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5.7: Managerial Accounting

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    Learning Objectives

    • Explain the key components of managerial accounting

    Managerial accounting revolves around three primary components:

    1. Planning
    2. Controlling
    3. Decision making

    All companies have requirements around these components from the very beginning. Budgeting and business planning are the very first steps in beginning a business, and these are managerial accounting tasks! But what would happen if you just jumped into a business, without planning anything?

    Let’s look at a small business start-up:

    A link to an interactive elements can be found at the bottom of this page.

    You can download a transcript for the video “MA Module 1, Video 6, Planning Directing and Controlling, Problem 1-3” here.

    The first step is planning. Let’s assume we are going to start that restaurant Tony talked about in the video. First, we will create a budget for our new venture. This budget provides us with milestones.

    • How much in sales do we need to bring in each month?
    • What will our menu look like?
    • How many employees do we need and how much will we pay them?
    • What will our cost of product be?
    • What will we pay for rent and utilities?

    Once we have the plan, and we operate our business for a while, we can then move on to the control portion of the managerial accounting process.

    • Did we meet our sales goals?
    • Did we stay within our budget for payroll?
    • Did we meet our cost of product budget and goals?

    Then we get to move on to decision making.

    • We didn’t make our sales goals, so how will we adjust costs?
    • Should we adjust costs, or should we rethink our marketing plan to increase sales?
    • Are we pricing our product correctly?
    • Are we reaching our customer base effectively?
    • Do we need to change our menu to better meet customer needs?
    • If we didn’t meet payroll budget, are we providing the correct training and direction for our employees to do their jobs effectively?

    So, hopefully this gives you a better understanding of the importance of planning, controlling and deciding! If you never did the budget, or review it, how would you be able to make decisions that will create a profitable business?

    A link to an interactive elements can be found at the bottom of this page.

    You can download a transcript for the video “3. Managerial Accounting Ch1 Pt 2: Functions of Managers – Role of Management Accountants” here.

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