Setting Standards for Performance Excellence

The importance of Managerial Accounting lies in its ability to provide real-time information, create a decentralized system of management, use cost categories, allocate resources, comply with legal requirements, track cash flow, support research projects, and develop effective reports. This accounting practice helps companies make informed decisions, improve their competitiveness, and achieve their goals by providing accurate financial and non-financial data. It also enables managers to take timely decisions, identify unnecessary costs, and allocate resources effectively. By adopting Managerial Accounting practices, companies can ensure compliance with legal requirements, track cash flow, and support research projects, ultimately leading to improved performance and financial position.

Blog Writing
Topic: What is the primary goal of managerial accounting?
Keyword: Managerial Accounting
Managerial Accounting is the process through which information is provided to the
management of the organization for better decision making. Thus various costs, expenses,
and revenues are measured, analyzed and interpreted for the managers to make informed
decisions about the activities of the organization. The most important difference between
managerial accounting and financial accounting is that the latter is used for reporting to the
outside stakeholders of the company while the former assists in decision making within the
company.
Managerial accounting uses various forms of accounting which can help the decision
makers take relevant decision based on the capability and goals of the organization. It helps
to provide the metrics related to the operations and conduct of the business. Information
related to the costs and expenditure helps to decide on the products and services offered by
the company at prices which meet the needs of the target customers. The data from such
metrics are used to plan and prepare the budget which is an important aspect of managerial
accounting. Any deviations from the planned performance metrics indicate a sign of changes
to be made for the achievement of the goals.
Margin Analysis and Managerial Accounting
One of the attractive features of managerial accounting is that it helps to conduct margin
analysis for better decision making. Decisions regarding the selection of the projects and
opportunities are important decisions as it can help the company build competitive advantage
for long term operations and performance. Including the aspect of margin, analysis helps the
decision makers to gauge even the intricate details required to take correct decisions at the
right time. Managerial accounting includes margin analysis, to ascertain the profits and
compare them with various types of costs. It helps in determining the price to be charged for
per unit of products and service.
There are a number of margins which need to be calculated for providing information for
managerial accounting. Some of the important ones include:
 Contribution Margin- This margin is calculated by deducting the variable expenses
from the sales and dividing the figure by total sales amount. This margin has an

important role in managerial accounting as it helps the managers to see the impact of
the variable costs on the business and other fixed costs.
 Profit Margin- The calculation of profit margin involves deducting all expenses from
the sales and then dividing the figure by the sales amount. It is the most widely used
margin in managerial accounting and closely watched by the managers to
understand the performance of the organization.
 Gross Margin- This margin is calculated by deducting the cost of goods sold from the
sales and then dividing the figure by the sales amount. The main difference between
gross margin and contribution margin is that the contribution margin does not include
fixed costs. It plays a role in managerial accounting by determining real product
margins for the business.
 Operating Margin- This margin is calculated by deducting operating expenses and the
cost of goods sold from sales and then dividing the figure by sales amount. It plays
the role in managerial accounting by determining the actual results of operations
before the financing costs are taken into consideration.
The margins calculated for managerial accounting are plotted on a trend line to identify the
drops and spikes in the margin as experienced during the course of the business. The goal of
managerial accounting is served as it enables to investigate why such changes have
occurred. The management of the company can track such changes and adopt measures to
maintain constant margins.
Goals of Managerial Accounting
Accounting is one of the key aspects for gaining information about a company whether by the
internal or the external stakeholders. It helps to record and report the operations of the
business which can achieve short and long term goals. Though managerial accounting is
more concentrated towards the use of such information by the management and executives of
the company, it includes all the aspects of financial accounting to achieve its goals. Some of
the important goals of managerial accounting are as follows:
Planning and Development
Managerial accounting has the important responsibility to plan and create development
reports for the company. The managers are required to make decisions about the allocation of
the resources for the long term objectives of the company. They need to plan the future
activities of the company which are based on the past performance of the organization.

Taking timely and precise decisions can help in exploring the opportunities in the dynamic
business environment. Thus the managers are required to determine the future costs which
will be borne by the company to achieve its target profits. Such an estimate is used for pricing
the products and services in the market.
Controlling and Evaluation
Another major goal of managerial accounting is to assist in controlling and evaluating the
business for its performance in a certain period. Such control and evaluation process provide
information about the effectiveness of the business among the competitors. When any
business organization plans for the future period, it is also important to see how well it has
achieved the results. The controlling activities basically involve, assessing and analyzing the
business for the achievement of the goals. Performance reports are used to fulfill this goal of
managerial accounting. The comparison of the previous results with the current period
results provide information on how well the company will meet its targets.
Making Decisions
Another important goal of managerial accounting includes making the decision for the
present and future of the company. The information and data provided through such methods
help in taking vital decisions for the growth of the organization. The managers have the
responsibility to take a decision which can help build the competency of the organization.
There are a number of decisions which are required to be taken in the daily conduct and
operations. Managerial accounts help to establish the base of such decisions.
Reporting for internal and external users
Another major goal served by managerial accounting related to reporting for the internal
and external users of the company. The performance of the company should be reported to
the stakeholders and management who ascertain the position and suggest methods for
improvement. The internal management has direct control and access to bring changes in the
organization while the stakeholders can influence the decisions of the company through their
power and control. Some experts even suggest that the stakeholders of the company should
be prioritized so that their interests are not missed. The managerial accounting forms the
basis of internal and external reporting as it gauges the performance of the company in any
period. The reports created in managerial accounting is customized to suit the information
needs of the managers and also include non-financial information which affects the
operations of the organization.

Important components of managerial accounting
One of the major role played by the managerial accounting is the planning and the control
functions in an organization. While performing such roles, it is important to understand some
of the important components which are as follows:
Encourage innovation and experimentation
Managerial accounting helps the managers to innovate and experiment with various cost
methods which can improve the performance of the company. It provides the necessary data
required to experiment with various models and chose the one which will be effective for the
organization. The reports created through managerial accounting can be highly customized
to gain the required information and aspects of the business. When the data are represented in
various tables and charts to assist analysis, it provides the scope to use and experiment
various business models which can work for the company.
Create a balance for planning and control functions
One of the important aspects of managerial accounting is that it helps to establish the
balance between the planning and control functions of the organization. The information
generated through the planning is used for setting the standards of the outcome. The planning
stage involves setting the budgets and the control stage involve comparing the actual budgets
with the planned budgets. This balance is important to understand whether the strategies used
by the companies will be effective in the long run to meet the goals. The information in the
planning phase is used in programming the activities of the company.
Increase cost consciousness
The main component of managerial accounting due to which it is adopted by the small and
medium-sized enterprise is that it helps in the reduction of the wastage in the organization
and improve cost consciousness at all levels of the company. The aspects of accounting are
included in managerial accounting which involves identifying and removing unnecessary
expenditures. Thus the medium and large companies which use managerial accounting for
decision making often experience the benefit through the reduction in the cost of operations.
The managers are able to identify the components which create a burden on the budget of the
company and tries to remove them from their operating costs. The cost consciousness at
various levels of a company is important to make people accountable for the expenditure
conducted by them. Such costs should be able to support the objectives of the organization,
both for the short term and long term.

Improves cost analysis
One of the important aspects of managerial accounting is that it helps in improving the cost
analysis within the company. Such cost analysis helps to build the link between the planning
and the control functions of the company. The analysis of cost is important to identify its
deviations from the planned budget and costs. Analyzing and interpreting the costs is
important to take the corrective actions by the managers.
Cost Estimation and Monitoring
One of the important aspects of managerial accounting is that it helps in cost estimation and
monitoring for any changes from the planned budgets. The cost estimation takes into account
various external factors which can affect the cost of an organization. Monitoring of the cost
of a project which may have been undertaken by a company is important to check whether
the returns will be justifiable. For situations when the cost deviates too much from the
planned budget, it may impact the returns from such projects. Also, it helps the management
to determine whether such costs are relevant to the project.
Setting the standards of performance
Another important component due to which managerial accounting is so popular relates to
the fact that it sets the standards for the performance of the company. The data derived
through the analysis and monitoring helps to determine the key metrics for performance. The
standards for operations and performance is important to determine the competitiveness of
the company in its industry. Managerial accounting helps to build realistic standards which
are comparable and achievable by the companies.
Accommodate external reporting standards
One of the attractive aspects of managerial accounting is that it helps in maintaining and
following external reporting standards. The companies are bound by national and
international institutes to adhere to the accounting policies and procedures for reporting the
financial position of the organization. The information collected in managerial accounting is
used as the basis of financial reporting for external users. The activities of managerial
accounting and reporting support the activities of external reporting and fulfill the objectives
to inform the users. It is required by the international reporting standards that the companies
should provide all the information to the users of the financial report which may affect its
position materially.

Provide real-time information
The changes in the business environment which is characterized by globalization and
privatization, require the management to take decisions which are based on real-time data.
The practices of managerial accounting ensure that the real-time data from the market and
the position of the company is readily available so that the decisions made are on-time and
effective. The dynamic nature of the business environment and its related markets require the
companies to be more agile with the changes in the market conditions.
Creates a decentralized system of management
The management system which is supported through managerial accounting is a
decentralized system of management. The information and the performance report are
available to the managers at all levels of the company, which enable them to take decisions
themselves and do not depend on the top management for every decision. The information in
the reports is enough which allow the daily and timely decisions. Thus it creates an
environment, where each of the managers has the responsibility towards the performance of
the company. Such a decentralized system is also important for faster decision making for
availing the opportunities.
Use of cost categories
Another important aspect of managerial accounting is that it helps in building various cost
categories, in which the costs can be allocated. This allocation of costs helps in identification
of the costs and removing any unnecessary one. The cost categories help to arrange the nature
of the costs and determine the prices for the products and services of the company which can
be charged to the customers. The cost categories also help to select the activities and measure
its contribution to the overall cost of production.
Resource allocation and development
One of the attractive features of managerial accounting is that it helps in the allocation of
the resources of the company and developing them for future capabilities. The information
from the practices of managerial accounting helps to allocate the resources to the most
productive use and also develop them for future needs. The decisions related to resource
allocation is important for building the future capabilities of the organization. The problem of
resource allocation is one of the ongoing problem faced by every business entity which helps
in the development of the competitive advantage in the market. There are a number of

resources which required to be managed and developed to prepare the company for future
opportunities.
Comply with the legal requirements
Another benefit of using managerial accounting for internal decision making is that it helps
companies in complying with the legal requirements and policies. The reports and the data
used in the decision for managerial accounting can be used to ascertain whether the legal
policies are complied with. It is important for companies to adhere to such policies in order to
operate successfully and within the domains of the government of the country. The issues
related to the non-compliance of the legal standards are severe and can also lead to the
situation of penalties and fees.
Track cash flow
The cash flow and cash balance of a company are important as it helps to maintain the short
term liquidity position of the company. Cash is one of the important financial resources for
the working capital which can help in meeting most of the immediate expenditure needs. The
practices of managerial accounting help to keep a close track of the cash flows from the
investing, operating and financing activities. Any changes in the cash below the discretion
level are immediately reported to the management to take the corrective actions. The
managers and the executive can directly control the activities which can bring the cash to its
original levels. This control over the cash flow improves the performance and financial
position of the company.
Support research projects
It has become important for the companies to innovate and develop new products which can
meet the changing needs and demands of the customers. In order to be evolving and
continuously improving, it is necessary that the companies invest a sum of money for
research and development. The research and development projects should be properly funded
and selected to ensure that they help achieve the goals of innovation. The practices of
managerial accounting help to identify the most suitable research projects and provide time
investments to source the innovation.
Effective Reports
The practices of managerial accounting ensure the development of effective reports about the
performance and operations of the company. In the absence of the practices of managerial
accounting, the reports may not be generated and used for decision making within the

company. The effectiveness of the reports can be judged by the fact that they help to improve
the performance of the organization.
Create cost centers and cost management
The practices of managerial accounting help in creating the cost centers and the cost
management policies, which can lead to allocating costs effectively. Creation of the cost
centers helps the management to identify all the important costs which otherwise may be
missed and the project may have to suffer.
Conclusion
Finally, it can be concluded that managerial accounting has been growing in its importance
and use as more number of companies are experiencing the benefits of such practices. The
multinational organization with various level of operations are able to control their costs and
wastages with the adoption of the practices of managerial accounting. It includes all the
aspects of accounting which helps the company keep track of its financial and non-financial
data.