by Michael Cronin

Created on: October 11, 2010

Managerial accounting provides data to internal users of a company and financial accounting provides information to external investors and creditors. The three main aspects of managerial accounting include planning, organizing, and controlling. Planning includes determining what cost and revenues will be for a specific product line. This involves determining resource availability and strategy development that meets the needs of the target customers. Planning information looks toward the future as opposed to financial reporting which reports on past activities of the company.

Organization looks at the various ways that the product will be developed and produced as well as how it will be delivered to consumers. It also looks at different production systems or methods by which it can deliver or produce the product. The efficiency of several different types of systems is also considered when making the selection. Organizing answers the question “How will I carry out this plan?”

Controlling focuses on measuring and evaluating the organizational system to ensure that the operational entity is meeting the objectives of the company. This then turns away from the financial aspect of the operation and more toward the managerial aspect in terms of the actual management and operations of the entity in terms of physical actions and production. This includes but is not limited to product quality, customer satisfaction and service response rates. Controlling answers the question, “How are we doing in terms of measuring performance against the plan or goal we set out to achieve?”

Financial information can allow an outside investor to see the overall health of a company without having a detailed synopsis of how the business is operating internally. Outside investors are concerned with the bigger picture and more of the overall profitability and health of the company as well as potential return on investment as opposed to every little detail of the company’s inner workings. For example, outside investors would not be concerned with how much one piece of a clock might cost but rather how much revenue the company is generating in terms of sales of those clocks. Investors are concerned with how much of a return they can make on their investment if they buy stock in the company.

When evaluating performance a company considers its value proposition. Value proposition involves identifying what customers want and then delivering that product to those customers. This involves the design, material and quality that go into the product itself. Value proposition looks at price, quality, functionality and service. When determining pricing the company should consider what a customer would pay in terms of the product’s features as well as the price and features of their competitors products. Quality levels are measured by customer expectations and pricing. Is the product worth what it offers? Does it meet customer expectations? Functionality and features should meet or exceed the expectations of the customer so that they feel value in the product they are purchasing. They should feel good about the product purchased. How a company services their customers can be a big determining factor in repeat business. Some companies get too caught up in bringing in new customers as opposed to servicing current customers. This could cause a customer to think twice before recommending a product to a friend or purchasing another product from that company themselves.

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