Introduction to Managerial Accounting
Regardless of your major or intended career path, most of you will become managers one day. A
manager has responsibility and control of selected parts of a company’s operations, or in some cases,
multiple aspects of operations. Only those of you that happen to stay at the ‘bottom’ of a company,
prefer never to get promoted, or never accept any responsibility for some aspect of a business, will
miss the ‘management’ opportunity. Fortunately, none of you will likely fall into this persona given
that you have taken the initiative to attend college. Understanding managerial accounting will help you
move up the ladder more quickly, regardless of your chosen career path.
How Can Managerial Accounting Help You?
In any responsible business capacity, your boss and all other management levels above you will want
to know how well you handle your responsibilities. To do so requires that they measure your
performance. The evaluation process is similar to your perceptions in each college course in which
you enroll. During your first class meeting in each course, one of your initial goals is to find out how
your performance will be evaluated. In a business environment, you want to know what they expect,
i.e., how they will measure your performance. While you won’t be earning letter grades in the business
world, your performance will ultimately translate into promotions, bonuses, raises, reprimands, or
perhaps dreaded walking papers.
Tools of Performance Measurement
Managers use a number of tools to measure performance. The approach to measurement depends on
what will be measured and against what benchmark the performance will be measured. A benchmark
can be viewed as a goal to meet, or a standard that management expects its employees to achieve. A
significant management component involves planning, which is accomplished through the use of
budgets. Recall from financial accounting that the primary purposes of being in business are to make a
profit and to add value to a company. Budgets are forecasts of how the profits and value-added aspects
will be achieved, in other words, a company’s financial plan. For example, as a manager you may be
given a budget that tells you how much to spend, how many units to produce, or how many customers
to process. These items will become benchmarks that management will use as measurement tools. At
the end of the period, your actual performance will be compared the budget amounts to see how well
you have performed. You must understand what the numbers in budgets represent and how the
managers that prepare budgets determined the amounts. Why?
You will certainly want to know how
to maximize your performance evaluation. For example, if a large portion of your grade in this course
was based on attendance, you would maximize performance by attending class every day. You may
strive to process customers promptly in a business operation if that is the basis on which your
performance evaluation is based. That’s where managerial accounting comes in. It will provide you
with an understanding of what goes into the benchmarks by which you will be evaluated.