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Eldenburg & Wolcott’s Cost Management, 2e Slide # 1
Cost ManagementMeasuring, Monitoring, and Motivating Performance
Chapter 1
The Role of Accounting Information in Management Decision Making
Chapter 1: The Role of Accounting Information in Management Decision MakingEldenburg & Wolcott’s Cost Management, 2e Slide # 2
Chapter 1: The Role of Accounting Information in Management Decision Making
Learning objectivesQ1 - What is the process of strategic management and
decision making?Q2 - What types of control systems do managers use?Q3 - What is the role of accounting information in strategic
management?Q4 - What information is relevant for decision making?Q5 - How does business risk affect management decision
making?Q6 - How do biases affect management decision making?Q7 - How can managers make higher-quality decisions?Q8 - What is ethical decision making, and why is it
Chapter 1: The Role of Accounting Information in Management Decision MakingEldenburg & Wolcott’s Cost Management, 2e Slide # 8
Q1: Monitoring and Motivating Performance
Organizational Vision & Core Competencies
Organizational Vision & Core Competencies
Actual Operations
Actual Operations
Managers use the results of actual operations to monitor performance and ensure that it is in line with the organizational vision.
Managers may find that the results of actual operations make them re-think the organizational vision or their view of the organization’s core competencies.
If you had an accounting practice, can you think of an example of a measure of actual operations and how you would use it to motivate
performance?
Can you think of an example of a measure of actual operations that might make you redefine your organizational vision or your view of your
Chapter 1: The Role of Accounting Information in Management Decision MakingEldenburg & Wolcott’s Cost Management, 2e Slide # 11
Q3: Strategic Cost Management and the Balanced Scorecard
• Strategic cost management is an approach to reducing costs while strengthening the organization’s strategic position.
• The balanced scorecard can be used to formalize strategic cost management efforts by detailing financial and nonfinancial benchmarks for all segments of the organization.
• Examples of such benchmarks include:• Personnel can reduce costs by completing all hiring within 20
days of initial interview.• Production can reduce costs and improve quality if Engineering
can reduce the number of processes in the production process.
Chapter 1: The Role of Accounting Information in Management Decision MakingEldenburg & Wolcott’s Cost Management, 2e Slide # 14
Q4: What Information is Relevantfor Decision Making?
You have a small computer repair company and are deciding whether to replace your old copy machine or repair it. In the list of information below, identify which data are relevant to this decision and which are irrelevant.
• The purchase price of the copy machine was $1200.
• The repair costs are $320.
• The copy machine can make 20 copies per minute.
• If you repair it, the machine will use less toner than it does now.
Chapter 1: The Role of Accounting Information in Management Decision MakingEldenburg & Wolcott’s Cost Management, 2e Slide # 20
Q6: Uncertainties, Biases, and Decision Quality
Lori loves to sew and has always made her own clothes. People often tell her that she is the best-dressed person they’ve ever met. She can design and sew a lovely outfit in under 2 days. She is considering opening a store that could sell her home-made fashions. Then she could combine her work with her hobby.
Can you identify some of the uncertainties Lori faces? Can you think of any way she can reduce some of these uncertainties?
Can you identify any possible personal biases that Lori may have? How could these affect her decision making process?
Chapter 1: The Role of Accounting Information in Management Decision MakingEldenburg & Wolcott’s Cost Management, 2e Slide # 23
Q8: The IMA’s Code of Ethics
• The Institute of Management Accountants (IMA) has a Code of Ethics that states that IMA members have a responsibility to:• maintain an appropriate level of professional competence
and perform their professional duties in accordance with laws, regulations, and standards;
• refrain from disclosing confidential information (unless legally obligated), or using (or even appearing to use) confidential information to illegal advantage;
• avoid actual and apparent conflicts of interest; and
• communicate information fairly and objectively, and disclose all relevant information to decision makers.
Chapter 1: The Role of Accounting Information in Management Decision MakingEldenburg & Wolcott’s Cost Management, 2e Slide # 24
Q8: Ethical Decision Making
Suppose you work for the Lee K. Fawcett Plumbing Company as Mr. Fawcett’s administrative assistant. Recently Mr. Fawcett asked you to type some financial statements from his hand-written notes so that he can take them to the bank as part of a loan application.
This exercise seems odd to you because the company’s CPA recently delivered the monthly financial statements that she prepares.
While typing the financial statements you notice that the building the company rents is listed as an asset. Also, you write checks each month for the monthly payments on two car loans, and these are not listed as liabilities.
Do you have an ethical dilemma? Discuss your approach to handling this situation.
Chapter 1: The Role of Accounting Information in Management Decision MakingEldenburg & Wolcott’s Cost Management, 2e Slide # 26
Appendix: Steps for Better Thinking – Foundation (Knowing)
• Foundation level skills include a knowledge of the terminology and basic concepts that are relevant to the decision at hand.
• An individual with Foundation level skills can:• perform calculations to arrive at correct answer• define terms in his/her own words• describe a concept• list the elements contained in a concept or
Chapter 1: The Role of Accounting Information in Management Decision MakingEldenburg & Wolcott’s Cost Management, 2e Slide # 27
Appendix: Steps for Better Thinking - Identifying
• Step 1 skills include the ability to identify relevant information and uncertainties.
• An individual with Step 1 skills can:• create a list of issues related to the decision• sort information that is relevant• identify the reasons for the underlying
uncertainties• perform research to obtain input into the