Ch1.ppt

Chapter 1The Manager and Management Accounting

© 2009 Pearson Prentice Hall. All rights reserved.

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Learning Objectives1. Describe how cost accounting supports

management accounting and financial accounting 2. Understand how management accountants affect

strategic decisions3. Describe the set of business functions in the

value chain and identify the dimensions of performance that customers are expecting of companies

4. Explain the five-step decision-making process and its role in management accounting

5. Describe three guidelines management accountants follow in supporting managers

6. Understand how management accounting fits into an organization’s structure

7. Understand what professional ethics means to management accountants

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Learning Objective 1

Describe how cost accounting supports management

accounting and financial accounting

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Accounting Discipline OverviewFinancial Accounting – focus on reporting to

external users including investors, creditors, and governmental agencies. Financial statements must be based on GAAP.

Managerial Accounting – involve partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy. Managerial accounting need not be GAAP compliant.


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Accounting Discipline Overview Cost accounting provides information for

both financial accounting and management accounting. In this text the terms “cost accounting” and “management accounting” are used interchangeably.

Cost management describes the approaches and activities of managers to use resources to increase the value to customers and to achieve organizational goals. It is not just about reducing costs, but involves revenue and profit planning as well.


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Major Differences Between Financial & Managerial Accounting

Managerial Accounting

Financial Accounting

Purpose Decision makingCommunicate financial

position to outsiders

Primary Users

Internal managers External users

Focus/Emphasis

Future-oriented Past-oriented

RulesDo not have to follow GAAP; cost vs. benefit

GAAP compliant; CPA audited

Time SpanUltra current to very

long time horizons

Historical monthly, quarterly reports

Behavioral Issues

Designed to influence employee behavior

Indirect effects on employee behavior© 2009 Pearson Prentice Hall. All rights reserved.

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Understand how management accountants affect strategic

decisions

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Strategy & Management AccountingStrategy – specifies how an organization matches

its own capabilities with the opportunities in the marketplace to accomplish its objectives

two broad strategies: cost leadership and product differentiation

Strategic Cost Management – focuses specifically on the cost dimension within a firm’s overall strategy


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Strategy & Management AccountingStrategic cost management helps answer

important questions such as:Who are our most important customers, and how

do we deliver value to them?What substitute products exist in the marketplace,

and how do they differ from our own?What is our critical capability?Will we have enough cash to support our strategy

or will we need to seek additional sources?


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Strategy & Management AccountingManagement accounting provides

information about the sources of competitive advatange.


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Describe the set of business functions in the value chain and identify the dimensions

of performance that customers are expecting of

companies

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Management Accounting and ValueCreating value is an important part of

planning and implementing strategyValue is the usefulness a customer gains from

a company’s product or service (fair price, high quality, timely delivery, fashion, after sale service….)


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Management Accounting and ValueValue Chain is the sequence of business

functions in which customer usefulness is added to products or services

Management accountants provide decision support for managers in the following six business functions:1. Research & Development2. Design3. Production4. Marketing5. Distribution6. Customer Service


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1. Research and Development: The process that is conducted to generate and experiment with ideas related to new products, services, or processes.

2. Design: The detailed planning and engineering of products, services, or processes.

3. Production: The acquisition, coordination, and assembly of resources to produce a product or deliver a service.

4. Marketing: The manner by which companiespromote and sell their products or services to customers or prospective customers.5. Distribution: The delivery of products or services to the

customer.6. Service: The after-sale support activities provided to

customers.

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The Value Chain Illustrated


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Value Chain Analysis Management accountants are involved in

the value chain as they keep track of costs incurred in each category. This information helps managers evaluate cost-benefit tradeoffs.

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Supply chain – describes the flow of goods, services, and information from cradle to grave, regardless of whether those activities occur in the same organization or other organizations.

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A Supply Chain Implementation


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Key Success Factors

The value chain and supply chain should be used by the company to deliver improving levels of performance for the customer regarding several of the following:

• Cost and efficiency Quality Time Innovation


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Cost – organizations are under continuous pressure to reduce costs.Quality – customers are expecting higher levels of quality.Time – organizations are under pressure to complete activities faster and to meet promised delivery dates more reliably.New product development, customer response timeInnovation – a continuing flow of innovative products or services is the basis for ongoing company success.

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Explain the five-step decision-making process and

its role in management accounting

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Planning & Control SystemsPlanning selects goals, predicts results,

decides how to attain goals, and communicates this to the organization.Budget – the most important planning toolA budget is the quantitative expression of a

proposed plan and is an aid to coordinate what needs to be done to implement the plan.

Management accounting:Help to develop strategiesHelp to improve business processHelp to build teamwork and commitmentPrepare budget


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Planning & Control SystemsControl is the actions taken to implement the

planning decision, deciding how to evaluate performance, and provides feedback to the organization

Performance reports: reports that compare actual results with budgeted amounts.

Feedback: This involves managers examining past performance and systematically exploring alternative ways to make better informed decisions in the future.


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Budget Actual VarianceRevenues $59,000 $60,000 $1,000 FCost of goods sold 42,000 43,400 1,400 UWages 6,700 7,000 300 UGeneral 1,300 900 400 FFixed costs 5,000 5,000 0 Operating income $ 4,000 $ 3,700 $ 300 U

Boone Shop, July 2003

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Actual cost of goods sold were72% of revenues instead of the budgeted 71%.

Budget % Actual %Revenues $59,000 100 $60,000 100Cost of goods sold 42,000 71 43,400 72Gross margin $17,000 29 $16,600 28

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A Five-Step Decision Making Process in Planning & Control

1. Identify the problem and uncertainties2. Obtain information3. Make predictions about the future4. Make decisions by choosing between

alternatives5. Implement the decision, evaluate

performance, and learn


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Describe three guidelines management accountants

follow in supporting managers

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Management Accounting GuidelinesCost – Benefit approach is commonly used:

benefits generally must exceed costs as a basic decision rule

Behavioral & Technical Considerations – people are involved in decisions, not just dollars and cents

Different definitions of cost may be used for different purposes


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A management accounting system should have twosimultaneous considerations for providing information:

1. Behavioral considerations: Consider the motivational aspect of the decision.

2. Technical considerations: Provides managers with appropriate information at appropriate intervals to assist in decision making.

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Understand how management accounting fits into an

organization’s structure

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line and staff relationships Line management is directly responsible for

attaining the goals of the organization. Production is a line function.

Staff management supports line management with advice and assistance.

Accounting and human resources are two examples of staff management functions.

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A Typical Organizational Structure and the Management Accountant


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Understand what professional ethics means to management

accountants

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Professional EthicsThe four standards of ethical conduct for

management accountants as advanced by the Institute of Management Accountants (IMA):CompetenceConfidentialityIntegrityCredibility


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Ch1.ppt

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terms cost accounting

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