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Introduction to Management Accounting. Chapter 1. Objective 1. Identify managers’ four primary responsibilities. Managers’ Responsibilities. Setting goals and objectives. Planning. Decision Making. Overseeing day-to- day operations. Directing. Evaluating results of operations.
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Introduction to Management Accounting Chapter 1
Objective 1 Identify managers’ four primary responsibilities
Managers’ Responsibilities Setting goals and objectives Planning Decision Making Overseeing day-to-day operations Directing Evaluating resultsof operations Controlling
Objective 2 Distinguish financial accounting from management accounting
Management Internal Managers Financial External Investors, creditors, government regulators Primary Users?
Management Help managers plan, direct, and control business operations Financial Help investors and creditors make investment and credit decisions Purpose of Information?
Management Any internal accounting report deemed worthwhile by management Financial General-purpose financial statements Primary Accounting Product?
Management Whatever management needs as long as benefits of using report exceeds cost of preparing it Financial Determined by GAAP What must be included?
Management Focus on future Information on external and internal transactions Financial Based on historical transactions External transactions Underlying basis of the information?
Management Relevance Financial Reliable and objective Information characteristic emphasized?
Management Segments – products, geographical regions, customers Financial Company as a whole Business unit?
Management Depends on management needs Financial Annually and quarterly How often prepared?
Management No independent audits Internal audits may occur Financial Independent audits of publicly traded companies Verification?
Management No Financial Yes – SEC for publicly traded companies Required by outside group?
Management Yes Financial Concern is about adequacy of disclosure Concern over how reports affect employee behavior?
E1-10 • Companies must follow GAAP in their ____________________ systems. • Financial accounting develops reports for external parties, such as __________ and _______________. • When managers evaluate the company’s performance compared to the plan, they are performing the __________ role of management. Financial accounting Creditors Shareholders Controlling
E1-10 Managers • __________ are decision makers inside a company. • ___________________ provides information on a company’s past performance to external parties. • ______________________ systems are not restricted by GAAP but are chosen by comparing the costs versus the benefits of the system. Financial accounting Management accounting
E1-10 • Choosing goals and the means to achieve them is the __________ function of management. • _____________________ systems report on various segments or business units of the company. • ____________________ statements of public companies are audited annually by CPAs. Planning Managerial accounting Financial accounting
Objective 3 Describe organizational structure and the roles and skills required of management accountants within the organization
Management Accountants • Often part of cross-functional teams • Report to various vice-presidents of operations • Role is to analyze financial impact of business decisions • Internal consultants
Roles of Management Accountants • Ensuring accurate financial records • Helping to design information systems • Recording non-routine transactions • Making adjustments to financial records • Planning, analyzing, and interpreting accounting data • Providing decision support
Required Skills • Knowledge of financial and managerial accounting • Analytical skills • Knowledge of how a business functions • Ability to work on a team • Oral and written communications skills
E1-11 • The _____ and the _____ report to the CEO. • The internal audit function reports to the CFO or _______ and the _____________. • The __________ is directly responsible for financial accounting, managerial accounting, and tax reporting. • The CEO is hired by the _____________. CFO COO audit committee CEO controller Board of Directors
E1-11 • The __________ is directly responsible for raising capital and investing funds. • The __________ is directly responsible for the company’s operations. • Management accountants often work with __________________________. • The subgroup of the board of directors is called the _________________. treasurer COO cross functional teams audit committee
Objective 4 Describe the role of the Institute of Management Accountants (IMA) and use its ethical standards to make reasonable ethical judgments
IMA • Professional association for managerial accountants • Goal • Advance management accounting profession • Educate society about role of managerial accountants • Certifications • Certified Management Accountant (CMA) • Certified Financial Managers (CFM)
Ethics • Statement of Ethical Professional Practice (IMA) • Maintain professional competence • Preserve confidentiality of information • Uphold their integrity • Perform duties with credibility • Consult an attorney
Steps to Resolve Ethical Dilemmas • Follow company’s policies for reporting unethical behavior • If not resolved • Discuss with immediate supervisor • Discuss with objective advisor
E1-13 • The ______ is the professional association for management accountants. • The institute offers two types of certification: The _____ and _____. • The __________ exam focuses on managerial accounting topics, economics, and business finance. IMA CMA CFM CMA
E1-13 CFM • The ______ exam focuses on financial statement analysis, business valuation, risk management, working capital policy, and capital structure. • The institute’s monthly publication, called ________________, addresses current topics of interest to managerial accountants. Strategic Finance
E1-13 f. The institute says that approximately _____ percent of accountants work inside of organizations, rather than at CPA firms. 85
Objective 5 Discuss trends in the business environment
Sarbanes-Oxley Act of 2002 • CEO and CFO - responsible for financial statements, internal control system, procedures for financial reporting • Audit committee – independent and should include a financial expert • CPA firms – limited non-audit services for audit clients and periodic quality review • Stiffer penalties for white-collar crimes
Trends • Shift toward service economy • Competing in global marketplace • Time-based competition • ERP systems • E-Commerce • Just-in-Time Management • Total Quality Management
Trends • Cost-Benefit Analysis – weighing costs against benefits to help make decisions
Today’s Business Trends • Shift toward a service economy • Global competition • Time-based competition • Advanced information systems • E-Commerce • Just-in-Time management • Total Quality Management
E1-16 • To account for uncertainty in the amounts of future costs and benefits, we compute the ______________ by multiplying the probability of each outcome by the dollar value of that outcome. • To make a cost-benefit decision today, we must find the ______________ of the costs and benefits that are incurred in the future. expected value present value
E1-16 c. The goal of _______ is to meet customers’ expectations by providing them with superior products and services by eliminating defects and waste throughout the value chain. TQM
E1-16 d. Most of the costs of adopting ERP, JIT, expanding into a foreign market, or improving quality are incurred in the ________, but most of the benefits occur in the _______. present future
E1-16 e. _______________ is the time between buying raw materials and selling the finished products. f. __________ serves the information needs of people in accounting, as well as people in marketing and in the warehouse. g. Firms adopt __________ to conduct business on the Internet. Throughput time ERP e-commerce
E1-16 h. Firms acquire the ______________ certification to demonstrate their commitment to quality. ISO9001:2000
Objective 6 Use cost-benefit analysis to make business decisions
E1-18 1. What are the total costs of adopting JIT? Employee training $13,500 Streamline production process 37,000 Supplier identification 8,000 Total costs $58,500
E1-18 2. What are the total benefits of adopting JIT? Savings in warehouse expenses $97,000 Lower spoilage costs 46,000 Total benefits $143,000
E1-18 3. Should Wild Rides adopt JIT? Why or why not? Expected total benefits $143,000 Expected total costs (58,500) Excess of benefits over costs $ 84,500 Wild Rides should adopt JIT because the expected benefits exceed the costs.
S1-8 $17 million $12 million $29 million
S1-8 Total benefits: Benefits already realized $170 million Expected value of additional benefits 29 million Total expected benefits $199 million Total costs $200 million
S1-8 The costs of $200 million just exceed the total expected benefits of $199 million. Under these circumstances, the quality program does not appear to have been a worthwhile investment.
