1. Management accountingWeek 1Introduction Tutor: Paula
Burn
2. The course Twelve weeks of 2 hours This combines lectures and
seminar activity Your participation is a prerequisite not anoption!
Assessment by examination Based on professional accountancy style
questions Recommended text book Drury C. (2008)Management and Cost
Accounting 7th ed. South-Western Cengage Learning Further reading
will be recommended within thecourse2 3. The aim To establish how
companies make good strategicdecisions What are the relevant
financial and non-financialfactors that should be considered in
analyticaltechniques? What are the limitations of the processes
used? How valid are the decisions reached?3 4. The examination 3
hours 3 questions Mix of computation and discussion Covering the
learning outcomes4 5. Why produce accounts? Accounting provides
financial and non-financial information to help inform good
decision making5 6. Who for? Internal usersExternal users
Management Financial accountingaccounting Legal requirement of No
legal requirementall companies to A growth area inproduce
auditedmanagement planning accounts Interested in cash flow Must
meet definedand prospective rules and regulationsprofitability
Provides historical Provides forwardinformationprojections6 7.
Strategic ManagementAccounting The term, ..., may no longer be very
useful whendescribing a set of advanced managementaccounting
techniques or an approach tocompetitive financial analysis it would
be useful to understand how techniquesdiffuse into more general
practice and intoorganisational processes Kim Langfield-Smith
Strategic managementaccounting: how far have we come in 25
years?Accounting, Auditing & Accountability Journal; Vol21 No 2
p 204-228 Emerald group publishing ltd.7 8. What is SMA? Making
management accounting more strategic...Roslender and Hart 2003:272
The provision and analysis of managementaccounting data about a
business and itscompetitors, for use in developing and
monitoringbusiness strategy. Simmonds 1981:26 The provision and
analysis of financial informationon the firms product markets and
competitors costsand cost structures... Bromwich 1990:28 The
blending of financial analysis elements.....- valueanalysis,
strategic positioning analysis, and cost8 driver analysis, Shank
and Govindarajan 1994:xiii 9. The internal accounting information
Strategic decisions Operating decisions Long term Short term Need
to consider Dependent on theoutside influences resources External
shocks availableoften How can theuncontrollable and company
returnsunknownfrom the limited resources9 10. Companies need to
grow Three basic options Develop new products for existing markets
Develop new products for new markets Develop new markets for
existing customers10 11. What are the companies trying to achieve?
Customer satisfaction11 12. Continuousimprovement Corporate
EmployeeethicsempowermentSocialCustomer Total value responsibility
chain analysis satisfaction TimeCost efficiencymanagementTotal
qualitymanagement Delivering customer satisfaction12 Adapted from
Drury 2008 13. Definition of a decision... The cognitive process of
reaching a decision. A position or opinion or judgment reached
after consideration Choosing between alternative courses of action
using cognitive processes - memory, thinking, evaluation, etc The
process of mapping the likely consequences of decisions, working
out the importance of individual factors, and choosing the best
course of action to take.13 14. Making a good decision... Define
the situation/decision to be made Identify the important criteria
for the process and the result Consider all possible solutions
Calculate the consequences of these solutions versus the likelihood
of satisfying the criteria Choose the best option Any internet
search will give you a huge amount of information on techniques and
analysis but they pretty much all boil down to the above process!14
15. What are we trying to do? Analyse alternatives Find the options
that will optimise returns Optimal returns primarily focused on
best future net cash flow Other criteria are becoming increasingly
important Develop a budget (normally within an action plan Monitor
performance reports Assess against success criteria Adapt as
necessary!15 16. That is; become good strategic management
accountants!16 17. Management accounting aims to be:- Inventive
(has none of the constraints of financial accounting, it is
internal) Provide forecasts and predictions Generate estimates Be
forward thinking It makes use of historical information, but is
predictive It can be influential Add value And provide competitive
advantage17 18. Management accounting a growing phenomenonChanging
practice in business has led to theincreasing use of, and interest
in managementaccounting:Primarily 1. The increase in globalisation
and greater competition 2. The shift away from protected publicly
owned industry to privatisation and free markets 3. A reduction in
the time frame for product life cycles18 19. Enterprise resource
planning systems (ERPS) The introduction of easily accessible data
bases have changed the way accounts work and companies compile
accounting information All information is more current Entry into a
single system has become the norm Access is available to managers
at all levels in all departments Accountants can now analyse and
provide consultancy skills rather than be number crunchers19 20.
Where has it come from? Strategic Management Accounting has its
roots in the Scientific Management Movement of 1800 to 1915 and
included Adam Smith, Babbage, Townes and Taylor. Frederick Taylor
is particularly remembered and his techniques are still in use
today and referred to as taylorism. Taylor developed his methods
during the mechanisation of metal working. He defined a job as
consisting of Method, Skill and Measurement. This was an approach
using scientific methodology to optimize output and began to set
productivity standards. His theories were refined and developed and
are the basis of Time and Motion studies20 21. Our focus; Decide
what information is needed Look at techniques that will provide
meaningful and relevant information in the decision making process
Establish what are the relevant costs in any production process How
are costs composed and how are they linked21 22. To provide
information that:- Enables the allocation of costs between goods
sold and inventories Helps managers make better decisions Enables
management to plan, control, measure performance and promote
continuous improvement22 23. SMA techniques Cost control or Cost
management?23 24. Cost management Focus on; Cost reduction
Continuous improvement Positive change Not; Cost containment Aim
Reduce costs and improve customer satisfaction24 25. Why has it
developed? Traditional cost control systems are used routinely and
continuously to keep track of costs An accounting information
system Cost management used when an opportunity to reduce costs is
spotted Many of the techniques are not reliant on an accounting
system25 26. Life cycle costing The cost of a product from the
birth of an idea to its death Three stages 1. Product planning and
design phase 2. Product manufacturing and sales phase 3. Post sales
service and abandonment phase Looking for cost savings in stage 1,
led to thedevelopment of Target costing26 27. Target costing 1.
Determine the target price which customers willbe prepared to pay
for the product 2. Deduct a target profit margin to establish
thetarget cost 3. Estimate the actual cost of producing theproduct
4. If...estimated cost > target cost investigateways to reduce
actual cost27 28. Achieving target cost Tear-down analysis Examine
a competitors product looking for product improvement Or cost
reduction opportunity Value engineering Identify improved product
designs that reduce the manufacturing costs without impairing
functionality Or eliminate unnecessary functions that raise costs
and for which the customer is not prepared to pay extra Accurate
cost measurement systems All of this only works if cost can be
measured28accurately 29. Kaizen costing Again from Japan Once in
production are there opportunities to make small improvements to
the process that will reduce costs Looking for ways to increase
efficiency! Employee empowerment29 30. Just in time systems Aim To
eliminate or reduce the costs of non-value added activities Produce
the required item, in the desired quantity, at the required
quality, at the required time Minimise inventories Reduce cycle
time Have flexible production lines30 31. Reading Journal paper
supplied, SMA; how far have we come in 25 years Chapter 1 & 22
Research A journal article discussing one of the techniques
mentioned in the last section This will be the basis of our first
discussion next week.31
