Chapter 2: Basic Managerial Accounting Concepts

RECOVER HIDDEN CASH FLOWS

BY: EDWARD J. FLANAGAN JR., CPA; ANTHONY J. CATALDO, CMA, CPA, CGMA: AND
ANGELA M. NORKIEWICZ, PMP
May 1, 2018
Companies lean towards reducing costs by establishing and maintaining cost control to be able to
increase sales at the lowest possible costs. However, lots of misconceptions have risen – the lowest price
is the same as the lowest cost, more volume will get you the best deal, suppliers equate prices to clients
or customers, National pricing agreements are always better than local or regional agreements with the
same company, etc. yet organizations have come to realize practices to combat misconceptions. Low
prices are perceived to have the lowest cost without knowing the true reason behind it. Production
volume level as well is perceived to be competitive in the market and the pricing agreement set by the
national is deemed to be confused when settling prices. The suggested retail prices for example do not
mean that it should be the price the business must follow since it only shows the standard price used to
establish higher set prices. It is through the identification of non-operating expenses that we could
reduce our cost followed by the establishment of the overall strategy. Knowing how one could save to
justify switching suppliers is another way of cost reduction. Also, asking the suppliers about ways on
how to reduce costs is another means and of checking what goods have been purchased.
There have been lots of questions that we could develop let’s say for example in a food service
business, questions such as how to control price increases, how to know the pricing model the supplier is
using, how to retain quality given a lower price, and the tracking of inventory and spoilages for the
operation. Concepts are consistently relevant with reports and thereby enhance knowledge on how to
adopt best practices to reduce costs and redirect more cash flow toward better, more valuable initiatives.

As a future managerial accountant or consultant, it is better to be knowledgeable about the effects

of the prices in the organization being involved in the planning, controlling, and decision making. It
requires proper analysis and application of overhead costs that created an impact on the business.
Misconceptions can be lessened with a depth understanding of the suppliers and their industries – being
aware of the possible changes and development and enhance the quality of the products or services.
Overcoming the misconceptions should be taken into consideration to be able to attain consistency and
relevance in the organization.