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The Accountant’s Role in the Organization

The Accountant’s Role in the Organization. Session 1. Learning Objective 1. Describe how cost accounting supports management accounting and financial accounting. Management vs Financial Accounting. Management Accounting:

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The Accountant’s Role in the Organization

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  1. The Accountant’s Rolein the Organization Session 1

  2. Learning Objective 1 Describe how cost accounting supports management accounting and financial accounting.

  3. Management vs Financial Accounting • Management Accounting: • It measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. • Financial Accounting: • Its focus is on reporting to external parties. • It measures and records business transactions. • It provides financial statements based on generally accepted accounting principles.

  4. Cost Accounting vs Cost Management • Cost Accounting: • It provides information for both management accounting and financial accounting. • It measures and reports financial and nonfinancial data. • Cost Management: • It describes the activities of managers in planning and control of costs. • It includes the continuous reduction of costs. • It is a key part of general management strategies and their implementation.

  5. Learning Objective 2 Distinguish between the planning and control decisions of managers.

  6. Management Decision Management Accounting System Planning Budgets Feedback Accounting System Control Performance Evaluation Performance Reports Planning and Controlling

  7. Planning and Controlling • What is planning? • Setting Goals • Predicting Results • Deciding how to attain goals • What is control? • Deciding and taking actions • Deciding on performance evaluation and feedback • What are budgets? • They are quantitative expressions of a proposed plan of action • They aid in the coordination and implementation of the plan. • What are performance reports? • These are reports that compare actual results with budgeted amounts

  8. Performance Report Example Boone Shop, July 2003 BudgetActualVariance Revenues $59,000 $60,000 $1,000 F Cost of goods sold 42,000 43,400 1,400 U Wages 6,700 7,000 300 U General 1,300 900 400 F Fixed costs 5,000 5,000 0 Operating income $ 4,000 $ 3,700 $ 300 U

  9. Performance Report Example • Actual cost of goods sold were 72% of revenues instead of the budgeted 71%. • Feedback: This involves managers examining past performance and systematically exploring alternative ways to make better informed decisions in the future. Budget%Actual% Revenues $59,000 100 $60,000 100 Cost of goods sold 42,000 71 43,400 72 Gross margin $17,000 29 $16,600 28

  10. Learning Objective 3 Distinguish among the problem- solving, scorekeeping, and attention-directing roles of management accountants.

  11. Problem Solving, Score Keeping, Attention Directing • Problem Solving: • This involves comparative analysis for decision making. • This role asks: Of the several alternatives available, which is the best? • Score Keeping: • This involves accumulating data and reporting reliable results toall levels of management. • This role asks: How is the business doing? • Attention Directing: • This involves helping managers properly focus their attention. • This role asks: Which opportunities and problems should be emphasized first. • Attention directing should focus on all opportunities to add value to an organization, not just cost-reduction opportunities.

  12. Learning Objective 4 Identify four themes managers need to consider for attaining success.

  13. Key Themes in ManagementDecision Making Customer Focus Value Chain and Supply Chain Analysis Key Success Factors: Cost and Efficiency, Time, Quality, Innovation Continuous Improvement and Benchmarking

  14. Value Chain and Supply Chain Analysis • This theme has two related aspects: • Treat each of the business functions in the value chain as an essential and valued contributor. • Integrate and coordinate the efforts of all business functions in addition to developing the capabilities of each individual business function. • Supply chain • describes the flow of goods, services, and information from cradle to grave, • regardless of whether those activities occur in the same organization or other organizations.

  15. Key Success Factors • These are operational factors that directly affect the economic viability of the organization. • Cost – organizations are under continuous pressure to reduce costs. • Quality – customers are expecting higher levels of quality. • Time – organizations are under pressure to complete activities faster and to meet promised delivery dates more reliably. • Innovation – there is now heightened recognition that a continuing flow of innovative products or services is a prerequisite to the ongoing success of most organizations.

  16. Continuous Improvementand Benchmarking • Continuous improvement by competitors creates a never-ending search for higher levels of performance within many organizations.

  17. Learning Objective 5 Describe the set of business functions in the value chain.

  18. Value Chain • The term “value chain” refers to the sequence of business functions in which usefulness is added to the products or services of an organization. • The term “value” is used because as the usefulness of the product or service is increased, so is its value to the customer. • Management accountants provide decision support for managers in the following six business functions:

  19. Value Chain R & D Design Production Management Accounting Marketing Distribution Service

  20. Value Chain Functions • Research and Development • It is the process that is conducted to generate and experiment with ideas related to new products, services, or processes. • Design: • It is the detailed planning and engineering of products, services, or processes. • Production: • It is the acquisition, coordination, and assembly of resources to produce a product or deliver a service.

  21. Value Chain Functions • Marketing: • It is the manner by which companies promote and sell their products or services to customers or prospective customers. • Distribution: • It is the delivery of products or services to the customer. • Service: • It is the after-sale support activities provided to customers.

  22. Learning Objective 6 Describe three ways management accountants support managers.

  23. Key Guidelines 1. Cost-benefit approach 2. Full recognition of behavioral as well as technical considerations 3. Using different costs for different purposes

  24. Cost-Benefit Approach A cost-benefit approach should be used in order to spend resources if they promote decision making that better attains organization goals in relation to the costs of those resources.

  25. Behavioral and TechnicalConsiderations • A management accounting system should have two simultaneous missions for providing information: • To help managers make wise economic decisions • To help managers and other employees to aim and strive for goals of the organization

  26. Different Costs for Different Purposes • A cost concept used for the external reporting purpose need not be the appropriate concept for the purpose of internal routine reporting to managers. • A cost concept used for short time decisions need not to be the appropriate concept for long term decisions • A cost concept used for pricing need not to be appropriate for performance evaluation purposes

  27. Learning Objective 7 Understand how cost management accounting fits into an organization’s structure.

  28. Line and Staff Relationships • Line management is directly responsible for attaining the objectives of the organization. • Staff management exists to provide advice and assistance to line management.

  29. Line and Staff Relationships

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