Managerial accounting deals with the interpretation, presentation, and identification of the information used for resource optimization, decision making, strategizing, activity control, and asset protection. Managerial accounting is an accounting information system that shapes the relations between the aimed finality and the consumed allotted resources to influence behaviors and enhance management. Managerial accounting is essential to management because it provides information about what is going to happen in the future (Breuer, Frumusanu, & Manciu, 2013). When augmented by the consideration of other financial factors in a business such as the financial outlook, the state of the economy, and federal taxes, managerial accounting can significantly improve the financial and operational performance of any business.
The main objective of managerial accounting is to reflect on all cost collection operations and allocations. It focuses on the departments, activities, manufacture phases, orders, services, works, and products among other areas of an establishment. It also deals with the settlement of production and calculation of the costs of production for the services provided, works executed, the manufactured products, and for the production in progress. The information provided by managerial accountants must meet certain criteria for it to be useful. First, for it to reduce the uncertainty of the future, the management must find the information valuable. Second, the information should influence the respective decisions of the management for it to be deemed valuable. Last, the information must change the consequences of the respective management decisions sensitively for it to be considered appropriate for the business. The conception of a decision in managerial accounting requires a description of its results.
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The managers expect management accountants to provide information that facilitates scorekeeping, attention directing, and problem-solving. The information provided by the accountants should allow for the observation of whether things are good or bad, draw attention to the problems that should be given priority, and help to solve the problems by pinpointing the best available solutions. The information that management accountants provide makes managerial accounting a necessary tool for the managers to maximize the profitability of their businesses.
Managerial accounting influences the decisions of the management through the three key management functions of strategic planning, organization, and control. In strategic planning, managerial accounting provides the information necessary for setting future goals by focusing on the appreciation of the capital invested, the trade policy, the price policy of the company, and the systems adopted for production. In an organization, managerial accounting identifies the best organizational structure to adapt and provides better insights into the distribution of responsibility and the determination of authority. In control, managerial accounting establishes a reliable process for verifying the accomplishments of the proposed objectives (Breuer et al., 2013). As such, managerial accounting is an essential element of management given that it plays a crucial role in the decision-making process.
ASDA provides a good example of the intervention of managerial accounting in the decision-making process. The financial team of the company takes part in planning, rolling out, and testing the sustainability programs. The supermarket has over 40,000 products in its 369 stores. The management of the company is determined to avoid waste and protect the environment as much as possible. In 2009, the finance team advised the senior executive to implement Carbon Reduction Commitment in its operations. They showed the implication of the legislation for the company by explaining the mechanism, the capture criteria, and the timeframe. The team showed the estimates of the pricing methodology, carbon dioxide gas emissions, the associated risk level, consequential cashout, and price per ton (Chartered Institute of Management Accountants, 2009).
Managerial accountants can also use outside information to shape the decisions of a company further. For instance, federal taxes directly affect a company through the corporate income tax. Most corporations respond to tax increments by retrenching some employees to maintain the profit margins. A company may also decide to design new products that allow it to obtain federal tax deductions and tax credits (Financial Web, n.d.). The state of the economy of the country as well guides the short-term business decisions.
Both the national and international indicators of the economy are important in decision making. The state of the economy is crucial in decision making because it enables the management to discern the economic trends. They can use the trends to target the emerging markets and design new products that are in line with the preferences of the consumers and those that most of them can afford (Golden Hills Financial Group, 2015). According to Amram and Kulatilaka (2009), the financial market outlook similarly enables the management to make decisions that give more value to the shareholders. Financial market outlook helps the managers to avoid subjective judgments concerning the future and incorporate the objective measures of the public in their choices.
In conclusion, managerial accounting can significantly improve the financial and operational performance of any business when augmented by the consideration of other financial factors in a business such as the financial outlook, the state of the economy, and federal taxes. Managerial accounting helps in reflecting on all cost collection operations and allocations. Management accountants should provide information that facilitates scorekeeping, attention directing, and problem-solving for them to play an important role in decision making. Managerial accounting influences the decisions of the management through the three key management functions of strategic planning, organization, and control. Management accountants should also consider other outside financial information in their decision making.
References
Amram, M. & Kulatilaka, N. (2009). Disciplined decisions: Aligning strategy with the financial markets. Harvard Business Publishing. Retrieved from https://hbr.org/1999/01/disciplined-decisions-aligning-strategy-with-the-financial-markets
Breuer, A., Frumusanu, M. L. & Manciu, A. (2013). The role of management accounting in the decision-making process: Case study Caraş Severin county. Annales Universitatis Apulensis Series Oeconomica, 15 (2).
Chartered Institute of Management Accountants. (2009). ASDA case studies. The role of the finance team in climate change projects . Retrieved from https://www.cimaglobal.com/Documents/Thought_leadership_docs/Sustainability%20and%20Climate%20Change/cid_execrep_asda_case_study_dec%2009.pdf
Financial Web, (n.d .). How does a corporate income tax affect company decisions? Retrieved from https://www.finweb.com/taxes/how-does-a-corporate-income-tax-affect-company-decisions.html
Golden Hills Financial Group. (2015). Economic indicators and their impact on business decisions . Retrieved from https://www.goldenhillsgroup.com/business-owners-entrepreneurs/economic-indicators-and-their-impact-on-business-decisions/
