Managerial Accounting: An Overview

PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Managerial Accounting: An OverviewChapter 1

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Learning Objectives

•Contrast Financial and Managerial Acctg.•Understand the 3 areas of Managerial

Accounting: P, C, D•Skills for a Manager: S, E, P, M, L•Ethics for Management Accountants:

CMA•Social Responsibility

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Financial and Managerial Accounting: Seven Key Differences

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Work of Management

PlanningPlanning

Decision Making

Decision Making

ControllingControlling

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Planning

Establish Goals.Establish Goals.

Specify How Goals Will Be Achieved.

Specify How Goals Will Be Achieved.

Develop Budgets.Develop Budgets.

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Controlling

The control function gathers feedback to ensure that plans are being followed.

The control function gathers feedback to ensure that plans are being followed.

Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.

Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.

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Decision Making

Decision making involves making a selection among

competing alternatives.

Decision making involves making a selection among

competing alternatives.

What should we be selling?

What should we be selling?

Who should we be serving?

Who should we be serving?

How should we execute?

How should we execute?

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Managerial Accounting Activities:Marketing Majors

How many salespeople should we plan to hire to serve a new

territory?

How much should we budget for TV, print, and internet advertising?

PlanningPlanning

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Are we accumulating too much inventory during the holiday

shopping season?

Is the budgeted price cut increasing unit sales as expected?


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Should we sell directly to customers or use a distributor?

Should we sell our services as one bundle or sell them

separately?

Decision Making

Decision Making

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Managerial Accounting Activities:Operations Management Majors

How much should we budget for next period’s utility expense?

How many units should we plan to produce next period?

PlanningPlanning

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Are we achieving our goal of reducing the number of defective

units produced?

Did we spend more or less than expected for the units we actually

produced?


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Should we redesign our manufacturing process to lower

inventory levels?

Should we buy a new piece of equipment or upgrade our existing

machine?

Decision Making

Decision Making

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Managerial Accounting Activities:Human Resource Management Majors

How much should we plan to spend on employee recruitment

advertising?

How much should we plan to spend for occupational safety

training?

PlanningPlanning

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Are we meeting our goal of completing timely performance

appraisals?

Is our employee retention rate exceeding our goals?


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Should we hire temporary workers or full-time employees?

Should we hire an on-site medical staff to lower our healthcare

costs?

Decision Making

Decision Making

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Accounting Majors

Many accounting graduates begin working for public

accounting firms. However, most leave at some point to work in other organizations.

The IMA estimates that 80% of professional accountants in the U.S. work in non-public accounting environments.

80%

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Certified Management Accountant

A management accountantwho has the necessary qualifications

and who passes a rigorous professional exam earns the right to be known as a

Certified Management Accountant (CMA).

A management accountantwho has the necessary qualifications

and who passes a rigorous professional exam earns the right to be known as a

Certified Management Accountant (CMA).

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CMA Exam

Information about becoming a CMA and the CMA program can be accessed on the IMA’s website at www.imanet.org or by calling 1-800-638-4427.

Information about becoming a CMA and the CMA program can be accessed on the IMA’s website at www.imanet.org or by calling 1-800-638-4427.

Part 1 Financial Planning, Performance and ControlPlanning, budgeting, and forecastingPerformance managementCost managementInternal controlsProfessional ethics

Part 2 Financial Decision MakingFinancial statement analysisCorporate financeDecision analysis and risk managementInvestment decisionsProfessional ethics

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Strategic Management Skills

A strategyis a “game plan”

that enables a companyto attract customers

by distinguishing itselffrom competitors.

The focal point of acompany’s strategy should

be its target customers.

The focal point of acompany’s strategy should

be its target customers.

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Customer Value Propositions

Understand and respond toindividual customer needs.Understand and respond toindividual customer needs.

CustomerIntimacyStrategy

OperationalExcellenceStrategy

Deliver products and servicesfaster, more conveniently,

and at lower prices.

Deliver products and servicesfaster, more conveniently,

and at lower prices.

ProductLeadership

StrategyOffer higher quality products.Offer higher quality products.

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Enterprise Risk Management

A process usedA process usedby a company toby a company to

proactively identifyproactively identifyand manage risk.and manage risk.

Once a company identifies its risks, perhaps themost common risk management tactic is to reduce

risks by implementing specific controls.

Once a company identifies its risks, perhaps themost common risk management tactic is to reduce

risks by implementing specific controls.

Should I try to avoid the risk, accept the risk, or

reduce the risk?

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Enterprise Risk ManagementExamples of Controls to

Examples of Business Risks Reduce Business Risks● Products harming customers ● Develop a formal and rigorous

new product testing program● Losing market share due to the ● Develop an approach for legally unforeseen actions of competitors gathering information about

competitors' plans and practices● Poor weather conditions shutting ● Develop contingency plans for down operations overcoming weather-related

disruptions● Website malfunction ● Thoroughly test the website

before going "live" on the Internet● A supplier strike halting the flow ● Establish a relationship with two of raw materials companies capable of providing

raw materials● Financial statements unfairly ● Count the physical inventory on reporting the value of inventory hand to make sure that it agrees

with the accounting records● An employee accessing ● Create password-protected barriers unauthorized information that prohibit employees from

obtaining information not needed to do their jobs

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Process Management

Business functions making up the value chainBusiness functions making up the value chain

Product Customer R&D Design Manufacturing Marketing Distribution Service

A businessprocess is a series of

steps that are followed in order tocarry out some task in

a business.

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Lean Production

Customer places an order

Create Production Order

Generate component requirements

Production begins as parts arrive

Goods delivered when needed

Components are ordered

Lean Production is often called Just-In-Time (JIT) production.Lean Production is often called Just-In-Time (JIT) production.

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The Dark Side of JIT

Dependent on single/few source of supply…

What if a disruption in delivery?

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Lean Production

Produce goods in anticipation of Sales

Make Sales from Finished Goods

Inventory

Traditional ManufacturingTraditional Manufacturing

StoreInventory

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Lean Production

Because lean thinking only allows production in response to customer orders, the number of units produced tends to equal the number of units sold.

The lean approach also results in fewer defects, less wasted effort, and quicker customer response

times than traditional production methods.

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A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want.

The Theory of Constraints (TOC) is based on the observation that effectively managing the constraint is the

key to success.

The constraint in a system is determinedThe constraint in a system is determinedby the step that has theby the step that has the smallest smallest capacity.

Theory of Constraints

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Process Reengineering

The process isredesigned to include

only those steps that makeour product more valuable.

The process isredesigned to include

only those steps that makeour product more valuable.

Every step inthe businessprocess mustbe justified.

Every step inthe businessprocess mustbe justified.

A business processis diagrammed

in detail.

A business processis diagrammed

in detail.

Anticipated results:Anticipated results: Process is simplified. Process is completed

in less time. Costs are reduced. Opportunities for

errors are reduced.

Anticipated results:Anticipated results: Process is simplified. Process is completed

in less time. Costs are reduced. Opportunities for

errors are reduced.

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The Dark Side of Process Reengineering

Can erode employee trust

Layoffs

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4. Recognize that the weakest link

is stronger.

4. Recognize that the weakest link

is stronger.

1. Identify the weakest link.1. Identify the weakest link.

2. Allow the weakest link to set the tempo.

2. Allow the weakest link to set the tempo.

3. Focus on improving

the weakest link.

3. Focus on improving

the weakest link.

Only actions that

strengthen the weakest link in

the “chain” improve the

process.

Theory of Constraints

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Who came up with this idea, anyway?•The Goal, by Goldratt & Cox•The ISSUE is THROUGHPUT, or

contribution margin per unit (CMU—more later on this)

•The idea of LABOR as a FIXED COST.

Only actions that strengthen the weakest link in the “chain” improve the process.

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TOC: It comes down to 3 choices: • Increase Throughput

•Reduce Investments (inventories)

•Decrease Operating Expenses (labor, new machinery, overhead, administrative costs)

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Measurement Skills

A good manager complements an understanding of

strategy, risks, and business processes with

data-driven analysis.

The key to effective analysis is to understand that the question you are addressing defines what you

measure and how you analyze the data.

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Measurement Skills

What net income should my company report to its stockholders?

What net income should my company report to its stockholders?

Measure and report historical data that complies with applicable rules.

Measure and report historical data that complies with applicable rules.

How will my company serve its customers?How will my company serve its customers?

Measure and analyze mostly non-financial, process-oriented data.

Measure and analyze mostly non-financial, process-oriented data.

Will my company need to borrow money?Will my company need to borrow money?

Measure and analyze estimated future cash flows.

Measure and analyze estimated future cash flows.

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Measurement Skills


PlanningPlanning

DecisionMaking

DecisionMaking

The primary purpose of this course is to teach measurement skills that managers

use to support planning, controlling, and decision making

activities.

The primary purpose of this course is to teach measurement skills that managers

use to support planning, controlling, and decision making

activities.

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Leadership Skills

Six Skills of an Effective Leader 1. Technical competence 2. High integrity3. Understand how to implement organizational

change4. Strong communication skills5. Capable of motivating and mentoring other

people6. Effectively manage team-based decision

processes

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Code of Conduct for Management Accountants

The Institute of Management Accountant’s (IMA) Statement of Ethical Professional Practice

consists of two parts that offer guidelines for: Ethical behavior. Resolution for an ethical conflict.

The Institute of Management Accountant’s (IMA) Statement of Ethical Professional Practice

consists of two parts that offer guidelines for: Ethical behavior. Resolution for an ethical conflict.

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CompetenceCompetenceFollow applicablelaws, regulationsand standards.

Follow applicablelaws, regulationsand standards.

Maintain professional competence.

Maintain professional competence.

Provide accurate, clear, concise, and timely decision

support information.

Provide accurate, clear, concise, and timely decision

support information.

IMA Guidelines for Ethical Behavior

Recognize and communicate professional limitations that preclude responsible judgment.

Recognize and communicate professional limitations that preclude responsible judgment.

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ConfidentialityConfidentiality

IMA Code of Ethics for Management Accountants

Do not disclose confidential information unless legally obligated

to do so.

Do not disclose confidential information unless legally obligated

to do so.

Ensure that subordinates do not disclose confidential information.

Ensure that subordinates do not disclose confidential information.

Do not use confidential

information for personal advantage.

Do not use confidential

information for personal advantage.

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Mitigate conflicts of interest and advise others

of potential conflicts.

Mitigate conflicts of interest and advise others

of potential conflicts.

Abstain from activities that might discredit the

profession.

Abstain from activities that might discredit the

profession.

Refrain from conduct that

would prejudice carrying out

duties ethically.

Refrain from conduct that

would prejudice carrying out

duties ethically.

IntegrityIntegrity


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IMA Code of Ethics for Management Accountants

IntegrityIntegrity

Avoid activities that could affect your ability to perform

duties.

Avoid activities that could affect your ability to perform

duties.

Communicate unfavorable as well as favorable information.

Communicate unfavorable as well as favorable information.

Refrain from activities that

could discredit the profession.

Refrain from activities that

could discredit the profession.

Refuse gifts or favors that

might influence behavior.

Refuse gifts or favors that

might influence behavior.

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Communicate information fairly and objectively.

Communicate information fairly and objectively.

Disclose all relevant information that could

influence a user’s understanding of reports and recommendations.

Disclose all relevant information that could

influence a user’s understanding of reports and recommendations.

CredibilityCredibility


Disclose delays or deficiencies in information timeliness, processing, or

internal controls.

Disclose delays or deficiencies in information timeliness, processing, or

internal controls.

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IMA Guidelines for Resolution of an Ethical ConflictFollow employer’s established policies.

For an unresolved ethical conflict:

▫Discuss the conflict with immediate supervisor or next highest uninvolved managerial level.

▫ If immediate supervisor is the CEO, consider the board of directors or the audit committee.

▫Contact with levels above the immediate supervisor should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved.

Follow employer’s established policies.


▫Discuss the conflict with immediate supervisor or next highest uninvolved managerial level.

▫ If immediate supervisor is the CEO, consider the board of directors or the audit committee.

▫Contact with levels above the immediate supervisor should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved.

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IMA Guidelines for Resolution of an Ethical ConflictFollow employer’s established policies.


▫Except where legally prescribed, maintain confidentiality.

▫Clarify issues in a confidential discussion with an objective advisor.

▫Consult an attorney as to legal obligations.

Follow employer’s established policies.


▫Except where legally prescribed, maintain confidentiality.

▫Clarify issues in a confidential discussion with an objective advisor.

▫Consult an attorney as to legal obligations.

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Abandoning ethical standards in business would lead to a lower quality of life with less

desirable goods and services at higher prices.

Why Have Ethical Standards?

Without ethical standards in business, theeconomy, and all of us who depend on it for

jobs, goods, and services, would suffer.

Ethical standards in business are essential for asmooth functioning economy.

Ethical standards in business are essential for asmooth functioning economy.

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Corporate Social Responsibility

CSR extends beyond legal complianceto include voluntary actions that satisfy

stakeholder expectations.

CSR extends beyond legal complianceto include voluntary actions that satisfy

stakeholder expectations.

Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions.

Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions.

Customers Employees CommunitiesSuppliers StockholdersEnvironmental

& Human RightsAdvocates

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Corporate Social ResponsibilityCompanies should provide customers with: Companies and their suppliers should provide● Safe, high quality products that are fairly employees with: priced ● Safe and humane working conditions● Competent, courteous, and rapid delivery ● Non-discriminatory treatment and the of products and services right to organize and file grievances● Full disclosure of product-related risks ● Fair compensation● Easy to use information systems for ● Opportunities for training, promotion, shopping and tracking orders and personal developmentCompanies should provide suppliers with: Companies should provide communities with:● Fair contract terms and prompt payments ● Payment of fair taxes ● Reasonable time to prepare orders ● Honest information about plans such as ● Hassle-free acceptance of timely and plant closings complete deliveries ● Resources that support charities, schools,● Cooperative rather than unilateral and civic activities actions ● Reasonable access to media sourcesCompanies should provide stockholders with: Companies should provide environmental ● Competent management and human rights advocates with:● Easy access to complete and accurate ● Greenhouse gas emissions data financial information ● Recycling and resource conservation data● Full disclosure of enterprise risks ● Child labor transparency● Honest answers to knowledgeable ● Full disclosure of suppliers located in questions developing countries

Examples of Corporate Social Responsibility

Documents

Managerial Accounting: An Overview