Managerial Accounting the Easy Way

How can you make business decisions that will improve efficiency, reduce costs, and grow the business?

As a manager or business owner you have to make important decisions.

• Do you want to know how many nights you need to rent your Air BNB to break-even?

• Do you need to reduce the risk of a startup business as an entrepreneur?

• Do you need to hone your budgeting skills?

• These and many more questions are answered in this course.

You'll learn a better approach to decision making.

This course is designed for any level and there are no prerequisites. From an entrepreneur to a manager at a company working his or her way up the ladder, this course provides an explanation of key tools to improve your business performance.

Each lesson is streamlined to cover the topic in manageable pieces. You will follow example companies and case studies derived from a real-world application. You are then given discussion questions and quizzes to test your knowledge along the way.

Managerial accounting is indispensable for any manager, as it equips them with critical tools to make informed decisions. Firstly, it provides real-time financial data, enabling managers to assess the organization's financial health, track budgets, and identify cost-saving opportunities.

Moreover, managerial accounting helps in setting performance targets and measuring actual results, fostering accountability and improving overall productivity. It aids in resource allocation by revealing which products or services are most profitable, allowing managers to focus on core revenue generators.

Furthermore, it facilitates strategic planning by analyzing historical data, forecasting future trends, and assessing the feasibility of different business scenarios. In essence, managerial accounting empowers managers to steer their organizations towards success through data-driven, well-informed choices.

Lesson 1: Defining Managerial Accounting:

Managerial accounting differs from other accounting work. It is a field specifically for providing managers with tools to improve their decision making. Let’s begin our journey with an explanation of what managerial accounting is all about.

Lesson 2: Financial Accounting vs Managerial accounting:

Managerial accounting is very different from financial accounting. This lesson delves into the specifics of what makes managerial accounting unique. Who are the primary users? What kind of reports are used? How are standards and ethics derived?

Lesson 3: Trends:

Managerial accounting is a dynamic profession. Every day changes in technology, society, and culture impact how managers approach their organization. Let’s consider some key trends in managerial accounting and reporting.

Lesson 4: Foundational concepts:

Before we can start into more complicated analysis and decision making, we need to build a foundation of key concepts. We begin with a discussion of how various business models differ and what approach is needed for their analysis.

Lesson 5: Foundational Concepts – Product Costs:

Managers need to understand the cost of their product in order to proceed into analysis. What costs go into the product? What kind of costs are period costs used in the selling and administrative functions of the business? This lesson will build an understanding of each.

Lesson 6: Foundational concepts – Profitability:

A key to success in business is profitability. In this lesson we will take our developing understanding of costs and learn how it relates to calculating profitability of a business. Once that is better understood, managers will be on their way to improved decision making.

Lesson 7: Processing vs Job cost:

How can we determine what costs go with what product? How can we apply costs to products? When is one cost process better suited than another? These are all questions covered in this lesson. Managers that understand cost allocation will make appropriate decisions on products. Mangers will be able to improve pricing and improve job quotes.

Lesson 8: Job Cost – Materials:

Job costing is tool used for manager by managers to apply costs to various jobs with unique characteristics. Let’s follow an example company along the way as the managers begin to apply costs to a specific job.

Lesson 9: Job cost – Labor and Overhead:

This lesson continues where the last left off. Now we discuss the allocation of labor to our product. We consider how we might apply overhead to the job at hand.

Lesson 10: Allocating costs of multiple products:

Most businesses don’t sell a single product but have multiple lines they offer to customers. In that situation we will need to divide our overhead costs between the various products in a manner that best represents the nature of the product and process used in operations. This lesson is an overview of the importance of allocating costs between multiple products. We begin with a traditional cost allocation method.

Lesson 11: Departmental overhead rate:

Changes in manufacturing and operations for service businesses means traditional cost allocation methods are not always the best fit. This lesson will explain how dividing up costs based on the departmental organization of a business might be the best fit.

Lesson 12: Activity Based Costing:

We continue our understanding of allocating overhead costs between products in this lesson. In some situations, managers will use the activities in the operations to allocate costs between products. Managers can develop multiple rates based on each activity. The use of this method, called Activity Based Costing (ABC), might improve allocation of costs to the various products or services.

Section 3: Cost Behavior:

Costs are not just dollar amounts that managers subtract from revenue. Costs behave differently so managers need to treat costs based on that behavior. By understanding cost behavior, we can then develop analysis such as break-even point or targeting profits. Cost behavior is also a key component in pricing. Finally, cost behavior can be used in specific operating decisions such as make or buy components or if it will benefit to eliminate a business segment.

Lesson 13: Cost Behavior:

Not all costs behave the same. Understanding how costs behave can help manager manage risk, improve budgeting, and make better decisions overall. Want to reduce the risk of your start-up company from going out of business? What to leverage your profitability from increased sales? Then let’s begin with an understanding of cost behavior.

Lesson 14: Cost Behavior – Fixed vs Variable Costs:

We continue to understand cost behavior. Why do some costs remain constant while others increase as we increase our operations? How can we improve our profit and loss reports so that managers get better information for internal decision making? We will discuss this and more in this lesson.

Lesson 15: Break-even point:

How many customers need to buy your product for you to stay in business? How many clients do you need for your service to stay viable? Break-even point is an analysis used by managers to answer those questions and more.

Lesson 16: Break-even Point – Changes:

Nothing remains the same. All is changing. So, what will these changes mean to our business? What if we want to have a sale and reduce our price? What if our rent increases? What if our vendors go up on our material costs? Understanding the implications of these situations will help managers make decisions to not only deal with change but flourish.

Lesson 17: Sales Mix:

Most businesses sell more than one product. That is called a sales mix. How can we use our analysis of break-even point and profitability in an organization with multiple products? Let’s see how it is done in this lesson.

Lesson 18: Pricing:

Pricing is one of the most important decisions managers make. Pricing is not as simple as counting costs and adding a mark-up. There are market factors that impact what we can do. Let’s see how managers can approach pricing from a cost perspective.

Lesson 19: short-Term Decisions:

When should we drop a product line that is potentially losing money? When should we outsource or does it make more sense to make in-house? These decisions are important in day-to-day operations of our organization. It may surprise you to know that most managers approach these decisions incorrectly. After this lesson you will have the knowledge to make the better decision!

Lesson 20: Introduction to Budgeting:

Budgeting is a cornerstone of business. All organizations budget to some degree. All managers are part of budgeting process at some level. Let’s begin in this lesson with an overview of budgeting and how we can approach it.

Lesson 21: Master Budget:

The master budget encompasses many smaller budgets and pulls the entire organization together. We begin our walk through of master budget by understanding sales forecasting and how to develop a material and labor budget.

Lesson 22: Operating Budgets:

We continue with the master budget by developing a budget for the overhead. We use our example company to develop selling and administrative costs for our budget. Finally, we can forecast our profit and loss. With that information managers have a target and can begin day to day planning to achieve their goals.

Lesson 23: Cash Budgets:

It may surprise many people to hear that a profitable business can still go bankrupt. How can that be? Running out of cash is possible even if the business is making a profit. Many organizations sell products or services but don’t collect the cash until later. This timing difference can lead to big problems if not managed. No worries! After this lesson you will ready to implement a cash budget to reduce the risk of having an unplanned cash shortage.

Lesson 24: Budgeted Balance Sheet:

The balance sheet offers us an understanding of the value of our business. Once we have all the budgets in place, we are ready to determine just what our business is really worth.

Lesson 25: Performance Evaluations:

Budgeting is not just useful for planning. What about understanding the management effectiveness? By comparing the actual results to what was expected in the budget, we can get a better understanding of the management performance.

Lesson 26: Performance Evaluations – Variances:

Let’s look an example business with multiple departments and determine how we can effectively evaluate performance. We learn to better understand the difference between what actually occurs compared to the expected results. We call that a variance. Variances are another tool in our toolbox to improve efficiency.

Lesson 27: Performance Evaluations – Flexible Budgets:

Cost behaviors that were discussed earlier are applied to our understanding of budgeting. When we bring in our new understanding of variances, we can learn how to develop an evaluating tool that can point managers in the direction of areas of concern while helping them build on areas where there has been success.

Lesson 28: Standard Setting:

How harsh should managers be when setting goals for employees? Can standards that are too strict actually harm employee productivity? Let’s begin our understanding of standards and how setting standards is one of the most important decisions managers can make.

Lesson 29: Standard Cost Variances:

Once we set standards, we can then combine that information with actual results. This offers us directional signals for managers to follow for improving missed goals. These signals are also useful for finding best practices so they can be continued.

Section 5: Capital Investments:

Managers must invest in the business if they want to sustain operations for the long run. But when should they invest? How much should be invested? How can managers compare multiple opportunities? What kind of analysis is appropriate for capital investment decisions? This final section will cover all these questions.

Lesson 30: Capital Investments:

Should we buy a new warehouse or update the machinery? These big-ticket purchases are some of the riskiest managers make. How should we approach our capital investment decisions? This lesson will focus on what makes a capital investment and how we can approach rationing our available funds.

Lesson 31: Capital Investment Analysis:

This lesson is where the rubber meets the road of financial analysis. We leverage our understanding of cost behavior and profitability into ratios that can be used to understand the quantitative effects of capital investments. These tools can be used to compare multiple options and provide managers with tangible information when determining which big project should be chosen.