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- 1. Cost Accounting Sixteenth Edition Chapter 1 The Manager and Management Accounting Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved.
- 2. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Learning Objectives (1 of 2) 1.1 Distinguish financial accounting from management accounting 1.2 Understand how management accountants help firms make strategic decisions 1.3 Describe the set of business functions in the value chain and identify the dimensions of performance that customers are expecting of companies 1.4 Explain the five-step decision-making process and its role in management accounting
- 3. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Learning Objectives (2 of 2) 1.5 Describe three guidelines management accountants follow in supporting managers 1.6 Understand how management accounting fits into an organization’sstructure 1.7 Understand what professional ethics mean to management accountants
- 4. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Accounting Discipline Overview (1 of 3) • Management accounting measures, analyzes, and reports financial and nonfinancial information that helps managers make decisions to fulfill organizational goals. Management accounting need not be GAAP compliant. • Managers use management accounting information to: – Develop, communicate and implement strategies – Coordinate product design, production, and marketing decisionsandevaluateacompany’sperformance
- 5. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Accounting Discipline Overview (2 of 3) • Financial accounting focuses on reporting financial information to external parties such as investors, governmental agencies, banks, and suppliers, based on GAAP. • Cost Accounting measures, analyzes and reports financial and nonfinancial information related to the costs of acquiring or using resources in an organization.
- 6. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Major Differences Between Management and Financial Accounting EXHIBIT 1.1 Major Difference Between Management and Financial Accounting
- 7. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Strategic Decisions and the Management Accountant- (1 of 2) • Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace • There are two broad strategies: cost leadership and product differentiation • Strategic cost management describes cost management that specifically focuses on strategic issues.
- 8. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Strategic Decisions and the Management Accountant- (2 of 2) Management accounting information helps managers formulate strategy by answering questions such as the following: • Who are our most important customers and what critical capability do we have to be competitive and deliver value to our customers? • What is the bargaining power of our customers? • What is the bargaining power of our suppliers? • What substitute products exist in the marketplace and how do they differ from our product in terms of features, price, cost and quality? • Will adequate cash be available to fund the strategy, or will additional funds need to be raised?
- 9. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Value-chain and Supply-Chain Analysis and Key Success Factors- (1 of 2) • Creating value is an important part of planning and implementing strategy. • Value is the usefulness a customer gains from a company’sproductorservice.Theentirecustomer experience determines the value a customer derives from a product.
- 10. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Value-chain and Supply-Chain Analysis and Key Success Factors – (2 of 2) The value chain is the sequence of business functions by which a product is made progressively more useful to customers. The value chain consists of: – Research & Development – Design of Products and Processes – Production – Marketing (including Sales) – Distribution – Customer Service
- 11. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. The Value Chain Illustrated EXHIBT 1.2 Different Parts of the Value Chain
- 12. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Supply-Chain Analysis • 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.
- 13. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Supply Chain The Supply Chain describes the flow of goods, services and information from the initial sources of materials and services to the delivery of a product to consumers, regardless of whether those activities occur in one organization or in multiple organizations. EXHIBT 1.3 Supply Chain for a Cola Bottling Company
- 14. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Key Success Factors 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
- 15. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Decision-making, Planning and Control: The Five-step Decision-making Process 1. Identify the problem/uncertainties 2. Obtain information 3. Make predictions about the future 4. Make decisions by choosing among alternatives 5. Implement the decision, evaluate performance and learn.
- 16. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Planning and Control Systems (1 of 2) Planning consists of 1. selectinganorganization’sgoalsandstrategies 2. predicting results under various alternative ways of achieving those goals 3. deciding how to attain the desired goals, and 4. communicating the goals and how to achieve them to the entire organization. Management accountants serve as business partners in these planning activities because they understand the key success factors and what creates value.
- 17. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Planning and Control Systems (2 of 2) Control comprises taking actions that implement the planning decisions evaluating past performance, and providing feedback and learning to help future decision making. The most important planning tool when implementing strategy is a budget. A budget is the quantitative expression of a proposed plan of action by management and is an aid to coordinating what needs to be done to execute that plan.
- 18. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Management Accounting Guidelines Three guidelines help management accountants provide the most value to the strategic and operational decision- making of their companies: 1. The Cost-benefit approach compares the benefits of an action/purchase to the costs. Generally, of course, the benefits should exceed the costs. 2. Behavioral and technical considerations recognize, among other things, that management is primarily a human activity that should focus on encouraging individuals to do their jobs better. 3. Managers use alternative ways to compare costs in different decision-making situations because there are different costs for different purposes.
- 19. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Organizational Structure and the Management Accountant
- 20. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Relating Managerial Accounting to Three Business Majors
- 21. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Management Accounting Beyond the Numbers The successful management accountant possesses several skills and characteristics that reach well beyond basic analytical abilities. For example, management accountants must: 1. Work well in cross-functional teams and as a business partner 2. Promote fact-based analysis and make tough-minded, critical judgments without being adversarial 3. Lead and motivate people to change and be innovative 4. Communicate clearly, openly and candidly 5. Have high integrity.
- 22. Copyright © 2018, 2016, 2015 Pearson Education, Inc. All Rights Reserved. Professional Ethics The four standards of ethical conduct for management accountants as advanced by the Institute of Management Accountants (IMA) are: • Competence • Confidentiality • Integrity • Credibility
Editor's Notes
- Managers at companies large and small must understand how revenues and costs behave or they risk losing control of the performance of their firms. In this slide we see the first 4 of 7 Learning Objectives for Chapter 1: 1.1 Distinguish financial accounting from management accounting 1.2 Understand how management accountants help firms make strategic decisions 1.3 Describe the set of business functions in the value chain and identify the dimensions of performance that customers are expecting of companies 1.4 Explain the five-step decision-making process and its role in management accounting
- Managers use cost accounting information to make decisions about research and development, budgeting, production planning, pricing, and the products or services to offer customers. The remaining learning objectives for chapter 1 are presented on this slide: 1.5 Describe three guidelines management accountants follow in supporting managers 1.6 Understand how management accounting fits into an organization’s structure 1.7 Understand what professional ethics mean to management accountants
- Accounting systems are used to record economic events and transactions such as sales and the purchases of materials and then process the data into a format that is helpful for managers and others. Management accounting is the process of measuring, analyzing and reporting financial and nonfinancial information that helps managers make decisions.
- Accounting systems are used to record economic events and transactions such as sales and the purchases of materials and then process the data into a format that is helpful for managers and others. Financial accounting has a focus on the financial information that is disseminated to external parties such as investors, governmental agencies, banks, and suppliers. Cost accounting provides information for both management and financial accounting professionals. The focus is on the costs of acquiring or using resources in the organization.
- In this slide, a graphical representation highlighting the major differences between management and financial accounting is presented. The categories compared are the: Purpose of the information, primary users, focus and emphasis, rules of measurement and reporting, time span and type of reports, and behavioral implications. This is Exhibit 1-1 from page 3.
- Deciding between the two broad strategies of cost leadership or product differentiation is a critical part of what managers do. Management accountants work closely with managers in various departments to formulate strategies by providing information about the source of competitive advantage, such as (1) the company’s cost, productivity or efficiency advantage relative to competitors or (2) the premium prices a company can charge over its cost for distinctive product or service features.
- Management accounting information helps managers formulate strategy by answering questions such as the following: Who are our most important customers and what critical capability do we have to be competitive and deliver value to our customers? What is the bargaining power of our customers? What is the bargaining power of our suppliers? What substitute products exist in the marketplace and how do they differ from our product in terms of features, price, cost and quality? Will adequate cash be available to fund the strategy, or will additional funds need to be raised?
- Customers demand much more than just a fair price – they expect quality products delivered in a timely manner. That experience is the VALUE derived from purchasing a particular product or service.
- The Value chain is the sequence of business functions by which a product is made progressively more useful to customers. The Value chain consists of: Research & development (generating and experimenting with ideas related to new products, services or processes) Design of Products and Processes (detailed planning, engineering and testing of products and processes) Production (procuring, transporting and storing, coordinating and assembling resources to produce a product or deliver a service) Marketing (promoting and selling products or services) Distribution (processing orders and shipping products or services to customers) Customer service (providing after-sales service to customers)
- Here we have a pictorial view of the value chain. In addition to each of our functions previously discussed, you see “administration” as an additional function. This includes accounting, human resources, information technology and supports the six primary business functions. Management accounting provides information to inform each of these functions in the value chain. You can see this chart as exhibit 1-2 on page 5 of your textbook.
- To increase efficiency in these areas, in other words to increase performance and reduce costs, suppliers may be asked to deliver small quantities of materials frequently instead of one larger shipment.
- The parts of the value chain associated with producing and delivering a product or service –production and distribution – are referred to as the supply chain. Part of cost management emphasizes integrating and coordinating activities across all companies in the supply chain to improve their performance and reduce costs.
- The key success factors to improve performance are shown here in this slide: Cost and efficiency-managers must understand the activities that cause costs to arise as well as monitor the marketplace to determine the prices customers are willing to pay for products or services Quality-customers expect high levels of quality. Total Quality Management (TQM) is an integrative philosophy of management for continuously improving the quality of products and processes. Time-two important dimensions of time are new-product development time and customer-response time Innovation-a constant flow of innovative products or services is the basis for the ongoing success of a company. Sustainability-the development and implementation of strategies to achieve long-term financial, social and environmental goals.
- Here are the five steps in the decision making process in planning and control. The first four of these steps fall under Planning and step five falls under Control.
- On this slide, we see some details of the 4 steps that comprise the planning part of the system. As we can see, in these 4 steps, we decide on the organization’s goals, including actions that are required for success and estimated outcomes as well as communication to the organization. The budget (see next slide) is the most important tool for planning.
- Control implements the plan, evaluates performance and provides feedback A budget is the qualitative expression of a proposed plan.
- The three guidelines shown here for Management Accountants help management accountants provide the information that is most needed for decision-making.
- The organizational structure depicted here shows the details of the CFO (Chief Financial Officer) position who generally reports to the Chief Executive Officer (CEO). The CFO is sometimes also called the Finance Director and is the executive responsible for overseeing the financial operations of an organization. Exhibit 1-6, page 14.
- To people outside the profession, it may seem like accountants are just “numbers people.” It is true that most accountants are adept financial managers, yet their skills do not stop there as this slide shows.
- There are four standards of ethical conduct for management accountants as advanced by the IMA, as shown here. They are competence, confidentiality, integrity and credibility. Ethics are the foundation of a well-functioning economy. Accountants have special ethical obligations given that they are responsible for the integrity of the financial information provided to internal and external parties.