Prepared by: Fatin Nur Farisha Binti Mohd Razali (2018460068)

Class: AA7001BF

Is managerial accounting knowledge important to a CEO in managing his/her business

organization?

Managerial accounting knowledge refer to the understanding of an individual to provide

all required information for improving decision-making processes in the form of documents and
reports. Managerial accounting skills enable CEO to assess progress by evaluating the success or
failure of the efforts of a business in achieving its goals. Unlike financial accounting, managerial
accounting knowledge are required merely for internal use and are focused on improving
business processes, for instance, by of regulating the performance of a particular project, process,
or department etc. The reports and documents generated through utilization of this knowledge
are never issued to any external parties and help in identifying the changes that are required to be
made in the company. Every day, CEO make decisions that affect their organization’s financial
performance, whether it is scheduling operations, hiring and firing personnel, preparing a budget,
approving a capital investment, or sending an invoice for payment.

In the present complex industrial world, managerial accounting has become an integral
part of management. Managerial accounting knowledge is commonly appreciated for its help in
the future planning of a business. For instance, activity-based costing in managerial accounting
helps CEO to decide how much to spend on a product, how much it will cost to service a
customer, and what customers and products are more profitable. The activity-based costing
provides the answers to these integral questions so that CEO can focus on maximizing revenue.
Information from activity-based costing has transformed how CEO makes decisions and how the
organization operates. Managerial accounting knowledge allows CEO to understand the financial
implications of their decisions. For instance, by understanding the key cost drivers and profit
contributors, CEO would be able to tell the board and top management which product, service,
business model or organization structure that made sense in the present or in the future. As a
result, resources would not be wasted, poor decisions are avoided, and consequently improve in
the financial performance of the organization.
 No matter where a company is located or what it makes, it is a must for a CEO to develop
a guiding, over-arching managerial accounting knowledge about how he or she can best add
value to the organization. This knowledge determines the CEO’s approach to take judgement.
Managerial accounting knowledge enhances CEO’s skills and ability to read and analyze reports
such as income statements, balance scorecards, activity costing, etc. For instance, when CEO is
required to assess the need for an additional product line, consider the discontinuation of
operations, and determine the optimum advertising efforts, the decisions are depending upon the
appropriate budgeting and cost planning. The budget preparation process is a time to question
how resources are being used and if they could be used more effectively or efficiently and must
be aligned with organizational strategic plan. Thus, with managerial accounting knowledge, CEO
can make any possible effort to control unnecessary expenses by removing the incapability or
inefficiency through managerial accounting techniques, so that the organization can maximize its
profits. Therefore, managerial accounting knowledge provides CEO with useful skills which are
the ultimate source of sufficient data-driven input to all such critical decisions.

Furthermore, managerial accounting knowledge is useful for measurements of

performance. The technique of budgetary control standard costing enables CEO to conduct the
measurement of performance. In standard costing, standards are determined first and then actual
cost is compared with standard cost. It enables the CEO to find out deviations between standard
cost and actual cost. The performance will be good if actual cost does not exceed the standard
cost, hence CEO can use managerial accounting to increase the efficiency of the business
concern as well as determining the performance of different departments in the organization in
advance. Managerial accounting enables CEO to communicate with impact and drive better
decisions about strategy execution at all levels. This involves communicating the results of
scenario analysis in a manner that is tailored to the decision being considered as well as to the
decision-makers such as heads of department or managers. Besides, it requires breaking down
complexity and transparency about how conclusions have been reached. Therefore, the tools and
techniques in managerial accounting are very helpful for CEO in planning, controlling and
coordinating activities of the business, getting of standard and assessing actual performance on a
regular basis. Indeed, managerial accounting not only increases efficiency of the management
but it also increases the efficiency of the employees under the CEO’s leadership.