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CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1
Managerial Accounting
In the
Information Age
Slide 1-2
Managerial AccountingManagerial AccountingManagerial AccountingManagerial Accounting
Managerial accounting is designed for internal users
The goal of Managerial Accounting is to provide the information managers need for
- Planning
- Control
- Decision making
Slide 1-3 Learning objective 1: State the primary goal of managerial accounting
PlanningPlanningPlanningPlanning
Budgets for planning Profit budget
- Indicates planned income Cash flow budget
- Indicates planned cash inflows and outflows
Production budget
- Indicates the planned quantity of production and expected costs
Slide 1-4 Learning objective 2: Describe how budgets are used in planning
PlanningPlanningPlanningPlanning
Slide 1-5 Learning objective 2: Describe how budgets are used in planning
ControlControlControlControl
Organizations achieve control by: Evaluating managers to determine how
their performance should be rewarded or punished
Evaluating operations to provide information as to whether they should be changed or not
Slide 1-6 Learning objective 3: Describe how performance reports are used in the control process
Planning and Control Planning and Control ProcessProcess
Planning and Control Planning and Control ProcessProcess
Slide 1-7
Learning objective 3: Describe how performance reports are used in the control process
Sample Performance ReportSample Performance ReportSample Performance ReportSample Performance Report
Slide 1-8 Learning objective 3: Describe how performance reports are used in the control process
Managerial vs Financial Managerial vs Financial AccountingAccounting
Managerial vs Financial Managerial vs Financial AccountingAccounting
Unlike Financial Accounting, Managerial Accounting: Is directed at internal users May deviate from GAAP Presents more detailed information May present more nonmonetary
information Places more emphasis on the future
Slide 1-9 Learning objective 4: Distinguish between financial and managerial accounting
Cost TerminologyCost TerminologyCost TerminologyCost Terminology
Variable Costs
- Change in proportion to changes in volume or activity
Slide 1-10 Learning objective 5: Define cost terms used in planning, control, and decision making
Cost TerminologyCost TerminologyCost TerminologyCost Terminology
Fixed Costs- Do not change in response to changes in volume or
activity
Slide 1-11 Learning objective 5: Define cost terms used in planning, control, and decision making
Which of the following is most likely to be a variable cost?
a. Depreciationb. Cost of materialsc. Rentd. Advertising
Answer:b. Cost of materials
Slide 1-12 Learning objective 5: Define cost terms used in planning, control, and decision
Which of the following is most likely to be a fixed cost?
a. Cost of materialsb. Rentc. Assembly labor costd. Commissions
Answer:b. Rent
Slide 1-13 Learning objective 5: Define cost terms used in planning, control, and decision making
Cost TerminologyCost TerminologyCost TerminologyCost Terminology
Sunk Costs
- Costs incurred in the past - Not relevant to present decisions
Opportunity Costs
- Values of benefits foregone when selecting one alternative over another
Slide 1-14 Learning objective 5: Define cost terms used in planning, control, and decision making
Costs incurred in the past are:a. Opportunity costsb. Direct costsc. Sunk costsd. Variable costs
Answer:c. Sunk costs
Slide 1-15 Learning objective 5: Define cost terms used in planning, control, and decision making
Cost TerminologyCost TerminologyCost TerminologyCost Terminology
Direct and indirect costs- Direct costs are directly traceable to a
product, activity, or department, indirect costs are not traceable
Controllable & noncontrollable costs- A manager can influence controllable
costs but cannot influence non- controllable costs
Slide 1-16 Learning objective 5: Define cost terms used in planning, control, and decision making
Direct and Indirect CostDirect and Indirect CostDirect and Indirect CostDirect and Indirect Cost
Slide 1-17 Learning objective 5: Define cost terms used in planning, control, and decision making
In the past year, Williams Mold & Machine had sales of $8,000,000 and total production costs of $6,000,000. In the coming year, the company believes that production can be increased by 30%, but this will require adding a second shift to work from 4:00 pm to 1:00 am.
Slide 1-18
1. Indicate three production costs that are likely to increase because of adding a second production shift.
Material costs, workers’ salaries, and benefits are all likely to increase
Learning objective 5: Define cost terms used in planning, control, and decision making
In the past year, Williams Mold & Machine had sales of $8,000,000 and total production costs of $6,000,000. In the coming year, the company believes that production can be increased by 30%, but this will require adding a second shift to work from 4:00 pm to 1:00 am.
Slide 1-19
2. What production cost most likely will not increase when the second shift is added?
Depreciation of the building will not increase
Learning objective 5: Define cost terms used in planning, control, and decision making
Two Key Ideas in Managerial Two Key Ideas in Managerial AccountingAccounting
Two Key Ideas in Managerial Two Key Ideas in Managerial AccountingAccounting
Slide 1-20 Learning objective 6: Explain the two key ideas in managerial accounting
Incremental AnalysisIncremental AnalysisIncremental AnalysisIncremental Analysis
Slide 1-21 Learning objective 6: Explain the two key ideas in managerial accounting
Incremental analysis: Differences in revenues and costs between
alternatives are incremental Incremental revenue minus incremental cost
equals incremental profit
You Get What you MeasureYou Get What you MeasureYou Get What you MeasureYou Get What you Measure
Performance measures greatly influence the behavior of managers
Slide 1-22 Learning objective 6: Explain the two key ideas in managerial accounting
You Get What you MeasureYou Get What you MeasureYou Get What you MeasureYou Get What you Measure
Slide 1-23 Learning objective 6: Explain the two key ideas in managerial accounting
Information Age and Information Age and Managerial AccountingManagerial AccountingInformation Age and Information Age and
Managerial AccountingManagerial Accounting
Advances in information technology have: increased competition and also created
opportunities and cost savings for firms that use information for strategic advantage
impacted information flows up and down the value chain (i.e. fundamental activities that a firm engages in to create value)
Slide 1-24 Learning objective 7: Discuss the impact of information technology on competition, business processes and the interactions companies have with suppliers and customers
The Value ChainThe Value ChainThe Value ChainThe Value Chain
Slide 1-25 Learning objective 7: Discuss the impact of information technology on competition, business processes and the interactions companies have with suppliers and customers
Impact of Software Systems Impact of Software Systems on the Value Chainon the Value Chain
Impact of Software Systems Impact of Software Systems on the Value Chainon the Value Chain
Enterprise Resource Planning (ERP)- Computerize inventory control and production
planning
Supply Chain Management (SCM)- Organization of activities between a company and
its suppliers
Customer Relationship Management (CRM)- Manages a variety of customer interactions
Slide 1-26 Learning objective 7: Discuss the impact of information technology on competition, business processes and the interactions companies have with suppliers and customers
Customer Relationship Customer Relationship ManagementManagement
Customer Relationship Customer Relationship ManagementManagement
Slide 1-27 Learning objective 7: Discuss the impact of information technology on competition, business processes and the interactions companies have with suppliers and customers
Ethical and Unethical BehaviorEthical and Unethical BehaviorEthical and Unethical BehaviorEthical and Unethical Behavior
Examples of unethical behavior Enron managers mislead investors by hiding
debt, i.e. Kenneth Lay, CEO, found guilty of fraud
WorldCom overstated profits, i.e. Bernard Ebbers, CEO, received a 25 year prison sentence
Dennis Kozlowski, head of Tyco, was charged with avoiding taxes
Sam Waksal, cofounder of IMClone, was charged with insider trading
Slide 1-28 Learning objective 8: Describe a framework for ethical decision making
Sarbanes-Oxley ActSarbanes-Oxley ActSarbanes-Oxley ActSarbanes-Oxley Act
Slide 1-29 Learning objective 8: Describe a framework for ethical decision making
Enacted by Congress in July 2002
Requires CEO and CFO to certify that the financial statements do not contain any untrue statements or omissions
Bans certain types of work by the company’s auditors to ensure their independence
Provides for longer jail sentences and larger fines for executives (i.e. fines up to $5 million and jail terms up to 20 years)
Requires companies to report on the existence and reliability of internal controls
Framework for Ethical Framework for Ethical Decision MakingDecision Making
Framework for Ethical Framework for Ethical Decision MakingDecision Making
When evaluating a decision, ask:1. What decision alternatives are available?
2. What individuals or organizations have a stake in the outcome of my decision?
3. Will an individual or an organization be harmed by any of the alternatives?
4. Which alternative will do the most good with the least harm?
5. Would someone I respect find any of the alternatives objectionable?
Slide 1-30 Learning objective 8: Describe a framework for ethical decision making
Framework for Ethical Framework for Ethical Decision MakingDecision Making
Framework for Ethical Framework for Ethical Decision MakingDecision Making
After deciding on a course of action, but beforetaking action, ask:
6. At a gut level, am I comfortable with the decision I am about to make?
7. Will I be comfortable telling my friends and family about this decision?
Slide 1-31 Learning objective 8: Describe a framework for ethical decision making
Ethical Decision MakingEthical Decision MakingEthical Decision MakingEthical Decision Making
Slide 1-32 Learning objective 8: Describe a framework for ethical decision making
Institute of Management Institute of Management Accountants (IMA)Accountants (IMA)
Institute of Management Institute of Management Accountants (IMA)Accountants (IMA)
Slide 1-33 Learning objective 8: Describe a framework for ethical decision making
Professional organization which focuses on management accounting:
Developed Statement of Ethical Professional Practice
Maintains ethics helpline Publishes Strategic Finance and
Management Accounting Quarterly Conducts comprehensive examination
to test knowledge of management accountants
Duties of OfficersDuties of OfficersDuties of OfficersDuties of Officers
Slide 1-34
Controller
- Prepares reports to plan and evaluate company activities
- Provides information needed to make management decisions
- Files all financial accounting reports and tax filings with IRS and other tax agencies
- Coordinates activities of external auditors
Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer
Duties of OfficersDuties of OfficersDuties of OfficersDuties of Officers
Slide 1-35
Treasurer Manages cash and marketable securities
Prepare cash forecasts
Obtains financing from banks and other lenders
Maintain relationships with investors, banks, and other creditors
Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer
Duties of OfficersDuties of OfficersDuties of OfficersDuties of Officers
Slide 1-36
Chief Information Officer (CIO) responsible for information technology
and computer systems
Chief Financial Officer (CFO) responsible for accounting and finance
operations
Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer
Organizational Chart for the Organizational Chart for the Controller’s OfficeController’s Office
Organizational Chart for the Organizational Chart for the Controller’s OfficeController’s Office
Slide 1-37 Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer
Decision MakingDecision MakingDecision MakingDecision Making
Slide 1-38
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