Purpose of Managerial Accounting

Purpose of Managerial Accounting

The purpose of managerial accounting is to provide company management a tool to provide information to help control and understand costs, make decisions on products based on a projected outcome of revenues versus expenses, coordinate the resources needed to complete projects will be funneled or drawn from, and it can also be used as a way to motivate and guide employees. "Managerial accounting is a system of measuring and providing operational and financial information that guides managerial action, motivates behaviors, and supports and creates the cultural values necessary to achieve an organization's strategic objectives." (Mehmood, 2010) The information created by managerial accounting serves the needs of management. It should only be developed when the expected benefits outweigh the costs of development and use.

Managerial accounting provides this information on the cost of a product, shipping the product, employee wages and benefits, turnover costs, and many more costs to help managers make better decisions. This can be used to determine budgets or to set a price for a product based on sales data. If an item is not selling, the product price can be lowered based on data provided by managerial accounting.

How do managerial accountants support strategic decisions?

Managerial accountants support strategic decisions by providing managers with reports to measure the differences between what management has planned versus what they actually have accomplished. Managerial accounting can support production decisions. If a manager was concerned about how efficient a department was against other departments in the company, managerial accountants could create reports showing how much of a product is going to waste and how much is being paid in salaries to identify areas that are not being efficient. Once those areas can be identified, managers can implement changes to increase profit in the department.

Managerial accounting supports strategic financial decisions by going beyond what financial accounting provides. Managerial accountants can use ratio analysis formulas based on financial statements to determine if a company can remain profitable beyond the current reporting periods. These can be used to determine how the company will be able to pay their debts, both short and long term. These products lead to the "Going Concern Concept". (Dennis, 2011) This determines if a company has the ability to remain in operation in future business periods.

Ways in Which Managers Implement Strategy

The way a strategy is implemented has a great effect on the outcome. The strategy would be virtually useless if it is not implemented correctly by everyone in the company. For this reason, implementation strategy should