ACC 206: Principles of Accounting II
Professor James Christopher
November 25, 2012
Management accounting plays an important role in not only a company’s well-being, but in educating a company of its current and future states. Large amounts of data are collected from literally every aspect of the company (as well as industry standards) and are dissected and organized into reports which present top management with the information it needs to make important future financial decisions. Although sometimes overlooked as an “important” role in a company, the information it brings is vital to its success.
Collecting data and reporting are two significant aspects of managerial accounting. There are many different sources of data which are used to present important information to various departments throughout the company. Below is a detailed explanation of which data are collected, from which departments they are collected, and how they are used in the company:
In order to interpret information vital to the sales department of a company, managerial accountants must collect the following information:
Price of products soldProduct mix
Fixed and variable costsIndustry standards
Historical sales dollarsActivity levels
Profit and lossFuture (desired) sales levels
This information is used and organized into a variety of beneficial reports. For example, the breakeven point, or the amount of products sold where the sales profit is zero, can be determined by a calculation which uses variable expenses, fixed expenses, and sales dollars to find the level of sales units that results in $0 profit. This equation can help sales management determine where changes can be made in order to find the lowest levels of production which still produce a profit for the company.
Another benefit to the sales department that managerial accounting can provide is the sales budget. This is a rather important piece of information for top managers in a company since it provides both sales dollars and production units that need to be produced in order to maintain profitable levels. This is the first step in creating other budgets for the company; the expected / desired sales levels are what drive the other departments to produce, stock or ship certain products. A sales expense budget is a separate report which uses data from budgeted selling/administrative expenses, cash receipts, executive and secretarial salaries, sales dollars, fixed and variable costs, and advertising costs and organizes it into a simple, easy-to-read format. These reports are just a few examples of the many reports that managerial accountants can create for the sales department; once complete, they can move on to the production department.
In managerial accounting, data is collected from various areas of production. Some of the data are as follows:
Material additionsCost of production
Parts per hourRequired production
Required inventoryLabor costs
An important part of managerial accounting for the production department is to assist with the production budget. This helps determine the required production needed to satisfy the sales needs. This allows the production planning departments to understand their required levels of inventory needed in order to ensure the customers’ needs are met. Understanding efficiencies will help production managers to find ways to improve production levels, reduce set up times (as an example), use less raw materials, reduce scrap, etc, in order to meet the required production to meet the goals of the sale budget. These reports put dollar amounts to everyday actions. By determining the production rate per unit, more accurate costing is provided, which really allows managers to learn whether or not they are being profitable (efficient). By knowing what the desired inventory levels are from the...