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Copyright © 2007 Prentice-Hall. All rights reserved
1
Introduction to Management Accounting
Introduction to Management Accounting
Chapter 1
Copyright © 2007 Prentice-Hall. All rights reserved
2
Objective 1Objective 1
Identify managers’ four primary responsibilities
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3
Setting goals and objectives
Overseeing day-to-day operations
Evaluating resultsof operations
Managers’ ResponsibilitiesManagers’ Responsibilities
Directing
Controlling
DecisionMaking
Planning
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4
Objective 2Objective 2
Distinguish financial accounting from management accounting
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5
Primary Users?Primary Users?
Management • Internal • Managers
Financial• External• Investors, creditors,
government regulators
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6
Purpose of Information?Purpose of Information?
Management• Help managers plan,
direct, and control business operations
Financial• Help investors and
creditors make investment and credit decisions
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7
Primary Accounting Product?Primary Accounting Product?
Management• Any internal
accounting report deemed worthwhile by management
Financial• General-purpose
financial statements
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8
What must be included?What must be included?
Management• Whatever
management needs as long as benefits of using report exceeds cost of preparing it
Financial• Determined by GAAP
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9
Underlying basis of the information?
Underlying basis of the information?
Management• Focus on future• Information on
external and internal transactions
Financial• Based on historical
transactions• External transactions
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10
Information characteristic emphasized?
Information characteristic emphasized?
Management• Relevance
Financial• Reliable and objective
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11
Business unit?Business unit?
Management• Segments – products,
geographical regions, customers
Financial• Company as a whole
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12
How often prepared?How often prepared?
Management• Depends on
management needs
Financial• Annually and
quarterly
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13
Verification?Verification?
Management• No independent
audits• Internal audits may
occur
Financial• Independent audits of
publicly traded companies
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14
Required by outside group?Required by outside group?
Management• No
Financial• Yes – SEC for publicly
traded companies
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15
Concern over how reports affect employee behavior?
Concern over how reports affect employee behavior?
Management• Yes
Financial• Concern is about
adequacy of disclosure
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16
E1-10E1-10
a. Companies must follow GAAP in their ____________________ systems.
b. Financial accounting develops reports for external parties, such as __________ and _______________.
c. When managers evaluate the company’s performance compared to the plan, they are performing the __________ role of management.
Financial accounting
CreditorsShareholders
Controlling
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17
E1-10E1-10
d. __________ are decision makers inside a company.
e. ___________________ provides information on a company’s past performance to external parties.
f. ______________________ systems are not restricted by GAAP but are chosen by comparing the costs versus the benefits of the system.
Managers
Financial accounting
Management accounting
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18
E1-10E1-10
g. Choosing goals and the means to achieve them is the __________ function of management.
h. _____________________ systems report on various segments or business units of the company.
i. ____________________ statements of public companies are audited annually by CPAs.
Planning
Managerial accounting
Financial accounting
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19
Objective 3Objective 3
Describe organizational structure and the roles and skills required of management
accountants within the organization
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20
Organizational StructureOrganizational Structure
Board of Directors
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Vice Presidents of various operations
Treasurer Controller Internal Audit
Audit Committee
Board of Directors
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Vice Presidents of various operations
Treasurer Controller Internal Audit
Audit Committee
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21
Management AccountantsManagement 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
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22
Roles of Management Accountants
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
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23
Required SkillsRequired 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
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24
E1-11E1-11
a.The _____ and the _____ report to the CEO.
b.The internal audit function reports to the CFO or _______ and the _____________.
c. The __________ is directly responsible for financial accounting, managerial accounting, and tax reporting.
d.The CEO is hired by the _____________.
CFO COO
CEOcontroller
audit committee
Board of Directors
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25
E1-11E1-11
e. The __________ is directly responsible for raising capital and investing funds.
f. The __________ is directly responsible for the company’s operations.
g. Management accountants often work with __________________________.
h. The subgroup of the board of directors is called the _________________.
treasurer
COO
cross functional teams
audit committee
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26
Objective 4Objective 4
Describe the role of the Institute of Management Accountants (IMA) and use its ethical standards to make reasonable
ethical judgments
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27
IMAIMA
• 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)
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28
EthicsEthics
• Statement of Ethical Professional Practice (IMA)– Maintain professional competence– Preserve confidentiality of information– Uphold their integrity– Perform duties with credibility– Consult an attorney
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29
Steps to Resolve Ethical DilemmasSteps to Resolve Ethical Dilemmas
• Follow company’s policies for reporting unethical behavior
• If not resolved– Discuss with immediate supervisor– Discuss with objective advisor
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30
E1-13E1-13
a. The ______ is the professional association for management accountants.
b. The institute offers two types of certification: The _____ and _____.
c. The __________ exam focuses on managerial accounting topics, economics, and business finance.
IMA
CMA CFM
CMA
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31
E1-13E1-13
d. The ______ exam focuses on financial statement analysis, business valuation, risk management, working capital policy, and capital structure.
e. The institute’s monthly publication, called ________________, addresses current topics of interest to managerial accountants.
CFM
Strategic Finance
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32
E1-13E1-13
f. The institute says that approximately _____ percent of accountants work inside of organizations, rather than at CPA firms.
85
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33
Objective 5Objective 5
Discuss trends in the business environment
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34
Sarbanes-Oxley Act of 2002Sarbanes-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
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35
TrendsTrends
• Shift toward service economy
• Competing in global marketplace
• Time-based competition– ERP systems– E-Commerce– Just-in-Time Management
• Total Quality Management
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36
TrendsTrends
• Cost-Benefit Analysis – weighing costs against benefits to help make decisions
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37
Today’s Business TrendsToday’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
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38
E1-16E1-16
a. 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.
b. 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
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39
E1-16E1-16
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
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40
E1-16E1-16
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
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41
E1-16E1-16
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
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42
E1-16E1-16
h. Firms acquire the ______________ certification to demonstrate their commitment to quality.
ISO9001:2000
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43
Objective 6Objective 6
Use cost-benefit analysis to make business decisions
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44
E1-18E1-18
1. What are the total costs of adopting JIT?
Employee training $13,500Streamline production process 37,000Supplier identification 8,000Total costs $58,500
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E1-18E1-18
2. What are the total benefits of adopting JIT?
Savings in warehouse expenses $97,000Lower spoilage costs 46,000Total benefits $143,000
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E1-18E1-18
3. Should Wild Rides adopt JIT? Why or why not?
Expected total benefits $143,000Expected total costs (58,500)Excess of benefits over costs $ 84,500
Wild Rides should adopt JIT because the expected benefits exceed the costs.
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47
S1-8S1-8
Expected value of additional benefits:
Outcome Benefits Probability Expected value
Moderately successful
$20 million 0.85 =
Extremely successful
$80 million 0.15 =
$17 million
$12 million
$29 million
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48
S1-8S1-8
Total benefits:
Benefits already realized $170 million
Expected value of additional benefits 29 million
Total expected benefits $199 million
Total costs $200 million
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49
S1-8S1-8
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.