inc.

(formerly Adventist Technology Institute)

Managerial Accounting
(Learning Insight)

Submitted to:
Mrs. Eleanor M. Lusing
Teacher

Submitted by:
Mary Rose S. Japus
Student
Introduction

Identification, measurement, analysis, interpretation, and dissemination of

financial data to managers in support of an organization's objectives constitute
the practice of Managerial Accounting. The display of financial data for internal
use, which management uses to inform important business decisions, is known as
managerial accounting. Unlike financial accounting, managerial accounting is not
governed by accounting rules when it comes to techniques. Data about
management accounting might be presented in a way that best suits the end user's
requirements.
Product costing, budgeting, forecasting, and other financial analysis are only a
few of the accounting aspects that are included in managerial accounting.

Managerial accounting aims to improve the quality of information delivered to

management about business operation metrics. Managerial accountants use
information relating to the cost and sales revenue of goods and services generated
by the company. The pillars of managerial accounting are planning, decision-
making, and controlling. In addition, forecasting and performance tracking are
key components. Through this focus, managerial accountants provide
information that aims to help companies and departments in these key areas.
Types of Managerial Accounting are Product Costing and Valuation, Cash Flow
Analysis, Inventory Turnover Analysis, Constraint Analysis, Financial Leverage
Metrics, Accounts Receivable (AR) Management, and Budgeting, Trend
Analysis, and Forecasting.
Learning Insight

Planning involves setting financial targets and creating budgets, while controlling
involves monitoring and managing financial performance. Decision-making
relies on financial analysis and insights provided by management accountants to
aid in informed decision-making. These pillars form the basis for management
accounting practices and assist organisations in achieving their financial goals.
With regards to the types of Managerial Accounting, Product Costing deals with
determining the total costs involved in the production of a good or service. Costs
may be broken down into subcategories, such as variable, fixed, direct, or indirect
costs. Cost accounting is used to measure and identify those costs, in addition to
assigning overhead to each type of product created by the company. Managerial
accountants calculate and allocate overhead charges to assess the full expense
related to the production of a good. The overhead expenses may be allocated
based on the number of goods produced or other activity drivers related to
production, such as the square footage of the facility. In conjunction with
overhead costs, managerial accountants use direct costs to properly value the cost
of goods sold and inventory that may be in different stages of production.
Managerial accountants perform Cash Flow Analysis in order to determine the
cash impact of business decisions. Most companies record their financial
information on the accrual basis of accounting. Although accrual accounting
provides a more accurate picture of a company's true financial position, it also
makes it harder to see the true cash impact of a single financial transaction. A
managerial accountant may implement working capital management strategies in
order to optimize cash flow and ensure the company has enough liquid assets to
cover short-term obligations. When a managerial accountant performs cash flow
analysis, he will consider the cash inflow or outflow generated as a result of a
specific business decision. For example, if a department manager is considering
purchasing a company vehicle, he may have the option to either buy the vehicle
outright or get a loan. A managerial accountant may run different scenarios by the
department manager depicting the cash outlay required to purchase outright
upfront versus the cash outlay over time with a loan at various interest rates.
Inventory Turnover is a calculation of how many times a company has sold and
replaced inventory in a given time period. Calculating inventory turnover can
help businesses make better decisions on pricing, manufacturing, marketing, and
purchasing new inventory. A managerial accountant may identify the carrying
cost of inventory, which is the amount of expense a company incurs to store
unsold items. If the company is carrying an excessive amount of inventory, there
could be efficiency improvements made to reduce storage costs and free up cash
flow for other business purposes. Managerial accounting also involves reviewing
the constraints within a production line or sales process. Managerial accountants
help determine where bottlenecks occur and calculate the impact of these
constraints on revenue, profit, and cash flow. Managers then can use this
information to implement changes and improve efficiencies in the production or
sales process. Financial leverage refers to a company's use of borrowed capital
in order to acquire assets and increase its return on investments. Through balance
sheet analysis, managerial accountants can provide management with the tools
they need to study the company's debt and equity mix in order to put leverage to
its most optimal use. Performance measures such as return on equity, debt to
equity, and return on invested capital help management identify key information
about borrowed capital, prior to relaying these statistics to outside sources. It is
important for management to review ratios and statistics regularly to be able to
appropriately answer questions from its board of directors, investors, and
creditors. Appropriately managing Accounts Receivable (AR) can have positive
effects on a company's bottom line. An accounts receivable aging report
categorizes AR invoices by the length of time they have been outstanding. For
example, an AR aging report may list all outstanding receivables less than 30
days, 30 to 60 days, 60 to 90 days, and 90+ days. Through a review of outstanding
receivables, managerial accountants can indicate to appropriate department
managers if certain customers are becoming credit risks. If a customer routinely
pays late, management may reconsider doing any future business on credit with
that customer. Budgets are extensively used as a quantitative expression of the
company's plan of operation. Managerial accountants utilize performance reports
to note deviations of actual results from budgets. The positive or negative
deviations from a budget also referred to as budget-to-actual variances, are
analysed in order to make appropriate changes going forward. Managerial
accountants analyse and relay information related to capital expenditure
decisions. This includes the use of standard capital budgeting metrics, such as net
present value and internal rate of return, to assist decision-makers on whether to
embark on capital-intensive projects or purchases. Managerial accounting
involves examining proposals, deciding if the products or services are needed,
and finding the appropriate way to finance the purchase. It also outlines payback
periods so management is able to anticipate future economic benefits.
Managerial accounting also involves reviewing the trendline for certain expenses
and investigating unusual variances or deviations. It is important to review this
information regularly because expenses that vary considerably from what is
typically expected are commonly questioned during external financial audits.
This field of accounting also utilizes previous period information to calculate and
project future financial information. This may include the use of historical
pricing, sales volumes, geographical locations, customer tendencies, or financial
information.

Summary
Managerial accounting is important for drafting accurate and complete financial
statements for internal use and crafting a company's long-term strategy. Without
good managerial accounting, corporate leadership can struggle to make
appropriate choices or misunderstand the firm's true financial picture. Because
managerial accounting documents are not official, they do not have to conform
to GAAP and can be used internally for a variety of purposes. Any company,
whether it is a manufacturing, retail, or service business, needs to know the cost
of its products or services, so it can set the price and calculate profit. Therefore,
the very fundamental concept in managerial accounting is to understand costs and
cost behaviour. Our objective is to understand the cost structure of a business
entity, be it a service business, a non-for-profit organization, or a manufacturing
business. The ability to predict how costs will respond to changes in activity is
critical for decision-making, planning, and control.