Introduction to Managerial Accounting

Chapter 1

The
The Changing
Changing Business
Business
Environment:
Environment: A
A Manager’s
Manager’s
Perspective
Perspective
 Management Accounting

Management Accounting: the process of

identification, measurement, accumulation,
analysis, preparation, interpretation, and
communication of financial information used
by management to plan, evaluate, and control
within the organization and assure appropriate
use of and accountability for its resources
 The Role of Management Accounting

The Role of Management Accounting:

Provide an information system that enables

persons throughout an organization:
1.To make informed decision
2.To be more effective at their jobs
3.To improve the organization’s performance
 Management Accountant’s Role as
Internal Consultant
Collects Prepares
and compiles standardized
information reports

Internal
Consultant

Interprets and Is Involved

Analyzes information In decision making

Management
 Users of Accounting Information

Management Accounting Financial Accounting

External Users
Internal Users
Investors: Stockholders

Creditors:
Managers, Employees, Suppliers
Supply Chain Partners Bankers

Government Authorities
 Management Accounting Vs Financial
Accounting
Areas Management Accounting Financial Accounting
Report Flexible, driven by user’s need Based on standards like
format GAAP
Purpose of Provide information for planning, Report on past
reports control, performance measurement performance
and decision making
Nature of Objective and verifiable for decision Objective and verifiable
information making; more subjective for planning
(relies on estimates)
Units of Monetary at historical or current Monetary at historical
measure market or projected values; physical and current market
measures of time or number of values
objects
Frequency Prepared as needed; may or may not Prepared on a periodic
of report be on a periodic basis basis
 Accounting Function

Chief
Chief Financial
Financial Officer
Officer (CFO)
(CFO)

Controller
Controller Functions
Functions Treasurer
Treasurer Functions
Functions
Planning Provision
Provisionof
ofcapital
Planningfor
forcontrol
control capital
Reporting Investor
Investorrelations
Reportingand
andinterpreting
interpreting relations
Investor relations
Evaluating Short-term
Short-termfinancing
Evaluatingand
andconsulting
consulting
Evaluating and consulting financing
Tax Banking
Bankingand
andcustody
Taxadministration
administration custody
Government Credits
Creditsand
andcollections
Governmentreporting
reporting collections
Protection Investments
Protectionof
ofassets
assets Investments
Economic Risk
Riskmanagement
management(insurance)
Economicappraisal
appraisal (insurance)
Career Opportunities in Management Accounting

The Certified Management Accountant (CMA)

CMAs must pass a four-part examination:

1. Business Analysis
2. Management accounting and reporting
3. Strategic Management, and
4. Business Applications.
 Management Accounting and the
Management Process
Plan: set objectives Perform: implement the
and business plan business plan to get
results
Evaluate: determine how
well the business is doing

Communicate: prepare
and present information
(4 w’s questions)
 Planning Framework

1. VISION: increase the value of stakeholders’

interest in the business
2. MISSION: Fundamental way in which the company
will achieve the goal of increasing stakeholders’ value
3. STRATEGIC OBJECTIVES: Broad, long-term goals
4. TACTICAL OBJECTIVES: Mid-term goals
5. OPERATING OBJECTIVES: Short-term goals
6. BUSINESS PLAN: A comprehensive statement
of how the company will achieve its objectives
7. BUDGETS: Expressions of the business plan
in financial terms
 Value Chain Analysis
Research
Research
and
and
Customer
Customer Development
Development Product
Product//Service
Service
Service
Service Design
Design

Customer
Customer
Focus
Focus

Supply
Supply&&
Distribution
Distribution Production
Production
Marketing
Marketing

 Value Creation
 Value Chain Analysis

Support Services In The Value Chain

• Human Resources
• Legal Services
• Information Systems
• Management Accounting

Financial
Statements
 Value Chain Analysis

• Advantages of Value Chain Analysis: allows

a company to focus on its core competencies.

• A core competencies: the thing that a

company does best. It is what gives a company
an advantage over its competitors.

• Example: see page 14 & 15

 Management Tools for Continuous
Improvement

1. Just-in-Time Operating Philosophy (JIT):

 All resources are acquired and used when
they needed

2. Total Quality Management (TQM):

 Requires all parts of a business work together
to build quality in to the business’s products
or services
 Management Tools for Continuous
Improvement

3. Activity-Based Management (ABM):

 Determine resources consumed and value
added by each activity

4. Theory of Constraints (TOC):

 Focus attention and resources on limiting
factors / bottlenecks and achieve significant
improvements
Performance Measures: A Key to Achieving
Organizational Objectives

Performance measures:
1. Quantitative tools that gauge an
organization’s performance in relation to a
specific goal /an expected outcome.

2. May be financial or nonfinancial

3. Financial performance measures include

ROI, net income as a percentage of sales by
divisions, department, product lines
 Budget and Performance Reports

Budget: quantitative expression of a plan of action

Performance reports:
 compare actual results with budgeted amounts
 provide feedback by comparing results with plans
 highlight variances

Variances: deviations from plans

 Performance Reports
Mayfair Starbucks Store, March 31, 20X7

Budget Actual Variance

Sales $50,000 $50,000 0
Less:
Ingredients 22,000 24,500 $2,500 U
Store labor 12,000 11,600 400 F
Other labor 6,000 6,050 50 U
Utilities, etc. 4,500 4,500 0
Total expenses $44,500 $46,650 $2,150 U
Operating income $ 5,500 $ 3,350 $2,150 U

U= Unfavorable – actual exceeds budget

F – Favorable – actual is less than budget.
Performance Measures: Balanced Scorecard

The balanced scorecard: a framework

that links the perspectives of an organization’s
four stakeholder groups to the organization’s
mission, objectives, resources, and
performance measures

4 perspectives:
- Financial (Investors)
- Learning & Growth (Employees)
- Business internal processes
- Customer
 Standards of Ethical Conduct

- Managers are responsible to external parties

(e.g., owners, creditors, governmental
agencies, and the local community) for the
proper use of organizational resources and
the financial reporting of their actions.

- Conflicts may arise that managers to balance

the interests of all external parties, and
management accountants have a responsibility
to help them balance those interest.
 Standards of Ethical Conduct

The
TheInstitute
Instituteof
ofManagement
ManagementAccountants
Accountants(IMA)
(IMA)
Statement
Statementof ofEthical
EthicalProfessional
ProfessionalPractice
Practicefor
for
Management
ManagementAccounting
AccountingMembers
Members
Requires
Requiresmembers
membersto toadhere
adhere
to
toaacode
codeofofconduct
conductregarding:
regarding:
Competence,
Competence,
Confidentiality,
Confidentiality,
Integrity,
Integrity,and
and
Credibility.
Credibility.
 Ethical Dilemmas

Managers must choose an alternative and there are:

 Significant value conflicts among differing interests.
 Real alternatives that are all justifiable, and
 Significant consequences on stakeholders in the situation.
 Unethical Behavior Temptations
1. Emphasis on short-term results:
Pressure to meet expected profit numbers.

2. Ignoring the small stuff:

Large misdeeds often result from many small ones.

3. Economic cycles:
A downturn market can reveal what an upturn market conceals.
Vigilance in all stages of economic markets maintains high ethical
standards.
4. Accounting rules
Avoid creative interpretations of the rules.
Practice full and fair disclosure to convey company’s performance.
Management Accounting Change Drivers

Shift from a manufacturing-based

to a service-based economy

Increased global competition

Advances in technology

Changes in business processes

Major Influences on Management
Accounting

Advances in technology:
E-commerce
Enterprise resource planning (ERP)

Business process reengineering:

Just-in-time (JIT) philosophy
Lean manufacturing
Computer-integrated manufacturing
Six sigma
 The End

End of Chapter 1