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Slide 1-1
1
ManagementAccounting and
Management Decisions
Slide 1-2
Management Accounting for Managers
• Management accounting exists because managers require information to make decisions
• Primary focus of management accounting is towards users within an organization
• Management accounting does not exist to generate data, but it exists because managers require information for decisions
Framework for Management Accounting
Strategic Planning
Management Control
Operational Control
Focus on organization’s objectives
Effectiveness and efficiency of resource use
Effectiveness and efficiency of tasks
Slide 1-3
Frameworks for Management Accounting
OPERATIONAL MANAGEMENT STRATEGIC
CONTROL CONTROL PLANNING
Structured Accounts receivable Budget analysis Tanker fleet mix
Order entry Short-term Warehouse and
forecasting factory location
Inventory reordering Engineered costs
Inventory control Variance analysis Mergers and acquisitions
Semi-
Structured Production scheduling Overall budget Capital acquisition analysis
Bond trading Budget preparation New product planning
Cash management
Unstructured PERT COST systems Sales and production R and D planning
Slide 1-4
Management Decision Process
1. Identify the problem.
2. Perform the necessary quantitative and qualitative analyses.
3. Identify alternative solutions to the problem.
4. Evaluate the alternative solutions.
5. Recommend one of the alternative solutions.
6. Implement the recommendation.
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Management accounting is ….
• The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information that assists managers in making decisions
• Following diagram illustrates 3 roles of management accountant
Slide 1-6
Management
Major Means:Accounting Information
1. Problem-solving information
2. Attention-directing information
3. Scorekeeping information
Major Ends:Helping Decisions
1. Managers for long-range planning and special decisions
2. Managers for planning and controlling routine operations
3. Outsiders for investors, tax collectors, regulators & others
Slide 1-7
Planning and Controlling
• Planning involves setting objectives and the means to their attainment• What is desired?• When and how is it to be accomplished?• How is success to be evaluated?
• Controlling involves the implementation of plans and the use of feedback to monitor achievements
Planning
ActionEvaluation
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Performance Reports
• Feedback provided by comparing results with plans and by highlighting variances
• Reports:• Budget amounts • Actual amounts • Deviations or Variance• Explanation
Slide 1-9
Performance Report
Budgeted Amounts
Actual Amounts
Deviations or Variances Explanation
Revenue
Various Expenses
Net Income
Slide 1-10
Example #1:• The Parent Teacher Organization (PTO) of Trudeau Elementary
School held a fund-raising fair in the school gymnasium. The PTO president had prepared the following budget, assuming 200 attendees who spend an average of $20 each, and donations of all other resources:
• Revenues $4,000Costs: Food and beverages 800 Prizes 500 Supplies 300 Custodial services 200Total costs $1,800Income $2,200
• Afterwards, the PTO treasurer determined that 150 people had attended the fair, and total revenues were $2,250. Cost of food and beverages was $750. All prizes were awarded. Supplies cost $180, and custodial services were $500 due to damage to the gymnasium floor.
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Example #1: (cont’d)
• Prepare a performance report that shows how actual results differ from budgeted results.
• Which variances deserve further examination?
Management by Exception
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Management Accounting
• Roots based in manufacturing• Evolved to include service organizations• Elements applicable to non-profits
Key Success Factors• The factors that must be managed successfully to
achieve organizational success
Slide 1-13
Product Life Cycle• The various stages through which a product passes,
from conception and development through introduction into the market through maturation and, finally, withdrawal from the market
ProductDevelopment
Introduction to Market
MatureMarket
Phase-Outof Product
Sales over TypicalProduct Life Cycle
Slide 1-14
The Value Chain• Value chain is the set of business functions that add value
to the products or services of an organization
CUSTOMERFOCUS
Researchand
Development
Marketing
Production
Product& ServiceProcessDesign
Distribution
CustomerService
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Example 2: Starbucks Value Chain• For each activity, identify the value chain function
that is being performomed:• Process engineers investigate methods to reduce the
time to roast coffee beans and better preserve their flavor• A direct-to-your-home mail order system is established to
sell custom coffees• Arabica coffee beans are purchased and transported to
company processing plants• Focus groups investigate the feasibility of a new line of
Frappuccino drinks• A hot line is established for mail-order customers to call
with comments on quality and speed of delivery• Each company owned retail store provides information to
customers about the process used to make its coffee products
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Two Themes
• There are two themes when choosing among accounting systems and methods
• Cost-Benefit Theme• How well the system and methods will achieve
management goals in relation to their costs?• Incremental cost of implementing versus incremental
benefits
• Behavioral Theme• How will the system and methods affect the decisions
(behavior) of managers?• Budgets force managers to plan• Performance reports have enormous impact on behavior
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Distinctions Between Management Accounting and Financial Accounting
ManagementAccounting
Organization managers
Costs versus benefits
Influence on managerial behaviour
Future orientation
Flexible
Detailed
Less sharply defined
FinancialAccounting
External parties
G.A.A.P.
Measurement of economic activity
Past orientation
Less flexible
Summary reports
More sharply defined
Primary Users
Choices
BehaviouralImplications
Time Focus
Time Span
Reports
Activities
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Additional Topics
• Line versus Staff authority• Controller versus Comptroller versus Treasurer• JIT and CIM philosophy• Professional Ethics• Adapting to Change
Slide 1-19
Suggested Problems
• Summary Problems 1, 2, 4 (page 27)• Questions 2-4, 6-8, 10, 12, 16 (page 31)• Problems 2, 8, 12 (page 32)• Case 2 (page 37)
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Assignments Due January 15
• Chapter 1 Assignment• Question 9• Problem 3, 7, 11• Case 1, 2
• Accounting Resume
• Readings• Chapter 2• Chapter 3
Slide 1-21
Case 1: Augustana Coffee News
• You are the owner of “Augustana Coffee News”, a newsprint paper that is free to the public. Revenue is based solely on advertising sales.
• Identify all costs involved in operating this business. Identify any assumptions made