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Managerial Accounting 222 Week 1 Questions 1-1 How does managerial accounting differ from financial accounting? Managerial accounting and financial accounting differs in who the reporting is for and for what purpose. Managerial accounting is for company managers to use to plan, control, and make decisions regarding specific strategies. Financial accounting is prepared for owners, stakeholders, creditors, and government authorities and is used to verify information regarding the economic stability of a company.
There are also specific guidelines that are used (GAAP) in financial accounting and is mandatory whereas there are no guidelines in managerial accounting and is not mandatory. 1-4Why do companies prepare budgets? Preparing budgets gives a company a quantitative plan that will be used to complete a project or strategy. A budget is a guideline for which resources are used and can be compared for performance reports when determining the effectiveness and profitability of a strategy. 1-13Why do companies that implement Lean Production tend to have minimal inventories?
Companies that implement Lean Production have minimal inventories because they usually implement a just-in-time production strategy where production is only triggered by customer demand. Therefore, the amount of inventory is usually close or equal to customer orders creating minimal, if any, leftover inventory. 8-2Discuss some of the major benefits to be gained from budgeting. Budgets are beneficial because they can show the organization what strategies management is using to accomplish their business goals.
They provide direction for employees to accomplish job duties towards the final result and allows them to understand which strategy is more important through the amount of resources that is allocated towards it. Budgets also ensure that the entire organization is working towards the same goal and provides a starting point for performance evaluations. 8-5Why is the sales forecast the starting point in budgeting? Sales forecasting is the first step in determining the required needs for future production.
In order to create a budget that includes all costs related to producing a product for sale, management must determine how many units are forecasted to sell so that an adequate amount of product is produced to meet demand without excessive costs. 8-9How can budgeting assist a company in planning its workforce staffing levels? When a budget is created, the amount of work and units to be produced is also calculated. With this information, a company can plan for its labor workforce without having unexpected labor overages or shortages at any given time.