Ir. M. Geense
(Delft University of Technology)
to managerialaccounting.org. This website surveys the development of
managerial accounting and explains the most important managerial accounting terms
What is Managerial Accounting?
accounting is concerned with providing information to managers- that is, to
those who are inside an organization and who direct and control its
operations. Managerial accounting can be contrasted with financial
accounting, which is concerned with providing information to stockholders,
creditors and others who are outside an organization (Garrison and Noreen,
Managerial accounting information include:
· Information on the costs of an organizations products and services.
For Example, managers can use product costs to guide the setting of selling
prices. In addition, these product costs are used for inventory valuation and
income determination (Horngren and Foster, 1987).
A budget is a quantitave expression of a plan.
· Performance reports:
These reports often consist of comparisons of budgets with actual results.
The deviations of actual results from budget are called variances (Horngren
and Foster, 1987)
· Other information which assist managers in
their planning and control activities.
Examples are information on revenues of an organizations products and services, sales back logs,
unit quantities and demands on capacity resources (Kaplan and Atkinson,
Managerial Accounting Practices
Traditional managerial accounting systems
are mainly designed to measure the efficiency of internal processes. In the
managerial accounting practitioners were heavily critized on the grounds that
their practices had changed little over the preceding 60 years, despite
radical changes in the business environment. For more information on
traditional managerial accounting practices see the Traditional Managerial
The last decades new managerial accounting practices such as
activity-based-costing, the balanced scorecard and bottleneck accounting were
Unlike traditional managerial accounting, activity-based-costing deemphasizes
direct labor or raw material as cost drivers and concentrates instead on
activities (e.g. the number of production runs per month) that drive costs.
Activity-based costing gives the management of an organization a clear
picture of the cost drivers and the opportunities to reduce costs (Kaplan and
Norton, 2001). For more information on activity based costing, see the Activity Based Costing page.
Traditionally, management accountants
principal performance report was variance analysis, which is a systematic
approach to the comparison of the actual and budgeted costs and revenues
during a production period. While some form of variance analysis is still
used by most manufacturing firms, it nowadays tends to be used in conjunction
with other performance reports such as the balanced scorecard. A balanced
scorecard is a set of financial measures, operational measures on customer
satisfaction, internal processes and the organization's innovation and improvement
activities (Kaplan and Norton, 1992). Kaplan and Norton also argue that the
balanced scorecard can be used as a strategic management system which
identifies the value drivers of an organization's strategy and a management
system to align the organization to the strategy (Kaplan and Norton, 2001).
For more information on the balanced scorecard, see the Balanced Scorecard page.
In a traditional variance analysis, managerial accountants compare the actual
sales with the budgeted sales. A traditional variance analysis however does
not point out which bottleneck coursed an unfavorable difference between
actual and budgeted sales (see also Veltman, 2011). With bottleneck
accounting however, managerial accountants are able to determine:
- the bottlenecks of an organization and;
- how much money was lost because of each bottleneck.
For more information on bottleneck accounting see the Bottleneck Accounting page.
Garrison, R. H., P. E. Noreen, 'Managerial Accounting', Irwin McGraw Hill,
- Horngren, C. T. and G. Foster, 'Cost Accounting, A Managerial Emphasis',
Prentice-Hall, Inc. 1987
- Johnson, H. T. and R. S. Kaplan, 'Relevance Lost: The Rise and Fall of
Management Accounting', Harvard Business School Press, 1987.
- Kaplan, R.S. and A. A. Atkinson, Advanced
Management Accounting, Prentice-Hall
International Inc. 1989
- Kaplan, R. S., D. P. Norton, 'The Balanced Scorecard - Measures that Drive
Performance', Harvard Business Review, January - February 1992.
- Kaplan, R. S., D. P. Norton, 'The Strategy Focused Organization', 2001,
Harvard Business School Publishing Corporation.
- Solomons, D., 'Historical Development of Costing', Studies in Costing,
Sweet & Maxwell, 1952, pp. 1-51.
- Veltman, M., R. Kooij, S. Marban, 'Sales Bottlenecks And Their Effect On Profit', Journal of Applied Business Research, Vol 30, No 6, November / December 2014