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Managerial Accounting
Chapter One
An Introduction to Managerial Accounting
Lecture Overview:
In the End of the Lecture you will be able to
understand……..
What is Managerial Accounting?
Objectives of Managerial Accounting
Managers Responsibility
Decision Making
Differences between Managerial Accounting and Financial
Accounting.
Required Skills of Managerial Accountants
What is management Accounting
Management accounting is the process of
identification, measurement, accumulation,
analysis, preparation, interpretation and
communication of information that assists
managers in specific decision making within the
framework of fulfilling the organizational
objectives.
What is management Accounting
Managerial accounting (also known as cost accounting
or management accounting) is a branch of accounting
that is concerned with the identification, measurement,
analysis, and interpretation of accounting information
so that it can be used to help managers to make
necessary decisions to efficiently manage a company’s
operations.
Managerial Accounting Objectives:
1)Provide necessary information for the company’s
management for making decision and planning
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process.
2)Helping managers in directing company’s operations
and controlling it.
3)Helping managers and employees to achieve
company’s objectives. 6
4) Assessing the performance of the employees’
efficiency to achieve the goals by the lower level of
costs.
5) Evaluating the company’s competitive situation and
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working with the other managerial groups for ensuring
the continuity of the company for the long term.
6) Contributing to setting investment decisions and
planning for necessary funds and monitoring it in
which achieved profits can be secured.
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3) Helping managers and employees to achieve company’s
objectives.
4) Assessing performance and doubtlessness of the
employees’ efficiency to achieve the goals by the lower
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level of costs.
5) Evaluating the company’s competition situation and
working with the other managerial groups for ensuring
continuity of company for a long term.
6) Contributing in setting investment decision and
planning for necessary funds and monitoring on it in
which achieved profits can be secured. 8
Contribution Margin and Breakeven Analysis:
Analyzing relationship between cost, size and profit:
Equalized analysis considers to be the most important
analyzing way which is using by the company’s
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management in the operation of planning and decision
making.
Breakeven point: is the point that the total revenue of
sales is equal to total costs of sales, or sales is equal to
costs, consequently net profit will equal to zero.
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How Managerial Accounting Works
Managerial accounting encompasses many facets of
accounting aimed at improving the quality of information
delivered to management about business operation metrics.
Managerial accountants use information relating to the cost
and sales revenue of goods and services generated by the
company.
Cost accounting is a large subset of managerial accounting
that specifically focuses on capturing a company's total costs
of production by assessing the variable costs of each step of
production, as well as fixed costs.
It allows businesses to identify and reduce unnecessary
spending and maximize profits.
Who are the users of managerial accounting
information?
Unlike financial accounting which is designed
for external users, managerial accounting is
focused on internal managers.
Managerial accounting is designed to help
managers plan for the future, make decisions
for the company, and determine if their plans
and decisions were accurate (also called
controlling).
Managers’ Responsibilities
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Setting goals and
Planning objectives
Decision Overseeing day-to-day
Making Directing operations
Evaluating results
Controlling
of operations
Work of Management
Planning
Planning
Directing
Directing and
and
Motivating
Motivating
Controlling
Controlling
Planning
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Setting goals and objectives and how to achieve
them
Examples of planning:
Generate more sales via opening new stores
Reduce labor costs by reducing store hours
Budgets
Planning
Identify
Identify
alternatives.
alternatives.
Select
Select alternative
alternative that
that does
does
the
the best
best job
job of
of furthering
furthering
organization’s
organization’s objectives.
objectives.
Develop
Develop budgets
budgets to
to guide
guide
progress
progress toward
toward the
the
selected
selected alternative.
alternative.
Directing
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Overseeing company’s day-to-day operations
Examples
Using daily/weekly sales reports to adjust
marketing strategies
Using product cost reports to adjust raw
material usage
Directing and Motivating
Directing and Motivating
Directing and motivating involves managing
day-to-day activities to keep the organization
running smoothly.
Employee work assignments.
Routine problem solving.
Conflict resolution.
Effective communications.
Controlling
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Evaluating results of operations against plans and
making adjustments as needed
Examples
Comparing budgeted sales with actual sales to take
corrective actions
Comparing budgeted product costs against actual product
costs to take corrective actions
Controlling
The
The control
control function
function ensures
ensures
that
that plans
plans are
are being
being followed.
followed.
Feedback
Feedback inin the
the form
form ofof performance
performance reports
reports
that
that compare
compare actual
actual results
results with
with the
the budget
budget
are
are an
an essential
essential part
part of
of the
the control
control function.
function.
The Three Management Functions
Questions asked: Management functions:
Planning for the future
What do I want to do?
(Strategic)
Planning for the future
How can I do it?
(Operational)
Monitoring and
Am I getting it done?
controlling the present
Evaluating the past
How well did I do it?
Decision Making
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Management is continually making decisions while
it plans, directs, and controls operations
Examples
Price setting or product offerings
Operation openings or closings
Professional Characteristics of The Management
Accountant
Most Important
Work ethic
Analytical and problem solving skills
Interpersonal skills
Listening
Spreadsheet abilities
Understanding the business
Understanding bottom line implications of management decisions
Writing
Familiarity with business processes
Interpreting financial statements
Measuring and reporting revenues and expenses
Accruals, deferrals, and adjusting journal entries
Comparison of Financial and Managerial
Accounting
Changing Roles of Management
Accountants
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Impact of technology
Ensuring accurate financial records
Planning, analyzing, and interpreting
accounting data
Providing decision support
Required Skills of Managerial
Accountants
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Knowledge of financial and managerial
accounting
Analytical skills (critical thinking)
Knowledge of how a business functions
Ability to work on a team
Oral and written communications skills
Institute of Management Accountants
(IMA) [Link]
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Professional association for management
accountants
IMA’s functions
Certification (CMA)
Practice Development
Education
Networking
Ethical Standards
Public Education
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
Management Accounting Guidelines
Cost – benefit approach is commonly used:
benefits generally must exceed costs as a basic
decision rule
Behavioral and 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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Questions Time