Techniques in Management Accounting

 

Techniques in Management Accounting

In order to achieve business goals, managerial accounting uses a number of different techniques.

  • Marginal analysis: This assesses profits against various types of costs. It primarily deals with the benefits of increased production. It involves calculating the break-even point, which requires knowing the contribution margin on the company’s sales mix. Here, sales mix is the proportion of a product that a business has sold when compared to the total sales of that business. This is used to determine the unit volume for which the business’ gross sales are equal to total expenditures. This value is used by managerial accountants to determine the price points for various products.

  • Constraint analysis: Managerial accounting monitors the constraints on profits and cash flow with respect to a product. It analyzes the principal bottlenecks and the problems they cause, and calculates their impact on revenue, profit, and cash flow.

  • Capital budgeting: This is an analysis of information in order to make decisions related to capital expenditures. In this analysis, the managerial accountants calculate the net present value and internal rate of return to help managers with capital budgeting decisions like calculating payback period or calculating accounting rate of return.

  • Inventory valuation and product costing: This deals with determining the actual cost of goods and services. The process generally involves computing the overhead charges and assessment of direct costs associated with cost of goods sold.

  • Trend analysis and forecasting: This primarily deals with variations in product costs. The resulting data is helpful in identifying unusual patterns and finding efficient ways to identify and resolve the underlying issues.

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