SLP 1- Introduction to Managerial Accounting - Essay Example

Introduction to Management Accounting This paper is about management accounting (also known as cost accounting) and its use in planning and controlling the operations and results at Walmart. Management Accounting strives to fulfill the requirement of management and helps them make critical decisions, rather than following a set standard for reporting to stakeholders. Managements’ functions within an organization are planning, controlling, leading, arranging, staffing and decision making. Management accounting practices and records for a company are designed and operated in a way to help managers perform their functions easily.

Walmart is one of the largest retail outlets' operator, operating approximately ten thousand stores in 27 different countries. The paper emphasize on the role of management accounting in multinational companies. Introduction to Management Accounting Management Accounting Management accounting is a branch of accounting, which collects information about a company's overall management mannerisms and suggests specific measures to promote further reformation. Among other things, the roles of management include planning, controlling, leading, organizing, staffing and decision making.

In order to plan and implement any decision management needs a set of data, facts, analysis and reports; management accounting helps them collect it (Drury, 2004). Wal-Mart Inc. is the operator of a large number of stores worldwide. It operates around 27 different countries under three distinct banners. (Walmart Corporate Website, 2012) The role of management at Walmart is more diverse since they need to control multicultural organizations and plan for their future investments. Management accounting plays an important role at multinational organizations like Walmart.

Following is the ways through which the management at Walmart utilizes the management accounting concepts: 1. In order to evaluate the results of distinctive stores, costs and expenditures are allocated to different functions, processes or locations, on realistic measures (e.g. Units of electricity consumes, area occupied, number of calls made, etc.), so that the costs can be easily controlled. (Drury, 2004). 2. Management Accountants are actively involved in making budgets and forecasts, considering both explicit and implicit costs (sunk costs, opportunity cost, etc.). The budgets are then compared to actual performance.

(Drury, 2004). This exercise helps management to evaluate the performance of operations and segments. This also helps management in controlling a lot of costs and arriving at favorable returns. 3. Standard costs are used to standardize inventory values, which are then compared to actual figures. This exercise is again helpful as it highlights all those products that cost more than standard and help management to make useful strategies to either reduce the costs or discard the product. (Drury, 2004). 4. On a monthly basis, management information system generates useful reports on: a.

Inventory quantities and values, determining the overall closing inventory values. (Drury, 2004). These reports are then compared with the stores’ inventory records and differences are investigated and resolved. Inventory reconciliations are also made. b. Costs and expenditure allocations to different departments and processes, based on these reports the cost of goods sold is calculated and verified against the standards; (Drury, 2004). c. Sales reports based on locations, stores, personnel, etc.

that helps the management to evaluate the performance of people handling the stores as well as the feasibility and market retail stores in certain locations. It helps management make useful decisions as to opening and closing of stores or expanding business. d. Product wise sales and inventory records that help management identify the segments and products that are most profitable, etc. 5. At Walmart, a decision for the opening or closing of any new store is done assuming the management accounting records.

(Walmart Corporate Website, 2012) The managers consider different alternatives, compare the actual figures and take decisions upon the basis of cost benefits analysis and feasibility reports prepared by the management accountants. The lowest contributors to the company’s overall profitability are determined by using management accounting results rather than financial accounting results. That is, both implicit and explicit costs are considered, and cost / expenditures are allocated on a more realistic basis rather than standardized methodologies.

Opportunity costs are considered important aspect in making decisions and are considered by the management of Walmart. (Walmart Corporate Website, 2012). The concept of opportunity cost is not at all used for financial accounting; therefore, here too management accounting is of great use. (Drury, 2004). 6. By using the concepts of relevant and irrelevant costs most of the decision making at Walmart has generated fruitful results. (Walmart Corporate Website, 2012). At Walmart, the cost of losing customer base or loyalty is also considered while making any decision.

For example discarding any product that bears any religious or cultural importance or introducing any product that is offensive to the religious or cultural beliefs of the current and prospective customers, bear exceptionally high costs to the company, which can be converted into numbers only using management accounting concepts and formulae. 7. Inventory management at stores is actually monitored and controlled through the use of inventory management concepts of Economic Order Quantity. This helps the management to decide how much quantity of the goods should be ordered and at what time.

Inventory obsolescence and wastages are controlled by this approach. (Drury, 2004). Management accounting at Walmart being a retail store operator is entirely different from any other company (of different sector). For example, the managements’ focus at Walmart is more emphasized towards administering and controlling the costs of procuring inventories (including the cost of inventory obsolescence and wastages, opportunity costs of selecting vendors). The main focus on the management of a manufacturing concern is to control and allocate production costs effectively and efficiently.

At Walmart, management is more inclined towards the maintenance and availability of sufficient quantities of good-quality products at all stores at all times (Walmart Corporate Website, 2012). The management at any manufacturing concern would be apprehensive to acquire adequate good-quality raw materials and to produce exceptional finished goods on time. References Drury, C. (2004). Management and Cost Accounting.USA: Thomson Learning business Press. Walmart Corporate Website (2012).Annual Report 2012.

Retrieved January 9, 2013 from http://stock.walmart.com/annual-reports