aChap One.ppt

7/28/2019 aChap One.ppt

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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

The Changing Roleof Managerial

Accounting in a

Dynamic BusinessEnvironment

Chapter 1


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Learning

Objective

1


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Organizations

Definition

Two things common in organizations

Set of goals or objectives

Need of information


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Types of Businesses That Use

Managerial Accounting

Manufacturers ( Packages, Lever Brothers,Ford, General Motors, )

Merchandisers (AlFateh, H-Karim Bux,

WalMart, Kmart) Wholesalers (Beverage Distributors)

For-profit Service Businesses (CAs,

Attorneys)

Not-for-profit Service Agencies (Edhi, Red

Crescent, United Way, Red Cross)


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The Need for Managerial

Accounting

Cost accounting provides the detailed cost datathat management needs to control current

operations and plan for the future.

Companies must control costs in order to keep

prices competitive.

In todays global environment, cost information is

more crucial than ever in remaining competitive.


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The Manufacturing Process

This process involves the conversion of direct(raw) materials, direct labor, and factory

overhead into finished goods.

Product quality is an important competitiveweapon in manufacturing.

Many companies require their suppliers to be

ISO 9000 certified.


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ISO 9000 Certification

The International Organization forStandardization created a set of fiveinternational standards for qualitymanagement, ISO 9000-9004.

These standards require that manufacturershave a well-defined quality control systemand they consistently maintain a high level of

quality.


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Determining Product Costs and

Pricing Cost accounting is used to determine

products costs and help with marketing

decisions.

1. Determining the selling price of a product.2. Meeting competition.

3. Bidding on contracts.

4. Analyzing profitability.


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Management Accounting

The Institute of Management Accountants(IMA) is the largest organization ofaccountants in industry. The CertifiedManagement Accountant (CMA) is

comparable to the Certified Public Accountant(CPA) for public accountants.

For more information, please visit the IMAs

website at www.imanet.org
http://www.imanet.org/http://www.imanet.org/


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Managerial accounting is the process of

Identifying Measuring Analyzing

Interpreting

Communicating informationIn pursuit of an organizations goals

Define Managerial Accounting


11/62Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Learning

Objective

2


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Managing Resources, Activities,

and PeopleAn organization . . .

Acquires Resources

Hires People

Organized set

of activities

Decision

Making

Planning

Directing

Controlling


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Planning and Control

Planning is the process of establishingobjectives or goals for the firm and determiningthe means by which the firm will attain them.Effective planning is facilitated by the following:

1. Clearly defined objectives of the manufacturingoperation.

2. A production plan that will assist and guide thecompany in reaching its objectives.


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Planning & Control Systems Planning selects goals, predicts results,

decides how to attain goals, and

communicates this to the organizationBudget the most important planning tool

Control takes actions that implement the

planning decision, decides how toevaluate performance, and provides

feedback to the organization

2009 Pearson Prentice Hall. All rights reserved.


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Planning and Control (cont.)

Control is the process of monitoring thecompanys operations and determining whether

the objectives identified in the planning process

are being accomplished. Effective control is

achieved through the following:

1. Assigning responsibility.

2. Periodically measuring and comparing results.

3. Taking necessary corrective action.


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A Five-Step Decision MakingProcess in Planning & Control

1. Identify the problem and uncertainties2. Obtain information

3. Make predictions about the future

4. Make decisions by choosing betweenalternatives

5. Implement the decision, evaluate

performance, and learn 2009 Pearson Prentice Hall. All rights reserved.


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Responsibility Accounting

Responsibility accounting is the assignment ofaccountability for costs or production results to

those individuals who have the most authority to

influence them.

A cost centeris a unit of activity within the factory

to which costs may be practically and equitably

assigned. The manager of a cost center is

responsible for those costs that the managercontrols.


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Reporting

Cost and production reports for a cost centerreflect all cost and production data identifiedwith that center.

The performance report will include only

those costs and production data that thecenters manager can control.

A variance is the favorable orunfavorable

difference between actual costs and budgetedcosts.



DAILY NEWS

PERFORMANCE REPORT

March 31, 2009

ACTUAL

RESULT

BUDGETED

AMOUNT

DIFFERENCE (ACTUAL

RESULT - BUDGETED

AMOUNT)

DIFFERENCE AS A

PERCENTAGE OF

BUDGETED

AMOUNT

1 2 3=1-2 4=3/2

ADVERTISING PAGES

SOLD 760 PAGES 800 PAGES

40 PAGES

UNFAVOURABLE

5.0%

UNFAVOURABLE

AVERAGE RATE PERPAGE $5,080 $5,200 $120 UNFAVOURABLE

2.3%UNFAVOURABLE

ADVERTISING

REVENUES $3,860,800 $4,160,000

$299,200

UNFAVOURABLE

7.2%

UNFAVOURABLE


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Performance Report Example

Renaldis Restaurant

Performance ReportSeptember 30, 2006

Budgeted Actual Variance

Expense September Year-to-Date September Year-to-Date September Year-to-Date

Kitchen Wages $5,500 $47,000 $5,200 $46,100 $300 F $900 F

Food 17,700 155,300 18,300 157,600 600 U 2,300 U

Supplies 3,300 27,900 3,700 29,100 400 U 1,200 U

Utilities 1,850 15,350 1,730 16,200 120 F 850 U

Total $28,350 $245,550 $28,930 $249,000 $580 U $3,450 U

F = FavorableU = Unfavorable


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Management Accounting Guidelines

Cost Benefit approach is commonlyused: benefits generally must exceed costsas a basic decision rule

Behavioral & Technical Considerations

people are involved in decisions, not justdollars and cents

Different definitions of cost may be used

for different applications 2009 Pearson Prentice Hall. All rights reserved.



Learning

Objective

3



Learning

Objective

4


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Accounting Discipline Overview Managerial Accounting measures, analyzes and

reports financial and nonfinancial information to helpmanagers make decisions to fulfill organizational

goals.

Managerial accounting need not be GAAP compliant.

Managers use management accounting information

1. to choose, communicate and implement strategy, 2. to coordinate product design, production, and

marketing decisions,

3. and to evaluate performance.



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Accounting Discipline Overview Financial Accounting focus on reporting to external

users including investors, creditors, andgovernmental agencies. Financial statements must be

based on GAAP.

2009 Pearson Prentice Hall. All rights reserved. 25


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Major Differences Between

Financial & Managerial AccountingManagerial Accounting Financial Accounting

Purpose Decision makingCommunicate financial

position to outsidersPrimary Users Internal managers External users

Focus/Emphasis Future-oriented Past-oriented

Rules

Do not have to follow GAAP;

cost vs. benefit

GAAP compliant;

CPA audited

Time SpanUltra current to very long

time horizonsHistorical monthly,

quarterly reports

BehavioralIssues

Designed to influenceemployee behavior

Indirect effects onemployee behavior



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Cost Accounting vs. Financial and


Characteristics Financial Accounting Managerial Accounting

Users: External PartiesManagers Managers

Focus: Entire business Segments of the business

Uses of Cost Information: Product costs for calculating

cost of goods sold and finished

goods, work in process, and

raw materials inventory usinghistorical costs and GAAP.

Budgeting

Special decisions such as

make or buy a component,

keep or replace a facility, andsell a product at a special price.

Nonfinancial information such

as defect rates, % of returned

products, and on-time

deliveries

Cost Accounting System


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Cost Accounting vs. Financial and

Managerial Accounting (cont.)

Cost accountingincludes those parts of

both financial and

management

accounting that collectand analyze cost

information.


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Managerial versus Financial

AccountingAccounting System

(accumulates financial and

managerial accounting data in the

cost accounting system)


Information for decision

making, planning, and

controlling anorganizations

operations.

Financial Accounting

Published financial

statements and other

financial reports.

Internal

Users

External

Users


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Managerial versus Financial

AccountingManagerial Accounting Financial Accounting

Users of Information Managers, within the organization. Interested parties, outside the organization.

Regulation Not required and unregulated, since it is intended

only for management.

Required and must conform to generally accepted

accounting principles. Regulated by the Financial

Accounting Standards Board, and, to a lesser

degree, the Securities and Exchange

Commission.Source of Data The organization's basic accounting system, plus

various other sources, such as rates of effective

products manufactured, physical quantities of

material and labor used in production, occupancy

rates in hotels and hospitals, and average take-off

dela s in airlines.

Almost exclusively drawn from the organization's

basic accounting system, which accumulates

financial information.

Nature of Reports and

Procedures

Reports often focus on subunits within the

organization, such as departments, divisions,

geographical regions, or product lines. Based on a

combination of historical data, estimates, and

projections of future events.

Reports focus on the enterprise in its entirety.

Based almost exclusively on historical transaction

data.


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Strategy & ManagementAccounting

Strategy specifies how an organization matches itsown capabilities with the opportunities in themarketplace to accomplish its objectives. It describeshow an organization will compete and theopportunities its managers should seek and pursue.

Strategic Cost Management focuses specifically onthe cost dimension within a firms overall strategy



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Strategy & Management

Accounting Management accounting helps answer important

questions such as:

Who are our most important customers, and how dowe deliver value to them? Barnes and Noble developedthe capabilities to sell online by building itsinformation and technology infrastructure

What substitute products exist in the marketplace, andhow do they differ from our own? Hewlett-Packarddesigns new printers after comparing the funtionality,quality and price of its printers to other printersavailable in the marketplace.



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Strategy & Management

Accounting Management accounting helps answer important

questions such as:

What is our critical capability? Is it technology,production, or marketing? Kellog Company, forexample, uses the reputation of its brand to introducenew types of cereal.

Will we have enough cash to support our strategy orwill we need to seek additional sources? Proctor andGamble issued new debt and equity to fund its strategicacquisition of Gillette, a maker of shaving products.



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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 acompanys product or service


H M i l A ti


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How Managerial Accounting

Adds Value to the Organization

Providing information for decision making and

planning and proactively participating in decision-

making and planning process.

Assisting managers in directing and controllingactivities.

Motivating managers and other employees

towards organizations goals.

Measuring performance of activities, subunits,

managers, and other employees.

Assessing the organizations competitive position.


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A Model of Performance

EvaluationFinancial Perspective

Goals Measures

Customer Perspective

Goals Measures

Operations Perspective

Goals Measures

Innovation Perspective

Goals Measures

How do we lookto our owners?

How do customers

see us?

How can we

continue to

improve?

In which activities

must we excel?


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Management Accounting and ValueValue Chain is the sequence of business functions

in which customer usefulness is added toproducts or services

The Value-Chain consists of:1. Research & Development

2. Design

3. Production

4. Marketing5. Distribution

6. Customer Service


St t i C t M t d


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Product

Design

Research

and

Development

Strategic Cost Management and

the Value Chain

Securing raw

materials andother resources

Production

Marketing

Distribution

Customer

ServiceStart


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The Value Chain Illustrated



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A Value Chain Implementation



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Key Success Factors

The dimensions of performance that

customers expect, and that are key to the

success of a company include:Cost and efficiency

Quality

Time Innovation



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Learning

Objective5


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Line and Staff Positions

A line position is directlyinvolved in achieving the

basic objectives of an

organization.

Example: A productionsupervisor in a

manufacturing plant.

A staff position supportsand assists line positions.

Example: A costaccountant in the

manufacturing plant.


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Learning

Objective6


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Controller

The chief managerial and financial accountantresponsibility for:

Supervising accounting personnel

Preparation of information and reports, managerial

and financial

Analysis of accounting information

Planning and decision making


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Treasurer

Responsible for raising capital and safeguarding theorganizations assets.

Supervises relationships with financial institutions.

Work with investors and potential

investors. Manages investments.

Establishes credit policies.

Manages insurance coverage


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Internal Auditor

Responsible for reviewing accounting procedures,

records, and reports in both the controllers and the

treasurers area of responsibility.

Expresses an opinion to top

management regarding theeffectiveness of the

organizations accounting

system.


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Learning

Objective7

Major Themes in Managerial


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Major Themes in Managerial

Accounting

Managerial

Accounting

Information

and Incentives

Costs and

Benefits

Evolution and

Adaptation

Behavioral

Issues

Evolution and Adaptation in


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Evolution and Adaptation in


Service vs.

Manufacturing Firms

Emergence of NewIndustries

Global Competition

Focus on the Customer

Cross-Functional Teams

Computer-Integrated

Manufacturing

Product Life Cycles

Time-Based

Competition

Information and

Communication

Technology

Just-in-Time Inventory

Total Quality Management

Continuous Improvement

Change

E-Business


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Cost Management Systems

ObjectivesMeasure the cost of

resources consumed.

Identify and eliminatenon-value-added

costs.Cost

Management

System


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Cost Management Systems

ObjectivesDetermine efficiency

and effectiveness of

major activities.Identify and evaluatenew activities thatcan improve

performance.

Cost

Management

System


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Learning

Objective8


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Theory of Constraints

A sequential process ofidentifying and

removing constraintsin a system.

Restrictions or barriers that impede

progress toward an objective


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Learning

Objective9


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Ethical Climate of Business

The corporate scandals experienced over the lastfew years have shown us that unethical behaviorin business is wrong in a moral sense and can be

disastrous in the economy. In addition to

Sarbanes-Oxley, there will likely be more reformsin corporate governance and accounting.


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Professional Ethics

Competence

ConfidentialityIntegrity

Credibility


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Learning

Objective10


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Management Accounting Guidelines

Cost 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

applications



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A Typical Organizational Structure and

the Management Accountant


Managerial Accounting as a


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Managerial Accounting as a

Career

Professional Organizations

Institute of Management Accountants (IMA)

Publishes

Management

Accountingand research

studies.

Administers

Certified

ManagementAccountant

program

Develops

Standards of

Ethical

Conduct forManagement

Accountants


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End of Chapter 1

Documents

aChap One.ppt