 Hello and welcome to the session in which you would look at the role of managerial accounting in management. This is a managerial accounting course and it's very important to understand why you are learning managerial accounting, how can you use managerial accounting in the real world or how managerial accounting is used to run a company. Managerial accounting help managers perform three important activities in a company and that is planning, controlling and decision making. And if you know anything about my lectures, my lectures, Professor Farhad, once I have a list, I'm going to go over each item in this list separately explaining what is planning, what is controlling, what is decision making. What I want you to keep in mind is this managerial accounting or managerial accountant, the people that work in managerial accounting touches every aspect of the company and we're going to see how through those three steps planning, controlling and decision making. Starting with planning, what is planning? Well the first thing you want to do when you run a company is you have to have established goal, whatever that goal is for the whole company or for your division or for your product. For example, most companies they meet, they want to meet a certain sales amount or for example HR, they want to have a recruiting target depending on whether you are looking at the company overall or you are looking at one particular part of the company. You have to establish a goal. Managerial accounting will help in this process. Why? Because you need a method of achieving this goal. You need to find out how am I going to achieve this goal. I have to specify what steps I need, what method I used. Am I going to, for example, for talking about sales, am I going to advertise on TV? Am I going to advertise on YouTube? Am I going to advertise on Google? Am I going to advertise on Facebook? Am I going to try to hire people and ask them to do sales directly? Then I have to develop a budget and managerial accounting are involved in this step. And what is a budget? A budget is basically a quantitative map. Basically spell out what you want to do and don't worry, we're going to prepare a budget. Actually, I do have several lectures about how to prepare a budget, but managerial accountant are the people involved in this process. For example, you have to specify how much to budget for advertising. You have to put a dollar amount on that budget. You have to know how much to budget for sales staff. If you're hiring people, how much are you going to pay them? How many units to produce next period? That's all quantitative in nature. What are my expenses? How much to spend on training? So on and so forth. So in the planning phase of any company, of any division for any product, you need the input of managerial accountant. Why? Because those are the people that have the numbers. Having the numbers is data. Numbers is data. You want to make a decision based on data, not based on eyeballing or based on guessing. And who can give you this? Who can give you this information? The people that collect the quantitative numbers, the accountant. So this is part one planning. Now before we proceed any further, I would like to remind you, especially if you are an accounting student or just taken a managerial accounting to take a look at my website, farhatlectures.com. I don't replace your accounting course, obviously. My motto is saving accounting students and CPA candidate one at a time by providing new resources for various accounting courses, whether you are taking managerial accounting or intermediate or governmental or any other accounting down the road, lectures, multiple choice, true, false. I can be your best friend during your accounting, during your accounting journey in college. Don't hesitate to take a look at my information. Give yourself a chance. Invest in yourself. Investing in your education is not an expense. Also, if you have not connected with me on LinkedIn and if you don't have a LinkedIn profile, you should do so and take a look at my LinkedIn recommendation. Like this recording on YouTube. Share it with your friends. Share it with other. If it's helping you, it might help other. Connect with me on Instagram. I'm trying to grow my Instagram followers, Facebook, Twitter and Reddit. The second step that managerial accountant people are involved in is the controlling stage. What is controlling? What is that stage? Well, controlling the definition of it is gathering and evaluating feedback about the plan to make sure the goals established is on track. Remember, first you have a planning phase. That was step one. Remember we had this is step two. Step one is you planned and remember managerial accountant help you in that plan. Now the plan is in motion. What do you do now? You don't plan and let it go. You have to gather feedback, gather information. What's going on to that plan? Is it on track? Now, how do you do so? How do accountants, how do managerial accountant help in this process? Well, they prepare what's called the performance report. One example of performance report is something called budget versus actual. And there are many, many variance reports. We will talk about later when we talk about standard costing. For example, material variance, labor variances, overhead variances. There are many variance report, but the easiest one to explain at this point is we budgeted some numbers. We budgeted sales, $10,000. Now let's look at the actual number. We budgeted expenses for $6,000. Let's look at the actual numbers. So we gather information through performance report to gather feedback, to see if we are on track or not. At this stage, we can do what if analysis? What if we cut prices? What if we cut our prices? What would happen to our sales? We can do all sorts of what if analysis? What if we increase our prices, reduce our prices? At this stage, we monitor inventory level. We want to make sure we have enough inventory because we need the inventory for the production. Are we running out of inventory? At this stage, we want to find out if we're spending more or less in producing each unit or in selling each unit because we're going to have a budget. This is how much it should cost us to produce one unit. Well, we're two months into the process. Is it costing us this much? Is it costing us more, less? Why? Is it because we are spending more on labor? Are we spending more in material? Are we spending more on overhead? We need to find out why. This is the controlling phase. Monitor the numbers of units defective. Are we producing defective units? And if we are, why? We need to find out why. Are we buying inferior raw material? Is our employees well trained to produce the product? What's going on? Why do we have those defective units? All this happens during the controlling phase where accountant are monitoring the inventory level, monitoring the production level, and finding out any deviation from what we planned. Also, are we retaining our employees? What's happening to our turnover? Are our employees leaving the company? And if it is, we need to know why. Simply put, in the controlling phase, we need to stay on top of the planning phase before it's too late. Because remember, it's good that we planned. That's fine. You need to plan. Otherwise, you are driving blind. And when you plan, you plan based on data. You plan based on your best estimate. You plan based on your best guesses. But that's not enough. Once you start, once that plan is in motion, you need to monitor the plan, gather feedback. And this is the controlling phase. The third phase that we help that managerial accounting help with is the decision making. And what is a decision making? When do you have to make a decision? Well, simply put, you only have to make a decision when you have alternative competing option. If you have one option, you don't have to make any decision. That's your only option. But that's not the real world. In the real world, you have many alternative decisions to make. Again, at this point, you need data. You need accounting data. You need numbers. You need quantitative figures that you started in the planning phase that you collected about in the controlling phase. Now you could make a better decision. For example, should you bundle the product? Or should you sell each product separately? Which one is better for you? At this stage in the decision making, you have enough information to make that decision. Should you sell directly to customer or sell through a distribution channel? For example, should you have sales team or should you just don't have a sales team outsource that process to someone else? Should you pay if you have a sales team? Should you pay them commission so they can sell they're motivated or should you pay them straight salaries? Which one's going to motivate your employees? Well, depending on the product that you have, well, depending on what the numbers are telling you, maybe you will try one month, paying commission, maybe for one group of people paying commission for another group straight salaries, then compare the numbers and see which one is better. Should you produce your ingredient or should you buy it? Should you outsource it? If you're producing, let's assume vehicles, should you produce the battery yourself or should you buy the battery from somewhere else? Which one is better for you? For example, Tesla, they have to make that decision. Should they produce it themselves or should they let someone else produce it for them? Should you redesign the manufacturing process or should you keep it as is? Well, everything, in all these decisions, numbers are involved and the managerial accountant people, they have to be involved in those important decision. Should you sell the product as is, you know, stop, stop process in it or should you process it further before selling? Well, that's also a managerial accounting decision. Should you discontinue a certain division or certain product that's not making money, that's losing money or should you keep it? Sometimes the division might be losing money and we'll see that later on, but it's not in your best interest to remove that division and you will see why later. Again, those are managerial accounting decisions. Should you enter a new territory? Should you move to Europe? Should you go move to the east coast, the west coast? Should you start to sell in Canada or should you stay in the US? Should you offer a discount on your product or don't offer a discount? All these decisions, some of them are, most of them are quantitative in nature. Yes, you're going to have qualitative factors, but when it comes to the numbers, the only people that can give you straight answer are accountant. Also, you would learn more about something called NPV or net present value computation when you have alternative competing options. You would run the numbers and find out which project will have a better value, better what's called better net present value strictly by looking at the numbers. So in a nutshell, those are the three, the three aspect that manage management accountant or managerial accounting can help managers. What should you do now? Go to my website, farhatlectures.com, subscribe, start to work MCQs and look at other resources. If you are an accounting student, you really want to have someone on your side and an alternative explanation, an alternative resource, especially if you are an online student because my lectures can help you understand the material, that's fine, but also once you practice that material, it gets reinforced. And this is what I have on my website, whether you are taking managerial accounting or some other accounting course. Study hard. Accounting is worth it. If you're not an accounting major, think about majoring in accounting. Reach out to me if you have any questions about the accounting major. Good luck. Study hard. And of course, stay safe.