CHAPTER 1

The Accountant’s Role in the Organization

Accounting Discipline Overview
Managerial Accounting – measures, analyzes and
reports financial and nonfinancial information to help
managers make decisions to fulfill organizational
goals. Managerial accounting need not be GAAP
compliant.

Financial Accounting – focus on reporting to external

users including investors, creditors, and governmental
agencies. Financial statements must be based on
GAAP.

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Major Differences Between
Financial & Managerial Accounting
Managerial Accounting Financial Accounting

Purpose Decision making Communicate financial

position to outsiders

Primary Users Internal managers External users

Focus/Emphasis Future-oriented Past-oriented

Rules Do not have to follow GAAP; GAAP compliant;

cost vs. benefit CPA audited
Ultra current to very long Historical monthly,
Time Span time horizons quarterly reports
Behavioral Designed to influence Indirect effects on
Issues employee behavior employee behavior

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Strategy & Management Accounting
Strategy – specifies how an organization matches its
own capabilities with the opportunities in the
marketplace to accomplish its objectives
Strategic Cost Management – focuses specifically on
the cost dimension within a firm’s overall strategy

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Strategy & 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 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
company’s product or service

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Management Accounting and Value
Value Chain is the sequence of business functions
in which customer usefulness is added to products
or services
The Value-Chain consists of:
1. Research & Development
2. Design
3. Production
4. Marketing
5. Distribution
6. Customer Service
The Value Chain Illustrated
A Value Chain Implementation
Exercise 1-18
Value chain and classification of costs
Classify each of the cost items (a–h) as one of the business functions of the value chain
shown in Exhibit 1-2 (p. 7).

Burger King, a hamburger fast food restaurant, incurs the following costs:

a. Cost of oil for the deep fryer a. Production

b. Wages of the counter help who

b. Production
give customers the food they
order
c. Marketing
c. Cost of the costume for the
King on the Burger King television
commercials d. Marketing

d. Cost of children’s toys given

away free with kids’ meals
Value chain and classification of costs
e. Cost of the posters indicating e. Marketing
the special “two cheeseburgers for
$2”
f. Production
f. Costs of frozen onion rings and
French fries

g. Design of products, services

g. Salaries of the food specialists or processes
who create new sandwiches for the
restaurant chain
h. Customer service
h. Cost of “to-go” bags requested
by customers who could not finish
their meals in the restaurant
Key Success Factors
The dimensions of performance that customers
expect, and that are key to the success of a company
include:
 Cost and efficiency
 Quality
 Time
 Innovation

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Planning & Control Systems
Planning selects goals, predicts results, decides how to
attain goals, and communicates this to the
organization
 Budget – the most important planning tool
Control takes actions that implement the planning
decision, decides how to evaluate performance, and
provides feedback to the organization

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A Five-Step Decision Making Process in
Planning & Control

1. Identify the problem and uncertainties

2. Obtain information
3. Make predictions about the future
4. Make decisions by choosing between alternatives
5. Implement the decision, evaluate performance, and
learn
Exercise 1-21
Five-step decision-making process, manufacturing
Garnicki Foods makes frozen dinners that it sells through
grocery stores. Typical products include turkey dinners, pot
roast, fried chicken, and meat loaf.
The managers at Garnicki have recently introduced a line of
frozen chicken pies. They take the following actions with
regard to this decision.
Classify each action as a step in the five-step decision-
making process (identify the problem and uncertainties,
obtain information, make predictions about the future,
choose among alternatives, implement the decision, evaluate
performance, and learn).
Five-step decision-making process
a.Garnicki performs a taste test at the local shopping mall to see if
consumers like the taste of its proposed new chicken pie
product.
Obtain information

b. Garnicki sales managers estimate they will sell more meat

pies in their northern sales territory than in their southern sales
territory.
Make predictions about the future

c. Garnicki managers discuss the possibility of introducing a

new product.
Identify the problem and uncertainties
Five-step decision-making process
d. Garnicki managers compare actual costs of making
chicken pies with their budgeted costs.
Implement the decision, evaluate performance, and learn

e. Costs for making chicken pies are budgeted.

Make predictions about the future

f. Garnicki decides to make chicken pies.

Make decisions by choosing among alternatives

g. The purchasing manager calls a supplier to check the prices of

chicken.
Obtain information
Management Accounting Guidelines
Cost – Benefit approach is commonly used: benefits
generally must exceed costs as a basic decision rule
Behavioral & Technical Considerations – people are
involved in decisions, not just dollars and cents
Different definitions of cost may be used for different
applications

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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