Chapter 1Chapter 1

The Changing Role of Managerial

Accounting in a Dynamic Business

Environment

The Changing Role of Managerial

Accounting in a Dynamic Business

Environment

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Learning Objective

1

Learning Objective

1

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Managerial accounting is the process of Identifying Measuring Analyzing Interpreting Communicating information

Define Managerial AccountingDefine Managerial Accounting

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Learning Objective

2

Learning Objective

2

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Managing Resources, Activities, Managing Resources, Activities, and Peopleand People

An organization . . .

Acquires Resources

Hires People

Organized setOrganized setof activitiesof activities

Organized setOrganized setof activitiesof activities

DecisionMaking

DecisionMaking

PlanningPlanning

DirectingDirecting

ControllingControlling

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Learning Objective

3

Learning Objective

3

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How Managerial Accounting How Managerial Accounting Adds Value to the OrganizationAdds Value to the Organization

• Providing information for decision making and planning.

• Assisting managers in directing and controlling activities.

• Motivating managers and other employees towards organization’s goals.

• Measuring performance of subunits, activities, managers, and other employees.

• Assessing the organization’s competitive position.

• Providing information for decision making and planning.

• Assisting managers in directing and controlling activities.

• Motivating managers and other employees towards organization’s goals.

• Measuring performance of subunits, activities, managers, and other employees.

• Assessing the organization’s competitive position.

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The Balanced ScorecardThe Balanced ScorecardFinancial Perspective

Goals Measures

Customer PerspectiveGoals Measures

Operations PerspectiveGoals Measures

Innovation PerspectiveGoals Measures

How do we look to

owners?

How do customers

see us?How can we continue to improve?

In which In which activities activities must we must we excel?excel?

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Learning Objective

4

Learning Objective

4

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Managerial versus Financial Managerial versus Financial AccountingAccountingAccounting SystemAccounting System

(accumulates financial and(accumulates financial andmanagerial accounting data in the managerial accounting data in the

cost accounting system)cost accounting system)

Accounting SystemAccounting System(accumulates financial and(accumulates financial and

managerial accounting data in the managerial accounting data in the cost accounting system)cost accounting system)

Managerial AccountingManagerial AccountingInformation for decisionInformation for decisionmaking, planning, and making, planning, and

controlling an controlling an organization’sorganization’s

operations.operations.

Managerial AccountingManagerial AccountingInformation for decisionInformation for decisionmaking, planning, and making, planning, and

controlling an controlling an organization’sorganization’s

operations.operations.

Financial AccountingFinancial AccountingPublished financialPublished financial

statements and otherstatements and otherfinancial reports.financial reports.

Financial AccountingFinancial AccountingPublished financialPublished financial

statements and otherstatements and otherfinancial reports.financial reports.

InternalInternalUsersUsers

ExternalExternalUsersUsers

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Managerial versus Financial Managerial versus Financial AccountingAccounting

Managerial Accounting Financial AccountingUsers 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 delays

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

Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data.

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Learning Objective

5

Learning Objective

5

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• A staff position supports and assists line positions.

– Example: A cost accountant in the manufacturing plant.

• A staff position supports and assists line positions.

– Example: A cost accountant in the manufacturing plant.

Line and Staff PositionsLine and Staff Positions

• A line position is directly involved in achieving the basic objectives of an organization.

– Example: A production supervisor in a manufacturing plant.

• A line position is directly involved in achieving the basic objectives of an organization.

– Example: A production supervisor in a manufacturing plant.

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Learning Objective

6

Learning Objective

6

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ControllerController

The chief managerial and financial accountant responsibility for:– Supervising accounting personnel – Preparation of information and reports, managerial

and financial– Analysis of accounting information– Planning and decision making

The chief managerial and financial accountant responsibility for:– Supervising accounting personnel – Preparation of information and reports, managerial

and financial– Analysis of accounting information– Planning and decision making

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TreasurerTreasurer

Responsible for raising capital and safeguarding the organization’s assets.– Supervises relationships with financial institutions.– Work with investors and potential

investors. – Manages investments.– Establishes credit policies.– Manages insurance coverage

Responsible for raising capital and safeguarding the organization’s 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 AuditorInternal Auditor

Responsible for reviewing accounting procedures, records, and reports in both the controller’s and the treasurer’s area of responsibility.– Expresses an opinion to top

management regarding theeffectiveness of theorganizations accountingsystem.

Responsible for reviewing accounting procedures, records, and reports in both the controller’s and the treasurer’s area of responsibility.– Expresses an opinion to top

management regarding theeffectiveness of theorganizations accountingsystem.

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Learning Objective

7

Learning Objective

7

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Major Themes in Managerial Major Themes in Managerial AccountingAccounting

ManagerialManagerialAccountingAccounting

Informationand IncentivesInformation

and Incentives

Costs andBenefits

Costs andBenefits

Evolution andAdaptation

Evolution andAdaptation

BehavioralIssues

BehavioralIssues

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Evolution and Adaptation in Evolution and Adaptation in Managerial AccountingManagerial Accounting

E-Business

Service vs. Manufacturing Firms

Emergence of NewIndustries

Global Competition

Focus on the Customer

Cross-Functional Teams

Product Life Cycles

Time-Based Competition

Information andCommunication

Technology

Just-in-Time Inventory

Total Quality Management

Continuous Improvement

ChangeChange

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ObjectivesMeasure the cost of

resources consumed.Identify and eliminate

non-value-added costs.

ObjectivesMeasure the cost of

resources consumed.Identify and eliminate

non-value-added costs.

Cost Management SystemsCost Management Systems

CostManagement

System

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ObjectivesDetermine efficiency

and effectiveness of major activities.

Identify and evaluate new activities that can improve performance.

ObjectivesDetermine efficiency

and effectiveness of major activities.

Identify and evaluate new activities that can improve performance.

Cost Management SystemsCost Management Systems

CostManagement

System

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Learning Objective

8

Learning Objective

8

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ProductProductDesignDesign

ProductProductDesignDesign

ResearchResearchandand

DevelopmentDevelopment

ResearchResearchandand

DevelopmentDevelopment

Strategic Cost Management and Strategic Cost Management and the Value Chainthe Value Chain

Securing rawSecuring rawmaterials andmaterials and

other resourcesother resources

Securing rawSecuring rawmaterials andmaterials and

other resourcesother resources

ProductionProductionProductionProduction

MarketingMarketingMarketingMarketing

DistributionDistributionDistributionDistribution

CustomerCustomerServiceService

CustomerCustomerServiceServiceStartStart

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Theory of ConstraintsTheory of Constraints

A sequential process of identifying and identifying and removing constraintsremoving constraints in a system.

Restrictions or barriers that impedeprogress toward an objective

Restrictions or barriers that impedeprogress toward an objective

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Learning Objective

9

Learning Objective

9

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Ethical Climate of BusinessEthical Climate of Business The corporate scandals experienced over the last

few years have shown us that unethical behavior in business is wrong in a moral sense and can be

disastrous in the economy. In addition to Sarbanes-Oxley, there will likely be more reforms

in corporate governance and accounting.

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

disastrous in the economy. In addition to Sarbanes-Oxley, there will likely be more reforms

in corporate governance and accounting.

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Learning Objective

10

Learning Objective

10

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Managerial Accounting as a Managerial Accounting as a CareerCareer

Professional Organizations

Institute of Management Accountants (IMA)Institute of Management Accountants (IMA)

PublishesManagementAccounting

and researchstudies.

PublishesManagementAccounting

and researchstudies.

AdministersCertified

ManagementAccountant

program

AdministersCertified

ManagementAccountant

program

DevelopsStandards of

EthicalConduct forManagementAccountants

DevelopsStandards of

EthicalConduct forManagementAccountants

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Professional EthicsProfessional Ethics

CompetenceCompetenceConfidentialityConfidentialityIntegrityIntegrityCredibilityCredibility

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End of Chapter 1End of Chapter 1

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