Managerial Accounting and the Business Organization

1. Managerial Accounting and the Business Organization Chapter 1

2. Starbucks • The test discusses the problems with accounting for the acquisition and management of many different companies • In this chapter we will introduce some principles of accounting for decision making

3. Learning Objective 1 • Describe the major users and • uses of accounting information.

4. Users ofAccounting Information Internal managers… useinformation for day-to-day operating decisions... and for long-range strategic decisions.

5. Users of Accounting Information External parties: useinformation for making decisions about the company. Investors Government authorities Let’s review Problem 1-A1

6. What kinds of Accounting Information do Managers Need? Good accounting information helps an organization achieve its goals and objectives.

7. Uses ofAccounting Information Scorekeeping: Am I doing well or poorly? This is the accumulating and classification of data.

8. Uses ofAccounting Information Attention directing: Which problems should I look into? Attention directing means reporting and interpreting information that helps managers to focus on operating problems.

9. Uses ofAccounting Information Problem solving: This role asks: Of the several alternatives available, which is the best? This often involves special studies.

10. 1-A1 • 1. Problem solving. Helps a manager assess the impact of a decision. • 2. Scorekeeping. Reports on the results of an operation. • 3. Attention directing and problem solving. Budgeting involves making decisions about planned activities -- hence, aiding problem solving. Budgets also direct attention to areas of opportunity or concern --hence, directing attention. Reporting against the budget also has a scorekeeping dimension. • 4. Attention directing. Focuses attention on areas that need attention. • 5. Attention directing. Helps managers learn about the information contained in a performance report.

11. 1-A1 • 6. Scorekeeping. The statement merely reports what has happened. • 7. Problem solving. The cost comparison is apparently useful because the manager wishes to decide between two alternatives. Thus, it aids problem solving. • 8. Attention directing. Variances point out areas where results differ from expectations. Interpreting them directs attention to possible causes of the differences. • 9. Problem solving. Aids a decision about where the parts should be made. • 10. Scorekeeping. Determining a depreciation schedule is simply an exercise in preparing financial statements to report the results of activities.

12. Learning Objective 2 • Describe the cost-benefit and behavioral issues involved in designing an accounting system.

13. Influences on Accounting Systems An accounting system is a formal mechanism for gathering, organizing, and communicating information about an organization’s activities.

14. Influences on Accounting Systems Generally accepted accounting principles (GAAP) Foreign Corrupt Practices Act Internal control Management audits

15. Influences on Accounting Systems Sarbanes-Oxley Act: In 2002 the Sarbanes-Oxley Act required chief executive officers to sign a statement verifying the accuracy of the company’s financial statements.

16. Importance of Ethics No regulation can be as effective in ensuring reliability as high ethical standards of accountants.

17. Management Accounting in Service and Nonprofit Organizations Service organizations Nonprofit organizations Hospitals Schools Libraries Museums Government agencies Accounting firms Law firms Real estate firms Banks Hotels

18. Service Organizations Labor is intensive. Output is usually difficult to define. Major inputs and outputs cannot be stored.

19. Cost-Benefit and Behavioral Considerations 1. Cost-benefit balance 2. Behavioral implications

20. Cost-Benefit Balance The primary consideration in choosing among accounting systems and methods is weighing estimated costs against probable benefits.

21. Behavioral Implications The system must provide accurate, timely budgets and performance reports in a form useful to managers. If managers do not use accounting reports, the reports create no benefits.

22. Learning Objective 3 • Explain the role of budgets and performance reports in planning and control.

23. The Nature of Planning and Controlling What is decision making? It is the purposeful choice from among a set of alternative courses of action designed to achieve some objective. This is the core of the management process.

24. The Nature of Planning and Controlling The management process internal accounting system: Planning – Improve profitability Budgets, Special reports Customer surveys Corrections and revisions of plans and actions Competitor analysis Advertising impact Accounting system New items report Controlling – Actions – Evaluations Performance reports

25. Role of Budgets A budget is a quantitative expression of a plan of action. The Starbucks store would express its plan for product growth and improved marketing through revenue and advertising budgets.

26. Performance Reports What are performance reports? These are reports that compare actual results with budgeted amounts.

27. Performance Reports Performance reports formalize controls and provide feedback by comparing results with plans and by highlighting variances. Variances are deviations from the plan.

28. Performance Reports Starbucks Mayfair Store, March 31, 2004 BudgetActualVariance Sales $50,000 $50,000 0 Less: Ingredients 22,000 24,500 $2,500 U Store labor 12,000 11,600 400 F Other labor 6,000 6,050 50 U Utilities, etc. 4,500 4,500 0 Total expenses $44,500 $46,650 $2,150 U Operating income $ 5,500 $ 3,350 $2,150 U

29. Objective 4 • Discuss the role accountants • play in the company’s • value chain functions.

30. Planning and Control for Product Life Cycles and the Value Chain Product life cycle refers to the various stages through which a product passes.

31. Introduction to market Mature market Product phase-out Planning and Control for Product Life Cycles and the Value Chain Product development

32. The Value Chain R & D Design Production Support functions Marketing Distribution Service

33. Value Chain Functions Research and development… is the generation of, and experimentation with, ideas related to new products, services, or processes.

34. Value Chain Functions Design… is the detail and engineering of products.

35. Value Chain Functions Production… is the coordination and assembly of resources to produce a product or deliver a service.

36. Value Chain Functions Marketing… is the manner by which individuals or groups learn about the value and features of products or services.

37. Value Chain Functions Distribution… is the mechanism by which products or services are delivered to the customer.

38. Value Chain Functions Customer service… is the support activities provided to the customer.

39. Objective 5 • Contrast the functions of controllers and treasurers.

40. Accounting’s Position in the Organization Collecting and compiling information Preparing standardized reports Interpreting and analyzing information Being involved in decision making

41. Line and Staff Authority Line managers Staff managers Cross-functional teams

42. Treasurer Controller Controller and Treasurer Functions Financial Vice-President or CFO

43. Functions of the Controller • Planning for control • Reporting and interpreting • Evaluating and consulting • Tax administration • Government reporting • Protection of assets • Economic appraisal

44. Functions of the Treasurer • Provision of capital • Investor relations • Short-term financing • Banking and custody • Credits and collections • Investments • Risk management (insurance)

45. Learning Objective 6 • Explain why accounting • is important in a variety • of career paths.

46. Career Opportunities in Management Accounting The Certified Management Accountant (CMA) designation is the internal accountant’s counterpart to the CPA. CMAs must pass an examination that has four parts:

47. 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 and information systems.

48. Learning Objective 7 • Identify current trends in • management accounting.

49. Current Trends Factors causing changes in management accounting: Shift from a manufacturing-based to a service-based economy Increased global competition Advances in technology Changes in business processes

50. Current Trends Just-in-time (JIT) philosophy Computer-aided design Computer-aided manufacturing Computer-integrated manufacturing