chapter 1 managerial accounting in the information age slide 1-2

CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1

Managerial Accounting

In the

Information Age

Slide 1-2

Managerial AccountingManagerial AccountingManagerial AccountingManagerial Accounting

Managerial accounting is designed for internal users

The goal of Managerial Accounting is to provide the information managers need for

- Planning

- Control

- Decision making

Slide 1-3 Learning objective 1: State the primary goal of managerial accounting

PlanningPlanningPlanningPlanning

Budgets for planning Profit budget

- Indicates planned income Cash flow budget

- Indicates planned cash inflows and outflows

Production budget

- Indicates the planned quantity of production and expected costs

Slide 1-4 Learning objective 2: Describe how budgets are used in planning

PlanningPlanningPlanningPlanning

Slide 1-5 Learning objective 2: Describe how budgets are used in planning

ControlControlControlControl

Organizations achieve control by: Evaluating managers to determine how

their performance should be rewarded or punished

Evaluating operations to provide information as to whether they should be changed or not

Slide 1-6 Learning objective 3: Describe how performance reports are used in the control process

Planning and Control Planning and Control ProcessProcess

Planning and Control Planning and Control ProcessProcess

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Learning objective 3: Describe how performance reports are used in the control process

Sample Performance ReportSample Performance ReportSample Performance ReportSample Performance Report

Slide 1-8 Learning objective 3: Describe how performance reports are used in the control process

Managerial vs Financial Managerial vs Financial AccountingAccounting

Managerial vs Financial Managerial vs Financial AccountingAccounting

Unlike Financial Accounting, Managerial Accounting: Is directed at internal users May deviate from GAAP Presents more detailed information May present more nonmonetary

information Places more emphasis on the future

Slide 1-9 Learning objective 4: Distinguish between financial and managerial accounting

Cost TerminologyCost TerminologyCost TerminologyCost Terminology

Variable Costs

- Change in proportion to changes in volume or activity

Slide 1-10 Learning objective 5: Define cost terms used in planning, control, and decision making


Fixed Costs- Do not change in response to changes in volume or

activity


Which of the following is most likely to be a variable cost?

a. Depreciationb. Cost of materialsc. Rentd. Advertising

Answer:b. Cost of materials

Slide 1-12 Learning objective 5: Define cost terms used in planning, control, and decision

Which of the following is most likely to be a fixed cost?

a. Cost of materialsb. Rentc. Assembly labor costd. Commissions

Answer:b. Rent



Sunk Costs

- Costs incurred in the past - Not relevant to present decisions

Opportunity Costs

- Values of benefits foregone when selecting one alternative over another


Costs incurred in the past are:a. Opportunity costsb. Direct costsc. Sunk costsd. Variable costs

Answer:c. Sunk costs



Direct and indirect costs- Direct costs are directly traceable to a

product, activity, or department, indirect costs are not traceable

Controllable & noncontrollable costs- A manager can influence controllable

costs but cannot influence noncontrollable costs


Direct and Indirect CostDirect and Indirect CostDirect and Indirect CostDirect and Indirect Cost


In the past year, Williams Mold & Machine had sales of $8,000,000 and total production costs of $6,000,000. In the coming year, the company believes that production can be increased by 30%, but this will require adding a second shift to work from 4:00 pm to 1:00 am.

Slide 1-18

1. Indicate three production costs that are likely to increase because of adding a second production shift.

Material costs, workers’ salaries, and benefits are all likely to increase

Learning objective 5: Define cost terms used in planning, control, and decision making

In the past year, Williams Mold & Machine had sales of $8,000,000 and total production costs of $6,000,000. In the coming year, the company believes that production can be increased by 30%, but this will require adding a second shift to work from 4:00 pm to 1:00 am.

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2. What production cost most likely will not increase when the second shift is added?

Depreciation of the building will not increase

Learning objective 5: Define cost terms used in planning, control, and decision making

Two Key Ideas in Managerial Two Key Ideas in Managerial AccountingAccounting

Two Key Ideas in Managerial Two Key Ideas in Managerial AccountingAccounting

Slide 1-20 Learning objective 6: Explain the two key ideas in managerial accounting

Incremental AnalysisIncremental AnalysisIncremental AnalysisIncremental Analysis


Incremental analysis: Differences in revenues and costs between

alternatives are incremental Incremental revenue minus incremental cost

equals incremental profit

You Get What you MeasureYou Get What you MeasureYou Get What you MeasureYou Get What you Measure

Performance measures greatly influence the behavior of managers


You Get What you MeasureYou Get What you MeasureYou Get What you MeasureYou Get What you Measure


Information Age and Information Age and Managerial AccountingManagerial AccountingInformation Age and Information Age and

Managerial AccountingManagerial Accounting

Advances in information technology have: increased competition and also created

opportunities and cost savings for firms that use information for strategic advantage

impacted information flows up and down the value chain (i.e. fundamental activities that a firm engages in to create value)

Slide 1-24 Learning objective 7: Discuss the impact of information technology on competition, business processes and the interactions companies have with suppliers and customers

The Value ChainThe Value ChainThe Value ChainThe Value Chain


Impact of Software Systems Impact of Software Systems on the Value Chainon the Value Chain

Impact of Software Systems Impact of Software Systems on the Value Chainon the Value Chain

Enterprise Resource Planning (ERP)- Computerize inventory control and production

planning

Supply Chain Management (SCM)- Organization of activities between a company and

its suppliers

Customer Relationship Management (CRM)- Manages a variety of customer interactions


Customer Relationship Customer Relationship ManagementManagement

Customer Relationship Customer Relationship ManagementManagement


Ethical and Unethical BehaviorEthical and Unethical BehaviorEthical and Unethical BehaviorEthical and Unethical Behavior

Examples of unethical behavior Enron managers mislead investors by hiding

debt, i.e. Kenneth Lay, CEO, found guilty of fraud

WorldCom overstated profits, i.e. Bernard Ebbers, CEO, received a 25 year prison sentence

Dennis Kozlowski, head of Tyco, was charged with avoiding taxes

Sam Waksal, cofounder of IMClone, was charged with insider trading

Slide 1-28 Learning objective 8: Describe a framework for ethical decision making

Sarbanes-Oxley ActSarbanes-Oxley ActSarbanes-Oxley ActSarbanes-Oxley Act


Enacted by Congress in July 2002

Requires CEO and CFO to certify that the financial statements do not contain any untrue statements or omissions

Bans certain types of work by the company’s auditors to ensure their independence

Provides for longer jail sentences and larger fines for executives (i.e. fines up to $5 million and jail terms up to 20 years)

Requires companies to report on the existence and reliability of internal controls

Framework for Ethical Framework for Ethical Decision MakingDecision Making


When evaluating a decision, ask:1. What decision alternatives are available?

2. What individuals or organizations have a stake in the outcome of my decision?

3. Will an individual or an organization be harmed by any of the alternatives?

4. Which alternative will do the most good with the least harm?

5. Would someone I respect find any of the alternatives objectionable?




After deciding on a course of action, but beforetaking action, ask:

6. At a gut level, am I comfortable with the decision I am about to make?

7. Will I be comfortable telling my friends and family about this decision?


Ethical Decision MakingEthical Decision MakingEthical Decision MakingEthical Decision Making


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

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


Professional organization which focuses on management accounting:

Developed Statement of Ethical Professional Practice

Maintains ethics helpline Publishes Strategic Finance and

Management Accounting Quarterly Conducts comprehensive examination

to test knowledge of management accountants

Duties of OfficersDuties of OfficersDuties of OfficersDuties of Officers

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Controller

- Prepares reports to plan and evaluate company activities

- Provides information needed to make management decisions

- Files all financial accounting reports and tax filings with IRS and other tax agencies

- Coordinates activities of external auditors

Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer


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Treasurer Manages cash and marketable securities

Prepare cash forecasts

Obtains financing from banks and other lenders

Maintain relationships with investors, banks, and other creditors



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Chief Information Officer (CIO) responsible for information technology

and computer systems

Chief Financial Officer (CFO) responsible for accounting and finance

operations


Organizational Chart for the Organizational Chart for the Controller’s OfficeController’s Office

Organizational Chart for the Organizational Chart for the Controller’s OfficeController’s Office

Slide 1-37 Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer

Decision MakingDecision MakingDecision MakingDecision Making

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chapter 1 managerial accounting in the information age slide 1-2

Documents

decision slide

rent slide

planningplanning slide

activity slide

future slide

control process slide

costs costs

learning objective