4. managerial accounting

MANAGERIALACCOUNTING

MICHAEL ANGELO S. DE LEONCertified Public Accountant

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Managerial accounting is the application of appropriate techniques and concepts in processing the historical and projected economic data of an entity to assist management in establishing a plan for reasonable economic objectives and in making rational decisions with a view toward achieving these objectives.

Its purpose is to provide information to persons within an organization that will enable them to make informed judgments and effective decisions, which further the organization’s goals.

What is Managerial Accounting?

Planning Sourcing Business Risks

Organizing and directing

Controlling

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Functions of Management



Controlling



Controlling

PlanningIdentifying alternatives and selecting the one that does the best job of furthering the organization’s objectives.Organizing and LeadingCombining, integrating or merging the resources into a structure of effective relationship and involves mobilizing people to carry our plans and run routine operationsControllingInvolves ensuring that the plan is actually carried out and is appropriately modified as circumstances change

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Types of Management and Position



Management by exceptionsManagement’s attention should be directed toward those parts of organization where plans are not working out for one reason or another. Time and effort should not be wasted focusing on those parts of the organization where things are going smoothly.Management by objectivesA sub-ordinate’s targets are set in a discussion with the manager, the achievement of which is the basis for evaluation and rewarding of the sub-ordinate’s performance.

Line PositionDirectly involved in achieving the basic objective of the organization

Staff PositionIndirectly involved in achieving the basic objective of the organization

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Standards of Ethical Conduct



Competence

Confidentiality Integrity

Objectivity

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Managerial Accounting vs. Financial Accounting



Dimension Management Accounting Financial accounting

1) Necessity Optional Required

2) Purpose A means to the end of the assisting management

Produce statements for outside users

3) Users Relatively small group; known identity

Relatively large group; mostly unknown

4) Underlying structure Varies according to use of the information

One basic equation:Asset = Liabilities + Owner's Equity

5) Source of principles Whatever is useful to management GAAP

6) Time Orientation Historical and estimates of the future

Historical

7) Information content Monetary and nonmonetary Primarily monetary

8) Information Precisions Many approximations Fewer approximations

9) Report Frequency Varies with purpose; monthly & weekly common

Quarterly & annually

10) Report timeliness Reports issued promptly after end of period covered

Delay of weeks or even months

11) Report entity Responsible center Overall organization

12) Liability Potential Virtually none Few lawsuits, but threat is always present

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Similarities of Financial and Managerial Accounting



1. The same considerations that make generally accepted accounting principles sensible for purpose of financial accounting are likely to be relevant for purpose of management accounting.

2. Operating information is used both in preparing the financial statements and in management accounting.

3. Basic data are collected in accordance with generally accepted financial principles.

4. The financial and management accounting information are both used in decision making.

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Controllership and Treasurership


Controller Treasurer

Chief Management Accountant who is responsible in the accounting aspects of planning and controlling.

He/She is the officer responsible for money management and serves chiefly as the custodian of funds.

Internal reporting Provision of capital and investor relations

Evaluation and consulting Short-term financing

External reporting Banking and custody

Protection of assets Credit and collections

Economic Appraisal Foreign exchange management

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Current focus in Management Accounting


Reasons for Contemporary developments in management and managerial accounting:

-Globalization leads to increase in competition-Technological advancements

The New Management Practices-Total Quality Management-Business Process Re-engineering-Theory of Constraints-Kaizen Costing-Just in Time Technique

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New Management Practices



Total Quality Management-an approach to continuous improvement that focuses on serving customers and systematic problem solving using teams made up of front-line workers.-improves productivity by encouraging the use of science in decision making and discouraging counter productive defensive behavior

Benchmarking-involves the studying organizations that are among the best in performing a particular taskDeeming wheel-a systematic fact-based approach to continuous improvement

Plan Phase – the problem solving team analyzes data to identify possible causes for the problem and proposes a solutionDo Phase – an experiment is conducted in small scaleAct Phase – if the results of the experiment is favorable, the plan is implemented

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Conformance Cost Non-conformance Cost

Prevention Cost-relates to any activity that reduces the number of defects in products and services (e.g. training, quality engineering, systems development, statistical process control activities, technical support given to suppliers)

Internal Failure Cost-results from identification or discovery of defects during the appraisal or inspection process (e.g. cost of scrap, spoilage, rework, downtime caused by quality problems, disposal of defective products)

Appraisal Cost-incurred in activities to inspection to make sure that the products and services meet quality standards (e.g. inspection and testing of incoming materials, maintenance test equipment, process control monitoring, product quality standards)

External Failure Cost-results when a defective product is delivered to customers (e.g. returned products, repairs costs, product liability lawsuits, recall cost)

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Business Process Reengineering-redesigning the business process in order to eliminate unnecessary steps to reduce opportunities for errors and costs-elimination of non-value added activities-focuses on simplification and elimination of wasted efforts

Business process is any series of steps that are followed in carrying out some tasks in business.

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Theory of Constraints- an approach that states that the key to success is the

effective management of the constraints.

Constraint or bottleneck is anything that prevents an organization from getting more of what the organization wants.

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Kaizen costing- is a Japanese term which refers to the process of

continuously improving systems, interrelationships, processes, set ups, policies and other details of activities rather than simply meeting standards.

Performance standards are continually raised, so that the objective is to meet targetted reductions.

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Just in time-a philosophy centered on the reduction of costs through elimination of inventory. All materials and components should arrive at a workstation when they are needed – no earlier and no later.

Advantages-Eliminates cushion against production errors and imbalances, resulting to lower manufacturing lead times and scrap or waste materials-Eliminates storage and carrying cost-Funds that were ties up in inventories can be used elsewhere-Areas previously used to store inventories are made available for other, more productive uses-Throughput time is reduced resulting to quicker response to customers

4. managerial accounting

Business

managerial accounting

information precisions

information asset

information contentmonetary

basic objective

organizations objectives

planning report frequency

report timelinessreports