Five Concepts of Managerial Accounting and their Application

Managerial Accounting
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Table of Contents 1.0 Introduction. 3 2.0 Management Accounting Systems and Cost Categories. 3 3.0 Absorption Versus Variable Costing Systems. 5 4.0 Capital Budgeting Decisions. 6 5.0 Performance Measurement in Decentralized Organizations. 7 6.0 Corporate governance. 8 7.0 Summary. 10 8.0 Conclusion. 10 9.0 References. 12 Managerial Accounting 1.0 Introduction Managerial accounting is a new approach that is used by managers to carry out accounting functions in a modern company. The term management accounting comprises of two keywords- management and accounting. Mainly, the concept is accounting for managers. Managerial accounting reveals the steps that a manager needs to take to ensure transfer of accounting information between different management levels and provide insights on how to make informed business decisions. Managers can maintain effective management of the resources owned by their firms. Thus, managerial accounting is necessary for firms that need to control their business activities. This paper critically analyses five concepts of managerial accounting and their application in the management of organizations. These concepts include management accounting systems and cost categories, absorption versus variable costing systems, capital budgeting decisions, performance measurement in decentralized organizations, and corporate governance. 2.0 Management Accounting Systems and Cost Categories Managerial accounting systems and cost categories have a direct impact on profit margins and variability of an organization. Management accounting system is a process that allows the exchange of financial and non-financial information for managers. In essence, managerial accounting covers various levels of management from floor supervisors to senior managers. A managerial accounting system is designed to allow an organization to come up with information that reveals product costs, performance report, and budgeting (Tsai, Lin & Chou, 2010). The accounting system is invaluable to organizations as it motivates and encourages managers and other employees to consider the importance of using information technology. The use of information in an organization decides the best cost categories that should be adapted to have a positive impact on profit margins and variability. Activity-based accounting (ABC) encompasses product account systems is based purely on specific cost categories such as materials and labor, which sometimes includes an extra indirect cost that is allocated to various products. On the other-other hand, environmental cost accounting (ECA) systems is a focus on administrative or overhead accounts since it is difficult to quantify, easily separated from the products, activities or process that are responsible for their creation. When activity-based costing integrates with environmental cost accounting, they offer organizations with information that is more accurate and well-rounded to enhance effective decision-making (Tsai et al., 2010). It is imperative for managers to realize that when there are processes and products with high environmental; costs, the information can be hidden from key decision makers in the company. Activity-based accounting and enviro...