©2007 prentice hall business publishing, introduction to management accounting 14/e,...

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

1 - 1©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1- Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-11

Introduction to Management Introduction to Management AccountingAccounting



Chapter 1Chapter 1

Introduction to Management Introduction to Management AccountingAccounting

Managerial Managerial Accounting, the Accounting, the

Business Business Organization, and Organization, and

Professional Professional EthicsEthics

Managerial Managerial Accounting, the Accounting, the

Business Business Organization, and Organization, and

Professional Professional EthicsEthics



Users of Accounting Users of Accounting InformationInformation

Internal managersInternal managers

Creditors: Creditors: Suppliers Suppliers

Bankers Bankers

Day-to-day operating decisionsDay-to-day operating decisionsLong-range strategic decisionsLong-range strategic decisions

Management Management AccountingAccounting

Financial Financial AccountingAccounting

External UsersExternal Users

Investors: Investors: StockholdersStockholders

Government AuthoritiesGovernment Authorities

LearningLearningObjective 1Objective 1



Scorekeeping: Scorekeeping: Evaluate Evaluate

Organizational Organizational PerformancePerformance

Attention Directing: Attention Directing: Compare Actual Compare Actual

Results to ExpectedResults to Expected

Problem Problem Solving: Solving: Assess Assess Possible Possible Courses of Courses of ActionAction

Decision MakingDecision Making



Process of gathering, organizing, and Process of gathering, organizing, and Communicating financial informationCommunicating financial information

Financial Financial StatemenStatementsts

Accounting Information SystemAccounting Information System



Influences on Accounting SystemsInfluences on Accounting Systems

Generally accepted accounting principles (GAAP)Generally accepted accounting principles (GAAP)

Foreign Corrupt Practices ActForeign Corrupt Practices Act

Internal controlsInternal controls

Management auditsManagement audits

Sarbanes-Oxley ActSarbanes-Oxley ActInternal auditorsInternal auditors



Sarbanes-Oxley Act Sarbanes-Oxley Act

In 2002, the Sarbanes-Oxley Act requiredIn 2002, the Sarbanes-Oxley Act requiredchief executive officers to sign achief executive officers to sign a

statement verifying the accuracy ofstatement verifying the accuracy ofthe company’s financial statements.the company’s financial statements.

External auditors must examine and report External auditors must examine and report on the company’s internal control system. on the company’s internal control system.




EthicsEthics

No regulation can be as effective inNo regulation can be as effective inensuring reliability as high ethicalensuring reliability as high ethical

standards of accountants.standards of accountants.

IntegrityIntegrityTrustTrust

ReliabilitReliabilityy



Service and Nonprofit OrganizationsService and Nonprofit Organizations

ServiceServiceorganizationsorganizations

NonprofitNonprofitorganizationsorganizations

Accounting firmsAccounting firmsLaw firmsLaw firms

Real estate firmsReal estate firmsBanksBanksHotelsHotels

HospitalsHospitalsSchoolsSchoolsLibrariesLibrariesMuseumsMuseums

Government agenciesGovernment agencies



Cost-Benefit and Behavioral Cost-Benefit and Behavioral ConsiderationsConsiderations

Cost-benefit Cost-benefit balancebalance

Behavioral Behavioral implicationsimplications

Weigh estimatedWeigh estimatedcosts against costs against

probable benefits.probable benefits.

The system must provide The system must provide accurate, timely budgets and accurate, timely budgets and performance reports in a formperformance reports in a form

useful to managers.useful to managers.

Managers must use accounting Managers must use accounting reports, or the reports reports, or the reports

create no benefits.create no benefits.




Decision MakingDecision Making

Decision making: the purposeful choice Decision making: the purposeful choice from among a set of alternative courses from among a set of alternative courses

of action designed to achieve some objective.of action designed to achieve some objective.

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

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



The Nature of Planning and The Nature of Planning and ControllingControlling

PlanningPlanningIncreaseIncrease

Profitability Profitability

PlanningPlanningIncreaseIncrease

Profitability Profitability

ControlControl– – ActionsActions

– – EvaluationsEvaluations

ControlControl– – ActionsActions

– – EvaluationsEvaluations

Cor

rect

ions

and

revi

sion

s of

pla

ns a

nd

Cor

rect

ions

and

revi

sion

s of

pla

ns a

nd

actio

nsac

tions

Budgets,Budgets,SpecialSpecialReportsReports

Budgets,Budgets,SpecialSpecialReportsReports

AccountingAccountingSystemSystem

AccountingAccountingSystemSystem

PerformancePerformanceReportsReports

PerformancePerformanceReportsReports

CustomerCustomersurveyssurveys

CustomerCustomersurveyssurveys

CompetitorCompetitoranalysisanalysis

CompetitorCompetitoranalysisanalysis

AdvertisingAdvertisingimpactimpact

AdvertisingAdvertisingimpactimpact

New itemsNew itemsreportreport

New itemsNew itemsreportreport

Internal Accounting Internal Accounting SystemSystem

Management Management ProcessProcess

Other Other information information systemssystems




Budget and Performance ReportsBudget and Performance Reports

Budget: quantitative expression of a plan of actionBudget: quantitative expression of a plan of action

Performance reports: Performance reports: compare actual results with budgeted amountscompare actual results with budgeted amounts provide feedback by comparing results with plans provide feedback by comparing results with plans highlight varianceshighlight variances

Variances: deviations from plansVariances: deviations from plans



Performance Reports Performance Reports

BudgetBudget ActualActual VarianceVarianceSalesSales $50,000$50,000 $50,000$50,000 00Less:Less:

IngredientsIngredients 22,000 22,000 24,500 24,500 $2,500 U $2,500 UStore laborStore labor 12,000 12,000 11,600 11,600 400 F 400 F Other laborOther labor 6,000 6,000 6,050 6,050 50 U 50 UUtilities, etc.Utilities, etc. 4,500 4,500 4,500 4,500 0 0

Total expensesTotal expenses $44,500$44,500 $46,650$46,650 $2,150 U $2,150 UOperating incomeOperating income $ 5,500$ 5,500 $ 3,350$ 3,350 $2,150 U $2,150 U

U= Unfavorable – actual exceeds budgetU= Unfavorable – actual exceeds budgetF – Favorable – actual is less than budget.F – Favorable – actual is less than budget.

Mayfair Starbucks Store, March 31, 20X7Mayfair Starbucks Store, March 31, 20X7



Product Life CycleProduct Life Cycle

Product life cycle refers to the variousProduct life cycle refers to the variousstages through which a product passes.stages through which a product passes.

No SalesNo Sales

Product Product

DevelopmeDevelopmentnt

Sales GrowthSales Growth

Introduction to Introduction to MarketMarket

Stable Sales LevelStable Sales Level

Mature MarketMature Market

Low sales Low sales No No salessales

Phase-out Phase-out

ProductProduct



The Value ChainThe Value Chain

Customer Customer FocusFocus

Customer Customer FocusFocus

Research Research and and

DevelopmentDevelopment

Research Research and and

DevelopmentDevelopmentProductProduct

AndAndServiceServiceProcessProcessDesignDesign

ProductProductAndAnd

ServiceServiceProcessProcessDesignDesign

ProductionProductionProductionProduction

MarketingMarketingMarketingMarketing

DistributionDistributionDistributionDistribution

ServiceServiceServiceService



Management Accountant’s Management Accountant’s Role as Role as

Internal ConsultantInternal ConsultantPreparesPrepares

standardized standardized reportsreports

CollectsCollectsand compiles and compiles informationinformation

Interprets and Interprets and Analyzes informationAnalyzes information

Is Involved Is Involved In decision makingIn decision making

Internal Internal ConsultantConsultant

ManagementManagement




Organizational Authority and Organizational Authority and ResponsibilityResponsibility

Line managers: Line managers: directly involved with directly involved with making and selling making and selling

products or services.products or services.Staff managers: Advisory – Staff managers: Advisory –

Support line managers. Support line managers.

Cross-functional teams: Found in Cross-functional teams: Found in modern, “flatter” organizations; modern, “flatter” organizations; Functional areas work together Functional areas work together

In decision making process.In decision making process.



Accounting FunctionAccounting Function

Planning for controlPlanning for control Reporting and interpretingReporting and interpreting Evaluating and consultingEvaluating and consulting

Tax administrationTax administration Government reportingGovernment reporting

Protection of assetsProtection of assets Economic appraisalEconomic appraisal

Planning for controlPlanning for control Reporting and interpretingReporting and interpreting Evaluating and consultingEvaluating and consulting

Tax administrationTax administration Government reportingGovernment reporting

Protection of assetsProtection of assets Economic appraisalEconomic appraisal

Treasurer Treasurer FunctionsFunctionsTreasurer Treasurer FunctionsFunctions

Provision of capitalProvision of capital Investor relationsInvestor relations

Short-term financingShort-term financing Banking and custodyBanking and custody

Credits and collectionsCredits and collections InvestmentsInvestments

Risk management (insurance)Risk management (insurance)

Provision of capitalProvision of capital Investor relationsInvestor relations

Short-term financingShort-term financing Banking and custodyBanking and custody

Credits and collectionsCredits and collections InvestmentsInvestments

Risk management (insurance)Risk management (insurance)

Controller FunctionsController FunctionsController FunctionsController Functions

Chief Financial Officer Chief Financial Officer (CFO)(CFO)

Chief Financial Officer Chief Financial Officer (CFO)(CFO)




Career Opportunities in Management Career Opportunities in Management AccountingAccounting

The Certified Management Accountant (CMA)The Certified Management Accountant (CMA)

CMAs must pass a four-part examination: CMAs must pass a four-part examination: 1.1. Business Analysis Business Analysis 2.2. Management accounting and reporting Management accounting and reporting 3.3. Strategic Management, andStrategic Management, and4. Business Applications.4. Business Applications.




Management Accounting Change Management Accounting Change DriversDrivers

Shift from a manufacturing-basedShift from a manufacturing-basedto a service-based economyto a service-based economy

Increased global competitionIncreased global competition

Advances in technologyAdvances in technology

Changes in business processesChanges in business processes




Major Influences on Management Major Influences on Management AccountingAccounting

Business process reengineering:Business process reengineering:Just-in-time (JIT) philosophyJust-in-time (JIT) philosophy

Lean manufacturingLean manufacturingComputer-integrated manufacturingComputer-integrated manufacturing

Six sigmaSix sigma

Advances in technology:Advances in technology:E-commerce E-commerce

Enterprise resource planning (ERP)Enterprise resource planning (ERP)



Standards of Ethical ConductStandards of Ethical Conduct

The Institute of Management Accountants (IMA)The Institute of Management Accountants (IMA)Statement of Ethical Professional Practice for Statement of Ethical Professional Practice for

Management Accounting MembersManagement Accounting MembersRequires members to adhere Requires members to adhere

to a code of conduct regarding:to a code of conduct regarding: Competence,Competence,

Confidentiality,Confidentiality, Integrity, and Integrity, and

Credibility.Credibility.

The Institute of Management Accountants (IMA)The Institute of Management Accountants (IMA)Statement of Ethical Professional Practice for Statement of Ethical Professional Practice for

Management Accounting MembersManagement Accounting MembersRequires members to adhere Requires members to adhere

to a code of conduct regarding:to a code of conduct regarding: Competence,Competence,

Confidentiality,Confidentiality, Integrity, and Integrity, and

Credibility.Credibility.




Ethical Dilemmas Ethical Dilemmas

Managers must choose an alternative and there Managers must choose an alternative and there are:are:

Significant value conflicts among differing Significant value conflicts among differing interests.interests.

Real alternatives that are all justifiable, andReal alternatives that are all justifiable, and Significant consequences on stakeholders in Significant consequences on stakeholders in

the situation.the situation.



Unethical Behavior TemptationsUnethical Behavior Temptations

4.4. Accounting rulesAccounting rulesAvoid creative interpretations of the rules. Avoid creative interpretations of the rules. Practice full and fair disclosure to convey company’s performance.Practice full and fair disclosure to convey company’s performance.

1.1. Emphasis on short-term results:Emphasis on short-term results:Pressure to meet expected profit Pressure to meet expected profit

numbers.numbers.2.2. Ignoring the small stuff:Ignoring the small stuff:Large misdeeds often result from many Large misdeeds often result from many

small ones.small ones.3.3. Economic cycles: Economic cycles: A downturn market can reveal what an upturn market A downturn market can reveal what an upturn market

conceals.conceals.Vigilance in all stages of economic markets maintains high Vigilance in all stages of economic markets maintains high

ethical standards.ethical standards.



The EndThe End

End of Chapter 1End of Chapter 1

©2007 prentice hall business publishing, introduction to management accounting 14/e,...

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