Managerial Accounting Terms: Definitions, Tools, and Examples
Explore managerial accounting terms related to planning, budgeting, forecasting, decision-making, relevant costs, contribution margin, break-even analysis, pricing, responsibility accounting, performance measurement, capital budgeting, strategic cost management, and practical business examples.
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Managerial Accounting Terms Learning Path
Follow this sequence to understand planning, budgeting, decision analysis, control, and performance measurement.
Understand Managerial Accounting
Learn how internal accounting information supports planning, control, decision-making, and performance management.
What Is Managerial Accounting? →Plan and Budget
Study strategic plans, operating plans, master budgets, flexible budgets, forecasts, and responsibility assignments.
Explore Planning and Budgeting →Analyze Decisions
Use relevant costs, contribution margin, break-even analysis, pricing, make-or-buy, and capital investment tools.
Explore Decision Analysis →Measure Performance
Evaluate responsibility centers, variances, return measures, residual income, scorecards, and operational indicators.
Explore Performance Measurement →Core Managerial Accounting Functions
Managerial accounting supports the internal processes used to plan, manage, evaluate, and improve business performance.
Planning
The process of setting objectives, selecting actions, preparing budgets, and forecasting expected results.
Control
The process of comparing actual results with plans and taking corrective action when necessary.
Decision-Making
The evaluation of relevant financial and nonfinancial information to select among alternatives.
Performance Measurement
The use of financial and operational measures to evaluate managers, departments, products, and strategies.
Browse Managerial Accounting Terms by Category
Use these collections to find related definitions, calculations, tools, and explanations.
Planning and Forecasting Terms
Strategic planning, operational planning, forecasts, scenarios, assumptions, targets, and planning horizons.
Explore Planning and Forecasting Terms →Budgeting Terms
Master budgets, operating budgets, financial budgets, flexible budgets, rolling budgets, and budget participation.
Explore Budgeting Terms →Decision-Making Terms
Relevant costs, opportunity costs, make-or-buy, special orders, product mix, pricing, and discontinuation decisions.
Explore Decision-Making Terms →Cost-Volume-Profit Terms
Contribution margin, break-even point, target profit, margin of safety, sales mix, and operating leverage.
Explore Cost-Volume-Profit Terms →Responsibility Accounting Terms
Cost centers, revenue centers, profit centers, investment centers, controllability, and performance reports.
Explore Responsibility Accounting Terms →Performance Measurement Terms
Return on investment, residual income, economic value added, scorecards, benchmarks, and key performance indicators.
Explore Performance Measurement Terms →Capital Budgeting Terms
Net present value, internal rate of return, payback period, accounting rate of return, and project risk.
Explore Capital Budgeting Terms →Strategic Management Accounting Terms
Value chain, target costing, life-cycle costing, benchmarking, quality costs, customer profitability, and strategy.
Explore Strategic Management Accounting Terms →Essential Managerial Accounting Terms
Start with these commonly used managerial accounting definitions.
Managerial Accounting
The preparation and use of financial and nonfinancial information for internal planning, control, and decision-making.
View Definition → MManagement Accounting
Another commonly used name for managerial accounting.
View Definition → IInternal Reporting
Reports prepared for managers and employees rather than external financial statement users.
View Definition → PPlanning
The process of setting objectives and determining actions needed to achieve them.
View Definition → CControl
The process of comparing actual results with plans and correcting significant differences.
View Definition → DDecision-Making
The process of selecting among alternatives using relevant information.
View Definition → SStrategic Planning
Long-term planning focused on competitive position, objectives, resources, and major initiatives.
View Definition → OOperational Planning
Shorter-term planning focused on routine activities, capacity, staffing, and execution.
View Definition → PPlanning Horizon
The period covered by a plan, budget, or forecast.
View Definition → FForecast
An estimate of future financial or operational results based on available information.
View Definition → RRolling Forecast
A forecast updated regularly by adding a new future period as the current period ends.
View Definition → SScenario Analysis
The evaluation of alternative future conditions and their possible effects.
View Definition → SSensitivity Analysis
The study of how changes in key assumptions affect an outcome.
View Definition → WWhat-If Analysis
The examination of how results change when selected assumptions or inputs are modified.
View Definition → BBudget
A quantitative plan for a future period.
View Definition → MMaster Budget
An integrated collection of operating and financial budgets for an organization.
View Definition → OOperating Budget
A budget covering revenue, production, purchases, labor, overhead, and operating expenses.
View Definition → FFinancial Budget
A budget covering cash, capital expenditures, financing, and projected financial statements.
View Definition → SSales Budget
A forecast of expected sales units, prices, and revenue.
View Definition → PProduction Budget
A plan for the units that must be produced to meet sales and inventory objectives.
View Definition → DDirect Materials Budget
A plan for material usage, purchases, and related cost.
View Definition → DDirect Labor Budget
A plan for labor hours, rates, staffing, and direct labor cost.
View Definition → OOverhead Budget
A plan for variable and fixed manufacturing overhead.
View Definition → CCash Budget
A forecast of cash receipts, cash payments, borrowing, and ending cash balances.
View Definition → CCapital Expenditure Budget
A plan for significant long-term asset purchases and investments.
View Definition → FFlexible Budget
A budget adjusted to the actual level of activity.
View Definition → SStatic Budget
A budget prepared for one planned activity level.
View Definition → RRolling Budget
A budget continuously extended by adding a new future period.
View Definition → ZZero-Based Budgeting
A budgeting approach requiring activities and costs to be justified from a zero base.
View Definition → AActivity-Based Budgeting
A budgeting method that estimates resources based on expected activities and cost drivers.
View Definition → PParticipative Budgeting
A budgeting process that involves managers and employees responsible for implementation.
View Definition → BBudgetary Slack
The intentional understatement of revenue or overstatement of cost to make a budget easier to achieve.
View Definition → BBudget Constraint
A financial or resource limitation affecting planned activities.
View Definition → BBudget Variance
The difference between actual results and budgeted amounts.
View Definition → FFavorable Variance
A variance that increases profit or improves the measured result relative to the plan.
View Definition → UUnfavorable Variance
A variance that reduces profit or worsens the measured result relative to the plan.
View Definition → RRelevant Cost
A future cost that differs among decision alternatives.
View Definition → IIrrelevant Cost
A cost that does not differ among alternatives and does not affect the decision.
View Definition → SSunk Cost
A past cost that cannot be changed by a current or future decision.
View Definition → OOpportunity Cost
The benefit sacrificed when one alternative is chosen over another.
View Definition → AAvoidable Cost
A cost eliminated by selecting a particular alternative.
View Definition → UUnavoidable Cost
A cost that continues regardless of the alternative selected.
View Definition → IIncremental Cost
The additional cost caused by choosing one alternative over another.
View Definition → IIncremental Revenue
The additional revenue expected from choosing one alternative over another.
View Definition → DDifferential Analysis
The comparison of differences in revenue, cost, and profit among alternatives.
View Definition → MMake-or-Buy Decision
An analysis of whether to produce internally or purchase from an external supplier.
View Definition → SSpecial Order Decision
An analysis of whether to accept an order with unusual price, quantity, or capacity conditions.
View Definition → SSell-or-Process-Further Decision
An analysis of whether to sell a product at split-off or process it further.
View Definition → PProduct Mix Decision
An analysis of the most profitable combination of products under a constrained resource.
View Definition → CConstrained Resource
A limited resource restricting production, service delivery, or sales.
View Definition → BBottleneck
A process or resource that limits total system output.
View Definition → TThroughput
The rate at which a system generates output or contribution through sales.
View Definition → DDiscontinue Segment Decision
An analysis of whether to retain or discontinue a product, department, or business segment.
View Definition → PPricing Decision
An analysis used to establish or revise selling prices.
View Definition → CCost-Plus Pricing
A pricing method adding a markup to a defined cost base.
View Definition → TTarget Pricing
A market-oriented approach beginning with a competitive price and desired profit.
View Definition → TTarget Cost
The allowable cost determined by subtracting desired profit from target selling price.
View Definition → TTransfer Price
The price assigned to goods or services transferred between divisions or responsibility centers.
View Definition → MMarket-Based Transfer Price
A transfer price based on an external market price.
View Definition → CCost-Based Transfer Price
A transfer price based on variable, full, standard, or another defined cost.
View Definition → NNegotiated Transfer Price
A transfer price agreed upon by the managers of the buying and selling divisions.
View Definition → CContribution Margin
Sales revenue minus variable costs.
View Definition → CContribution Margin Ratio
Contribution margin expressed as a percentage of sales.
View Definition → UUnit Contribution Margin
Selling price per unit minus variable cost per unit.
View Definition → BBreak-Even Point
The activity level at which total revenue equals total cost.
View Definition → TTarget Profit
A specified profit objective used to determine required sales or activity.
View Definition → MMargin of Safety
The excess of actual or expected sales over break-even sales.
View Definition → OOperating Leverage
The sensitivity of operating income to changes in sales caused by the cost structure.
View Definition → DDegree of Operating Leverage
A measure of the expected percentage change in operating income from a percentage change in sales.
View Definition → CCost-Volume-Profit Analysis
Analysis of how sales, volume, price, variable cost, fixed cost, and profit interact.
View Definition → SSales Mix
The relative proportion of different products or services sold.
View Definition → CComposite Unit
A representative bundle of products used in multiproduct break-even analysis.
View Definition → RResponsibility Accounting
A system assigning revenue, cost, profit, or investment measures to managers responsible for them.
View Definition → RResponsibility Center
An organizational unit whose manager is accountable for specified activities and results.
View Definition → CCost Center
A responsibility center whose manager is primarily accountable for costs.
View Definition → RRevenue Center
A responsibility center whose manager is primarily accountable for revenue.
View Definition → PProfit Center
A responsibility center whose manager is accountable for revenue and cost.
View Definition → IInvestment Center
A responsibility center whose manager is accountable for profit and invested assets.
View Definition → CControllability Principle
The idea that managers should be evaluated mainly on items they can significantly influence.
View Definition → CControllable Cost
A cost significantly influenced by a manager within a defined period.
View Definition → PPerformance Report
A report comparing actual results with budgeted, standard, or expected results.
View Definition → KKey Performance Indicator
A selected financial or operational measure linked to a critical objective.
View Definition → LLeading Indicator
A measure expected to signal future performance.
View Definition → LLagging Indicator
A measure reflecting outcomes that have already occurred.
View Definition → BBenchmark
A standard used to compare performance, such as a target, prior period, competitor, or best practice.
View Definition → BBenchmarking
The systematic comparison of processes and results with internal or external standards.
View Definition → RReturn on Investment
Operating income or another return measure divided by the related investment base.
View Definition → MMargin
Operating income divided by sales in the ROI framework.
View Definition → TTurnover
Sales divided by average operating assets in the ROI framework.
View Definition → RResidual Income
Operating income remaining after deducting a required return on invested assets.
View Definition → EEconomic Value Added
A performance measure based on operating profit after tax less a charge for invested capital.
View Definition → MMinimum Required Rate of Return
The threshold return expected from an investment or responsibility center.
View Definition → BBalanced Scorecard
A performance framework combining financial, customer, internal process, and learning measures.
View Definition → FFinancial Perspective
The balanced scorecard perspective focused on financial outcomes.
View Definition → CCustomer Perspective
The balanced scorecard perspective focused on customer value, satisfaction, retention, and acquisition.
View Definition → IInternal Process Perspective
The balanced scorecard perspective focused on operational processes that create value.
View Definition → LLearning and Growth Perspective
The balanced scorecard perspective focused on people, systems, capabilities, and improvement.
View Definition → SStrategy Map
A visual representation of cause-and-effect relationships among strategic objectives.
View Definition → CCritical Success Factor
A condition or capability essential to achieving strategic objectives.
View Definition → CCapital Budgeting
The process of evaluating significant long-term investments.
View Definition → NNet Present Value
The present value of expected cash inflows minus the present value of expected cash outflows.
View Definition → IInternal Rate of Return
The discount rate that makes a project’s net present value equal to zero.
View Definition → PPayback Period
The time required for a project’s cash inflows to recover its initial investment.
View Definition → DDiscounted Payback Period
The time required to recover an investment using discounted cash flows.
View Definition → AAccounting Rate of Return
An accounting-based return measure comparing average profit with investment.
View Definition → RRequired Rate of Return
The minimum return used to evaluate whether an investment is acceptable.
View Definition → HHurdle Rate
A required minimum rate used to screen investment proposals.
View Definition → DDiscount Rate
The rate used to convert future cash flows to present value.
View Definition → PPresent Value
The current equivalent of a future amount discounted at a specified rate.
View Definition → FFuture Value
The amount to which a current sum grows at a specified rate.
View Definition → CCash Flow Estimate
A forecast of project-related cash receipts and payments.
View Definition → TTerminal Value
The estimated value of a project, asset, or business at the end of a forecast period.
View Definition → SSalvage Value
The expected proceeds from disposing of an asset at the end of its useful life.
View Definition → PProject Risk
The uncertainty that actual project cash flows or outcomes will differ from expectations.
View Definition → VValue Chain
The sequence of activities through which an organization creates and delivers value.
View Definition → LLife-Cycle Costing
The accumulation and analysis of costs over a product’s full life cycle.
View Definition → TTarget Costing
A method deriving an allowable cost from a market price and desired profit.
View Definition → KKaizen Costing
A continuous improvement approach focused on gradual cost reduction during production.
View Definition → QQuality Cost
A cost related to preventing, detecting, or correcting quality problems.
View Definition → PPrevention Cost
A quality cost incurred to prevent defects.
View Definition → AAppraisal Cost
A quality cost incurred to inspect, test, or evaluate quality.
View Definition → IInternal Failure Cost
A cost caused by defects identified before delivery to customers.
View Definition → EExternal Failure Cost
A cost caused by defects identified after delivery to customers.
View Definition → CCustomer Profitability Analysis
Analysis of revenue, cost, and profit attributable to customers or customer groups.
View Definition → PProduct Profitability Analysis
Analysis of revenue, cost, and profit attributable to products or services.
View Definition → SSegment Margin
A segment’s contribution after deducting traceable fixed costs.
View Definition → SStrategic Cost Management
The use of cost information to support strategy and competitive advantage.
View Definition → VValue-Added Activity
An activity that increases customer value or is necessary for business operations.
View Definition → NNon-Value-Added Activity
An activity that consumes resources without increasing customer value.
View Definition → CContinuous Improvement
Ongoing efforts to improve quality, cost, time, and process performance.
View Definition →Connect Every Managerial Accounting Term to a Business Objective
Managerial accounting terms become more useful when connected to a decision, planning horizon, relevant data, cost behavior, capacity constraint, responsibility center, performance target, investment requirement, strategy, operational process, and measurable business outcome.
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Frequently Asked Questions About Managerial Accounting Terms
What is managerial accounting?
Managerial accounting prepares and analyzes financial and nonfinancial information for internal planning, control, decision-making, and performance management.
How is managerial accounting different from financial accounting?
Managerial accounting focuses on internal users, future decisions, detailed operational information, and flexible reports. Financial accounting focuses primarily on external reporting under an applicable framework.
What information is relevant to a managerial decision?
Relevant information usually concerns future revenue, costs, cash flows, capacity, risk, and nonfinancial effects that differ among alternatives.
What is responsibility accounting?
Responsibility accounting assigns revenue, costs, profit, or investment measures to organizational units and managers who can influence those results.
Why are nonfinancial measures important?
Nonfinancial measures such as quality, delivery time, customer retention, employee capability, and process efficiency may indicate future financial performance.
Continue to Auditing Terms
After learning how internal accounting information supports management decisions, continue with Auditing Terms to study audit evidence, assertions, internal control, materiality, risk assessment, audit procedures, opinions, and assurance engagements.
Continue to Auditing Terms