Managerial cost accounting

Managerial accounting is an accounting that is concerned with providing information to managers, people inside an organization who direct and control its operation. Managerial accounting is in contrast to financial accounting, which is concerned with providing information to stockholders, creditors, and others who are outside an organization. Managerial accounting is essential as it provides essential data with which the organizations are actually run. Managerial accounting is also known as management accounting or cost accounting.

Managerial accounting prepares a variety of reports. Among these reports some focus on how well managers or business units have performed-comparing actual results to plans and to benchmarks. Among them some provide timely, frequent updates on key indicators such as orders received, order backlog, capacity utilization, and sales. Some reports prepared as needed to investigate specific problems such as a decline in the profitability of a product line. Finally some reports analyze a developing business situation or opportunity. In contrast to financial accounting which is oriented toward producing a limited set of annual and quarterly financial statements in accordance with Generally Accepted Accounting Principles (GAAP)

Managerial accounting provides reports to those who work inside the organization for planning, directing and motivating, controlling and performance evaluation. It emphasizes on the decision that affect the future of the organization.  Managerial accounting focuses on costs and hence managerial accounting is an excellent tool for internal decision making, budgeting, and planning. In microeconomics, managerial accounting makes use of budgets and cost volume-profit analysis to fully explore not only breakeven relationships but those volumes or activity levels necessary to generate target levels of profit.

The fundamental elements of managerial accounting as summarized into five major standards. These elements are accumulating and reporting costs of activities on a regular basis for management information purposes, establishing responsibility segments to match costs with outputs, determining full costs of government goods and services, recognizing the costs of goods and services provided among federal entities, and using appropriate costing methodologies to accumulate and assign costs to outputs.

Questions

• What is managerial cost accounting and explain its key features?
• What are the fundamental elements of managerial cost accounting?