©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-1 Introduction to Management Accounting

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-2 Chapter 1 Introduction to Management Accounting Managerial Accounting, the Business Organization, and Professional Ethics

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-3 Users of Accounting Information Internal managers Creditors: Suppliers Bankers Day-to-day operating decisions Long-range strategic decisions Management Accounting Financial Accounting External Users Investors: Stockholders Government Authorities Learning Objective 1

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-4 Scorekeeping: Evaluate Organizational Performance Attention Directing: Compare Actual Results to Expected Problem Solving: Assess Possible Courses of Action Decision Making

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-5 Process of gathering, organizing, and Communicating financial information Financial Statements Accounting Information System

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-6 Influences on Accounting Systems Generally accepted accounting principles (GAAP) Foreign Corrupt Practices Act Internal controls Management audits Sarbanes-Oxley Act Internal auditors

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-7 Sarbanes-Oxley Act In 2002, the Sarbanes-Oxley Act required chief executive officers to sign a statement verifying the accuracy of the company’s financial statements. External auditors must examine and report External auditors must examine and report on the company’s internal control system. Learning Objective 2

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-8 Ethics No regulation can be as effective in ensuring reliability as high ethical standards of accountants. Integrity Trust Reliabilit y

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-9 Service and Nonprofit Organizations ServiceorganizationsNonprofitorganizations Accounting firms Law firms Real estate firms BanksHotelsHospitalsSchoolsLibrariesMuseums Government agencies

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-10 Cost-Benefit and Behavioral Considerations Cost-benefitbalanceBehavioralimplications Weigh estimated costs against probable benefits. The system must provide accurate, timely budgets and performance reports in a form useful to managers. useful to managers. Managers must use accounting reports, or the reports create no benefits. Learning Objective 3

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-11 Decision Making Decision making: the purposeful choice from among a set of alternative courses of action designed to achieve some objective. Planning: Setting objectives and outlining how the objectives will be obtained. Control: Implementing plans and using feedback to evaluate the attainment of objectives.

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-12 The Nature of Planning and Controlling PlanningIncreaseProfitabilityPlanningIncreaseProfitability Control – Actions – Evaluations Control – Actions – Evaluations Corrections and revisions of plans and actions Budgets,SpecialReportsBudgets,SpecialReports AccountingSystemAccountingSystem PerformanceReportsPerformanceReports CustomersurveysCustomersurveys CompetitoranalysisCompetitoranalysis AdvertisingimpactAdvertisingimpact New items report report Internal Accounting System Management Process Other information systems Learning Objective 4

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-13 Budget and Performance Reports Budget: quantitative expression of a plan of action Performance reports:  compare actual results with budgeted amounts  provide feedback by comparing results with plans  highlight variances Variances: deviations from plans

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-14 Performance Reports Budget Actual Variance Budget Actual Variance Sales$50,000$50,0000 Less: Ingredients 22,000 24,500 $2,500 U Store labor 12,000 11, F Other labor 6,000 6, U Utilities, etc. 4,500 4,500 0 Total expenses $44,500$46,650 $2,150 U Operating income $ 5,500$ 3,350 $2,150 U U= Unfavorable – actual exceeds budget F – Favorable – actual is less than budget. Mayfair Starbucks Store, March 31, 20X7

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-15 Product Life Cycle Product life cycle refers to the various stages through which a product passes. No Sales ProductDevelopment Sales Growth Sales Growth Introduction to Market Introduction to Market Stable Sales Level Mature Market Mature Market Low sales  No sales Phase-outProduct

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-16 The Value Chain CustomerFocusCustomerFocus ResearchandDevelopmentResearchandDevelopment ProductAndServiceProcessDesignProductAndServiceProcessDesign ProductionProduction MarketingMarketing DistributionDistribution ServiceService

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-17 Management Accountant’s Role as Internal Consultant Preparesstandardizedreports Collects and compiles information Interprets and Analyzes information Is Involved In decision making InternalConsultant Management Learning Objective 5

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-18 Organizational Authority and Responsibility Line managers: directly involved with making and selling products or services. Staff managers: Advisory – Support line managers. Cross-functional teams: Found in modern, “flatter” organizations; Functional areas work together In decision making process.

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-19 Accounting Function  Planning for control  Reporting and interpreting  Evaluating and consulting  Tax administration  Government reporting  Protection of assets  Economic appraisal  Planning for control  Reporting and interpreting  Evaluating and consulting  Tax administration  Government reporting  Protection of assets  Economic appraisal Treasurer Functions  Provision of capital  Investor relations  Short-term financing  Banking and custody  Credits and collections  Investments  Risk management (insurance)  Provision of capital  Investor relations  Short-term financing  Banking and custody  Credits and collections  Investments  Risk management (insurance) Controller Functions Chief Financial Officer (CFO) Learning Objective 6

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-20 Career Opportunities in Management Accounting The Certified Management Accountant (CMA) CMAs must pass a four-part examination: 1.Business Analysis 2.Management accounting and reporting 3.Strategic Management, and 4. Business Applications. Learning Objective 7

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-21 Management Accounting Change Drivers Shift from a manufacturing-based to a service-based economy Increased global competition Advances in technology Changes in business processes Learning Objective 8

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-22 Major Influences on Management Accounting Business process reengineering: Just-in-time (JIT) philosophy Lean manufacturing Computer-integrated manufacturing Six sigma Advances in technology: E-commerce Enterprise resource planning (ERP)

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-23 Standards of Ethical Conduct The Institute of Management Accountants (IMA) Statement of Ethical Professional Practice for Management Accounting Members Requires members to adhere to a code of conduct regarding: Competence, Competence, Confidentiality, Confidentiality, Integrity, and Integrity, andCredibility. The Institute of Management Accountants (IMA) Statement of Ethical Professional Practice for Management Accounting Members Requires members to adhere to a code of conduct regarding: Competence, Competence, Confidentiality, Confidentiality, Integrity, and Integrity, andCredibility. Learning Objective 9

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-24 Ethical Dilemmas Managers must choose an alternative and there are: s Significant value conflicts among differing interests. s Real alternatives that are all justifiable, and s Significant consequences on stakeholders in the situation.

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-25 Unethical Behavior Temptations 4. Accounting rules Avoid creative interpretations of the rules. Practice full and fair disclosure to convey company’s performance. 1. Emphasis on short-term results: Pressure to meet expected profit numbers. 2. Ignoring the small stuff: Large misdeeds often result from many small ones. 3. Economic cycles: A downturn market can reveal what an upturn market conceals. Vigilance in all stages of economic markets maintains high ethical standards.

©2007 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 1-26 The End End of Chapter 1