An Overview of

Managerial Accounting &

Its Role in Business

Prof. Jason R. Radam

College of Accountancy and Management

Definition of Managerial Accounting

Managerial accounting is the process of
Identifying
Measuring
Analyzing
Interpreting
Communicating information

for Managers Decision-Making

How Managerial Accounting

Adds Value to the Organization
Providing information for decision making and planning.
Assisting managers in directing and controlling activities.
Motivating managers and other employees towards
organizations goals.
Measuring performance of activities, managers, and other
employees.
Assessing the organizations competitive position.

Managerial versus
Financial Accounting
Accounting System
(accumulates financial and
managerial accounting data)

Managerial Accounting
Information for decision
making, and control
of an organizations
operations.

Internal
Users

Financial Accounting
Published financial
statements and other
financial reports.

External
Users

Managerial Accounting
vs. Financial Accounting
Managerial Accounting
Users of information Managers within company
Regulation

Financial Accounting
Interested outside parties

Required. Must comform to

Not required because for internal
GAAP which is regulated by
use only
FRSC and SEC.
Basic accounting system plus
Almost exclusively from the
Source of Data
various other sources
basic accounting system
Reports often focus on subunits. Reports focus on the enterprise
Nature of Reports Based on a combination of
in its entirety. Based on
and Procedures historical data, estimates, and
historical transactions.
projections of future events.

Functions of a Manager
Directing

Decision
Making

Acquires Resources
Organized set
of activities

Controlling
Hires People

Planning

Managerial Accounting could answer the

following questions:

How much is the cost of my products?

What is the best selling price for my products?
How can I increase my sales and profit?
How many units do I need to sell in order to avoid loss?
How much cash is needed for next months operations?
Shall I accept an offer which is below the usual price?
Etc.

The Balanced Scorecard

How do we look
to owners?

Financial Perspective
Goals

Measures

In which activities
must we excel?

Customer Perspective
Goals

Operations Perspective

Measures

Goals

Measures

How do customers
see us?

Innovation Perspective
Goals

Measures

How can we
continue to
improve?

Push Manufacturing Company

Traditional push
manufacturing
Raw
materials

Large
inventories
Work in
process

Materials waiting
to be processed.

Finished
goods
Completed products
awaiting sale.

Partially completed products

requiring more work before
they are ready for sale.

Lean Production
(Pull Manufacturing)

Customer places
an order

Create Production
Order

Generate component
requirements

Goods delivered
when needed

Production begins
as parts arrive

Components
are ordered

Organizational Structure
Decentralization is the delegation of decisionmaking authority throughout an organization.

Corporate Organization Chart

Board of Directors
President
Purchasing

Personnel

Vice President
Operations

Chief Financial
Officer

Treasurer

Controller

Line and Staff Positions

A line position is directly
involved in achieving the
basic objectives of an
organization.
Example: A production
supervisor in a
manufacturing plant.

A staff position
supports and assists
line positions.
Example: A cost
accountant in the
manufacturing plant.

Controller
The chief managerial and financial accountant
responsibility for:

Financial planning and analysis.

Cost control.
Financial reporting.
Accounting information systems.

Treasurer
Responsible for raising capital and
safeguarding the organizations assets.
Supervises relationships with financial
institutions.
Work with investors and potential
investors.
Manages investments.
Establishes credit policies.

Internal Auditor
Responsible for reviewing accounting procedures,
records, and reports in both the controllers and
the treasurers area of responsibility.
Expresses an opinion to top
management regarding the
effectiveness of the
organizations accounting
system.

Professional Ethics
Competence

Confidentiality
Integrity

Objectivity

Theory of Constraints
A constraint (also called a bottleneck) is anything that
prevents you from getting more of what you want.
The Theory of Constraints is based on the observation that
effectively managing the constraint is the key to success.

The constraint in a system is determined

by the step that has the smallest capacity.

Importance of Managerial Accounting

Provide useful information to managers

Assist managers in interpreting data
Guide managers in financial planning
Help managers in maximizing profit
A tool for decision-making