Scope of managerial accounting

The main objective of managerial accounting is to maximize profit and minimize losses. It is
concerned with the presentation of data to predict inconsistencies in finances that help managers
make important decisions. Its scope is quite vast and includes several business operations. The
following points discuss what management accounting can do to make a business run better. 

1. Managerial accounting is a rearrangement of information on financial statements and depends

on it for making decisions. So the management cannot enforce the managerial decisions without
referring to a concrete financial accounting system.

2. What you can infer from financial accounting is limited to numerical results like profit and
loss, but in management accounting you can discuss the cause and effect relationships behind
those results.

3. Managerial accounting uses easy-to-understand techniques such as standard costing, marginal

costing, project appraisal, and control accounting.

4. Using historical data as a reference, the management observes the current information to check
the impacts of business decisions.

5. Management can use this type of accounting to set objectives, format plans to meet them, and
compare the performance of various departments.

6. Managerial accounting is used for forecasting. It concentrates on supplying information that

would ease the effect of a problem rather than arriving at a final solution.

CHAPTER 4

1. Hooker Company uses the weighted-average method in its process costing system. The
following data about the Packaging Department were taken from the company’s accounting
records:

 There were no units in the work in process inventory and 150,000 units in the finished goods
inventory at the beginning of the month.
 The company sold 500,000 units during the month.
 There were 32,000 units, which were 75% complete as to conversion costs, in the work in
process inventory and 120,000 units in the finished goods inventory at the end of the month.

Part (a)
 How many units were transferred from the Packaging Department to the Finished Goods
Department during the month?

Part (a) Solution:

The number of units transferred out during the month would be determined as follows. Account for
all units in the finished goods department in order to compute the number of units that were
transferred from the Packaging Department to the Finished Goods Department during the month.

Beginning goods 150,000 Transferred out (sold) 500,000

Transferred in (started) 470,000 (C) Ending inventory 120,000

Total units to be accounted for 620,000 (B) Total units accounted for 620,000 (A)

Calculations:

(A) Units sold + Units in ending inventory = Total units accounted for

500,000 + 120,000 = 620,000 (A)

(B) Total units to be accounted for = Total units accounted for

620,000 = 620,000 (from A)

(C) Units in beginning inventory + Units transferred in = Units to be accounted for

150,000 + Units transferred in = 620,000

Units transferred in from processing department = 470,000 (C)