Flow chart of manufacturing company
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1.0 MANAGERIAL ACCOUNTING
Managerial accounting is concerned with providing information to manager for those are inside an organization and who direct and control its operations. Managerial accounting its differences between the financial accounting because it concerned with preparing financial reports and releasing information to the general public. Managerial accounting focuses on three business issues which are allocating the cost of goods or services, cash management or budgeting and financial forecasts. Managerial accounting uses cost allocation methods to allocate various business costs for each item produced by the company. Cash management and budgeting outlines all future expenditures to ensure business operation generate enough capital to pay for business expenses. Financial forecast provides business owners and managers with expected operational output or consumer sales under certain business conditions. 2.0 BENEFITS
Management accounting can help small business create a competitive advantage in the business environment. There are several benefits of management accounting which are: 2.1 REDUCE EXPENSES
Management accounting can help the companies to lower their operational expenses in short-run and long-run planning and control decisions that increase value for customer. For example, manager should rearrange the production layout that might reduce the manufacturing costs. It also can help the manager to keep on track of the relating cost involved in the production process such as direct material, direct labour and manufacturing overhead. From these activities manager should know each cost are involved in the production process and eliminated some activities that should not be in the process to reduce the costs.
This information allows the owner to better understand how much money it costs to run the business. Business owners can also use management accounting to conduct an analysis on the quality of economic resources used to produce goods or services. If overall product quality would not suffer by using a cheaper raw material, business owners can make this change to reduce production costs. 2.2 PLANNING
Budgeting typically refer to managerial planning. Budgeting planning usually will be yearly, quartely and monthly basis. Budgeting also important to alldepartment in the organization. Its also important to the goal-setting function of an organization because budgeting express the objective of management in specific, tangible, quantitative terms. Once the company make a budgeting planning, managerial accountants will start to gathering information that generated by the organization that indicates whether or not the company is achieving its goals.
The detailed performance reports essentially compare budgets with actual results for a given time period, that allowing the managers to identify problem areas. Besides, managerial accountants need to create special reports for other managers that help them to make decisions about proposed projects or problem that arise. For instance, if a company’s competitor drops its prices, management may ask the accounting department to produce a report comparing posibble competitive responses such as lowering prices, increasing advertising, or even changing its product or service.
2.3 IMPROVE CASH FLOW
To improve cash flow in the organization, managerial accounting should keep an eye on margins and overheads and take corrective action where necessary. Manager also may review the gross profit margin trend and see how that can be improved by thinking about how efficiencies and wastage can be improved. Budgeting also can form a good system to improve the cash flow by make a comparison between budget and actual result. Management accountants will comb through this information and create a master budget for the entire company. Larger business organizations may use several smaller budgets for divisions or departments. These individual budgets usually roll up into the company overall master budget. The main purpose of budgets is to save the company money through careful analysis of necessary and unnecessary cash expenditures.
2.4 DECISION MAKING
In the desicion making, managerial accounting can use financial information to make a desicion. They use this information to advise on how the business can move forward, for example, should a company buy another or should it invest in new equipment. When a business is looking to make a strategic decision, for instance, whether to develop a new product line, acquire another business or expand into other countries, the CIMA trained management accountant can provide advice. They can use a number of tools to assist decision-making. These include ratio analysis, budgets and forecasts (such as cash flow and variances). As a conclusion, the management accounting is most important people to the company because they give the several advantages and it has capacity to change the business performance and financial position in current and future situations. Management accounting also increases the efficiency of operation of the company.
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