Costing Financial Accounting-Variable Costing How Is Managerial

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Financial Accounting-Variable Costing

How is managerial accounting different from financial accounting?

Managerial Accounting refers to the processes in application by the company or business organization to identify, measure, analyze, interpret, and communicate vital information in relation to pursuing the mission, objectives, goals, and vision of the entity. Managerial Accounting is also the cost accounting. Financial Accounting is the act of providing relevant information on the financial position and performance of the company using financial statements to the external users or investors on a cyclic basis. Financial Accounting and Managerial Accounting differs in relation to their applications. They also differ in the context of the interests they serve while enabling the company to meet its needs. Managerial Accounting enables the company to obtain vital information to help managers within the company to make crucial decisions about the firm. This indicates that managerial accounting is critical for internal purposes. Financial Accounting offers significant information to investors or parties outside the firm. This illustrates that financial accounting is vital to external users in evaluating the performance of the company.

Comment on the different needs and use of financial information for internal purposes.

Financial information serves different needs within the context of the company. The first need for the financial information is to enable the organization to evaluate its performance for certain duration in the market or industry of operation. The company needs to evaluate its performance in order to make decisions on whether or not to continue with the strategies of pursuing the mission and vision. Managers apply the financial information to reorganize the objectives and priorities of the company in cases of low performances in accordance with illustrations in the financial statements. This is an indication that financial information enables managers to make crucial information on how to conduct business in the market and relevant industry. Financial information also enables the company to compare performances of different departments within the organization. Financial information would allow the company to set goals and priorities for the incoming period of transactions.

The managerial accounting profession and its role in today's business environment. How has it changed over time?

Managerial Accounting Profession is crucial to the development of the business environment in the contemporary world. This is because managerial accounting profession enables the business entities to make vital decisions on the strategies of the organization. Managerial accountants formulate financial information that is relevant to the internal purposes. The financial information only applies to the company hence allows the business entity to evaluate the progress and make critical decisions. There are developments in the profession of managerial accounting in order to address changes in corporate reporting and the emergence of advisory services. There is also the adoption of Certified Management Accountant (CMA) designation to enhance the provision of quality services within the profession. This allows managerial accountant to conform to the standards of the profession.

Comment on the Certified Management Accountant (CMA) designation. How is it different from the CPA certification?

Certified Management Accountant represents an accounting designation in which the holder expresses expertise in both strategic management and financial accounting. This indicates that the designation expands accounting by incorporating management skills to allow business organizations to make critical decisions in relation to financial statements. CMA designation ensures that professionals in accounting provides future-oriented information and analyses to internal users while CPA certification allow financial professionals to provide crucial information to external users (potential employees, investors, creditors, and regulation authorities).

Part II

Explain the main differences between the absorption and contribution (behavioral, variable) income statements. Will net income always be the same under the two approaches? If not, explain the difference.

Absorption Costing Income statement expresses accounting application of all costs in association with a specific product. Absorption Costing applies the use of total direct costs and overhead costs relevant to a particular product. Total direct costs and overhead costs act as the cost base. Absorption costing is critical in providing financial information to external users such as investors and creditors. Contribution income statement illustrates that cost of production relative to output are treated as product costs. The product costs usually include direct material, labor, and variable portion crucial to the manufacturing overhead. Fixed manufacturing cost does not apply in the variable costing as part of the product costs. The net income will be different in application of the two approaches. This is because absorption costing applies fixed total costs and overhead costs in the calculation of the net income while variable costing does not consider fixed costs as part of the product costs.

Comment specifically on why companies feel the need to create yet another income statement in a different format. What information can the company gleam from this approach which is helpful as a tool in the decision making process.