The Accountant's Role in The Organization

The Accountant’s Role
in the Organization
Chapter 1
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1-1
Learning Objective 1
Describe how cost

accounting supports
management accounting
and financial accounting.
Management Accounting
It measures and reports financial and

nonfinancial information that helps
managers make decisions to fulfill the
goals of an organization.
Financial Accounting
Its focus is on reporting to external parties.

It measures and records business transactions.
It provides financial statements based on
generally accepted accounting principles.
Cost Accounting
It provides information for both management

accounting and financial accounting.
It measures and reports financial
and nonfinancial data.
Cost Management
It describes the activities of managers in

planning and control of costs.
It includes the continuous reduction of costs.
It is a key part of general management
strategies and their implementation.
Understand how management

accountants affect
strategic decisions.
Strategic Cost Management
Developing strategy
Building resources and capabilities
Implementing strategy
Strategic Cost Management
Building resources and capabilities
Long-Term
Current Intangible
Productive
Assets Assets
Assets
Distinguish between the

planning and control
decisions of managers.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 10

Planning and Controlling
Management Decision Management Accounting System
Planning Budgets
Accounting
Control System
kc a bdee F
Performance Performance
Evaluation Reports

What is planning?
Setting Predicting Deciding how

goals results to attain goals

What is control?
Deciding Deciding on
and performance
taking evaluation
actions and feedback

What are budgets?
They are They aid in the

quantitative coordination
expressions and
of a proposed implementation
plan of action. of the plan.
What are performance reports?
These are reports that

compare actual results
with budgeted amounts.

Performance Report Example
Boone Shop, July 2003
Budget Actual Variance
Revenues $59,000 $60,000 $1,000 F
Cost of goods sold 42,000 43,400 1,400 U
Wages 6,700 7,000 300 U
General 1,300 900 400 F
Fixed costs 5,000 5,000 0
Operating income $ 4,000 $ 3,700 $ 300 U
Performance Report Example
Actual cost of goods sold were

72% of revenues instead of the budgeted 71%.
Budget % Actual %
Revenues $59,000 100 $60,000 100
Cost of goods sold 42,000 71 43,400 72
Gross margin $17,000 29 $16,600 28

Feedback
This involves managers examining past performance

and systematically exploring alternative ways to
make better informed decisions in the future.

Distinguish among the problem-

solving, scorekeeping, and
attention-directing roles of
management accountants.

Problem Solving
This involves comparative analysis

for decision making.
This role asks: Of the several alternatives
available, which is the best?

Scorekeeping
This involves accumulating data and

reporting reliable results to
all levels of management.
This role asks: How is the business doing?

Attention Directing
This involves helping managers

properly focus their attention.
This role asks: Which opportunities and
problems should be emphasized first.
Attention directing should focus on all
opportunities to add value to an organization,
not just cost-reduction opportunities.
Identify four themes managers

need to consider for
attaining success.

Key Themes in Management
Decision Making
Customer Focus
Value Chain Key Success Factors: Continuous

and Cost and Efficiency, Improvement
Supply Chain Time, Quality, and
Analysis Innovation Benchmarking

Customer Focus
The
The challenge
challenge facing
facing managers
managers isis to
to continue
continue
investing
investing sufficient
sufficient (but
(but not
not excessive)
excessive)
resources
resources inin customer
customer satisfaction
satisfaction
such
such that
that profitable
profitable customers
customers
are
are attracted
attracted and
and retained.
retained.

Value Chain and
Supply Chain Analysis
This theme has two related aspects:
1.
1. Treat
Treat each
each ofof the
the business
business functions
functions in
in the
the value
value
chain
chain as
as an
an essential
essential and
and valued
valued contributor.
contributor.
2.
2. Integrate
Integrate and
and coordinate
coordinate the
the efforts
efforts of
of all
all business
business
functions
functions in
in addition
addition to
to developing
developing the
the capabilities
capabilities
of
of each
each individual
individual business
business function.
function.
Value Chain and
Supply Chain Analysis
Supply
Supply chain
chain –– describes
describes the
the flow
flow of
of goods,
goods,
services,
services, and
and information
information from
from cradle
cradle to
to grave,
grave,
regardless
regardless of
of whether
whether those
those activities
activities occur
occur in
in
the
the same
same organization
organization oror other
other organizations.
organizations.

Key Success Factors
These are operational factors that directly affect

the economic viability of the organization.
Cost
Cost –– organizations
organizations Quality
Quality –– customers
customers
are
are under
under continuous
continuous are
are expecting
expecting higher
higher
pressure
pressure toto reduce
reduce costs.
costs. levels
levels of
of quality.
quality.

Key Success Factors
Time
Time –– organizations
organizations are
are under
under pressure
pressure toto
complete
complete activities
activities faster
faster and
and to
to meet
meet
promised
promised delivery
delivery dates
dates more
more reliably.
reliably.
Innovation
Innovation –– there
there isis now
now heightened
heightened recognition
recognition
that
that aa continuing
continuing flowflow of
of innovative
innovative products
products
or
or services
services isis aa prerequisite
prerequisite to
to the
the ongoing
ongoing
success
success of of most
most organizations.
organizations.
Continuous Improvement
and Benchmarking
Continuous
Continuous improvement
improvement byby competitors
competitors creates
creates
aa never-ending
never-ending search
search for
for higher
higher levels
levels of
of
performance
performance within
within many
many organizations.
organizations.

Describe the set of business

functions in the value chain.

Value Chain
The term “value chain” refers to the sequence of

business functions in which usefulness is added
to the products or services of an organization.
The term “value” is used because as the usefulness
of the product or service is increased, so is its value
to the customer.

Value Chain
Management accountants provide

decision support for managers in the
following six business functions:

Value Chain
R&D Design Production
Management Accounting
Marketing Distribution Service

Value Chain Functions
Research and Development

It is the process that is conducted to generate
and experiment with ideas related to new
products, services, or processes.

Design
It is the detailed planning and engineering
of products, services, or processes.

Production
It is the acquisition, coordination, and
assembly of resources to produce
a product or deliver a service.

Marketing
It is the manner by which companies
promote and sell their products
or services to customers
or prospective customers.

Distribution
It is the delivery of products or
services to the customer.

Service
It is the after-sale support activities
provided to customers.

Describe three ways

management accountants
support managers.

Key Guidelines
1. Cost-benefit approach
2. Full recognition of behavioral as well as
technical considerations
3. Using different costs for different purposes

Cost-Benefit Approach
A cost-benefit approach should be used in order

to spend resources if they promote decision
making that better attains organization goals
in relation to the costs of those resources.

Behavioral and Technical
Considerations
A management accounting system should have two

simultaneous missions for providing information:
1. To help managers make wise economic decisions
2. To help managers and other employees to aim and
strive for goals of the organization

Different Costs for
Different Purposes
A cost concept used for the external reporting

purpose need not be the appropriate concept
for the purpose of internal routine reporting
to managers.

Understand how cost management

accounting fits into an
organization’s structure.

Line and Staff Relationships
Line management is directly responsible for

attaining the objectives of the organization.
Staff management exists to provide advice
and assistance to line management.

B o a r d o f D i r e c t o r s
C h a i r m a n
C h i e f E x e c u t i v e O f f i c e r ( C E
P r e s i d e n t
C h i e f O p e r a t i n g O f f i c e r ( C O
C h i e f F i n a n c i a l O f f i c e r ( C F
C o n t r o l l A e ru d i t T a x T r e a s u r Ry i s k I n v e s t
M a n a g e R m e e l na tt i

C o n t r o l l e r
E x a m p l e s o f F u n c t i o n s :
* G l o b a l F i n a n c i a l *P lR a on y n a i nl t gi e / sB u d g e t i n
* O p e r a t i o n s A d m i n* i Gs t er na te i r o a n l L e d g e r
* P r o f i t a b i l i t y R e p o* r tA i n c cg o u n t s P a y a b l
* I n v e n t o r y * S u b s i d i a r y a n d L

Understand what
professional ethics mean
to management accountants.

Professional Ethics
Competence Integrity
Confidentiality Objectivity

Ethical Guidelines
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 Management Accountant.

End of Chapter 1

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The Accountant’s Role

Describe how cost

It measures and reports financial and

Its focus is on reporting to external parties.

It provides information for both management

It describes the activities of managers in

Understand how management

Building resources and capabilities

Distinguish between the

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 10

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 11

Setting Predicting Deciding how

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 12

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 13

What are budgets?

They are They aid in the

What are performance reports?

These are reports that

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 15

Actual cost of goods sold were

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 17

This involves managers examining past performance

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 18

Distinguish among the problem-

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 19

This involves comparative analysis

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 20

This involves accumulating data and

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 21

This involves helping managers

Identify four themes managers

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 23

Value Chain Key Success Factors: Continuous

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 24

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 25

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 27

These are operational factors that directly affect

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 28

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 30

Describe the set of business

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 31

The term “value chain” refers to the sequence of

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 32

Management accountants provide

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 33

R&D Design Production

Marketing Distribution Service

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 34

Research and Development

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 35

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 36

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 37

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 38

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 39

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 40

Describe three ways

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 41

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 42

A cost-benefit approach should be used in order

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 43

A management accounting system should have two

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 44