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A Little Light Work

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Submitted By tehsteve
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Could we use managerial accounting "tools" to assess the profitability of an organization other than a manufacturing business, or are the topics we are learning only related to manufacturing?

Managerial accounting focuses on single business functions or processes and deals with information resulting from that company’s production processes or functions. Managers take advantages of these tools to help evaluate viability and ability to grow the business. It is not limited to just the manufacturing. An example would be budgeting. More specifically capital budgeting. Long-term expidenture decisions must be evaluated to determine if and investment can be justified and what rate and duration of payback is likely to occur. Through analyses of directing, a major element of any manager is to help develop the ongoing direction of the business effort.

We can also take a look at transfer pricing. There can be two divisions of a company that constantly work together. Maybe some type of trade of supply or labor occurs between the departments. This is common in multi-entity firms that are treated and measured as separate run entities. I also think the answer to this question gets nailed on the head with Investopedia’s explanation below.

Investopedia Explains:

In managerial accounting, when different divisions of a multi-entity company are in charge of their own profits, they are also responsible for their own "Return on Invested Capital". Therefore, when divisions are required to transact with each other, a transfer price is used to determine costs. Transfer prices tend not to differ much from the price in the market because one of the entities in such a transaction will lose out: they will either be buying for more than the prevailing market price or selling below the market price, and this will affect their performance.

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