Updated:

Managerial Accounting: Variable Costing Case Study

Exclusively available on Available only on IvyPanda® Made by Human No AI

Managerial and Financial Accounting: Differences

Differences Between Financial Accounting and Managerial Accounting

As a rule, the area of financial accounting (FA) is restricted to the creation and further analysis of the company’s financial statements. The results of the analysis are then made available to all stakeholders involved. Managerial accounting (MA), on the other hand, views the financial analysis as a tool for the decision-making process. The results of the analysis are discussed to make a choice between the company’s options.

Therefore, the viewpoint that the company’s key processes are viewed can be deemed as the primary difference between the two concepts. However, there are other ways to consider the identified frameworks. For example, in the process of conducting an FA, one is supposed to consider the past performances of an organization. The MA approach, however, is directed at the current specifics of the staff’s performance.

The frequency of performing the FA is quite different from that of the MA as well. In contrast to FA, which must take place strictly on an annual basis, the MA may be used whenever there is the necessity to reconsider the current approach toward the management processes.

Another important issue, the objectives that the two types of analysis address, needs to be brought up as well. MA is used to complete day-to-day, short-term objectives, while the FA is used to consider the long-term ones.

Furthermore, when a publicly-traded company conducts an FA, the outcomes of the FA must be made available to the general public as a part of the corporate transparency principle (Marcinko & Hertico, 2013). The MA results, in their turn, do not have to be offered to wide audiences.

Finally, forecasting comprises a significant part of the MA. Although the FA is also used as the platform for designing the further financial strategy that entrepreneurship will use in the context of the global market, forecasting is not included in the report, unlike the MA framework suggests.

Managerial Accounting Profession: Change

The phenomenon of MA has experienced tremendous changes over the years of its evolution. Previously, the concept of managerial accounting was reduced to cost accounting. As the subject matter developed, the elements of a behavioral analysis were introduced.

As a result, the principles of HR were included in the managerial accounting system. The identified change allowed for executing better control over the corporate processes and maintaining sustainability. Consequently, the significance of the organizational behavior strategy, the satisfaction levels among the staff members, etc., were acknowledged as the factors that determine the choice of an MA strategy and the range of skills that an MA expert must possess.

Presently, managerial accounting is used as the tool for retrieving the data that helps improve all corporate activities and, therefore, enhances the profitability of the entrepreneurship. In other words, from the necessity to execute control over the essential financial processes, theorists redesigned the MA requirements to meet the need to control the factors that determine the employees’ performance in the company.

As a result, the current MA theory encompasses a wide array of activities that need to be supervised and puts a special emphasis on the necessity to use the human resources at the company’s disposal in a manner that is as efficient as possible. At this point, the significance of investing in the employees’ progress needs to be brought up. Indeed, a closer look at the present-day priorities of an HR department in a firm will show that any company is concerned with increasing the staff’s competencies and promoting their personal and professional growth (Needles, Powers, & Crosson, 2013).

Certified Management Accountant (CMA) and Certified Public Accountant (CPA): Definition and Comparison

A CMA is an accounting expert that operates in financial accounting and strategic management. As the very titles of the positions mentioned above show, the focus of the operations is the key difference between the two. Whereas the CMA addresses the issues related to management, the CPA manages the concerns linked to the area of finances. In other words, audits, financial reports, etc., are included in the range of the CPA’s competency.

In addition, the CPA’s certification may vary depending on the state, particularly the requirements for completing the degree, such as the number of hours, the specifics of the examination, etc., which are quite different from the CMA standards. Apart from the academic characteristics, there are the practical implications of earning the CPA degree that set it apart from the CMA.

It should be noted that both the CMA and CPA are geared toward maximizing profit. Every single step that the experts in the areas above make is supposed to address a particular problem that makes the company weaker and reduces its competitive advantage. The CMA certification, however, demands that the issues faced by the entrepreneurship should be viewed from the perspective of a manager and not merely a financial accountant.

Income Statements and the Financial Analysis

Absorption vs. Contribution Income Statements

For a company to be efficient in the target market, it is imperative to make as efficient use of the available resources as possible. An income statement, in turn, helps get the priorities in line, pointing out the advantages and disadvantages of the recurrent financial approach.

As a rule, a Traditional (i.e., Absorption) Income Statement (AIS) is defined as a tool for measuring the opportunities for an organization to gain profit within a particular time period. In the specified framework, both the variable and the fixed costs are viewed as a part of the cost of goods sold (Warren, Reeve, & Duchac, 2013).

Compiling a Contribution Income Statement (CIS), on the other hand, requires that the expenses should be deducted from sales. As a result, the calculation of the contribution margin becomes a possibility. In other words, the subject matter can be determined as a difference between the total revenues of a company and its variable costs.

Therefore, the AIS helps differentiate between the product costs and the period costs. As a result, when determining the expenses taken for the sold goods, one will be able to take both variable and fixed manufacturing costs into account. CIS, in turn, does not allow for including the fixed manufacturing costs into the calculation since it attributes them to the overseas costs.

Break-Even Analysis is an Essential Tool

Significance

By definition, a Breakeven Analysis (BEA) permits the identification of the point at which the expenses taken to run the entrepreneurship are equal to the revenues acquired in the process (Penner, 2013). The significance of the BEA is quite evident in the contemporary environment of the global economy. For instance, the BEA can be used to determine the company’s pricing strategy so that its customers can enjoy its flexibility and the company can gain a benefit. Similarly, the outcomes of the BEA can serve as the foundation for shaping the marketing approach. Finally, the identification of the point at which the firm’s revenues meet its costs may be used as the factor for making a choice between the investment options available.

Formula and Example

The formula used to carry out the BEA is fairly simple. To calculate the BEA of a particular product, one will have to add the Contribution Margin thereof to its Fixed Expenses: BEA = Contribution Margin + Fixed Expenses. The Contribution Margin is determined by subtracting the variable expenses from the revenues: Contribution Margin = Revenue – Variable Expenses. Therefore, the formula for the BEA can be shaped in the following manner: BEA = Revenue – Variable Expenses + Fixed Expenses. For example, the breakeven point (BP) for the company selling plush toys for $30, with each toy’s cost price being $7, will be 180 toys, as the table below shows (Kahn, 2015).

Table 1. Breakeven Analysis for a Toy Manufacturing Company.

Sales (180 toys priced at #30 per toy)$5,400
Variable Expenses (180 toys at $7 per toy)-$1,330
Contribution Margin$4,070
Fixed Expenses-$4,070
Net Income0

As the example provided above shows, in order to reach its breakeven point, the company will have to make sure that the contribution margin of the production reaches $4,070. While the analysis carried out above is a rather rough draft of the actual calculations, it serves as a foundation for locating opportunities that entrepreneurship may explore in terms of investments, brand development, marketing, etc. Therefore, the further evolution of the organization can be outlined in a rather accurate manner.

Reference List

Kahn, K. B. (2015). Product planning essentials. Armonk, NY: M. E. Sharpe.

Marcinko, D. H., & Hertico, E. R. (2013). Financial management strategies for hospitals and healthcare organizations: Tools, techniques, checklists and case studies. Chicago, IL: CRC Press.

Needles, B. E., Powers, M., & Crosson, S. V. (2013). Financial and managerial accounting. Stamford, CT: Cengage Learning.

Penner, S. J. (2013). Economics and financial management for nurses and nurse leaders (2nd ed.). New York, NY: Springer Publishing Company.

Warren, C. S., Reeve, J. M., & Duchac, J. (2013). Managerial accounting. Stamford, CT: Cengage Learning.

More related papers Related Essay Examples
Cite This paper
You're welcome to use this sample in your assignment. Be sure to cite it correctly

Reference

IvyPanda. (2020, September 13). Managerial Accounting: Variable Costing. https://ivypanda.com/essays/managerial-accounting-variable-costing/

Work Cited

"Managerial Accounting: Variable Costing." IvyPanda, 13 Sept. 2020, ivypanda.com/essays/managerial-accounting-variable-costing/.

References

IvyPanda. (2020) 'Managerial Accounting: Variable Costing'. 13 September.

References

IvyPanda. 2020. "Managerial Accounting: Variable Costing." September 13, 2020. https://ivypanda.com/essays/managerial-accounting-variable-costing/.

1. IvyPanda. "Managerial Accounting: Variable Costing." September 13, 2020. https://ivypanda.com/essays/managerial-accounting-variable-costing/.


Bibliography


IvyPanda. "Managerial Accounting: Variable Costing." September 13, 2020. https://ivypanda.com/essays/managerial-accounting-variable-costing/.

If, for any reason, you believe that this content should not be published on our website, please request its removal.
Updated:
This academic paper example has been carefully picked, checked and refined by our editorial team.
No AI was involved: only quilified experts contributed.
You are free to use it for the following purposes:
  • To find inspiration for your paper and overcome writer’s block
  • As a source of information (ensure proper referencing)
  • As a template for you assignment
Privacy Settings

IvyPanda uses cookies and similar technologies to enhance your experience, enabling functionalities such as:

  • Basic site functions
  • Ensuring secure, safe transactions
  • Secure account login
  • Remembering account, browser, and regional preferences
  • Remembering privacy and security settings
  • Analyzing site traffic and usage
  • Personalized search, content, and recommendations
  • Displaying relevant, targeted ads on and off IvyPanda

Please refer to IvyPanda's Cookies Policy and Privacy Policy for detailed information.

Required Cookies & Technologies
Always active

Certain technologies we use are essential for critical functions such as security and site integrity, account authentication, security and privacy preferences, internal site usage and maintenance data, and ensuring the site operates correctly for browsing and transactions.

Site Customization

Cookies and similar technologies are used to enhance your experience by:

  • Remembering general and regional preferences
  • Personalizing content, search, recommendations, and offers

Some functions, such as personalized recommendations, account preferences, or localization, may not work correctly without these technologies. For more details, please refer to IvyPanda's Cookies Policy.

Personalized Advertising

To enable personalized advertising (such as interest-based ads), we may share your data with our marketing and advertising partners using cookies and other technologies. These partners may have their own information collected about you. Turning off the personalized advertising setting won't stop you from seeing IvyPanda ads, but it may make the ads you see less relevant or more repetitive.

Personalized advertising may be considered a "sale" or "sharing" of the information under California and other state privacy laws, and you may have the right to opt out. Turning off personalized advertising allows you to exercise your right to opt out. Learn more in IvyPanda's Cookies Policy and Privacy Policy.

1 / 1