Common scenarios in which managerial accounting is appropriate are any situations in which a company competes in a fast-paced and highly competitive business environment. Any scenario where a quick decision is valuable is where managerial accounting is appropriate. Examples are cash flow management, sales tactics or budgeting.
What Is Managerial Accounting?
Managerial accounting is the type of accounting that provides quick information to managers and decision-makers within a company or organization. Managerial accounting, such as weekly or daily budgeting, is used to help managers make decisions that increase the organization’s operational effectiveness and efficiency.
Managerial accounting is different from financial accounting in that financial accounting is centered on providing quarterly or yearly financial information to investors, shareholders, creditors and others outside the organization.
Appropriate Scenarios for Managerial Accounting
Since managerial accounting is concerned with short-term accounting that helps managers make operational decisions, which help increase the company’s operational efficiency, any scenario where a budget is needed to make a decision is the right scenario for managerial accounting.
Say, for example, an Internet company rents out servers with Amazon Web Services. Prices to rent out space on Amazon’s servers have been increasing month to month. To reduce costs and increase operational efficiencies, the Internet company’s managers can use budgets to see if the price increases are costing too much. If the company budgets $100 a week for server space and the actual expenditure for the week is $200, the managers know there is a +100% variance between budgets and actuals, which is not a good sign. This is a case where managerial accounting is signaling the managers to either increase their expectations on prices or move to another provider.