Managerial Accounting – a Vital Role for the Financial Success of a Company
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Managerial Accounting:
A Vital Role for the Financial Success of a Company
The main objective of any company is to earn a profit now and in the future. Profits are earned when payment for goods or services provided exceed the costs incurred by the company. These profits can greatly be enhanced by important decisions made by managers. Managers are responsible for making proper decisions to allow the company to be profitable. To ensure profitability and success, managers should utilize the functions of managerial accounting to assist in the decision making process.
Managerial accounting is the process of identifying, measuring, analyzing and
communicating financial information needed by management to plan, evaluate and control an organization’s operations (“Statements”). It’s the manager’s responsibility to the owner to ensure that the company is successful. Through managerial accounting, managers are provided information for internal planning and control to assist in leading the company. Good managerial accounting is vital to understanding the profitability of day to day activities and in predicting profitability in the future. The main objective is to provide the necessary information for decision making and to motivate the manager to meet company goals. This important information allows the manager to track costs and expenditures to assist in making critical decisions. Reports in managerial accounting are very detailed and pertain to different parts of the company. Such reports are generated daily or weekly so that managers can identify ways to set prices or cut costs.
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There are no fixed rules governing how a company keeps track of information in managerial
accounting.
In contrast to managerial accounting, financial accounting provides information for individuals outside of the organization and is governed by a set of rules. Statements generated in financial accounting report on the financial position and performance of a company on a periodic basis. Creditors and investors are a few examples of those who use these reports. Creditors use financial statements to make decisions regarding lending funds to a particular company. Investors use the statements to measure the profitability of a company and to decide whether to invest in the company. Unlike managerial accounting, financial accounting is performed according to a set of guidelines called the Generally Accepted Accounting Principles (GAAP). The purpose for the guidelines is to ensure that all financial statements report financial performance fairly and consistently. These reports include the income statement, statement of owner’s equity, the balance sheet, and statement of cash flows. Once completed, these statements report important results about the performance of a company and usually indicate how well a company utilized managerial accounting. Managerial accounting is critical for a company to be financially successful and will be discussed further in detail.
Easton-Bell Sports, Inc., a sporting goods manufacturing company, will be used to assist in examining the concepts of managerial accounting. Easton-Bell manufactures sports equipment, protective products, and other related accessories under authentic brand names. The products are used in a variety of sports including, baseball, ice hockey, football, and lacrosse. In addition to manufacturing products, Easton-Bell also offers a service by reconditioning athletic equipment (“United States 3”). To ensure financial success, management at Easton-Bell must utilize managerial accounting to evaluate and control the day to day and future operation of the business. Particular items to evaluate include job order and cost systems, budgeting, capital
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expenditures, cost behavior, contribution margins, breakeven analysis, pricing, and the value chain. All of these concepts of managerial accounting are used in the management process of a company and are vital to ensure the success of a company. These concepts will be discussed in detail later, but first the management process needs to be examined.
Companies like Easton-Bell must also utilize the basic functions of the management process to be successful. The process management of a company refers to the tools necessary to operate an organization to achieve challenging goals. When successful, process management will ensure greater customer satisfaction, better productivity, increases in revenue, and favorable financial reporting in financial accounting (“Process”). The three basic functions of the management process to be discussed are planning, budgeting, and controlling.
Planning is simply setting goals for the company and making decisions to help meet those goals. The mission statement for most companies includes these goals and directions they want to take. Effective planning helps a company adapt to change by identifying opportunities and avoiding problems. Management must know what the purpose of the company is and what must be done to remain competitive in the future. The mission of the company or organization is clarified and goals are then set. The information collected from managerial accounting assists managers in the decision making process to carry out certain plans. This information is also used daily to evaluate plans to ensure they are working properly. Management at Easton-Bell Sports, Inc. has a goal of increasing their operating income. To achieve this, Easton-Bell focuses on improving the quality of their products for performance which enables them to increase prices for premium products (“United States 6”).
The budget process of management is a key financial tool to manage the operation. The main purpose of the budget is to ensure that the company will have enough funds to pay the
expenses. Managers forecast and build budgets to coordinate the organization’s activities for
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the future. It shows the expected financial