Managerial Accounting


Managerial accounting refers to the internal use of accounting statements by managers in planning and directing the organization’s activities. Perhaps management’s greatest single concern is cash flow, the movement of money through an organization over a daily, weekly, monthly, or yearly basis. Obviously, for any business to succeed, it needs to generate enough cash to pay its bills as they fall due. However, it is not at all unusual for highly successful and rapidly growing companies to struggle to make payments to employees, suppliers, and lenders because of an adequate cash flow. One common reason for a so-called “cash crunch” or short fall is poor managerial planning.

Managerial accounting is the backbone of an organization’s budget, an internal financial plan that forecasts expenses and income over a set period of time. It is not unusual for an organization to prepare separate daily, weekly, monthly, and yearly budgets. Think of a budget as a financial map, showing how the company expects to move from Point A to Point B over a specific period of time. While most companies prepare master budgets for the entire firm, many also prepare budgets for smaller segments of the organization such as divisions, departments, product lines, or projects. “Top-down” master budgets begin at the top and filter down to the individual department level, while “bottom-up” budgets start at the departments or project level and are combined at the chief executive’s office. Generally, the larger and more rapidly growing an organization, the greater will be the likelihood that it will build its master budget from the ground up.

Regardless of focus, the major value of a budget lies in its breakdown of cash inflows and outflows. Expected operating expenses (cash outflows such as wages, materials costs, and taxes) and operating revenues (cash inflows in the form of payments from customers and stock sales) over a set period of time are carefully forecast and subsequently compared with actual results. Deviations between the two serve as a “trip wire” or “feedback loop” to launch more detailed financial analysis in an effort to pinpoint trouble spots and opportunities.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Peak Versus Off Peak Operation


An important practical problem in many industries is how to deal with sharp variations between peak and off-peak demands. Telephones are more heavily used during business hours than during evenings or weekends; local transit demands are greatest in the morning and afternoon commuting hours; in the arid areas water is more intensely demanded in summer than in winter months; restaurants are busiest at regular mealtimes, and so on. For a firm facing both peak and off-peak demands for its product, the optimization problem is how to divide its efforts between the two.

Assume for simplicity that the peak and off-peak periods are equal duration. Under pure competition the firm would be a price-taker in both the peak and off-peak markets. In the peak market it would face a higher price and in the off-peak market a lower price—but, in either market, the price will be independent of the firm’s own level of output. An example might be a city served by a number of competing taxicab suppliers, daytime hours being the peak demand period and evening hours the off-peak demand period. The quoted taxicab fares do not usually vary with time of day. However, the effective price of taxicab service does vary. In peak periods taxi earn a higher effective price, since there is less “dead time” waiting for a customer. And similarly, the customers have to pay a higher effective price in peak periods, since on average they have to wait longer for taxi to become available.

In analyzing the peak/off-peak situation, it is essential to distinguish between “common costs” and “saparable costs.” Common costs are those that apply to both peak and off-peak service. On the case of taxicabs they would include the costs of providing the casbs themselves, of running the central dispatching system,, and so on. Saparable costs are those incurred in serving each specific market. For taxicabs they might include gasoline and drivers’ wages. The distinction between common and saparable costs is quite apart from the distinction between fixed and variable costs. Common costs can be fixed or variable, and the same holds for saparable costs.

The following additional assumptions are employed: 1) There are no common fixed costs at all; the marginal common costs (MCC) is a constant magnitude. 2) The separable costs include both fixed and variable elements, but the cost function is the same in either market. However the firm may want to operate at different points along the cost curves in serving the two markets. A taxicab firm, for example, may chose to put a larger number of cabs on the road during peak period.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Impact of Time-based Competition on Employees


The level of financial performance improvements achieved by companies as they become time-based competitors is difficult to match with conventional cost-cutting techniques. For example, the improvements are completely out of the range of what is achievable by the following methods:

  • Cutting direct labor wages through renegotiation or going offshore.
  • Reducing overheads by de-layering management structures and/or narrowing the line of products and services offered
  • Automation short of the
  • ‘people-less’ factory
  • Obtaining superior economies of scale.

The only way to achieve this degree of performance improvement is by transforming the company into a time-based competitor. Furthermore, the transformation must be made before a competitor makes it.

 

Probably as important, and maybe even more important than the profit improvements, though, are the intangible rewards to the organization of being a time-based competitor. People like to believe they are winners. Growth and improvements in financial indicators clearly tell an organization and the world that that they are winners.

 

Competitors of time-based competitors are often frustrated by their inability to match the growth and returns of their rivals. But they may misjudge the competitive factors contributing to their difficulties. Many complain that their industry is one where no one can make money because of cut-throat competition by companies that do not know how to make money. On two points they are correct: the competition is cut-throat and it is their throats that are being cut. This is the classic case of the retreating competition not understanding the strategy and capability of the advancing competitor.

 

Management should look to time-based competition not only as a source of above-average returns but also as opportunity to make their people feel like winners.

 

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Human Resource Management


Human resource management is the process of acquiring, training, appraising, and compensating employees, and attending to their labor relations, health and safety, and fairness concerns. The topics provide you with the concepts and techniques you need to carry out the people or personnel aspects of your management job. They include:

  • Conducting job analysis (determining the nature of each employee’s job):
  • Planning labor needs and recruiting job candidates;
  • Selecting job candidates;
  • Orienting and training new employees;
  • Managing wages and salaries (compensating employees);
  • Providing incentives and benefits;
  • Appraising performance;
  • Communicating (interviewing, counseling, disciplining);
  • Training and developing managers;
  • Building employee commitment.

A manager should know about:

  • Equal opportunity and affirmative action;
  • Employee health and safety;
  • Handling grievances and labor relations.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact www.asifjmir.com, Line of Sight