Managerial Accounting
Welcome
Welcome to managerialaccounting.org. This website surveys the development of managerial accounting and explains the most important managerial accounting terms and concepts.
What is Managerial Accounting?
Managerial accounting is concerned with providing information to
managers- that is, to those who are inside an organization and who direct
and control its operations. Managerial accounting can be contrasted with
financial accounting, which is concerned with providing information to
stockholders, creditors and others who are outside an organization
(Garrison and Noreen, 1999).
Managerial accounting information
include:
For Example, managers can use product costs to guide the
setting of selling prices. In addition, these product costs are used for
inventory valuation and income determination (Horngren and Foster, pp. 2).
A budget is a quantitave expression of a plan.
These reports often consist of comparisons of
budgets with actual results. The deviations of actual results from budget
are called variances (Horngren and Foster, pp. 3)
Examples are information on revenues of an organization’s
products and services, sales back logs, unit quantities and demands on
capacity resources (Kaplan and Atkinson, pp. 1).
Managerial Accounting Practices
Traditional managerial accounting systems are mainly designed to
measure the efficiency of internal processes. In the 1980’s, traditional
managerial accounting practitioners were heavily critized on the grounds
that their practices had changed little over the preceding 60 years,
despite radical changes in the business environment. For more information
on traditional managerial accounting practices see the Traditional
Managerial Accounting page.
The last decades new managerial
accounting practices such as activity-based-costing, the balanced
scorecard and bottleneck accounting were developped:
Unlike
traditional managerial accounting, activity-based-costing deemphasizes
direct labor or raw material as cost drivers and concentrates instead on
activities (e.g. the number of production runs per month) that drive
costs. Activity-based costing gives the management of an organization a
clear picture of the cost drivers and the opportunities to reduce costs
(Kaplan and Norton, 2001, pp. 378). For more information on activity based
costing, see the Activity
Based Costing page.
Traditionally, management accountants’
principal performance report was variance analysis, which is a systematic
approach to the comparison of the actual and budgeted costs and revenues
during a production period. While some form of variance analysis is still
used by most manufacturing firms, it nowadays tends to be used in
conjunction with other performance reports such as the balanced scorecard.
A balanced scorecard is a set of financial measures, operational measures
on customer satisfaction, internal processes and the organization's
innovation and improvement activities (Kaplan and Norton, 1992). Kaplan
and Norton also argue that the balanced scorecard can be used as a
strategic management system which identifies the value drivers of an
organization's strategy and a management system to align the organization
to the strategy (Kaplan and Norton, 2001, pp. 378). For more information
on the balanced scorecard, see the Balanced
Scorecard page.
In a traditional variance analysis, managerial
accountants compare the actual sales with the budgeted sales. A
traditional variance analysis however does not point out which bottleneck
coursed an unfavorable difference between actual and budgeted sales (see
also Veltman, pp. 299-305). With bottleneck accounting however, managerial
accountants are able to determine:
- the bottlenecks of an organization
and;
- how much money was lost because of each bottleneck.
For more
information on bottleneck accounting see the Bottleneck
Accounting page or visit the official website of the Institute of Bottleneck
Accounting.
BIBLIOGRAPHY
- Garrison, R. H., P. E. Noreen, 'Managerial Accounting', Irwin McGraw
Hill, 1999
- Horngren, C. T. and G. Foster, 'Cost Accounting, A
Managerial Emphasis', Prentice-Hall, Inc. 1987
- Johnson, H. T. and R.
S. Kaplan, 'Relevance Lost: The Rise and Fall of Management Accounting',
Harvard Business School Press, 1987.
- Kaplan, R.S. and A. A. Atkinson,
‘Advanced Management Accounting’, Prentice-Hall International Inc.
1989
- Kaplan, R. S., D. P. Norton, 'The Balanced Scorecard - Measures
that Drive Performance', Harvard Business Review, January - February
1992.
- Kaplan, R. S., D. P. Norton, 'The Strategy Focused
Organization', 2001, Harvard Business School Publishing Corporation.
-
Solomons, D., 'Historical Development of Costing', Studies in Costing,
Sweet & Maxwell, 1952, pp. 1-51.
- Veltman, M.,'Bottleneck
accounting', Maandblad voor Accountancy en Bedrijfseconomie, Juni 2011.
