5.7: Managerial Accounting

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Learning Objectives

Explain the key components of managerial accounting

Managerial accounting revolves around three primary components:

Planning
Controlling
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:

An interactive or media element has been excluded from this version of the text. You can view it online here: http://pb.libretexts.org/afm-2/?p=230

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?

An interactive or media element has been excluded from this version of the text. You can view it online here: http://pb.libretexts.org/afm-2/?p=230

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

Practice Questions

https://assessments.lumenlearning.co...sessments/9590

Managerial Accounting. Authored by: Freedom Learning Group. Provided by: Lumen Learning. License: CC BY: Attribution

Managerial Accounting Ch1 Pt2: Functions of Managers - Role of Management Accountants. Authored by: Mark Meldrum. Located at: https://www.youtube.com/watch?v=wM77_vV_sJg&feature=youtu.be. License: All Rights Reserved