MA

CHAPTER 1The Manager and Management

Accounting

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

CHAPTER 1 LEARNING OBJECTIVES1. Distinguish financial accounting from

management accounting2. Understand how management

accountants help firms make strategic decisions

3. 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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Copyright © 2015 Pearson Education, Inc. All Rights Reserved.

CHAPTER 1 LEARNING OBJECTIVES, CONCLUDED4. 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 mean to management accountants

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ACCOUNTING DISCIPLINE OVERVIEW Management accounting—measures,

analyzes, and reports financial and nonfinancial information to help managers make decisions to fulfill organizational goals. Management accounting need not be GAAP compliant.

Financial accounting—focuses on reporting to external users including investors, creditors, banks, suppliers, and governmental agencies. Financial statements must be based on GAAP.1-4


ACCOUNTING DISCIPLINE OVERVIEW, CONCLUDED Cost accounting – measures, analyzes

and reports financial and nonfinancial information related to the costs of acquiring or using resources in an organization.

Today, most accounting professionals take the position that cost information is part of management accounting; therefore, the distinction between the two is not clear-cut and in this book, we often use the terms interchangeably.

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MAJOR DIFFERENCES BETWEEN MANAGEMENT AND FINANCIAL ACCOUNTING

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STRATEGY AND MANAGEMENT ACCOUNTING

Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace.

There are two broad strategies: cost leadership or product differentiation Strategic cost management—describes

cost management that specifically focuses on strategic issues.

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STRATEGY AND MANAGEMENT ACCOUNTING, CONCLUDEDManagement accounting helps answer important questions such as:

Who are our most important customers, and how can we be competitive and deliver value to them?

What substitute products exist in the marketplace, and how do they differ from our own?

What is our most critical capability?Will adequate cash be available to fund the

strategy or will additional funds need to be raised?

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MANAGEMENT ACCOUNTING AND VALUE Creating value is an important part of

planning and implementing strategy. Value is the usefulness a customer gains

from a company’s product or service. The entire customer experience determines the value a customer derives from a product.

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MANAGEMENT ACCOUNTING AND VALUE, CONCLUDED The Value chain is the sequence of

business functions in which a product is made progressively more useful to customers.

The Value chain consists of:1. Research & development2. Design of Products and Processes3. Production4. Marketing5. Distribution6. Customer service

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THE VALUE CHAIN ILLUSTRATED

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A VALUE CHAIN IMPLEMENTATION

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SUPPLY-CHAIN ANALYSIS Production and Distribution are the parts

of the value chain associated with producing and delivering a product or service.

These two functions together are known as the Supply-Chain

The supply chain describes the flow of goods, services and information from the initial sources of materials, services, and information to their delivery regardless of whether the activities occur in one organization or in multiple organizations. 1-13


KEY SUCCESS FACTORS Customers want companies to use the

value chain and supply chain to deliver ever-improving levels of performance when it comes to several (or even all) of the following:Cost and efficiencyQualityTime InnovationSustainability

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A FIVE-STEP DECISION MAKING PROCESS IN PLANNING AND CONTROL

1. Identify the problem and uncertainties.2. Obtain information.3. Make predictions about the future.4. Make decisions by choosing between

alternatives.5. Implement the decision, evaluate

performance, and learn.

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PLANNING AND CONTROL SYSTEMS Planning selects goals and strategies,

predicts results, decides how to attain goals, and communicates this to the organization.Budget—the most important planning tool-is

the quantitative expression of a plan of activity by management and is an aid to coordinating what needs to be done to execute that plan.

Control takes actions that implement the planning decision, evaluates performance, and provides feedback and learning to the organization.. 1-16


MANAGEMENT ACCOUNTING GUIDELINES

Three guidelines help management accountants provide the most value to the strategic and operational decision- making of their companies: Cost–benefit approach: benefits of an

action/purchase generally must exceed costs as a basic decision rule.

Behavioral and technical considerations: people are involved in decisions, not just dollars and cents.

Different Costs for Different Purposes: Managers use alternative ways to compute costs in different decision-making situations.

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A TYPICAL ORGANIZATIONAL STRUCTURE AND THE MANAGEMENT ACCOUNTANT

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PROFESSIONAL ETHICS The four standards of ethical conduct for

management accountants as advanced by the Institute of Management Accountants are:CompetenceConfidentiality IntegrityObjectivity

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SARBANES-OXLEY ACT (SOX)The Sarbanes-Oxley legislation was passed in 2002 in response to a series of corporate scandals. The act focuses on improving:1. Internal controls2. Corporate governance3. Monitoring of managers4. Disclosure practices of public

companies

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TERMS TO LEARNTERMS to LEARN Page Number Reference

Budget Page 11

Chief Financial Officer Page 14

Control Page 11

Controller Page 14

Cost Accounting Page 4

Cost-Benefit approach Page 12

Cost Management Page 4

Customer Relationship Management (CRM)

Page 7

Customer Service Page 6

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TERMS TO LEARN, CONT’D

TERMS to LEARN Page Number Reference

Design of products and processes

Page 6

Distribution Page 6

Finance Director Page 14

Financial Accounting Page 3

Learning Page 12

Line Management Page 14

Management Accounting Page 4

Marketing Page 6

Planning Page 11

Production Page 6

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TERMS TO LEARN, CONCLUDEDTERMS to LEARN Page Number Reference

Research & Development (R&D)

Page 6

Staff Management Page 14

Strategic Cost Management Page 5

Strategy Page 5

Supply Chain Page 7

Sustainability Page 8

Total Quality Management (TQM)

Page 8

Value Chain Page 8

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MA

Documents

management accounting

management accountants1

management accountingdescribe

management accounting5

management accounting2

accounting systems

accounting professionals

cost accounting information