The Changing Role of Managerial Accounting in a Dynamic Business Environment

CHAPTER 1

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Learning Objective 1

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Managerial accounting is the process of Identifying Measuring Analyzing Interpreting Communicating information

Define Managerial Accounting

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Learning Objective 2

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Managing Resources, Activities, and Managing Resources, Activities, and PeoplePeople

An organization . . .

Acquires Resources

Hires People

Organized setOrganized setof activitiesof activities

Organized setOrganized setof activitiesof activities

DecisionMaking

DecisionMaking

PlanningPlanning

DirectingDirecting

ControllingControlling

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Learning Objective 3

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How Managerial Accounting Adds Value to the Organization

Providing information for decision making and planning.

Assisting managers in directing and controlling activities.

Motivating managers and other employees towards organization’s goals.

Measuring performance of subunits, activities, managers, and other employees.

Assessing the organization’s competitive position.

Providing information for decision making and planning.

Assisting managers in directing and controlling activities.

Motivating managers and other employees towards organization’s goals.

Measuring performance of subunits, activities, managers, and other employees.

Assessing the organization’s competitive position.

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The Balanced ScorecardFinancial Perspective

Goals Measures

Customer PerspectiveGoals Measures

Operations PerspectiveGoals Measures

Innovation PerspectiveGoals Measures

How do we look to

owners?

How do customers

see us?How can we continue to improve?

In which In which activities activities must we must we excel?excel?

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Learning Objective 4

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Managerial versus Financial Managerial versus Financial AccountingAccounting

Accounting SystemAccounting System(accumulates financial and(accumulates financial and

managerial accounting data in the managerial accounting data in the cost accounting system)cost accounting system)

Accounting SystemAccounting System(accumulates financial and(accumulates financial and

managerial accounting data in the managerial accounting data in the cost accounting system)cost accounting system)

Managerial AccountingManagerial AccountingInformation for decisionInformation for decisionmaking, planning, and making, planning, and

controlling an controlling an organization’sorganization’s

operations.operations.

Managerial AccountingManagerial AccountingInformation for decisionInformation for decisionmaking, planning, and making, planning, and

controlling an controlling an organization’sorganization’s

operations.operations.

Financial AccountingFinancial AccountingPublished financialPublished financial

statements and otherstatements and otherfinancial reports.financial reports.

Financial AccountingFinancial AccountingPublished financialPublished financial

statements and otherstatements and otherfinancial reports.financial reports.

InternalInternalUsersUsers

ExternalExternalUsersUsers

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Managerial versus Financial Managerial versus Financial AccountingAccounting

Managerial Accounting Financial AccountingUsers of

Information Managers, within the organization.Interested parties, outside the organization.

Regulation Not required and unregulated, since it is intended only for management.

Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.

Source of Data

The organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delays

Almost exclusively drawn from the organization's basic accounting system, which accumulates financial information.

Nature of Reports and Procedures

Reports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.

Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data.

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Learning Objective 5

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Line and Staff PositionsLine and Staff PositionsA line position is

directly involved in achieving the basic objectives of an organization.

Example: A production supervisor in a manufacturing plant.

A line position is directly involved in achieving the basic objectives of an organization.

Example: A production supervisor in a manufacturing plant.

A staff position supports and assists line positions.Example: A cost

accountant in the manufacturing plant.

A staff position supports and assists line positions.Example: A cost

accountant in the manufacturing plant.

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Learning Objective 6

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ControllerController The chief managerial and financial accountant

is responsible for:Supervising accounting personnel. Preparation of information and reports,

managerial and financial.Analysis of accounting information.Planning and decision making.

The chief managerial and financial accountant is responsible for:Supervising accounting personnel. Preparation of information and reports,

managerial and financial.Analysis of accounting information.Planning and decision making.

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TreasurerTreasurer

Responsible for raising capital and safeguarding the organization’s assets.Supervises relationships with financial

institutions.Work with investors and potential

investors. Manages investments.Establishes credit policies.Manages insurance coverage.

Responsible for raising capital and safeguarding the organization’s assets.Supervises relationships with financial

institutions.Work with investors and potential

investors. Manages investments.Establishes credit policies.Manages insurance coverage.

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Internal AuditorInternal Auditor Responsible for reviewing accounting procedures,

records, and reports in both the controller’s and the treasurer’s area of responsibility.Expresses an opinion to top

management regarding theeffectiveness of theorganization’s accountingsystem.

Responsible for reviewing accounting procedures, records, and reports in both the controller’s and the treasurer’s area of responsibility.Expresses an opinion to top

management regarding theeffectiveness of theorganization’s accountingsystem.

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Learning Objective 7

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ProductProductDesignDesign

ProductProductDesignDesign

ResearchResearchandand

DevelopmentDevelopment

ResearchResearchandand

DevelopmentDevelopment

Strategic Cost Management and the Strategic Cost Management and the Value ChainValue Chain

Securing rawSecuring rawmaterials andmaterials and

other resourcesother resources

Securing rawSecuring rawmaterials andmaterials and

other resourcesother resources

ProductionProductionProductionProduction

MarketingMarketingMarketingMarketing

DistributionDistributionDistributionDistribution

CustomerCustomerServiceService

CustomerCustomerServiceServiceStartStart

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Learning Objective 8

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Capacity

Theoretical Capacity is the upper limit on the amount of goods or services if everything works perfectly.

Practical capacity allows for normal occurrences such as cash register downtime and cashier fatigue or illness.

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Cost Management SystemsCost Management Systems

ObjectivesMeasure the cost

of resources consumed.

Identify and eliminate non-value-added costs.

ObjectivesMeasure the cost

of resources consumed.

Identify and eliminate non-value-added costs.

CostManagement

System

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Cost Management SystemsCost Management SystemsObjectives

Determine efficiency and effectiveness of major activities.

Identify and evaluate new activities that can improve performance.

ObjectivesDetermine efficiency

and effectiveness of major activities.

Identify and evaluate new activities that can improve performance.

CostManagement

System

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Learning Objective 9

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Managerial Accounting as a Managerial Accounting as a CareerCareer

Professional Organizations

Institute of Management Accountants (IMA)Institute of Management Accountants (IMA)

PublishesManagementAccounting

and researchstudies.

PublishesManagementAccounting

and researchstudies.

AdministersCertified

ManagementAccountant

program

AdministersCertified

ManagementAccountant

program

DevelopsStandards of

EthicalConduct forManagementAccountants

DevelopsStandards of

EthicalConduct forManagementAccountants

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Learning Objective 10

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Ethical Climate of BusinessEthical Climate of Business The corporate scandals experienced over the

last few years have shown us that unethical behavior in business is wrong in a moral sense

and can be disastrous in the economy. In addition to Sarbanes-Oxley, there will likely be

more reforms in corporate governance and accounting.

The corporate scandals experienced over the last few years have shown us that unethical

behavior in business is wrong in a moral sense and can be disastrous in the economy. In

addition to Sarbanes-Oxley, there will likely be more reforms in corporate governance and

accounting.

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Professional EthicsProfessional Ethics

CompetenceCompetenceConfidentialityConfidentialityIntegrityIntegrityCredibilityCredibility

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End of Chapter 1End of Chapter 1

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