Introduction to Management Accounting

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Introduction to Management Accounting
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Chapter 1
Introduction to Management Accounting

• Managerial Accounting, the Business Organization,
  and Professional Ethics

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Users of Accounting Information
Learning Objective 1
Management Accounting
Financial Accounting
External Users
Internal managers
Investors Stockholders
Day-to-day operating decisions Long-range
strategic decisions
Creditors Suppliers
Bankers
Government Authorities
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Decision Making
Attention Directing Compare Actual Results to
Expected
Scorekeeping Evaluate Organizational Performance
Problem Solving Assess Possible Courses of
Action
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Accounting Information System
Process of gathering, organizing, and
Communicating financial information
Financial Statements
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Influences on Accounting Systems
Generally accepted accounting principles (GAAP)
Foreign Corrupt Practices Act
Internal controls
Sarbanes-Oxley Act
Internal auditors
Management audits
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Sarbanes-Oxley Act
Learning Objective 2
In 2002, the Sarbanes-Oxley Act required chief
executive officers to sign a statement verifying
the accuracy of the companys financial
statements.
External auditors must examine and report on
the companys internal control system.
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Ethics
Reliability
Trust
Integrity
No regulation can be as effective in ensuring
reliability as high ethical standards of
accountants.
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Service and Nonprofit Organizations
Service organizations
Nonprofit organizations
Accounting firms Law firms Real estate
firms Banks Hotels
Hospitals Schools Libraries Museums Government
agencies
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Cost-Benefit and Behavioral Considerations
Learning Objective 3
Cost-benefit balance
Behavioral implications
The system must provide accurate, timely budgets
and performance reports in a form useful to
managers.
Weigh estimated costs against probable benefits.
Managers must use accounting reports, or the
reports create no benefits.
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Decision Making
Decision making the purposeful choice from
among a set of alternative courses of action
designed to achieve some objective.
Control Implementing plans and using feedback
to evaluate the attainment of objectives.
Planning Setting objectives and outlining how
the objectives will be obtained.
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The Nature of Planning and Controlling
Learning Objective 4
Internal Accounting System
Management Process
Corrections and revisions of plans and actions
Budgets, Special Reports
Other information systems
Planning Increase Profitability
Customer surveys
Competitor analysis
Accounting System
Advertising impact
Control Actions Evaluations
Performance Reports
New items report
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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
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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.
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Product Life Cycle
Product life cycle refers to the various stages
through which a product passes.
No Sales Product Development
Low sales ? No sales Phase-out Product
Sales Growth Introduction to
Market
Stable Sales Level Mature Market
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Econ. Can Help Explain Life-Cycle

• Returns to Scale in Production (the Cost Side)
• U-Shaped Average Cost Curve
• Demand can cut Average Cost at Decreasing or
  Increasing Average Costs
• Network Returns to Scale in Demand
• User-Networks Build Value
• Learning Curves and Lock-In
• Microsoft Case (see articles by Paul Krugman and
  Brian Arthur)

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The Value Chain
Research and Development
Product And Service Process Design
Service
Customer Focus
Production
Distribution
Marketing
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Management Accountants Role as Internal
Consultant
Learning Objective 5
Collects and compiles information
Prepares standardized reports
Internal Consultant
Interprets and Analyzes information
Is Involved In decision making
Management
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Organizational Authority and Responsibility
Line managers directly involved with making
and selling products or services.
Staff managers Advisory Support line
managers.
Cross-functional teams Found in modern,
flatter organizations Functional areas work
together In decision making process.
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Accounting Function
Learning Objective 6
Chief Financial Officer (CFO)
Treasurer Functions
Controller Functions

• Provision of capital
• Investor relations
• Short-term financing
• Banking and custody
• Credits and collections
• Investments
• Risk management (insurance)

• Planning for control
• Reporting and interpreting
• Evaluating and consulting
• Tax administration
• Government reporting
• Protection of assets
• Economic appraisal

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Career Opportunities in Management Accounting
Learning Objective 7
The Certified Management Accountant (CMA)

• CMAs must pass a four-part examination
• Business Analysis
• Management accounting and reporting
• Strategic Management, and
• 4. Business Applications.

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Management Accounting Change Drivers
Learning Objective 8
Shift from a manufacturing-based to a
service-based economy
Increased global competition
Advances in technology
Changes in business processes
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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-integ
rated manufacturing Six sigma
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Standards of Ethical Conduct
Learning Objective 9
The Institute of Management Accountants
(IMA) Statement of Ethical Professional Practice
for Management Accounting Members Requires
members to adhere to a code of conduct
regarding Competence,
Confidentiality, Integrity, and Credibility.
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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.

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Unethical Behavior Temptations

• Emphasis on short-term results
• Pressure to meet expected profit numbers.

• Ignoring the small stuff
• Large misdeeds often result from many small ones.

• Economic cycles
• A downturn market can reveal what an upturn
  market conceals.
• Vigilance in all stages of economic markets
  maintains high ethical standards.

• Accounting rules
• Avoid creative interpretations of the rules.
• Practice full and fair disclosure to convey
  companys performance.

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The End
End of Chapter 1