Managerial Accounting Solutions (Chapter-1/A)

01.  Concepts;

Managerial Accounting Solutions:

Managerial accounting (MA) is concerned with providing information to managers for their use internally in the organization. Financial accounting is concerned with providing information to stockholders, creditors and others outside of the organization.

02. Role of Managerial Accounting;

Essentially, the manager carries the following major activities in an organization namely planning, organizing, leading, coordination and controlling. All these activities involve decision making. Let us explain the role of MA in these major activities briefly:

(a)    Role of MA in Planning: Planning means deciding in advance what is to be done in future. To this end, a number of forecasts & plans are to be prepared. As for example, you are to prepare cash forecasts 7& thereby cash plans for the coming month. In order to prepare such forecasts & plans, you are to depend on the previous cash forecasts & plans which will be the basis for the same. The previous sources & uses of cash or cash receipts & payments are to be analyzed. Now, the question arises: where are the previous sources & uses of cash available. The answer is that the managerial accounting will provide the information. Here lies the role of MA in Planning.

(b)   Role of MA in organizing: Organizing refers to grouping of management functions & duties to the various management officers & staff according to the divisions, departments, sections etc. As for example, the financial executives are to be allocated financial functions & duties in terms of their position & status in the organizations. In such case, the previous practices will act as the basis. Such previous practices will be available in the Managerial Accounting department of the organization. Here lies the role of MA in Organizing.

(c)    Role of MA in Coordination & Control Process: Coordination refers to coordinating or adjusting the duties & responsibilities of the executives in order to avoid conflict of duties. Controlling means examining whether actual performances are in accordance with plans. As for example, in case of financial control, it is seen whether actual costs are incurred in terms of budgeted costs. In this case previous actual costs & budgeted costs are the basis for the current year. The previous actual & budgeted costs will be provided by the M.A. Here lies the role of MA in Control Process of Managerial Accounting Solutions

03. Difference between MA & FA;

Table showing the Difference between Managerial Accounting and Financial Accounting:

SL.No	Points of Difference	Managerial Accounting	Financial Accounting
01	Definition	Managerial Accounting deals with providing accounting data and information for decision making.	Financial Accounting deals with providing accounting data and information for evaluating performances.
02	Purpose	For the purpose of making managerial decisions.	For the purpose of evaluating financial performances.
03	Users	Functional Managers: Marketing Manager Financial Manager Production Managers	Owners Lenders Tax authorities Regulators
04	Emphasize	Emphasize on decisions affecting the future.	Emphasize on summary of financial consequences.
05	Periodicity	On future activities	On past activities
06	Coverage	Detailed segment reports about departments, products, customers, and employees are prepared.	Only summarized data for the entire organization are prepared.
07	Timeliness/ Precision	Timeliness of information is required.	Precision of information is required.
08	Following GAAP	Need not follow GAAP	Must follow GAAP
09	Report preparation	Optional	Mandatory

04. Just in time system;

JIT Concept:

“Just in time” means that raw materials are received just in time to go into production manufactured parts are completed just in time to be assembled into products, and products are completed just in time to be shipped to customers.Managerial Accounting Solutions

 “Under a JIT system one doesn’t produce anything, anywhere, for anybody unless they ask for it somewhere down stream. Inventories are evil that we’re thought to avoid.” 

Characteristics of JIT:

• The characteristics of the JIT approach include the following;
• Reducing the number of suppliers and requiring suppliers to make frequent deliveries of defect –free goods.
•  Creating a continuous flow of product through the plan, minimizing the investment in raw materials, work in process, and finished goods.
• Making production operation more efficient by redesigning    workstations and improving the plant layout by creating individual product flow lines.
•  Reducing setup time.
•  Reducing defects.
• Cross training employees so that all are multiskilled and can perform all functions required at a particular workstation.- For Next discussion of Chapter 1 please click on (Chapter 1/B)

You will get more on chapter one of managerial accounting solutions.