©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Chapter 1 Managerial Accounting & The Business Organization

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Objective 1 Describe the major users of accounting information.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Users of Accounting Information use information for short-term planning and controlling routine operations. Internal managers… use information for making nonroutine decisions and formulating overall policies and long-range plans.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Users of Accounting Information External parties: use information for making decisions about the company. Investors Government authorities

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Management Accounting It is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting, and communicating information that managers use to fulfill organizational objectives. What is Management Accounting?

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Financial Accounting It refers to accounting information developed for the use of external parties such as stockholders, suppliers, banks, and government regulatory agencies. What is Financial Accounting?

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Uses of Accounting Information Scorekeeping is the accumulation and classification of data. Attention directing involves reporting and interpreting information. Problem solving quantifies the likely results of possible courses of action.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Accounting Systems An accounting system is a formal mechanism for gathering, organizing, and communicating information about an organization’s activities.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Accounting Systems Generally accepted accounting principles (GAAP) include broad guidelines and detailed rules and procedures that make up accepted accounting practices at a given time. Internal accounting reports need not be restricted by GAAP.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Service Organizations Labor is intensive. Output is usually difficult to define. Major inputs and outputs cannot be stored.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Objective 2 Explain the cost-benefit and behavioral issues involved in designing an accounting system.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Accounting System Costs and Benefits BenefitsCosts Benefits Costs > Benefits < Costs Obtain system Seek alternatives

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Accounting System Costs and Benefits l The accounting system’s effect on the behavior (decisions) of managers should be considered. l If the system fails to provide information that is timely or in a useful format, there will be a lack of acceptance by users.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Objective 3 Explain the role of budgets and performance reports in planning and control.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Planning and Controlling It is the purposeful choice from among a set of alternative courses of action designed to achieve some objective. What is decision making? This is the core of the management process.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Planning and Controlling The Management Process Internal Accounting System Planning Increase Productivity Controlling Actions Evaluations Corrections and Revisions of Plans and Actions Budgets, Special Reports Financial Accounting System Performance Reports Customer surveys Competitor analysis Advertising impact New items report

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Role of Budgets l A budget is a quantitative expression of a plan of action and is an aid to coordinating and implementing the plan. l Budgets are the chief devices for compelling and disciplining management planning.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Role of Performance Reports Performance reports formalize controls and provide feedback by comparing results with plans and by highlighting variances. Variances are deviations from the plan.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Performance Report Budgeted Actual Variance Amount Amount Amount Revenues25,00019,0006,000 U Expenses20,00015,0005,000 F Net Income 5,000 4,0001,000 U V F=Favorable V U=Unfavorable

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Objective 4 Discuss the role accountants play in the company’s value chain functions.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Product Life Cycle Product Development Introduction to Market Mature Market Product Phase-out

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Value Chain Research and Development DesignProduction MarketingDistribution Customer Service

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Value Chain Functions Research and development… is the generation of, and experimentation with, ideas related to new products, services, or processes.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Value Chain Functions is the detail and engineering of products. Design…

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Value Chain Functions is the coordination and assembly of resources to produce a product or deliver a service. Production…

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Value Chain Functions is the manner by which individuals or groups learn about the value and features of products or services. Marketing…

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Value Chain Functions is the mechanism by which products or services are delivered to the customer. Distribution…

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Value Chain Functions is the support activities provided to the customer. Customer service…

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Objective 5 Contrast the functions of controllers and treasurers.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Authority and Responsibility Line authority is granted to managers who supervise subordinates and are accountable for assets and operations. Staff authority is the authority to advise and support management personnel.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Organization Chart Controller General Accounting Internal Audit Taxes

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Functions of the Controller 1 Planning for control 2 Reporting and interpreting 3 Evaluating and consulting 4 Tax administration 5 Government reporting 6 Protection of assets 7 Economic appraisal

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Functions of the Treasurer 1 Provision of capital 2 Investor relations 3 Short-term financing 4 Banking and custody 5 Credits and collections 6 Investments 7 Risk management (insurance)

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Objective 6 Identify current trends in management accounting.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Current Management Accounting Trends Shift from a manufacturing-based to a service-based economy Increased global competition Advances in technology Factors causing changes in management accounting:

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Just-in-Time (JIT) Eliminate waste by reducing the time products spend in the production process. What is the just-in-time philosophy? Eliminate the time products spend in activities that do not add value.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Computer-Aided Design (CAD)... – allows companies to design products that can be manufactured efficiently. l Even small changes in design often lead to large manufacturing cost savings.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Computer-Aided Manufacturing (CAM)... – allows computers to direct and control production equipment. l CAM often leads to a smoother, more efficient flow of production with fewer delays.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Computer-Integrated Manufacturing (CIM)... – utilizes both CAD and CAM together with robots and computer-controlled machines. l The small amount of labor required in this manufacturing process allows for great flexibility since changes are made to computer programs without retraining an entire workforce.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Objective 7 Explain a management accountant’s ethical responsibilities.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Standards of Ethical Conduct Management accountants have an obligation to the organizations they serve with the following standards: CompetenceConfidentiality IntegrityObjectivity

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Objective 8 Understand how managerial accounting is used in companies.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Vital Role of Accounting Information l Management accounting plays a vital role in the achievement of company goals and objectives. l Management accounting information is used across the entire value chain of activities as well as throughout the life cycle of products and services.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton End of Chapter 1