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Module 14
Managerial Accounting for MBAs
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Financial Accounting• Defined as the preparation of financial
statements and other data for parties external to the firm.
• External parties include shareholders, creditors, tax authorities, regulatory bodies, other stakeholders.
• Governed by generally accepted accounting principles (GAAP) and legal requirements (SEC).
• Primarily concerned with reporting historical data.• Information provided relates to the organization
as a whole.
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Managerial Accounting• Defined as the collection and transformation of
cost and related information for use by parties internal to the firm.
• Not governed by GAAP; no legal requirements.• A future rather than historical orientation.• Provides both financial and non-financial
information.• Emphasis on subunits of the firm rather than on
the firm as a whole.• Integrates a number of business disciplines.• Relevant, subjective data is encouraged.
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Objectives of Managerial Accounting
• Providing managers with information for planning future activities – goals and strategies like expansion, budgeting, borrowing, etc.
• Assisting managers in organizing decisions regarding company interactions like scheduling, ordering, outsourcing, advertising, etc.
• Assisting managers in directing and controlling operational activities to meet company goals, including evaluation of performance of employees, managers, segments.
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Terminology for Analysis
• Activity - a unit of work (ex: seating customer, taking order, preparing food, delivering food to customer.
• Cost driver - factor that causes or influences costs.
• Activity Cost Drivers:
– Examples of activity cost drivers include: number of meals served, number of employees in the service area, number of cooks, training needed for new employees, any activity that influences cost.
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Terminology for Analysis
• Structural cost drivers - broader than activity cost drivers, involve decisions about the structure of the company. Examples include: number, size and location of restaurants; appearance/construction of the restaurants; menus and foods to be served in the restaurants.
• Organizational cost drivers - decisions regarding the types of activities and costs of activities performed to satisfy customer needs. Examples include: selection of suppliers for quality of product; training employees to improve customer satisfaction.
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Use of Cost Drivers• Detailed analysis of a company’s cost
structure, resource consumption, capacity utilization, customer satisfaction, etc., allow the company to find the weak links and make changes where necessary.
• Macro reporting (for external purposes) will not aid a company in making continual and timely strategic decisions to improve every aspect of its business model.
• Managerial accounting supplies managers with the timely, specific information that is needed to make these strategic decisions.
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Ethics and Decision Making
• Managers must make decisions in an ethical framework.
• Development of this framework is the responsibility of the company and the individual.
• Ethics versus legal guidelines, page 15.
• Whistle-blowing: World-Com