Question

Provide one specific, real-life example of how managerial accounting helps managers to improve operational and financial performance.

Answer 1

real-life example of how managerial accounting

Let us take the case of a new product launch. Managerial Accounting helps in launching the new product through various concepts and techniques

• Activity Based Costing: Activity based costing helps in allocating overheads as per the activities consumed. It is an improvement over the traditional method of cost allocation which is arbitrary and not based on actual cost driver which drives the cost. Hence ABC Costing helps in accurate product costing and helps in reliable decision making like setting pricing. Accurate product cost is a pre-requisite for setting selling price.
• Product Pricing: Managerial Accounting helps in deciding the pricing of the new products. For example pricing can be Cost based pricing, Break even point pricing, Product cost pricing, Variable cost pricing, etc Pricing is very important while launching new products and hence managerial accounting helps in deciding the same
• Cost Volume Profit analysis: CVP analysis helps in understanding the Contribution Margin, Break even point and Margin of Safety. The higher the contribution per unit the sooner will be the break even point and more Margin of Safety. Managers should understand how different pricing and costs can help in achieving the break even point
• Standard costing: Managerial Accounting can help in setting the standard costs for the products and monitor actual costs and performance against the standards set. Variance analysis should be conducted at periodical interval to understand the reasons for variations from standard cost and control cost