Chapter 2 � Managerial Accounting and Cost Concepts

Chapter 2 � Managerial Accounting and Cost Concepts...

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Unformatted text preview: Chapter 2 – Managerial Accounting and Cost Concepts The Work of Management and the Need for Managerial Accounting Info Managers carry out three main activities – planning, directing and motivating, and controlling. Planning – Involves establishing a basic strategy, selecting a course of action, and specifying how the action will be implemented. Directing and motivating – Involves mobilizing people to carry out plans and run routine operations. Controlling – Involves ensuring that the plan is actually carried out and is appropriately modified as circumstances change. Planning An important part of planning is to identify alternatives and then to select from among the alternatives the one that does the best job of furthering the organization’s objectives. Once alternatives have been identified, the plans of management are often expressed formally in budgets. Budgets are usually prepared under the direction of the controller , who is the manager in charge of the accounting department. Typically, budgets are prepared annually. Directing and Motivating In addition to planning for the future, managers must oversee day-to-day activities to keep the organization functioning smoothly. Managerial accounting data, such as daily sales reports, are often used in this type of day-to-day decision making. Controlling In carrying out the control function, managers seek to ensure that the plan is being followed. Feedback , which signals whether operations are on track, is the key to effective control. A performance report compares budgeted to actual results. I t suggests where operations are not proceeding as planned and where some parts of the organization may require additional attention. The Planning and Control Cycle Comparison of Financial and Managerial Accounting There are seven key differences between managerial accounting and financial accounting: Users : Financial account ing reports are prepared for external part ies, whereas managerial account ing reports are prepared for internal users. Emphasis on the future : Financial account ing summarizes past t ransactions. Managerial account ing has a st rong future orientat ion. Relevance of data : Financial account ing data should be objective and verifiable. Managerial accountants focus on providing relevant data even if these data are not completely objective and verifiable. Less emphasis on precision : Financial account ing focuses on precision when report ing to external part ies. Managerial account ing aids decision makers by providing good estimates as soon as possible rather than wait ing for precise data later. Segments of an organizat ion : Financial account ing is concerned with report ing for the company as a whole. Managerial account ing focuses more on the segments of the company. Examples of segments include: product lines, sales territories, divisions, departments, etc....
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This note was uploaded on 10/25/2010 for the course MGT 11B taught by Professor Hancock during the Spring '07 term at UC Davis.

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Chapter 2 � Managerial Accounting and Cost Concepts...

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