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Company / Educational Resources / Business Solutions Articles / Accounting
Essential Guide to
Managerial Accounting
Lisa Schwarz | Senior Director of Global Product Marketing
November 9, 2023
In the world of business, information is paramount. Managerial

accounting provides a valuable lens through which companies
can gain a deeper understanding of their financial operations
and, subsequently, make informed, strategic decisions. This
comprehensive guide dives into the core principles, techniques
and applications of managerial accounting, from its foundational
Top
concepts to its exciting frontier in the digital age.
What Is Management Accounting?

Management accounting communicates financial data specific to
managerial decisions. Managerial accountants analyze and
present business costs and operation metrics from each line of
product, activity or facility to develop an internal report that
executives use to guide company operations and assist in their
decision-making process.
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Managerial accounting is a form of strategic accounting that adapting to
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change?
combine business information, events and organizational
strategy to deliver reports and key recommendations based on
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analysis from trained accountants.
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Dennis Furey, is the CEO and Cofounder of Furey Financial, an
accounting services firm supporting high-growth companies
across many verticals. He says that,
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殺
“The perception by some business

owners is that accounting is just for
taxes and investments. When they
really want to scale their business, they
should look to incorporate more
advanced accounting elements such as
accounting analytics that can support
management key performance
indicators.”
Accounting firms should assist clients in managing the backend

to provide clean data and auditable financials, which allows those
clients to focus 100 percent of their efforts on growing the
company.
Managerial accounting delivers key insights, backed by pertinent

data. It enables managers to have a simplified way of looking at
their complex financial data. For example, managerial accounting
can help a manager decide what price they will assign to a new
product by providing data on manufacturing costs, market
factors and potential profitability. Here are the functions of
managerial accounting:
Data Presentation: Management accountants present data

in a way that is easily digestible by modifying the profit and
loss statement and balance sheet.
Data Modification: Management accountants Salesmodify
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financial account data according to what their
How iscompany
your business adapting to
change?
needs to review. For example, they can provide data based
on a specific product, geography, period, supplier or sales
territory.
Data Analysis and Explanation: ManagementCall accountants
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rearrange the financial accounting data and produce
comparative statements with different variables. They also
produce statistics such as ratios and KPIs that help project
trends and report performance results.

Qualitative Data Collection: Qualitative information is data

that a researcher draws from experiences and themes. Itis
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not the typical quantitative data drawn from counts and

mathematics. Business examples of qualitative data include
employee satisfaction, management policy effectiveness
and supplier relationship quality.
Forecasting: Forecasting can be short term or long term
and involves the analyst projecting whether set goals are
achievable.
Organization Assistance: Some companies struggle with
how they allocate their resources like funding and staff. A
management analyst can make recommendations on how a
company should structure itself to make the best use of its
resources and cost out specific activities and their
management.
Planning: Typical planning tools in management accounting
include capital budgeting, fund flow statements, cash flow
statements, budgets, standard costing and marginal costing.
Budget Coordination: Each department or program should
arrange budgetary targets according to a specific period. A
management accountant can prepare these functional
budgets according to department in order to ensure
cohesive management and the proper coordination of the
higher-level budget.
Budgetary Control: Standard costing enables companies to
translate the objectives into benchmarks for a period, helps
identify scope creep and provides good budgetary control.
Decision-Making Assistance: Managers can develop
policies and make the most appropriate decisions with
accurate and timely financial information.
Additional Studies: Management accountants often
perform special cost and economic studies to determine the
answers to management’s pressing questions.
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Employee Motivation: Management accountants are
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directly involved in employee motivation, change?
as they determine
if there are favorable budget outcomes. They can
recommend bonuses or other ways to motivate employees.
Traditionally, the marketplace has seen accountants as the “bean

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counters” in the organization. However, since the 2008 global
economic crisis, the role of management accounting in global
business has changed. Accounting now plays a more central role
than ever in managerial decisions. Accountants have gone from
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to C-suite strategic ERP.
work. The
increasingly critical role of accountants can be seen in such

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process analyses as fraud analysis, risk management, activity-
based costing, life-cycle costing and opportunity cost analysis.

Accountants use these types of techniques, generate results and
roll those results into a business’s policies and strategic planning.
Further, they can perform dual roles, acting as both financial and
managerial accountant for a firm.
Managerial accountants can also manage cash flow, set sales

tactics, decide on pricing for customers and determine inventory
cost. These activities usually result in quick, internal decisions.
The role of management accounting in public sector companies

is crucial to ensuring control and efficiency. Public sector
companies are often more beholden to stakeholders than private
companies are. For example, a public health department is
accountable to an entire city or county, and any decisions it
makes are available for public scrutiny. This reality makes the
management of its finances and accounting decisions that much
more transparent and vulnerable. Accountants used to be
passive agents in public firms. Now however, they can use new
tools, such as management information systems and
collaboration with other agencies.
The limitations of basic financial accounting also delineate the

limitations of management accounting. The correctness of the
managerial accountant’s findings is directly related to the
accuracy of the company’s financial statements. Furthermore,
the management accountant must articulate their findings clearly
enough to enable the decision-making manager to see the
comprehensive picture. Frequently, managers do not have
enough of a background in accounting to understand the terms
and details of an accounting analysis, much less to scale that
data appropriately throughout the organization. The managerial
accountant takes into their analysis all aspects of a business and
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can boil it down to a KPI (key performance indicator) Chat
a person
or company to be measured by and to act upon.
change?
List of Management Accounting

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Techniques
Accountants classify management accounting techniques by
their type of calculation or information: historic financial
information, future time
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mathematical analysis and miscellaneous tools, such as

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revaluation accounting techniques or integrated auditing. 
Accountants choose one technique or method over another

based on the nature of a company’s business operations and
industry. The following are fundamental techniques in
developing metrics in managerial accounting:
Activity-Based Costing (ABC): This accounting approach

assigns costs based on the resources a product, service or
project uses.
Grenzplankostenrechnung (GPK) Costing: Called
marginal planned cost accounting in English, this German
strategy is the standard for cost accounting. It provides
meaningful insight to internal company users regarding
accounting information.
Lean Accounting: Accountants also call this accounting for
lean enterprise, as they have designed this approach to act
as a companion to lean manufacturing firms. Concepts
central to this approach include the following: organizing
costs by value streams, using nonfinancial information in
financial statements and changing how firms value
inventory.
Resource Consumption Accounting (RCA): RCA is a
combination of the traditional GPK costing approach and the
activity-based costing that focuses on resources instead of
costs. Proponents of RCA say that it is easier for non-
accountants to understand and that it gives more accurate
results, thereby enabling better decision-making.
Throughput Accounting (TA): One of the newer
accounting techniques, TA involves a more simplified
approach that does not allocate costs, but instead
emphasizes throughput, the amount of goods passing
through a process or system. The three main variables for
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this approach are the throughput, investment andChat
operating
expense. The theory of constraints, i.e., those
How isfactors that adapting to
your business
change?
limit systems from peak producing, also plays into this
methodology as a part of the investment.
Transfer Pricing: Used in both banking and manufacturing,
transfer pricing assigns value and revenue within and
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between different companies and company units to serve
both internal company needs and varying governmental
regulatory requirements.

Financial vs. Managerial Free Tour 

Accounting
Financial accounting and managerial accounting have different
intents. Primarily, financial accountants prepare historical
financial statements for parties outside of their company, while
management accountants prepare forward-looking analyses and
reports for internal recipients in order to guide company
decisions.
Financial accounting methods are case-based and directly

related to events that happen in a company. Management
accounting methods include abstract models that sometimes
behave as generic examples in order to explain ideas and
concepts. Although everyone can see the results of financial
accounting in a company’s released financial statements, only
managers see the results of the management accounting in
internal reports and calculations. Frequently, the managerial
accountant performs an analysis with one of a few motivations:
to support management’s ideas for improvement, buttress the
exploration of new directions or validate decisions managers are
considering regarding real data. Finally, the two types of
accounting are bound by different standards. Financial
accounting standards, such as generally accepted accounting
principles (GAAP), guide financial accounting, how accountants
report and what exactly they report. In contrast, management
accounting has the leeway to consider the audience and the
desired information needed to effectively drive the decision-
making process.
Even though the practice of management accounting is still not

universal, it is not a new concept. There are some accounting
practices that experts consider traditional and others they
consider new and innovative. Experts often level the criticism that
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accounting education changed little from the 1920s the 1980s.
However, in the 1990s, the American Accounting Association
called for sweeping change in accounting education
change? in order to
keep up with the evolution of business and its needs. Schools still
teach traditional standard costing (TSC) and cost of goods sold
(COGS), but now they also teach more innovative methods, such
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as variance analyses, life-cycle analyses, activity-based costing,
the German GPK costing methodology and resource
consumption accounting (RCA). Institutions such as the
International Federation of Accountants (IFAC) find that these
practices
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Managerial Accounting Topics

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The key managerial accounting topics concern accounting

analyses and services. Sometimes, these activities involve
computing the manufacturing product cost used in external
financial statements, as prescribed in GAAP. However, more
often, managerial accounting focuses on internal planning and
control accounting techniques.
The managerial accounting role is responsible for the decisions

that management makes based on the analysis that the former
provides. Therefore, management accountants need to fully
understand the following topics and be able to leverage them in
order to help make the major decisions:
How to Calculate Job Order Costing

Job order costing is the system that manufacturing companies
use to assign and collect the costs for individual product units.
Accountants perform this function mainly when their firms
produce a variety of products. To calculate job order costing,
accountants generate a job cost sheet that has sections for raw
materials, direct labor and manufacturing overhead (applied).
For example, if a company asks a manufacturer to produce a

piece of equipment, such as a portable cement mixer, its job
costing sheet may look like the one below.
Job Cost Sheet
Job #A233
Item Hours Rate Cost
Direct Materials (DM) $ 1,000.00
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Direct Labor (DL) 50 $ 10.00 $ 500.00
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Manufacturing Overhead (MOH) 50 $ 4.00 $ 200.00
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Total Cost of the Product $ 1,700.00

The accountants calculate the rates by multiplying their

company’s internal standards by the number of hours they 
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assume this production will take. To come up with the total cost
of the product, the manufacturer provides an estimate based on
the following calculation:
Total Cost = DM + DL + MOH
How to Calculate Process Costing

When manufacturing firms produce one type of product, they
use process costing. The accountants calculate these cost flows
through the departments. For example, a manufacturing
company makes acetic acid. Instead of using job costing sheets,
it prices through the departments that the product touches, as
illustrated in the department flow below:
Department Flow of Production
Raw Finished
Preparation Testing Packing
Materials Goods
Three of these departments fall under the Work-In-Progress

(WIP) account; it is in this account that accountants designate
costs. Each of these departments generates costs during
production, as per the worksheet below.
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Requisition Raw Materials (RM) Free Tour 
Process Cost
WIP - Preparation $ 105,000.00
WIP - Testing $ 3,000.00
WIP - Packaging $ 12,000.00
Raw Materials Total $ 120,000.00
Direct Labor (DL)
Process Cost
Labor Total $ 14,000.00
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Manufacturing Overhead (MOH) Free Tour 
Process Cost
WIP - Preparation $ 800.00
WIP - Testing $ 300.00
Overhead Total $ 2,100.00
Imagine that manufacturing creates a portion of the product,

costing $47,000 so far. Looking between the departments at the
journal entries, observe the crediting and debiting as the product
moves from one department to another (i.e., from Preparation to
Testing to Packaging and finally, to Finished Goods).
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Department WIP Account Free Tour 
Process Debit Credit
Total $ 47,000.00 $ 47,000.00
Total $ 47,000.00 $ 47,000.00
Finished Goods $ 47,000.00
Total $ 47,000.00 $ 47,000.00
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Absorption Costing vs. Variable CostingHow is your business adapting to
change?
Absorption costs (AC) are all costs in production, including fixed
costs. Variable costing (VC) includes only the costs incurred
during production. Here are the formulas for each:
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AC = (DL per Unit) + (DM per Unit) + (Fixed MOH per Unit)
+ (Variable MOH per Unit) / No Units Produced in Period
VC = (DL Cost) + (DM Cost) + (Variable Manufacturing

Overhead) / No Units Produced in Period
The AC formula differs from the VC formula in that AC includes

the fixed MOH, making it more comprehensive and giving the
company a better idea of pricing for goods and services for
decision-making purposes.
Understanding Cost Behavior and Cost-Volume-Profit

(CVP) Relationship
Cost behavior refers to how the costs of products change in
reaction to their level of activity. These costs include variable
costs, step variable costs, curvilinear costs, fixed costs and mixed
or semi-variable costs. A cost-volume-profit (CVP) analysis, often
called a break-even analysis, is how an accountant accounts for
these cost changes. Specifically, a CVP analysis reveals the effect
on the cost of a product when a company manufactures one
additional unit. It assumes that the sales price, fixed costs and
variable cost per unit remain constant. The formula for this
analysis is as follows:
CVP = Fixed Costs (FC) / Contribution Margin (CM)
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For example, a company with fixed costs of $50,000
change? and a
contribution margin of 25% must earn revenue of $200,000 to
break even:
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CVP = $50,000 / 0.25 = $200,000
Accountants can apply this formula to see how many units a

business needs to sell to break even. If you target a specific CVP
figure, you can also figure out its target sales volume. CVP is only
reliable if a business fixes the costs for a specified production
level.
How to Prepare an Operational Budget

An operational budget shows a company’s projected revenue
and expenses for a given period of time. These projections
typically focus on the next year and include the anticipated
materials and labor costs. At a high level, the steps to prepare an
operational budget include:
1. Identify the annual expenses.

2. Estimate the annual number of units produced and sold, if
different.
3. Divide the expenses by the production, yielding the cost per
unit value.
4. Estimate revenue based on the units sold, and calculate the
gross income per unit.
5. Subtract the cost per unit value from the revenue per unit.
This calculation yields the profit margin by unit. A negative
profit margin would indicate either expenses must be
reduced or revenue increased to cover the shortfall. A
positive profit margin would indicate future profits. These
calculations effectively represent eight budgets
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Chatinto
one, including sales, production, direct materials purchased,
direct labor, overhead, ending finished goods inventory, cost
change?
of goods sold and selling and administrative expenses.
Standard Costing and Variance Analysis

This flexible budgeting approach accounts for an adjustment of
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the budget when changes in activity occur. The variables that
accountants review are the direct material costs, direct labor
costs and overhead costs. In the analysis of variance, the
accountants determine if the estimate of these costs at the

beginning of the year (the standard) compares favorably or

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unfavorably to the actual ones. For example, if the standard labor
cost for the company to produce a unit of hydrochloric acid is
$2.00, and the actual labor cost for the company to produce this
same unit is $2.05, there would be a $0.05 unfavorable variance:
Labor Cost Variance
Standard Labor Costs $2.00 unit
Actual Labor Costs per Unit $2.05 unit
Variance $ (0.05) unit
The company would need to adjust its forecast to account for the
variance in this budget item.
How to Use Activity-Based Costing (ABC)

The ABC costing method assigns costs to every product based
on what the product consumes. It segregates fixed, variable and
overhead costs. For example, a manufacturing company makes
two products. Product A uses three times the power of Product B
per month. When the $200 power bill arrives, it would be logical
to calculate whether the price assigned to each product makes
sense based on this discrepancy in power use.
Data for Product Cost Setting
KW per Unit Cost for Each

Products Units Sold
Used for Period Product per Unit
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Product A 100 3 $1.50
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Product B 100 1 $0.50
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This is only one factor (cost of utilities) that goes into setting a
price, but it employs a simple analysis that an accountant can
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repeat for all of the other costs.
Pricing of Individual Products and Services

Management accountants need to understand that especially in
small and midsized businesses, there is a risk associated with
having outdated prices. Because the costs of labor, materials and
overhead are always changing, so do product prices. Effective
product pricing requires the accountant to identify what the most
and least profitable products are, who the customers are and
which variables affect the profitability of the company’s products.
How to Perform a Profitability Analysis of Products and

Customers
A customer profitability analysis historically attributes profits and
costs to each customer, whether individually or in groups. This
analysis determines whether serving certain customers or
customer segments is worth the effort. It also helps businesses
figure out which customers they should attract, keep and grow
based on their profit contribution. Some differences in
customers’ needs that can affect a company’s profitability include
discounts to secure a customer’s business, specific service
needs, product specialization and marketing to a customer
segment.
For example, the following company offers consulting and

service visits to its customers, as well as the ability to process
customers’ sales orders. The organization has two segments, the
individual customers and the small business customers.
Anecdotally, the company thinks that the individuals are a
segment that wastes resources. Therefore, the business does not
wish to further pursue this segment. The analysis below
compares these two segments and adds up the annual sales
from each, less the costs of visits and order processing. In reality,
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the individual customer segment is more profitable, Chat though
the small businesses place more orders annually.
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Customer Profitability Analysis

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Customer Segments Individuals Small Business
Annual Unit Sales 8 20
Visits Per Year 1 12
Orders per Year 1 8
Annual Sales $1,200.00 $3,500.00
Visits per Year $ (150.00) $(1,800.00)
Orders per Year $ (100.00) $(800.00)
Customer Profitability $950.00 $900.00
Capital Budgeting
Capital budgeting is the process companies use to evaluate and
prioritize significant investments. Examples of capital
expenditures include new equipment purchases, existing
equipment rebuilds and construction. The calculations that
accountants use for capital budgeting can include risk
assessments, the number of years to recoup an investment from
cash flow, future cash flows, future accounting profit and the
present value of cash flow.
Ratio Analysis
A ratio analysis compares the line items in financial statements. It
can provide information regarding a company’s operational
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efficiency, liquidity, profitability, activity and debt. Chat
It also allows for
benchmarking of companies in a similar industry. Even
How is your though a
business adapting to
change?
ratio analysis uses historical information, accountants apply it to
project future performance. In order to discover trends, analysts
must perform several ratio analyses and compare them to those
of other years. One type of ratio analysis, the current ratio
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analysis, is a quick way to measure a company’s liquidity. Here is
the formula:

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Current Ratio Formula = ( Current Assets ) / (Current Liabilities)
Let’s say there’s a company with current assets of $600 and

current liabilities of $400. Given these figures, you would
calculate the current ratio as follows:
Current Assets = $600

Current Liabilities = $400
Current Ratio = $600 / $400 = 1.5
Principles of Managerial
Accounting
The principles of managerial accounting guide accountants in
identifying financial information that can help a company make
decisions. These principles address an accountant’s influence on,
relevance to, value for and credibility with a business. The
principles also help accountants balance these various concepts.
The two main principles that guide costing accounting are the
principle of causality and the principle of analogy. The principle
of causality deals with the modeling of company operations
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based on their relationships to one another. The principle of
analogy considers a management accountant’s responsibility to
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provide a company’s management with decision support
information.
The objective of management accounting is to use the statistical

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financial data you generate to facilitate a company’s progress.
This work includes planning future policies, controlling a
company’s performance, developing strategies to solve business
problems and evaluating current operations. Management
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such as inventory turn reports, work efficiency reports and aging

summaries.
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Management accounting frequently deals with “what-if”

scenarios; these scenarios allow you to review the best practices
regarding comparisons of past and present planning to future
planning. This type of accounting differs from financial
accounting, which evaluates how a company as a whole has
already performed. Management accounting analyses enable an
accountant to break a company’s finances into segments in order
to determine performance and locate any areas of concern or
potential opportunities. Segmentation examples include
geographic locations, brands, product lines, specific products
and customer demographics.
Branches of Management
Accounting
The different branches of management accounting are strategic
management, performance management and risk management.
Managerial accountants create additional value for a company,
rather than just providing back-end financial support.
Strategic management occupies the high-level area of

management accounting. This branch is responsible for
formulating and implementing initiatives for a company to
achieve its goals. Strategic management is the objective setting
and directing of departments and employees. This type of
management helps you produce plans and policies for consistent
business development.
Performance management is about more than just human

performance at a company; it is about how the company is doing
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as a whole. It can be about the senior leadership’s Chat or
expectations
the task owner’s requirements. Performance management is
primarily concerned with how effectively employees
change? are working
to produce quality results.
Risk management is the practice of identifying, prioritizing and

defining the financial effect of problems. Risks are any Call 1-877-638-7848
circumstances that threaten the bottom line of a company, such
as failing projects, market fluctuations, legal liabilities or disasters.
A management analyst works on plans to mitigate risks for a
company.

Characteristics of Management
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Accounting
Management accounting emphasizes analysis-based projections
to drive recommendations to be acted upon. Using comparative
analyses, cause and effect relationships and the element of cost,
management accountants interpret and communicate financial
information to help improve organizational efficiency.
Accountants illustrate the characteristics above in the techniques

they use to translate data into useful information. They can
perform an analysis of events and generate operational metrics
using one of the following:
Margin Analysis:
A margin analysis reveals how profitable a business is. An
accountant can use this kind of analysis to compare different
companies. You need three pieces of information to
calculate a margin analysis:
Sales revenue
Cost of goods sold (COGS)
Profit
One of the best ways to prove the success of a business is by

the gross profit-margin ratio. This ratio expresses the
percentage of sales remaining after COGS-related expenses
and shows stakeholders how well a company converts sales
to income. You calculate the gross profit-margin ratio by
subtracting the COGS from the net sales revenue and
dividing that number by the net sales revenue.
Here is the formula for the gross profit-margin ratio:
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Gross Profit-margin Ratio = (Net Sales Revenue) - (COGS) / Net Sales Revenue
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For example, consider a toy store that has net sales revenue
No of $20,000
more andtime
wasted COGS of $10,000.
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Gross Profit-Margin Ratio = ($20,000 - $10,000) / $20,000
Gross Profit-Margin Ratio = 0.50 = 50%
Here is the formula for the net profit-margin ratio:
Net Profit-Margin Ratio = (Revenue) - / (COGS)

- (Operating and Other Expenses) - (Interest)
- (Taxes) / Gross Revenue
The numerator of this formula represents the net profit.

Therefore, you can also express the formula as follows:
Net Profit-Margin Ratio = Net Profit / Gross Revenue
The net profit for the toy store is $1,000, and the gross
revenue is $20,000.
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Net Profit-Margin Ratio = $1,000 / $20,000 = 0.05 = 5%

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A high net profit-margin ratio means that the business is

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performing well. (The toy store, for instance, is doing well,
most retailers have a net profit-margin ratio of around 2%.) A
low net profit-margin ratio can indicate weak sales, high
costs or both.
Constraint Analysis:
A constraint analysis focuses on the bottlenecks in a
business, which have the most effect on profitability. These
bottlenecks (or “constraints”) may be due to internal policies,
physical or production limitations or other factors. What-if
operational forecasting can illustrate the negative impact
associated with individual constraints and help prioritize
business needs to maximize profits.
Capital Budgeting:
To perform capital budgeting, follow these steps:
Explore Available Opportunities: Evaluate each

capital option, and decide which makes the most logical
and financial sense for the problem.
Estimate the Operating and Implementation Costs:
Research the multiple options, and decide whether each
of them solves the problem with a long-term or short-
term solution.
Estimate the Impact on Cash Flow: Determine
whether the proposed capital project generates income.
Use any similar past projects as models. If there is no
revenue, estimate any cost savings or benefit.
Assess the Risk: If the project fails or cannot produce,
calculate what the company stands to lose.
Develop the Implementation Plan: Determine how
the company will pay for the project, how it will track
costs and how it will record benefits.
Trend Analysis and Forecasting:

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A trend analysis evaluates information in multiple periods to
see if there are patterns such as improvements
change?or decreases.
Accountants can use trend analyses as predictive tools, but
they should be aware of any factors that could alter
predictions. In management accounting, there are two trend
analyses worth mentioning: the revenue and cost Callanalysis
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and the investment analysis. To calculate a trend analysis,

accountants plot the data points on a horizontal graph and
add a trend line. If the trend line has a positive slope (in other
words, if it goes up), they can determine a possible forecast

of improvement. If the trend line has a negative slope (if it

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goes down), they need to determine which business factors
to adjust.
Product Costing and Inventory Valuation:
Product costs are the costs to manufacture a product. An
individual product’s cost is the sum of direct materials, direct
labor and manufacturing overhead. Inventory valuation is
the total cost for all the products in your inventory and is
reported on an entity’s balance sheet as a current asset.
Target Costing:
The target cost is a way to set a target on cost in order to
determine your profit margin. The formula is:
Target Cost = Selling Price - Profit Margin %* ( 1 - Profit Margin% )
For example, a manufacturer in a highly competitive

environment makes collagen for cosmetics companies. The
manufacturer can only charge $2 per ounce. Let’s say the
collagen maker wants a profit margin of 20% based on cost.
To achieve this goal, you must calculate the target cost per
unit:
Target Cost per Unit = $2 per ounce * (1 - 20%) = $1.60

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Therefore, in order to achieve a 20% profit margin, this

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manufacturer must keep its cost per unit under $1.60.
Transaction Analysis:
During regular accounting cycles, analysts can review
No bookkeeping
more wastedtransactions.
time in 2024.For example,with
Automate if they spot unusual
NetSuite ERP.

variances during a trend analysis, they may delve further


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into individual transactions in order to locate errors or the
reason for the variance. They perform a transaction analysis
using the following steps:
Review whether all the recorded information concerns

the business in question and has been properly
approved.
Review whether transactions were made to the proper
ledger accounts.
Determine whether each transaction is mathematically
correct.
Determine whether all account activity has been
charged appropriately.
The techniques an accountant chooses vary based on the needs

of a business.
Cost Accounting vs. Management

Accounting
Cost accounting focuses specifically on a product’s quantitative
costs, while management accounting considers a variety of
analyses and factors, including qualitative information from staff.
Management accounting often incorporates cost accounting
results into its reporting.
There are vital distinctions between these two branches of

accounting, even though they also have many elements in
common: They are both critical to internal management
operations and decision making; accountants prepare both of
them for specific periods; and accountants report neither of
them in their annual financial statements. Here are the main
differences between the two types: Sales Chat
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Management accounting uses cost accounting, but not vice
versa.
Accountants use cost accounting exclusively to calculate
costs and report historical information. These costs,
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combined with other company information and analytics,
comprise management accounting.
Cost accounting gives stakeholders only quantitative
information. Management accounting combines the

quantitative data with the qualitative data.

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The preparation of cost accounting information is governed
by specific rules and procedures. No such rules or
procedures exist for the preparation of management
accounting information.
The goal of cost accounting is to figure out the price of a
product and/or service. The goal of management
accounting is to determine future goals and activities.
Accountants limit cost accounting to cost data. They do not
limit management accounting but allow it to include such
factors as taxes, budgets, forecasting and planning.
Cost accounting stresses short-range planning, while
management accounting concerns both short and long-
range planning. Management accounting employs
techniques like sensitivity analyses and probability
structures.
Management Accounting Basic

Framework
The management accounting basic framework should include
controlling, directing and planning. Management accountants
should set up and maintain key business systems and help make
business decisions for short- and long-term operations.
There are many competing cost measurement methodologies.

This abundance of choices can cause confusion when you are
trying to determine which information is essential for
understanding your business. Because all the methods measure
the consumption of resources to some degree, you must use a
blend of these various methodologies in order to obtain
thoroughly reconciled and verified analyses.
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The basic framework for management accounting should start
with cost measurement and cost uses. The diagram
change?below shows
a further delineation of the framework’s anatomy. Ultimately, the

framework gives accountants new to a company or new to
managerial accounting a place to begin. With this basic
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framework, a company can understand how to incorporate
information systems, performance assessments and cost
forecasting.

Management Accounting Basic Framework Free Tour 
Management Accounting
Cost Measurement Cost Uses
Collecting Cost Data Operational Control
Assessment and Evaluation

Assigning Source Expenses
Predictive Planning
What Are the Primary Functions of

Management Accounting?
Management accounting acts as a strategic partner to your
business, providing critical data for company operations.
Managerial accountants often lead the business team, supplying
forecasts, planning performance variance analyses and reviews
and monitoring costs.
The management accountant often walks the line between their

management team and their company’s corporate-level interests.
This means that while they’re always striving to demonstrate
good practices, they may be preparing reports and analyses that
do not show allegiance to either the management team or the
company’s corporate-level interests. For example, a business
management team prioritizes financial modeling; a corporate
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office prioritizes reports on financial data and reconciliations of
source systems. The following are examples ofchange?
tasks that
management accountants may perform:
Rate and volume analyses

Business metrics development Call 1-877-638-7848
Price modeling
Product profitability
Geographic vs. industry or client segment reporting

Sales management scorecards

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Cost analyses
Cost–benefit analyses
Cost-volume-profit analyses
Lifecycle cost analyses
Client profitability analyses
Information technology cost transparency
Capital budgeting
Buy vs. lease analyses
Strategic planning
Strategic management advice
Internal financial presentation and communication
Sales forecasting
Financial forecasting
Annual budgeting
Cost allocation
There are several organizations and rules that govern

management accounting. Mainly, they provide standards and
credentialing for professional accountants in the United States
and abroad. These organizations include the following:
International Accounting Standards Board (IASB): This

board is an independent group of accounting experts that
sets the global standards and interpretations for
accountants.
The International Financial Reporting Standards (IFRS):
These global accounting standards from IASB provide
common language for businesses so that accountants can
compare and understand any company’s accounts. IFRS are
beginning to replace some national accounting standards
and are a response to the many multinational organizations
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prevalent in today’s global economy.
Institute of Management Accountantschange? (IMA): This
worldwide association is a professional accounting
organization founded in the U.S. It offers a certification,
Certified Management Accountant (CMA), to candidates
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with the required education and examination scores. The
institute also offers connections and education to its
members.
Chartered Institute of Management Accountants
No (CIMA): Basedtime
more wasted in the
inUnited Kingdom, CIMA
2024. Automate is anotherERP.
with NetSuite

global professional accounting organization.

Free Tour 
Association of International Certified Professional
Accountants (AICPA): Together with CIMA, this association
offers the Chartered Global Management Accountant
(CGMA) designation, which targets more business
accounting principles, rather than just traditional accounting
practices.
Global Management Accounting Principles (GMAPs): As
part of the required CGMA designation, accountants must
understand and use the GMAPs to help build successful
organizations. CIMA and AIPCA have conducted extensive
studies and international research to create these principles.
Financial Accounting Standards Board (FASB):
Designated as the accounting standard for publicly traded
companies, FASB is an independent, private-sector
organization that sets standards for accounting and
reporting in the United States.
Generally Accepted Accounting Principles (GAAP):
GAAP are a mix of standards and practices that U.S. public
companies must follow when they prepare their financial
statements.
Here are some other major global organizations that have similar
credentialing for their countries:
Institute of Certified Management Accountants (ICMA) in

Australia
Institute of Cost Accountants of India
Chartered Institute of Public Finance and Accountancy in
England and Wales
Association of Chartered Certified Accountants (ACCA) in
the United Kingdom
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How to Become a Management
change?
Accountant
A management accountant, or management analyst, is someone
who works with financial information on behalf of internal
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stakeholders. They are responsible for major business activities,
such as overseeing a firm’s accounting, analyzing the financial
statements for trends and forecasts, assisting in business
development and engaging in risk management.

The minimum education required to work as a management

analyst is a bachelor’s degree from a school that can accredit
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its
accounting students. When hiring, many employers also look for
the additional professional qualifications of CMA, CGMA,
Chartered Accountant (CA) in the United Kingdom, Certified
Public Accountant (CPA) in the United States, or Certified
Practicing Accountant (CPA) in Australia. (A company seeks a
specific credential, based on whether it’s a national or global
organization.) The CA and CPA designations are mainly financial
accounting-specific credentials and are not necessarily an
indication of a management accounting education.
The skills required to work as a management analyst include

math and business concepts. A solid foundation in accounting is
critical to a complete understanding of basic taxation, financial
reports, ethics and compliance. Accounting professionals also
need leadership and communication skills, i.e. soft skills such as
persuasiveness, that allow leaders to thrive. Being an expert in
your industry, be it manufacturing or public health, also helps.
Students can find managerial accounting curricula in the

business administration programs of colleges and universities.
Many of these programs offer education and credentialing, so
their students can be competitive regarding the job market. Here
are some examples of classes required for an accounting degree:
Cost Measurement and Estimation

Cost Management
Short-Term Decision Making
Cost-Volume-Profit Analysis
Differential Analysis
Budgeting
Variance Analysis
Capital Budgeting
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Performance Evaluation
Cash Flow Preparation and Use change?
Using Managerial Accounting: Trends and Ratios
Many companies that specialize in accounting also provide their

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employees with resources to pursue continuing education units
(CEUs), a requirement of many of the credentials. These
resources can include webinars and seminars as well as access to
online accounting journals, blogs, articles and sometimes

workgroups. Many of the professional organizations, such as IMA

, offer continuing education unit resources on their websites.
Free Tour
Management Accounting Systems

Management accounting systems are supportive software for
managerial accountants. They offer reports and analytics from
the transaction data that an organization collects. Sometimes,
accountants can find managerial accounting modules in their
regular accounting software, but there are systems that directly
target management accounting.
Some of the available platforms are meant for upper-level

management, and some are meant for technical staff. Technical
functions include items like spreadsheets and databases. Some
of the functional modules in management accounting software
include accounts payable, accounts receivable, journals, general
ledgers, payroll and balance. The best systems incorporate the
lower-level, more technical details, such as timecard hours, with
the high-level functions and comprehensive financials, such as
profit-margin analyses and financial reporting.
Frequently Asked Questions About

Managerial Accounting
The following are frequently asked questions culled from
message boards, social media and students.
What is the difference between financial accounting and

managerial accounting?
Financial accounting primarily serves external stakeholders by
preparing historical financial statements. Managerial accounting,
Sales
meanwhile, focuses on providing forward-looking Chatand
analyses
How is
reports for internal use to guide decision-making. your business adapting to
Financial
change?
accounting follows standards, such as the Generally Accepted
Accounting Principles (GAAP), and is tied to historical events,
while management accounting is more flexible, tailored to the
needs of internal decision-makers. Managerial accounting uses
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methods, including activity-based costing and variance analysis,
to support effective decision-making.
Can management accounting help small businesses?


Yes! Management accounting is not only for big businesses. For

small businesses and startups to survive in the marketplace, 
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they
need the competitive edge that an analysis of their financial
condition can provide. Management accounting analyses can
provide these companies with the tools to help them manage
their cash flow, minimize their expenses, improve their returns
and make good business decisions.
How can management accounting help formulate strategy?

Management accounting can provide information about where
companies can find a competitive advantage. It can also help a
company budget more efficiently.
What is a management accounting control system?

A management accounting control system (MACS) refers to the
collective processes and activities that guide the financial
information flow in a company.
Who needs management accounting?

Any company, large or small, that wants to be more successful
and survive in the evolving marketplace needs management
accounting.
Who is the father of management accounting?

Luca Bartolomeo Pacioli is the father of management
accounting. He was an Italian mathematician who, in 1494,
started the double-entry system of accounting, which debited
one account while crediting another.
When should you use management accounting?

Financial accounting provides quarterly or annual reports.
Accountants can use management accounting analyses on a
more regular basis to continue to make small adjustments and
guide their companies to a higher level of efficiency.
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Accounting in the Cloud With
NetSuite’s Financial Management
Solution
Managerial accounting is vital to nearly every aspect of a
business: strategic planning, financial forecasting, risk
management, cost efficiency, competition and a wide variety of
other issues. This is precisely why business owners and leaders
recognize that mastering the many facets of managerial
accounting means the difference between success and failure.
But they also understand that they need the tools to achieve this
goal. NetSuite’s financial management solution expedites
financial transactions and provides real-time visibility into a
company’s performance. The robust solution integrates with all
NetSuite order management, inventory, CRM and ecommerce
functions.
Learn more about how you can use NetSuite to manage your
company’s finances and ensure compliance.
Learn about the unique solutions NetSuite offers

businesses to accelerate growth with a unified suite for
financials, operations, and commerce.
Discover The Benefits
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5/15/24, 9:13 AM Managerial Accounting Made Easy | NetSuite

Company / Educational Resources / Business Solutions Articles / Accounting

In the world of business, information is paramount. Managerial

What Is Management Accounting?

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“The perception by some business

Accounting firms should assist clients in managing the backend

Managerial accounting delivers key insights, backed by pertinent

Data Presentation: Management accountants present data

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Qualitative Data Collection: Qualitative information is data

not the typical quantitative data drawn from counts and

Traditionally, the marketplace has seen accountants as the “bean

increasingly critical role of accountants can be seen in such

based costing, life-cycle costing and opportunity cost analysis.

Managerial accountants can also manage cash flow, set sales

The role of management accounting in public sector companies

The limitations of basic financial accounting also delineate the

List of Management Accounting

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mathematical analysis and miscellaneous tools, such as

Accountants choose one technique or method over another

Activity-Based Costing (ABC): This accounting approach

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Financial vs. Managerial Free Tour 

Financial accounting methods are case-based and directly

Even though the practice of management accounting is still not

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Managerial Accounting Topics

The key managerial accounting topics concern accounting

The managerial accounting role is responsible for the decisions

How to Calculate Job Order Costing

For example, if a company asks a manufacturer to produce a

Job Cost Sheet

Direct Materials (DM) $ 1,000.00

Manufacturing Overhead (MOH) 50 $ 4.00 $ 200.00

Total Cost of the Product $ 1,700.00

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The accountants calculate the rates by multiplying their

Total Cost = DM + DL + MOH

How to Calculate Process Costing

Department Flow of Production

Three of these departments fall under the Work-In-Progress

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Requisition Raw Materials (RM) Free Tour 

WIP - Preparation $ 105,000.00

WIP - Testing $ 3,000.00

WIP - Packaging $ 12,000.00

Raw Materials Total $ 120,000.00

Direct Labor (DL)

WIP - Preparation $ 3,000.00

WIP - Testing $ 5,000.00

WIP - Packaging $ 6,000.00

Labor Total $ 14,000.00

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