1. Management Accounting
Next class: a) Decision-Making Lab#2
To develop your skills with the online Mike's Bikes business simulation b) Refer to the Shoppers Drug Mart 2005 Annual Report.  Complete vertical and horizontal analysis of the income statement.  Calculate the Current ratio, Quick ratio, Inventory Turnover ratio, Debt to Owners' Equity ratio, Return on equity, and Earnings per share.

2. Accounting Two major branches of accounting
Managerial Accounting - this is accounting information used by company insiders to run the company, i.e., a production cost report, payroll records, etc.
Financial Accounting - the preparation of financial statements for people inside and outside of the firm

3. Management Accounting is the process of identifying, measuring, analyzing, interpreting and communicating information in pursuit of an organization’s goals. Managerial accounting provides some of the information organizations need to make decisions and meet their goals.

4. Management Accounting
Providing information for decision making and planning
Assisting in directing and controlling operations
Motivating managers and employees
Measuring performance
Assessing the organization’s competitive position

5. Comparison of Financial and Management Accounting
There are seven key differences between managerial accounting and financial accounting:
 Financial accounting reports are prepared for external users. Managerial accounting reports are prepared for internal users.
Financial accounting summarizes past transactions. Managerial accounting has a strong emphasis on the future.
Financial accounting data should be objective and verifiable. Managerial accounting data should be relevant for the decision at hand, even if it is not completely objective and verifiable.
Financial accounting focuses on precision. Managerial accounting aids decision makers by providing good estimates as soon as possible rather than waiting for precise data at some later time.
Financial accounting is concerned with reporting for a company as a whole. Managerial accounting focuses on segments of a company such as product lines, sales territories, divisions, and departments.
Financial accounting must conform to generally accepted accounting principles (GAAP). Managerial accounting is not bound by GAAP.
Financial accounting is mandatory because outside parties such as the Securities and Exchange Commission and tax authorities require periodic financial statements. Managerial accounting is not mandatory.

6. Management Accounting: Tools
We can use management accounting information to calculate information help in planning and evaluating
Tools:
Breakeven point at which the income is $0.00
CVP analysis can be used to determine total sales and/or units needed to reach a desired level of profit

7. Calculation of Break-Even
Breakeven is the point at which the income is $0.00. B/E is point at which Sales = Costs (and Expenses)
Breakeven analysis is cost volume profit (i.e. CVP) analysis
B/E in units = Fixed costs Unit contribution

8. Calculation of Break-Even
Unit Contribution
= Selling price - Variable costs
Fixed costs: costs that do not vary with the number of units made or sold
Variable costs: costs that vary directly with the number of units made or sold

9. Representation of Break-Even

10. Calculation of Break-Even: Data
Cosmobob : A Greek entrée: pork kebob
Current production: 800 units/ month
Selling price: $48.96 per unit
Variable cost: $32.10 per unit
Fixed costs: $6,520
Target profit: $1,000/ month

11. Calculation of Break-Even
B/E in units = Fixed costs
Unit contribution margin
= $6,520
(sales price - variable cost) per unit
($ )
= 387 cases of cosmobob

12. Calculation of Target Sales
B/E and CVP analysis can be used to determine total sales and/or units needed to reach a desired level of profit
Target Sales Volume = Fixed Costs+Target Profit
Contribution Margin per unit
Target Sales Volume = $6,520+$1,000 = 446 cases
($48.96-$32.10)