Managerial accounting principles are utilized on a daily basis by managers and accounting professionals to assist them in making sound decision for companies. The company’s management collects and analyzes data to meet specific needs in different areas of operations. Four important areas management and accounting professionals concentrate on include budgeting, forecasting analysis and projection.
Budgeting takes place at the onset of the fiscal year. Managers and accountants work in tandem to set a budget for the company. This budget will then be a guideline for operation during the year. When setting a budget the following three objectives are involved: 1.
(Warren, C, Reeve, J, & Duchac, J., 2009) Every budgeting system, such as continuous budgeting, zero-based budgeting, static or flexible incorporates the aforementioned objectives.
Involving employee and management input when setting the budget is key. This gives them both a sense of autonomy to keep them motivated. It also prevents accountants from setting a budget that is “too tight or too loose.” (Warren, C, Reeve, J, & Duchac, J., 2009). Both lead to budget breakdowns and ultimately an uncertain future for the company.
Accountants and managers then analyze the managerial accounting data. This is essentially a breakdown of the company’s performance in all areas. This breakdown assists managers in controlling the budget. There are two types of analysis that are an integral part of the decision-making by management known as, variance analysis and a “balanced scorecard.” (Kaplan & Norton, 1996)
Variance analysis compares and contrasts, what is positive or negative, with respect to the financial analysis of the company. Many companies compare and contrast their actual numbers with their projected numbers on a monthly basis. There are a myriad of variances that can be studied, such as sales, profit, material and labor variances. A regular examination...
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