CHAPTER 1 THE MANAGER AND MANAGEMENT ACCOUNTING

LEARNING OBJECTIVES:

1. Major Types of Accounting

2. 3. 4. 5. 6. Strategy and Management Accounting Value Chain and Supply Chain Analysis The Five-step Decision-making Process Management Accounting Guidelines Organization Structure and the Management Accountant 7. Professional Ethics

Nature and Definition of Accounting

Accounting is the information system that processes and measures economic transactions of a business and communicates the results to interested users through financial and performance reports. Interested users include: External users such as investors, creditors, government agencies and financial analysts. Internal users includes executives, managers and supervisors within the company. Financial reports include income statement, balance sheet, statement of cash flows and the statement of owners equity. Performance reports include production report and sales report.

Major Types of Accounting

Managerial accountingmeasures, analyzes, and reports financial and nonfinancial information to help managers make decisions to fulfill organizational goals. Managerial accounting need not be GAAP compliant. Financial accountingfocus on reporting to external users including investors, creditors, and governmental agencies. Financial statements must be based on GAAP. Cost accountingprovides information that is used to measure the cost of acquiring and using resources in an organization

Some Differences Between Financial And Managerial Accounting

Financial accounting: Managerial accounting Governed by GAAP: Not governed by GAAP Mandatory: Not mandatory Historical in nature: Focuses more on the future For external reporting: For internal reporting

Strategy and Management Accounting

Strategyspecifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives Strategic cost managementfocuses specifically on the cost dimension within a firms overall strategy

Strategy and Management Accounting

Management accounting helps answer important questions such as: Who are our most important customers, and how do we deliver value to them? What substitute products exist in the marketplace, and how do they differ from our own? What substitute products exist in the marketplace, and how do they differ from our own? What is our critical capability? Will we have enough cash to support our strategy or will we need to seek additional sources?

Management Accounting and Value

Creating value is an important part of planning and implementing strategy Value is the usefulness a customer gains from a companys product or service

The Value Chain

The value chain is the major business functions that add usefulness to an organizations products or services: These major business functions are: Research and development experimenting with ideas to create new products or improve existing ones. For example Scientists salaries and depreciation of research equipment Product design detailed planning and engineering of products, services or processes such as cost to design the product package

The Value Chain

Production - converting materials into a finished product through the effort of workers and the use of other production resources. For example materials purchased to make the product Marketing costs incurred to secure customers orders, such as advertising, promotions, sales commission and sales personnel salaries Distribution cost incurred to transport products from an organizations warehouse to customers locations such as shipping and handling costs Customer service after sales support services such as returns processing and warranty repairs

The Value Chain Illustrated

The Supply Chain

The supply chain is the flow of goods, services and information from the initial source of materials and services to the final consumers Companies buy resources from suppliers. These suppliers are part of the supply chain Companies sell their products to distributors and customers. These distributors and customers form another part of the supply chain

Key Success Factors

Cost and efficiency Quality Time Innovation

The Five-Step Decision-Making Process

Identify the problem and uncertainties: Fuel price has been rising astronomically. Fuel cost is critical to Company A. Obtain information: Company A collects information about using smaller fuel-efficient trucks or outsourcing the delivery needs to other trucking companies. Make predictions about the future: Company A calculates the expected cost of the two alternatives.

The Five-Step Decision-Making Process

Choose among alternatives: After considering the options Company A chooses to outsource the delivery needs to other trucking companies Implement the decision and evaluate performance: Company A sells its fleet of trucks and contracts with other trucking companies to make its deliveries. Senior management also instructs operational managers to provide an updated quarterly review of the decision

Planning And Controlling

Planning is the establishment of objectives for an organization and determination of the steps necessary to achieve these objectives. Budgets are important planning tool Strategic planning is developing long-range courses of action to achieve the organization objectives Tactical planning is developing short-range courses of action to manage the day-to-day operations of the organization Controlling is the process of ensuring that organizational objectives are being attained and taking corrective actions when necessary Budgets are important conntrol tools

Management Accounting Guidelines

Costbenefit approach is commonly used: benefits generally must exceed costs as a basic decision rule. Behavioral and technical considerationspeople are involved in decisions, not just dollars and cents. Managers use alternative ways to compute costs in different decision-making situations.

Organization Structure and the Management Accountant

Line and Staff Management: Line managers are directly involved in the achievement of the basic objectives of an organization Staff managers provide advice and support to line and other staff managers

A Typical Organizational Structure and the Management Accountant

Professional Ethics

The four standards of ethical conduct for management accountants as advanced by the Institute of Management Accountants: Competence Confidentiality Integrity Objectivity

Professional Ethics

IMAs suggested guidance for resolving ethical issues:

Discuss the issue with your immediate

supervisor, or if the issue involves your supervisor, go to the next level in authority. If the issue is still unresolved keep going to the next level of management. This may require contacting the Board of Directors eventually.

Clarify the issue by discussing it with an IMA

Ethics Counselor or other impartial advisor(s).

Consult your attorney about your rights and

obligations.