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Introduction to Management Accounting

Introduction to Management Accounting. ACF 301/302. Learning Outcomes. To define Management Accounting To Distinguish Management Accounting from Financial Accounting To Understand the Users of Accounting information To Understand how Management Accounting informs the decision making process

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Introduction to Management Accounting

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  1. Introduction to Management Accounting ACF 301/302

  2. Learning Outcomes • To define Management Accounting • To Distinguish Management Accounting from Financial Accounting • To Understand the Users of Accounting information • To Understand how Management Accounting informs the decision making process • To understand the brief history of the development of Management Accounting

  3. What is Management Accounting? “The process of identifying, measuring and communicating economic information to permit informed judgments by users of the information” -American Accounting Association

  4. The Users of Accounting Information • Internal • StrategicLevel (The Board) • Operational Level (Operations/Logistics) • Marketing/HR • External • Shareholders • Potential Investors • Creditors • Regulatory Agencies

  5. Key differences between MA and FA • Legal Requirements • Focus • Accounting Standards • Time Horizons/Report Frequency

  6. How Management Accounting informs the decision process • Strategy Selection • Planning • Control

  7. Strategy Selection • Goals and Objectives • Economic Theory (Neo Classical) • Bounded Rationality (Simon, 1959) • The firm as Coalition (Cyert & March, 1969)

  8. Planning • The search for alternative courses of action • Gather Data about alternatives • Select alternative course of action • Implement decisions

  9. Control • Compare actual and planned outcomes (Budgets/Production Levels/Sales Figures etc) • Respond to divergences from plans (Variance Analysis, Strategic Planning)

  10. A Brief History of Management Accounting • Management as science • Behaviouralism • The Eastern manufacturing dominance • ‘Relevance Lost’ and ‘Relevance Regained’ • The rise of technology and the ‘Knowledge Economy’

  11. Management As Science • Fordism and Taylorism • W.E. Demming • Time and Motion • Direct and Indirect Costs • Cost Volume Profit (CVP)

  12. Behaviouralism • The firm as a ‘Nexus’ of contracts • The rise of the Human Resource • The birth of motivational theory and early performance measurement

  13. The Eastern dominance of manufacturing • W.E. Demming rises again • Decline of Western manufacturing power • The Toyota Production System (TPS) • The rise of consumerism • The importance of technology

  14. ‘Relevance Lost’ and ‘Relevance Regained’ • Kaplan and Johnson • The birth of Activity Based Costing (ABC) • Just in Time (JIT) and ‘Lean’ Manufacturing • The Balanced Scorecard and performance metrics • The birth of Strategic Management Accounting

  15. Technology and the Knowledge Economy • It is no longer enough for the management accountant to keep the score, he must influence the score • The business world is becoming both more recursive and more complex • The amount of information available has created problems with both relevance and reliability of that information

  16. Overview of the rest of the course • Cost Accounting • Information for Decision Making • Information for Planning and Control • Introduction to Strategic Management Accounting

  17. Cost Accounting • Direct and Indirect Costs • Breakeven • Absorption Costing • Allocation of Overheads • Marginal Costing • Process Costing • Theory of Constraints and Throughput Accounting

  18. Information for Decision Making • Cost Volume Profit Analysis • Relevant Costs and Revenues • Pricing Decisions • Activity Based Costing • Capital Investment Decision Making • Target Costing and Pricing • Transfer Pricing

  19. Information for Planning and Control • Budgeting • Standard Costing and Variance Analysis • Budgeting and Beyond Budgeting (ABB, ZBB) • Introduction to Divisional Reporting

  20. Introduction to Strategic Management Accounting • Goal and Strategy Setting • The Balanced Scorecard • The trials and tribulations of Performance management • Life Cycles, Benchmarking and risk and uncertainty

  21. Tutorial Work • Form small groups, no less than three no more than five and discuss the document entitled ‘TimCo - Strategic Review’ • Answer the questions which appear at the end with reference to this lecture

  22. References • Cyert, R, M & March, J, G (1969) A behavioural theory of the firm, Prentice Hall. • Simon, H, A (1959) Theories of decision making in economics and behavioural science. The American Economic Review, June pp 233-83

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