managerial accounting
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©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 1
Managerial Accounting and the
Business Organization
PRESENTED BY
BABASAB PATIL
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 2
Learning Objective 1
Describe the major users and
uses of accounting information.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 3
Users ofAccounting Information
use information for day-to-dayoperating decisions...
Internal managers…
and for long-rangestrategic decisions.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 4
Users of Accounting Information
External parties:
use information formaking decisions
about the company.Investors
Government authorities
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 5
What kinds of Accounting Information do Managers Need?
Good accounting informationhelps an organization achieve
its goals and objectives.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 6
Uses ofAccounting Information
This is the accumulating and classification of data.
Am I doing well or poorly?
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 7
Uses ofAccounting Information
Which problems should I look into?
Attention directing means reporting and interpreting information that helps
managers to focus on operating problems.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 8
Uses ofAccounting Information
This role asks: Of the several alternativesavailable, which is the best?
This often involves special studies.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 9
Learning Objective 2
Describe the cost-benefit and
behavioral issues involved in
designing an accounting system.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 10
Influences on Accounting Systems
An accounting system is a formal mechanismfor gathering, organizing, and communicatinginformation about an organization’s activities.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 11
Influences on Accounting Systems
Generally accepted accounting principles (GAAP)
Foreign Corrupt Practices Act
Internal control Management audits
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 12
Influences on Accounting Systems
In 2002 the Sarbanes-Oxley Act requiredchief executive officers to sign a
statement verifying the accuracy ofthe company’s financial statements.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 13
Importance of Ethics
No regulation can be as effective inensuring reliability as high ethical
standards of accountants.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 14
Management Accounting in Service and Nonprofit Organizations
Serviceorganizations
Nonprofitorganizations
Accounting firmsLaw firms
Real estate firmsBanksHotels
HospitalsSchoolsLibrariesMuseums
Government agencies
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 15
Service Organizations
Labor is intensive.
Output is usually difficult to define.
Major inputs and outputs cannot be stored.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 16
Cost-Benefit and Behavioral Considerations
1. Cost-benefit balance
2. Behavioral implications
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 17
Cost-Benefit Balance
The primary consideration in choosingamong accounting systems andmethods is weighing estimatedcosts against probable benefits.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 18
Behavioral Implications
The system must provide accurate,timely budgets and performance
reports in a form useful to managers.
If managers do not use accountingreports, the reports create no benefits.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 19
Learning Objective 3
Explain the role of budgets
and performance reports
in planning and control.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 20
The Nature of Planning and Controlling
It is the purposeful choice from amonga set of alternative courses of actiondesigned to achieve some objective.
What is decision making?
This is the core of the management process.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 21
The Nature of Planning and Controlling
The management process internal accounting system:
Planning– Improve
profitability
Controlling– Actions
– Evaluations
Co
rre
cti
on
s a
nd
re
vis
ion
so
f p
lan
s a
nd
ac
tio
ns
Budgets,Specialreports
Accountingsystem
Performancereports
Customersurveys
Competitoranalysis
Advertisingimpact
New itemsreport
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 22
Role of Budgets
A budget is a quantitativeexpression of a plan of action.
The Starbucks store would expressits plan for product growth andimproved marketing through
revenue and advertising budgets.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 23
Performance Reports
What are performance reports?
These are reports that compare actualresults with budgeted amounts.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 24
Performance Reports
Performance reports formalize controls andprovide feedback by comparing results with
plans and by highlighting variances.
Variances are deviations from the plan.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 25
Performance Reports
Budget Actual VarianceSales $50,000 $50,000 0Less:
Ingredients 22,000 24,500 $2,500 UStore labor 12,000 11,600 400 FOther labor 6,000 6,050 50 UUtilities, etc. 4,500 4,500 0
Total expenses $44,500 $46,650 $2,150 UOperating income $ 5,500 $ 3,350 $2,150 U
Starbucks Mayfair Store, March 31, 2004
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 26
Objective 4
Discuss the role accountants
play in the company’s
value chain functions.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 27
Planning and Control for Product Life Cycles and the Value Chain
Product life cycle refers to the variousstages through which a product passes.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 28
Planning and Control for Product Life Cycles and the Value Chain
Productdevelopment
Introductionto market
Maturemarket
Productphase-out
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 29
The Value Chain
Support functions
R & D Design Production
Marketing Distribution Service
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 30
Value Chain Functions
Research and development…
is the generation of, and experimentationwith, ideas related to new products,
services, or processes.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 31
Value Chain Functions
Design…
is the detail and engineering of products.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 32
Value Chain Functions
Production…
is the coordination and assemblyof resources to produce a
product or deliver a service.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 33
Value Chain Functions
Marketing…
is the manner by which individuals orgroups learn about the value andfeatures of products or services.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 34
Value Chain Functions
Distribution…
is the mechanism by which products orservices are delivered to the customer.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 35
Value Chain Functions
Customer service…
is the support activitiesprovided to the customer.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 36
Objective 5
Contrast the functions of
controllers and treasurers.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 37
Accounting’s Position in the Organization
Preparing standardized reports
Collecting and compiling information
Interpreting and analyzing information
Being involved in decision making
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 38
Line and Staff Authority
Line managers
Staff managers
Cross-functional teams
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 39
Controller and Treasurer Functions
Financial Vice-Presidentor CFO
Treasurer Controller
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 40
Functions of the Controller
Planning for control Reporting and interpreting Evaluating and consulting
Tax administration Government reporting Protection of assets Economic appraisal
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 41
Functions of the Treasurer
Provision of capital Investor relations
Short-term financing Banking and custody
Credits and collections Investments
Risk management (insurance)
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 42
Learning Objective 6
Explain why accounting
is important in a variety
of career paths.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 43
Career Opportunities in Management Accounting
The Certified Management Accountant(CMA) designation is the internal
accountant’s counterpart to the CPA.
CMAs must pass an examinationthat has four parts:
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 44
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 andinformation systems.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 45
Learning Objective 7
Identify current trends in
management accounting.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 46
Current Trends
Shift from a manufacturing-basedto a service-based economy
Increased global competition
Advances in technology
Changes in business processes
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 47
Current Trends
Just-in-time (JIT) philosophy
Computer-aided design
Computer-aided manufacturing
Computer-integrated manufacturing
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 48
Learning Objective 8
Appreciate the importance
of ethical conduct to
professional accountants.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 49
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 EthicalConduct for Practitioners of ManagementAccounting and Financial Management.
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 50
Pressures for Unethical Behavior
Ignoring the small stuff
Economic cycles
Accounting rules
Emphasis on short-term results
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 51
End of Chapter 1
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