managerial accounting

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 1

Managerial Accounting and the

Business Organization

PRESENTED BY

BABASAB PATIL

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 2

Learning Objective 1

Describe the major users and

uses of accounting information.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 3

Users ofAccounting Information

use information for day-to-dayoperating decisions...

Internal managers…

and for long-rangestrategic decisions.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 4

Users of Accounting Information

External parties:

use information formaking decisions

about the company.Investors

Government authorities

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 5

What kinds of Accounting Information do Managers Need?

Good accounting informationhelps an organization achieve

its goals and objectives.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 6

Uses ofAccounting Information

This is the accumulating and classification of data.

Am I doing well or poorly?

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 7

Uses ofAccounting Information

Which problems should I look into?

Attention directing means reporting and interpreting information that helps

managers to focus on operating problems.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 8

Uses ofAccounting Information

This role asks: Of the several alternativesavailable, which is the best?

This often involves special studies.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 9

Learning Objective 2

Describe the cost-benefit and

behavioral issues involved in

designing an accounting system.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 10

Influences on Accounting Systems

An accounting system is a formal mechanismfor gathering, organizing, and communicatinginformation about an organization’s activities.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 11

Influences on Accounting Systems

Generally accepted accounting principles (GAAP)

Foreign Corrupt Practices Act

Internal control Management audits

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 12

Influences on Accounting Systems

In 2002 the Sarbanes-Oxley Act requiredchief executive officers to sign a

statement verifying the accuracy ofthe company’s financial statements.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 13

Importance of Ethics

No regulation can be as effective inensuring reliability as high ethical

standards of accountants.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 14

Management Accounting in Service and Nonprofit Organizations

Serviceorganizations

Nonprofitorganizations

Accounting firmsLaw firms

Real estate firmsBanksHotels

HospitalsSchoolsLibrariesMuseums

Government agencies

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 15

Service Organizations

Labor is intensive.

Output is usually difficult to define.

Major inputs and outputs cannot be stored.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 16

Cost-Benefit and Behavioral Considerations

1. Cost-benefit balance

2. Behavioral implications

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 17

Cost-Benefit Balance

The primary consideration in choosingamong accounting systems andmethods is weighing estimatedcosts against probable benefits.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 18

Behavioral Implications

The system must provide accurate,timely budgets and performance

reports in a form useful to managers.

If managers do not use accountingreports, the reports create no benefits.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 19

Learning Objective 3

Explain the role of budgets

and performance reports

in planning and control.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 20

The Nature of Planning and Controlling

It is the purposeful choice from amonga set of alternative courses of actiondesigned to achieve some objective.

What is decision making?

This is the core of the management process.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 21

The Nature of Planning and Controlling

The management process internal accounting system:

Planning– Improve

profitability

Controlling– Actions

– Evaluations

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nd

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Budgets,Specialreports

Accountingsystem

Performancereports

Customersurveys

Competitoranalysis

Advertisingimpact

New itemsreport

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 22

Role of Budgets

A budget is a quantitativeexpression of a plan of action.

The Starbucks store would expressits plan for product growth andimproved marketing through

revenue and advertising budgets.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 23

Performance Reports

What are performance reports?

These are reports that compare actualresults with budgeted amounts.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 24

Performance Reports

Performance reports formalize controls andprovide feedback by comparing results with

plans and by highlighting variances.

Variances are deviations from the plan.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 25

Performance Reports

Budget Actual VarianceSales $50,000 $50,000 0Less:

Ingredients 22,000 24,500 $2,500 UStore labor 12,000 11,600 400 FOther labor 6,000 6,050 50 UUtilities, etc. 4,500 4,500 0

Total expenses $44,500 $46,650 $2,150 UOperating income $ 5,500 $ 3,350 $2,150 U

Starbucks Mayfair Store, March 31, 2004

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 26

Objective 4

Discuss the role accountants

play in the company’s

value chain functions.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 27

Planning and Control for Product Life Cycles and the Value Chain

Product life cycle refers to the variousstages through which a product passes.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 28

Planning and Control for Product Life Cycles and the Value Chain

Productdevelopment

Introductionto market

Maturemarket

Productphase-out

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 29

The Value Chain

Support functions

R & D Design Production

Marketing Distribution Service

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 30

Value Chain Functions

Research and development…

is the generation of, and experimentationwith, ideas related to new products,

services, or processes.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 31

Value Chain Functions

Design…

is the detail and engineering of products.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 32

Value Chain Functions

Production…

is the coordination and assemblyof resources to produce a

product or deliver a service.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 33

Value Chain Functions

Marketing…

is the manner by which individuals orgroups learn about the value andfeatures of products or services.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 34

Value Chain Functions

Distribution…

is the mechanism by which products orservices are delivered to the customer.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 35

Value Chain Functions

Customer service…

is the support activitiesprovided to the customer.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 36

Objective 5

Contrast the functions of

controllers and treasurers.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 37

Accounting’s Position in the Organization

Preparing standardized reports

Collecting and compiling information

Interpreting and analyzing information

Being involved in decision making

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 38

Line and Staff Authority

Line managers

Staff managers

Cross-functional teams

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 39

Controller and Treasurer Functions

Financial Vice-Presidentor CFO

Treasurer Controller

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 40

Functions of the Controller

Planning for control Reporting and interpreting Evaluating and consulting

Tax administration Government reporting Protection of assets Economic appraisal

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 41

Functions of the Treasurer

Provision of capital Investor relations

Short-term financing Banking and custody

Credits and collections Investments

Risk management (insurance)

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 42

Learning Objective 6

Explain why accounting

is important in a variety

of career paths.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 43

Career Opportunities in Management Accounting

The Certified Management Accountant(CMA) designation is the internal

accountant’s counterpart to the CPA.

CMAs must pass an examinationthat has four parts:

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 44

Career Opportunities in Management Accounting

1. Economics, finance, and management

2. Financial accounting and reporting

3. Management reporting, analysis,and behavioral issues

4. Decision analysis andinformation systems.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 45

Learning Objective 7

Identify current trends in

management accounting.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 46

Current Trends

Shift from a manufacturing-basedto a service-based economy

Increased global competition

Advances in technology

Changes in business processes

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 47

Current Trends

Just-in-time (JIT) philosophy

Computer-aided design

Computer-aided manufacturing

Computer-integrated manufacturing

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 48

Learning Objective 8

Appreciate the importance

of ethical conduct to

professional accountants.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 49

Standards of Ethical Conduct

The Institute of Management Accountants (IMA)is the largest association of management

accountants in the United States.

The IMA has issued a Standards of EthicalConduct for Practitioners of ManagementAccounting and Financial Management.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 50

Pressures for Unethical Behavior

Ignoring the small stuff

Economic cycles

Accounting rules

Emphasis on short-term results

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 51

End of Chapter 1