Managerial Accounting and The Business Organization

Managerial Accounting
and the Business

Organization
Chapter 1
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
1-1
Learning Objective 1
Describe the major users and

uses of accounting information.
1-2
Users of
Accounting Information
Internal managers
use information for day-to-day
operating decisions...
and for long-range
strategic decisions.
1-3
Users of
External parties:
Investors
use information for

making decisions
about the company.
Government authorities
1-4
What kinds of Accounting

Information do Managers Need?
Good accounting information
helps an organization achieve
its goals and objectives.
1-5
Uses of
Am I doing well or poorly?

This is the accumulating and
classification of data.
1-6
Uses of
Which problems should I look into?

Attention directing means reporting and
interpreting information that helps
managers to focus on operating problems.
1-7
Uses of
This role asks: Of the several alternatives

available, which is the best?
This often involves special studies.
1-8
Describe the cost-benefit and
behavioral issues involved in
designing an accounting system.
1-9
Influences on Accounting
Systems
An accounting system is a formal mechanism
for gathering, organizing, and communicating
information about an organizations activities.
1 - 10
Systems
Generally accepted accounting principles (GAAP)
Foreign Corrupt Practices Act
Internal control
Management audits
1 - 11
Systems
In 2002 the Sarbanes-Oxley Act required

chief executive officers to sign a
statement verifying the accuracy of
the companys financial statements.
1 - 12
Importance of Ethics
No regulation can be as effective in

ensuring reliability as high ethical
standards of accountants.
1 - 13
Management Accounting in Service

and Nonprofit Organizations
Service
organizations
Nonprofit
organizations
Accounting firms
Law firms
Real estate firms
Banks
Hotels
Hospitals
Schools
Libraries
Museums
Government agencies
1 - 14
Service Organizations
Labor is intensive.
Output is usually difficult to define.
Major inputs and outputs cannot be stored.

1 - 15
Cost-Benefit and Behavioral

Considerations
1. Cost-benefit balance
2. Behavioral implications
1 - 16
Cost-Benefit Balance
The primary consideration in choosing

among accounting systems and
methods is weighing estimated
costs against probable benefits.
1 - 17
Behavioral Implications
The system must provide accurate,
timely budgets and performance
reports in a form useful to managers.
If managers do not use accounting
reports, the reports create no benefits.
1 - 18
Explain the role of budgets
and performance reports
in planning and control.
1 - 19
The Nature of Planning and

Controlling
What is decision making?
It is the purposeful choice from among
a set of alternative courses of action
designed to achieve some objective.
This is the core of the management process.
1 - 20
The Nature of Planning and

Controlling
Corrections and revisions
of plans and actions
The management process internal accounting system:

Planning
Improve
profitability
Budgets,
Special
reports
Accounting
system
Controlling
Actions
Evaluations
Performance
reports
Customer
surveys
Competitor
analysis
Advertising
impact
New items
report
1 - 21
Role of Budgets
A budget is a quantitative
expression of a plan of action.
The Starbucks store would express
its plan for product growth and
improved marketing through
revenue and advertising budgets.
1 - 22
Performance Reports
What are performance reports?
These are reports that compare actual
results with budgeted amounts.
1 - 23
Performance Reports
Performance reports formalize controls and
provide feedback by comparing results with
plans and by highlighting variances.
Variances are deviations from the plan.
1 - 24
Performance Reports
Starbucks Mayfair Store, March 31, 2004
Sales
Less:
Ingredients
Store labor
Other labor
Utilities, etc.
Total expenses
Operating income
Budget
$50,000
Actual
$50,000
Variance
0
22,000
12,000
6,000
4,500
$44,500
$ 5,500
24,500
11,600
6,050
4,500
$46,650
$ 3,350
$2,500 U
400 F
50 U
0
$2,150 U
$2,150 U
1 - 25
Objective 4
Discuss the role accountants
play in the companys
value chain functions.
1 - 26
Planning and Control for Product

Life Cycles and the Value Chain
Product life cycle refers to the various
stages through which a product passes.
1 - 27
Planning and Control for Product

Life Cycles and the Value Chain
Product
development
Introduction
to market
Mature
market
Product
phase-out
1 - 28
The Value Chain

R&D
Design
Production
Support functions
Marketing
Distribution
Service
1 - 29
Value Chain Functions

Research and development
is the generation of, and experimentation
with, ideas related to new products,
services, or processes.
1 - 30

Design
is the detail and engineering of products.
1 - 31

Production
is the coordination and assembly
of resources to produce a
product or deliver a service.
1 - 32

Marketing
is the manner by which individuals or
groups learn about the value and
features of products or services.
1 - 33

Distribution
is the mechanism by which products or

services are delivered to the customer.
1 - 34

Customer service
is the support activities

provided to the customer.
1 - 35
Objective 5
Contrast the functions of

controllers and treasurers.
1 - 36
Accountings Position in the

Organization
Collecting and compiling information
Preparing standardized reports
Interpreting and analyzing information
Being involved in decision making
1 - 37
Line and Staff Authority

Line managers
Staff managers
Cross-functional teams
1 - 38
Controller and Treasurer

Functions
Financial Vice-President
or CFO
Treasurer
Controller
1 - 39
Functions of the Controller

Planning for control
Reporting and interpreting
Evaluating and consulting
Tax administration
Government reporting
Protection of assets
Economic appraisal
1 - 40
Functions of the Treasurer

Provision of capital
Investor relations
Short-term financing
Banking and custody
Credits and collections
Investments
Risk management (insurance)
1 - 41
Explain why accounting
is important in a variety
of career paths.
1 - 42
Career Opportunities in
Management Accounting
The Certified Management Accountant
(CMA) designation is the internal
accountants counterpart to the CPA.
CMAs must pass an examination

that has four parts:
1 - 43
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 and
information systems.
1 - 44
Identify current trends in

management accounting.
1 - 45
Current Trends
Shift from a manufacturing-based
to a service-based economy
Increased global competition
Advances in technology
Changes in business processes
1 - 46
Current Trends
Just-in-time (JIT) philosophy
Computer-aided design
Computer-aided manufacturing
Computer-integrated manufacturing
1 - 47
Appreciate the importance
of ethical conduct to
professional accountants.
1 - 48
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 Ethical
Conduct for Practitioners of Management
Accounting and Financial Management.
1 - 49
Pressures for Unethical Behavior

Emphasis on short-term results
Ignoring the small stuff
Economic cycles
Accounting rules
1 - 50
End of Chapter 1
1 - 51

Managerial Accounting and The Business Organization

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Managerial Accounting and The Business Organization

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Managerial Accounting

and the Business

Describe the major users and

use information for

What kinds of Accounting

Am I doing well or poorly?

Which problems should I look into?

This role asks: Of the several alternatives

Foreign Corrupt Practices Act

In 2002 the Sarbanes-Oxley Act required

No regulation can be as effective in

Management Accounting in Service

Output is usually difficult to define.

Major inputs and outputs cannot be stored.

Cost-Benefit and Behavioral

The primary consideration in choosing

The Nature of Planning and

The Nature of Planning and

The management process internal accounting system:

Planning and Control for Product

Planning and Control for Product

The Value Chain

Value Chain Functions

Value Chain Functions

is the detail and engineering of products.

Value Chain Functions

Value Chain Functions

Value Chain Functions

is the mechanism by which products or

Value Chain Functions

is the support activities

Contrast the functions of

Accountings Position in the

Line and Staff Authority

Controller and Treasurer

Functions of the Controller

Functions of the Treasurer

CMAs must pass an examination

Identify current trends in

Standards of Ethical Conduct

Pressures for Unethical Behavior

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