Variable and Fix Cost Essay

TUI University Variable and Fixed Cost Module 1 Case Dr. Li-Lin Liu Pa April 22, 2012 Part I: Use the background material and Internet to answer the questions below. Discuss and analyze the difference between managerial and financial accounting. Pay particular attention to: * How is managerial accounting different from financial accounting? Comment on the different needs and use of financial information for internal purposes. * The managerial accounting profession and its role in today’s business environment. How has it changed over time? Comment on the Certified Management Accountant (CMA) designation. Part II: Keep the analysis from the SLP in mind when addressing the questions below. * 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. * 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.

Explain situations in which break-even analysis can be a useful tool. Provide a specific example. Bookkeeping can be traced back to the thirteenth century, accounting historians place the origin of management accounting around 1812. Around this time, textile mills began to perform many processes inside the organization that had previously been performed outside the company by independent craftsmen. (maaw. info) Financial and management accounting are both important tools for a business, but serve different purposes.

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Businesses use accounting to determine operational plans in the future, to review past performance and to check current business functions. Management and financial accounting have different audiences, as investors are not usually involved in the day-to-day operations of the business but are concerned about their investment, whereas managers need information quickly to make daily business decisions. (Francis, 1998) Financial Accounting Financial accounting is used to present the financial health of an organization to its external stakeholders.

Board of directors, stockholders, financial institutions and other investors are the audience for financial accounting reports. Financial accounting presents a specific period of time in the past and enables the audience to see how the company has performed. Financial accounting reports must be filed on an annual basis, and for publically traded companies, the annual report must be made part of the public record. Management Accounting Managers to make decisions concerning the day-to-day operations of a business use managerial accounting.

It is based not on past performance, but on current and future trends, which does not allow for exact numbers. Because managers often have to make operation decisions in a short period of time in a fluctuating environment, management accounting relies heavily on forecasting of markets and trends. Differences Management accounting is presented internally, whereas financial accounting is meant for external stakeholders. Although financial management is of great importance to current and potential investors, management accounting is necessary for managers to make current and future financial decisions.

Financial accounting is precise and must adhere to Generally Accepted Accounting Principles (GAAP), but management accounting is often more of a guess or estimate, since most managers do not have time for exact numbers when a decision needs to be made. (Francis, 1998) The Certified Management Accountant (CMA) designation provides corporate management and individual members with an objective measure of knowledge and competence in the field of management accounting. The CMA is an invaluable credential for professional advancement and for broadening professional skills and perspective.

The CMA certification requires the broad range of topics that are key to management performance and contribution. Exam topics include economics, business finance, situational analysis, and decision making with a strong emphasis on ethics. Combined with relevant rule-based subject matter, the four-tiered CMA exam is designed to develop and measure critical thinking and decision-making skills. (SmartPro’s, 2009) ? References: (Francis, 1998) (maaw. info) (SmartPro’s, 2009)