Free «The Role of Managerial Accounting» Essay Sample
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The role of managerial accounting in today’s business environment
Managerial accounting is responsible for giving managers information; its role has been changing ever since as the business environment becomes dynamic. Managerial accounting plays a major integral role by seeking to create immense value of a corporation through management of its resources. Additionally, managerial accounting helps the major stakeholders set goals that are achievable and lead it to attaining its great success. Therefore managerial accounting plays are of utter importance in decision making, controlling, planning and direction of operational activities in the business environment.
Cost drivers drive the consumption prices and the activity driver is responsible for changing consumption and the relation is a cause and effect relationship. Cost drivers are any activities carried out in an organization that will help to determine costs. Cost drivers include machine hours and labor hours. The cost drivers help in the allocation process as they are identified to different indirect costs and are then allocated to various cost centers basing on these cost drivers. Through the cost drivers the allocation process becomes more logical and practical.
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Rago describes Economic Value Added analysis as a method of cost allocation that is meant to improve and measure efficiency. It is largely preferred since most manager’s term earnings and dividends as irrelevant. EVA is preferred as it deals with the intrinsic market value.
This is a performance measure that is used to measure the efficiency and effectiveness of different investment ideas. It gives a corporation or individual insight on how to go about business results in the future. Although it is widely used performance tool, it has been criticized; telling managers to increase their ROI is not enough without them knowing what exactly increase ROI. Assessing performance of a manger using ROI may not be efficient as a new manager may come across committed costs from previous manager. (Sack, S. 2007)
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Schulman in his book describes transfer pricing as to set pricing between related parties. There are reasons to skew transfer prices if allowed; through transfer pricing, tax administrators and customs officials have a goal for their corporation to maximize revenue, but transfer pricing brings a conflict to their goals since increased revenue of one reduces revenue of another. (Schulman, 1968)
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