Managerial accounting involves keeping of financial information that is used in making critical decisions in the company. In a contemporary business organization, managers are confronted with the need to choose between alternative products and services. As such, there ought to be a method of selecting the best product for the company to remain profitable. Therefore, managerial accountants investigate the alternate products about their costs and their returns. For instance, managerial accounting compares both the variable and fixed costs of producing a certain product over another other product and after that produces the product with least total cost.
It is the role of managerial accounting to prepare budgets as budgets portray the companys plans regarding quantitative figures. In any organization, budgeting is essential as it facilitates the process of resource allocation and thereby getting rid of department and projects that do not use resources conservatively. Some of the budgets that are prepared by managerial accounting including but not limited to cash budgets, production budgets, and sales budget (Taipaleenmaki & Ikaheimo, 2013).
Managerial accounting produces necessary information that is used for forecasting and planning. In the contemporary business, it is important that the managers of a company understand which products they ought to produce when to produce and in what quantity to produce at any given time. With the help of budgets prepared by managerial accountants, the managers can come up with objectives that maximize the profit of the company.
How Managerial Accounting Helps Managers Improve Companys Performance
Big companies for instance General Electric have a managerial accounting department that ensures that there is continuous improvement of the company by developing and integrating a cost management system. In General Electric, the managerial accountant maps out its stock purchasing framework and matches that with its expenses. The management accountant understands that it requires greater investment and push to buy from specific suppliers than others, despite the fact that the material expenses are similar. The manager chooses to decrease the order size and purchasing frequency from these suppliers. The manager rechecks the process flow and cost comparison and notices that the orders purchased from the suppliers have long approval time especially when the owners are traveling. The manager then prescribes buying purchasing software that will streamline the whole process by ensuring that the owners can affirm any order by email.
The management accountant at General Electric conducts budgeting controls at the activity level. Such activity level includes payment process, billing and Inventory purchasing. Therefore, the manager can be in a position to compute the costs of inputs to remove those costs that add little value to the company. The management accountant will then examine the activities in the company to study its efficiency, and at some point, they can suggest new activities that will increase the efficiency of the company.
The Managerial accountants in the company monitor and measure the quality-related costs which have increased the companys performance. The managers have measured the quality-related costs, and as such, there will be the creation of a better system which can identify areas where significant changes can be implemented to impact the quality in a good way. Therefore, the companys focus on improving quality of products at the smallest level either in production or research will enable the company to create good products and offer best services.
The Role of Federal Taxes, the State of the Economy and Financial Market
Short term business decisions are influenced by factors like general state of the economy, federal taxes and financial market outlook among other factors. The state of the economy is, therefore, a major determinant of the short term decision arrived at by any contemporary business organization. Any business organization has to make the decision on what to produce and in what quantity depending on the state of the economy. If the economy is at a steady growth, then the chances of a business to invest in producing more goods and services are high. For instance, if there is no stability of currency in the economy, most likely no business would like to produce any goods or services as a result of making losses at any particular time. Therefore, most business will produce more goods during the boom cycle and few goods during the recession period (Chenhall & Moers, 2015).
The federal tax also influences the short term decisions of a company in some ways. For instance, if a company is expecting to pay a certain amount of tax, it may decide to cut its running expenses for a given period. Therefore, the company can be able to run without making any loss in the financial period. Also, an organization may decide to purchase its raw materials in so that it gets the tax benefit for that particular year if it anticipates that the federal government plans on increasing federal tax (Taipaleenmaki & Ikaheimo, 2013). Moreover, a business may be compelled to depreciate its assets. Depreciation of assets affects the method and time of purchase and hence federal tax payment to favor the business.
Chenhall, R. H., & Moers, F. (2015). The role of innovation in the evolution of management accounting and its integration into management control. Accounting, Organizations and Society, 47, 1-13.
Taipaleenmaki, J., & Ikaheimo, S. (2013). On the convergence of management accounting and financial accountingthe role of information technology in accounting change. International Journal of Accounting Information Systems, 14(4), 321-348.
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