Chapter 1 The Manager and Management Accounting

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The Manager and Management

Accounting

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1. Distinguish financial accounting from

management accounting

2. Understand how management accountants

help firms make strategic decisions

3. Describe the set of business functions in the value chain and identify the dimensions of performance that customers are

expecting of companies

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Copyright © 2015 Pearson Education, Inc. All Rights Reserved.

4. Explain the five-step decision-making

process and its role in management accounting

5. Describe three guidelines management accountants follow in supporting managers

6. Understand how management accounting fits into an organization’s structure

7. Understand what professional ethics mean

to management accountants

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�Management accounting—measures,

analyzes, and reports financial and nonfinancial information to help managers

make decisions to fulfill organizational goals. Management accounting need not be GAAP

compliant.

� Financial accounting—focuses on reporting to external users including investors, creditors,

banks, suppliers, and governmental agencies. Financial statements must be based on GAAP.

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�Cost accounting – measures, analyzes and

reports financial and nonfinancial information related to the costs of acquiring

or using resources in an organization.

�Today, most accounting professionals take the position that cost information is part of

management accounting; therefore, the distinction between the two is not clear-cut

and in this book, we often use the terms interchangeably.

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� Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace.

There are two broad strategies: cost leadership or product differentiation

� Strategic cost management—describes cost management that specifically focuses on strategic issues.

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Management accounting helps answer important

questions such as:

� Who are our most important customers, and how can

we be competitive and deliver value to them?

� What substitute products exist in the marketplace,

and how do they differ from our own?

� What is our most critical capability?

� Will adequate cash be available to fund the strategy

or will additional funds need to be raised?

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�Creating value is an important part of

planning and implementing strategy.

�Value is the usefulness a customer gains from

a company’s product or service. The entire customer experience determines the value a

customer derives from a product.

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�The Value chain is the sequence of business functions in which a product is made progressively more useful to customers.

�The Value chain consists of:1. Research & development

2. Design of Products and Processes

3. Production

4. Marketing

5. Distribution

6. Customer service

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�Production and Distribution are the parts of

the value chain associated with producing and delivering a product or service.

�These two functions together are known as the Supply-Chain

�The supply chain describes the flow of goods, services and information from the initial

sources of materials, services, and information to their delivery regardless of

whether the activities occur in one organization or in multiple organizations.

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�Customers want companies to use the value

chain and supply chain to deliver ever-improving levels of performance when it

comes to several (or even all) of the following:

� Cost and efficiency

� Quality

� Time

� Innovation

� Sustainability

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1. Identify the problem and uncertainties.

2. Obtain information.

3. Make predictions about the future.

4. Make decisions by choosing between

alternatives.

5. Implement the decision, evaluate

performance, and learn.

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�Planning selects goals and strategies,

predicts results, decides how to attain goals, and communicates this to the organization.

� Budget—the most important planning tool-is the

quantitative expression of a plan of activity by

management and is an aid to coordinating what

needs to be done to execute that plan.

�Control takes actions that implement the planning decision, evaluates performance,

and provides feedback and learning to the organization.

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Three guidelines help management accountants provide the most value to the strategic and operational decision- making of their companies:

� Cost–benefit approach: benefits of an action/purchase generally must exceed costs as a basic decision rule.

� Behavioral and technical considerations: people are involved in decisions, not just dollars and cents.

� Different Costs for Different Purposes: Managers use alternative ways to compute costs in different decision-making situations.

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�The four standards of ethical conduct for

management accountants as advanced by the Institute of Management Accountants are:

� Competence

� Confidentiality

� Integrity

� Objectivity

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The Sarbanes-Oxley legislation was passed in

2002 in response to a series of corporate scandals. The act focuses on improving:

1. Internal controls

2. Corporate governance

3. Monitoring of managers

4. Disclosure practices of public companies

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TERMS to LEARN Page Number Reference

Budget Page 11

Chief Financial Officer Page 14

Control Page 11

Controller Page 14

Cost Accounting Page 4

Cost-Benefit approach Page 12

Cost Management Page 4

Customer RelationshipManagement (CRM)

Page 7

Customer Service Page 6

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Design of products and processes Page 6

Distribution Page 6

Finance Director Page 14

Financial Accounting Page 3

Learning Page 12

Line Management Page 14

Management Accounting Page 4

Marketing Page 6

Planning Page 11

Production Page 6

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Research & Development (R&D) Page 6

Staff Management Page 14

Strategic Cost Management Page 5

Strategy Page 5

Supply Chain Page 7

Sustainability Page 8

Total Quality Management (TQM) Page 8

Value Chain Page 8

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Documents

Chapter 1 The Manager and Management Accounting