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


Learning Objective 1

Describe the major users and

uses of accounting information.


Users ofAccounting Information

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

Internal managers…

and for long-rangestrategic decisions.


Users of Accounting Information

External parties:

use information formaking decisions

about the company.Investors

Government authorities


What kinds of Accounting Information do Managers Need?

Good accounting informationhelps an organization achieve

its goals and objectives.


Uses ofAccounting Information

This is the accumulating and classification of data.

Am I doing well or poorly?



Which problems should I look into?

Attention directing means reporting and interpreting information that helps

managers to focus on operating problems.



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

This often involves special studies.



Describe the cost-benefit and

behavioral issues involved in

designing an accounting system.


Influences on Accounting Systems

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



Generally accepted accounting principles (GAAP)

Foreign Corrupt Practices Act

Internal control Management audits



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

statement verifying the accuracy ofthe company’s financial statements.


Importance of Ethics

No regulation can be as effective inensuring reliability as high ethical

standards of accountants.


Management Accounting in Service and Nonprofit Organizations

Serviceorganizations

Nonprofitorganizations

Accounting firmsLaw firms

Real estate firmsBanksHotels

HospitalsSchoolsLibrariesMuseums

Government agencies


Service Organizations

Labor is intensive.

Output is usually difficult to define.

Major inputs and outputs cannot be stored.


Cost-Benefit and Behavioral Considerations

1. Cost-benefit balance

2. Behavioral implications


Cost-Benefit Balance

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


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.



Explain the role of budgets

and performance reports

in planning and control.


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.


The Nature of Planning and Controlling

The management process internal accounting system:

Planning– Improve

profitability

Controlling– Actions

– Evaluations

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Budgets,Specialreports

Accountingsystem

Performancereports

Customersurveys

Competitoranalysis

Advertisingimpact

New itemsreport


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.


Performance Reports

What are performance reports?

These are reports that compare actualresults with budgeted amounts.


Performance Reports

Performance reports formalize controls andprovide feedback by comparing results with

plans and by highlighting variances.

Variances are deviations from the plan.


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


Objective 4

Discuss the role accountants

play in the company’s

value chain functions.


Planning and Control for Product Life Cycles and the Value Chain

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


Planning and Control for Product Life Cycles and the Value Chain

Productdevelopment

Introductionto market

Maturemarket

Productphase-out


The Value Chain

Support functions

R & D Design Production

Marketing Distribution Service


Value Chain Functions

Research and development…

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

services, or processes.



Design…

is the detail and engineering of products.



Production…

is the coordination and assemblyof resources to produce a

product or deliver a service.



Marketing…

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



Distribution…

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



Customer service…

is the support activitiesprovided to the customer.


Objective 5

Contrast the functions of

controllers and treasurers.


Accounting’s Position in the Organization

Preparing standardized reports

Collecting and compiling information

Interpreting and analyzing information

Being involved in decision making


Line and Staff Authority

Line managers

Staff managers

Cross-functional teams


Controller and Treasurer Functions

Financial Vice-Presidentor CFO

Treasurer Controller


Functions of the Controller

Planning for control Reporting and interpreting Evaluating and consulting

Tax administration Government reporting Protection of assets Economic appraisal


Functions of the Treasurer

Provision of capital Investor relations

Short-term financing Banking and custody

Credits and collections Investments

Risk management (insurance)



Explain why accounting

is important in a variety

of career paths.


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:


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.



Identify current trends in

management accounting.


Current Trends

Shift from a manufacturing-basedto a service-based economy

Increased global competition

Advances in technology

Changes in business processes


Current Trends

Just-in-time (JIT) philosophy

Computer-aided design

Computer-aided manufacturing

Computer-integrated manufacturing



Appreciate the importance

of ethical conduct to

professional accountants.


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.


Pressures for Unethical Behavior

Ignoring the small stuff

Economic cycles

Accounting rules

Emphasis on short-term results


End of Chapter 1

managerial accounting

Education

accounting reports

accounting systems

management accounting

good accounting information

managerial accounting

andinterpreting information

value chain functions

companys value chain