Introduction to Management Accounting

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

1 1 2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler - 1-1

Introduction to Management Accounting Chapter 1

Managerial Accounting, the Business Organization, and Professional Ethics

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

1 2 2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler - 1-2

Learning Objective 1

Users of Accounting Information

Definition of Accounting
Language of Business

Make Decisions About

People
Information Communicated To

Companies
Activities Measured By

Accountants

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

1 3 2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler - 1-3

Learning Objective 1

Users of Accounting Information

Definition of Accounting
Info system that provides users with info needed to make economic decisions

decision-maker (or user)

investors (individuals, institutions; including potential ones) financial institutions government labor union researchers, analysts internal managers
2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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Learning Objective 1

Users of Accounting Information

Financial Accounting
External Users

Management Accounting

Internal managers
Investors: Stockholders

Day-to-day operating decisions Long-range strategic decisions

Creditors: Suppliers Bankers

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

Government Authorities

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Learning Objective 1

Users of Accounting Information

Financial Accounting Management Accounting

Users

Objectives
Timing of info Regulated ?

To report financial positions and performances to external users

Delayed: historical Regulated: GAAP and Accounting Standards cf) IFRS Financial Periodically Reliability, Consistency, Accuracy .. Cf) Auditing

To provides internal managers with nfo need to make decisions

Present and/or Forward-looking Not regulated: to satisfy managements need for strategic/operational PLANDO-SEE Financial/Nonfinancial: process, technologies, suppliers, customers Periodically + As Needed More info with subjective judgement: Relevancy,

Types of Info When to report ? Info quality Scope of Reports

Aggregated: Summary reports for Disaggregated: segmental / geographical overall organization / Product / Customer 2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton
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Cost Accounting
Cost Accounting
O When broadly defined : costing and the use of cost info - MA CA O When narrowly defined: cost estimation/accumulation and costing: - CA : costing techniques/system, cost allocation, cost estimation etc. - MA: use of cost info to make decisions

Cost for Financial Accounting

- Cost of Goods Sold I/S - Ending Inventory B/S
2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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Decision Making
Scorekeeping: Evaluate Organizational Performance Attention Directing: Compare Actual Results to Expected

Problem Solving: Assess Possible Courses of Action

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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Accounting Information System

Process of gathering, organizing, and Communicating financial information

Financial Statements

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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Ethics
Reliability Trust
Integrity

No regulation can be as effective in ensuring reliability as high ethical standards of accountants.

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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Service and Nonprofit Organizations

Service organizations Accounting firms Law firms Real estate firms Banks Hotels Nonprofit organizations Hospitals Schools Libraries Museums Government agencies

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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Learning Objective 3

Cost-Benefit and Behavioral Considerations

Behavioral implications The system must provide accurate, timely budgets and performance reports in a form useful to managers.

Cost-benefit balance

Weigh estimated costs against probable benefits.

Managers must use accounting reports, or the reports create no benefits.

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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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.

Planning: Setting objectives and outlining how the objectives will be obtained.

Control: Implementing plans and using feedback to evaluate the attainment of objectives.

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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Learning Objective 4

The Nature of Planning and Controlling

Internal Accounting System
Budgets, Special Reports Accounting System
Other information systems

Management Process
Corrections and revisions of plans and actions

Planning Increase Profitability

Control Actions Evaluations

Performance Reports

Customer surveys Competitor analysis Advertising impact New items report

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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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

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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Performance Reports
Mayfair Starbucks Store, March 31, 20X7
Budget $50,000 22,000 12,000 6,000 4,500 $44,500 $ 5,500 Actual $50,000 24,500 11,600 6,050 4,500 $46,650 $ 3,350 Variance 0 $2,500 U 400 F 50 U 0 $2,150 U $2,150 U

Sales Less: Ingredients Store labor Other labor Utilities, etc. Total expenses Operating income

U= Unfavorable actual exceeds budget 2007 Favorable actual is less than budget. Accounting 14/e, Horngren/Sundem/Stratton F Prentice Hall Business Publishing, Introduction to Management
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Product Life Cycle

Product life cycle refers to the various stages through which a product passes.
No Sales Product Sales Growth Stable Sales Level Low sales No sales Phase-out

Development Introduction to Market

Mature Market

Product

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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The Value Chain

Research and Development Product And Service Process Design

Service

Customer Focus

Distribution
Marketing

Production

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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Learning Objective 7

Career Opportunities in Management Accounting

The Certified Management Accountant (CMA)

CMAs must pass a four-part examination: 1. Business Analysis 2. Management accounting and reporting 3. Strategic Management, and 4. Business Applications.

2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton

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