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Managerial Accounting Helps Manufacturers Oversee Finances

Posted by Tom Hallissey on Jul 21, 2017 10:00:00 AM

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In order to make decisions, manufacturing managers need to be as informed as possible. Managerial accounting services equip managers with the tools they need to evaluate their operations and make necessary adjustments.

What is Managerial Accounting?

Managerial accounting, which is also known as cost accounting, can help your manufacturing organization reach its goals through a process of identifying, measuring, analyzing, interpreting and communicating information. This type of accounting is used to help managers make decisions.

How does it Work?

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Raw Materials Reports

Raw materials reports detail how much product creation materials come in and out of a plant, including:

  • The month’s beginning inventory
  • Monthly transactions
  • Raw material receipts
  • Disbursement
  • Inventory’s ending balance

A raw material report assigns a monetary value to your inventory based on current cost or historical value. You can use this managerial accounting information to ensure you are keeping the right amount of raw materials in stock.

Production Plan

A production plan will help you determine how many products to manufacture.

  • Determine the amount of goods on hand
  • Forecast the amount of goods needed to be manufactured in the next year
  • Set a margin of safety to have some extra goods on hand

This plan will help prevent your company from tying up too much cash in extra goods.

Labor

Managerial accounting can also be used to track employee job performance during the production process. Bar codes and employee badges can track workers through the manufacturing process. It can help you set product prices and determine the value of your labor pool.

Maintenance and Repair

Maintenance and repair reports can help you cut costs and improve processes by evaluating the work completed on each piece of machinery and the supplies used to finish the job.

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Budget

No financial plan is complete without a budget. It details how much goods and services you have purchased, used or created. In manufacturing, an annual budget may be used to plan and direct your employees’ behavior.

Management Reports

Managerial accountants also create recurring reports for manufacturing managers to review. These reports can relate to nearly any topic in the organization, including:

  • Projections for proposed sales lines
  • Cost analysis
  • Analysis of spending variances

Long-term Forecast

A long-term forecast helps you plan future capital purchases, prepare for business expansion or consider downsizing. While no forecast is guaranteed to materialize, they can help you make better business decisions.

Since the manufacturing industry has many moving parts, a managerial accountant may be necessary to help your company make the right decisions.

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Topics: Business Accounting

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