Introduction to Management Accounting
Managerial Accounting, The Business Organization, and Professional Ethics
Learning Objectives
When you have finished studying this chapter, you should be able to: 1. Describe the major users and uses of accounting information. 2. Describe the cost-benefit and behavioral issues involved in designing an accounting system. 3. Explain the role of budgets and performance reports in planning and control.
Chapter 1 Learning Objectives
4. Discuss the role accountants play in the companys value-chain functions. 5. Identify current trends in management accounting. 6. Explain why ethics and standards of ethical conduct are important to accountants.
Learning Objective 1
Users of Accounting Information
Financial Accounting External Users Investors: Stockholders
Management Accounting Internal managers
Decisions: Day-to-day operating Long-range strategic
Creditors: Suppliers Bankers
Government Authorities
Decision Making
Scorekeeping: Evaluate Organizational Performance Problem Solving: Assess Possible Courses of Action
Attention Directing: Compare Actual Results to Expected
Accounting Information System
Process of gathering, organizing, and communicating financial information
Financial Statements
Influences on Accounting Systems
Generally accepted accounting principles (GAAP)
Government Regulation (Tax & Others)
Internal controls Internal auditors
Management audits
Learning Objective 2
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.
Planning and Control
Accounting information helps managers plan and control the organizations operations.
Planning: Setting objectives and outlining how the objectives will be obtained.
Control: Implementing plans and using feedback to evaluate the attainment of objectives.
The Nature of Planning and Controlling
Management Process Internal Accounting System
Corrections and revisions of plans and actions
Planning Increase Profitability
Budgets, Special Reports
Other information systems
Customer surveys
Accounting System Control Actions Evaluations
Competitor analysis
Advertising impact New items report
Performance Reports
Learning Objective 3
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
Performance Reports
Mayfair Starbucks Store, March 31, 20X1
Sales Less: Ingredients Store labor Other labor Utilities, etc. Total expenses Operating income
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
U= Unfavorable actual exceeds budget F Favorable actual is less than budget
Product Life Cycle
Product life cycle refers to the various stages through which a product passes.
No Sales
Sales Growth
Stable Sales Level
Low sales No sales
Product Development
Introduction to Market
Mature Market
Phase-out Product
The Value Chain
Research and Development Product And Service Process Design
Service
Customer Focus
Distribution
Marketing
Production
Learning Objective 4
Management Accountants Role as Internal Consultant
Prepares standardized reports Internal Consultant
Collects and compiles information
Interprets and Analyzes information
Is Involved in decision making
Management
Organizational Authority and Responsibility
Line managers: directly involved with making and selling products or services.
Staff managers: Advisory Support line managers.
Cross-functional teams: Found in modern, flatter organizations; Functional areas work together in decision-making process.
Accounting Function
Chief Financial Officer (CFO)
Controller Functions
Planning for control Reporting and interpreting Evaluating and consulting Tax administration
Treasurer Functions
Provision of capital
Investor relations Short-term financing Banking and custody
Government reporting
Protection of assets Economic appraisal
Credits and collections
Investments Risk management (insurance)
Learning Objective 5
Management Accounting Change Drivers
Shift from a manufacturing-based to a service-based economy Increased global competition Advances in technology Changes in business processes
Major Influences on Management Accounting
Advances in technology: E-commerce Enterprise resource planning (ERP) B2C and B2B Business process reengineering: Just-in-time (JIT) philosophy Lean manufacturing Computer-integrated manufacturing Six sigma
Learning Objective 6
Standards of Ethical Conduct
Management Accounting professionals are required to adhere to a code of conduct regarding: Competence, Confidentiality, Integrity, and Credibility.
Ethics
Reliability
Trust Integrity
No regulation can be as effective in ensuring reliability as high ethical standards of accountants.
Ethical Dilemmas
Managers must choose an alternative and there are: Significant value conflicts among differing interests. Real alternatives that are all justifiable, and Significant consequences on stakeholders in the situation.
Unethical Behavior Temptations
Emphasis on short-term results: Pressure to meet expected profit numbers.
1.
Ignoring the small stuff: Large misdeeds often result from many small ones.
2.
Unethical Behavior Temptations
Economic cycles: Downturn markets reveal what an upturn market conceals. Vigilance in all stages of economic markets maintains high ethical standards.
3.
Accounting rules: Avoid creative interpretations of the rules. Practice full and fair disclosure to convey companys performance.
4.