Chapter 19 Introduction to Management Accounting

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Chapter 19Introduction to Management Accounting
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Management Accounting

• Management accounting is an extension of
  financial accounting and applies mainly to
  internal operations.
• Management accounting focuses on the techniques
  and procedures for information gathering and
  reporting to management.

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Management Accounting

• Managers need various types of
• timely, accurate information.

• Product and service costing information.
• Information for planning of and control over
  operations.
• Special reports and analyses to assist in
  managerial decision making.

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Management Accounting

• Management accounting is necessary for all forms
  and sizes of business.

• The types of data needed to ensure efficient
  operations do not depend on an organizations
  size.
• All organizations can become more cost-effective
  and more profitable.

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What Is Management Accounting?

• Management accounting differs from financial
  accounting in many respects.

• Report format.
• Purpose of reports.
• Primary users.
• Units of measure.
• Nature of information.
• Frequency of reporting.

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Comparison of Management and Financial Accounting
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Comparison of Management and Financial Accounting
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Discussion

• Q. What three types of information does
  management receive from the management
  accountant?
• A. Product costing information, planning and
  control information, and special reports and
  analyses.

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The Management Cycle

• Management is expected to use resources wisely,
  operate profitably, pay debts, and abide by laws
  and regulations.
• Expectations motivate managers to establish the
  objectives, goals, and strategic plans of the
  organization.

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The Management Cycle

• Traditionally, management operates in four
  stages
• Planning
• Long and short term.
• To support decision-making and set expectations.
• Executing
• Hiring, scheduling, acquiring assets (including
  
• inventory), reducing waster, generating revenues.
  
• Reviewing
• Controlling operations.
• Comparing actual performance to plan.
• Reporting
• To stockholders, creditors, other managers, other
  interested parties.

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The Management Cycle
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The Management Cycle

• Management accounting services information
  needs of management by
• 1. Developing plans and analyzing
  alternatives.
• 2. Communicating plans to key personnel.
• 3. Evaluating performance.
• 4. Reporting the results of activities.
• 5. Accumulating, maintaining, and processing
  an organizations financial and
  non-financial information.

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Discussion

• Q. What are the four stages of traditional
  management?
• A. 1. Planning.
• 2. Executing.
• 3. Reviewing.
• 4. Reporting.

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New Management Philosophies

• Three significant new management philosophies are
  as follows
• 1. Just-in-time (JIT) operating environment.
• 2. Total quality management (TQM).
• 3. Activity-based management (ABM).

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New Management Philosophies

• All of these approaches are designed to
• 1. Increase product quality.
• 2. Reduce waste and inefficiency.
• 3. Reduce cost.
• 4. Increase customer satisfaction.

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The Continuous Improvement Environment
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Theory of Constraints

• Identify performance or production bottlenecks
  (limiting factors).
• Overcome limitation.
• Identify next bottleneck.

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The Goal Continuous Improvement

• Avoid complacency.
• Constantly seek a better method.
• Reduce defects or poor quality.
• Reduce or eliminate non-value-adding activities.
• Results Product/service costs and delivery
  times reduced. Quality and customer satisfaction
  increases.

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Discussion

• What are the new management philosophies designed
  to accomplish?
• A. 1. Increase product quality.
• 2. Reduce waste and inefficiency.
• 3. Reduce cost.
• 4. Increase customer satisfaction.

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Performance Measures

• Performance measures provide an indication of an
  organizations performance in relation to a
  specific process, activity, or task.

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Examples of Performance Measures

• Financial performance measures
• Return on investment.
• Net income as a percentage of sales.
• Costs of poor quality as a percentage of sales.
• Non-financial performance measures
• Number of customer complaints.
• Hours of inspection.
• Time to fill an order.

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Performance Measures

• Performance measures are useful in reducing
  waste in operating activities.
• Management uses performance measures in all
  stages of the management cycle.
• In planning to motivate.
• In executing to guide, and assign costs.
• In reviewing to improve future performance.
• In reporting to communicate results.

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Analysis of Non-financial Data Bank
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Analysis of Non-financial Data Bank
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Management Accounting Reports and Analysis

• Report preparation depends on
• Why?
• Why are we preparing the report?
• What?
• What information is needed?
• Who?
• Who is the audience for the report?
• When?
• When is the report due?

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Discussion

• State and briefly explain the four Ws of
  preparing a managerial report.
• A. Why is the report being prepared?
• What information should be provided?
• For whom is the report intended?
• When is the report due?

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Manufacturers

• Manufacturers design and manufacture products for
  sale.
• 1. They must accumulate the costs of
  manufacturing products.
• 2. Their inventory consists of materials,
  work in process, and finished goods.

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Manufacturing Organization
Beginning Finished Goods Inventory
Cost of Goods Manufactured -
Ending Finished Goods Inventory
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Merchandisers

• Merchandisers purchase goods already
  manufactured, and resell them.
• 1. They accumulate the purchased cost of goods.
• 2. They have only one type of inventory
  (merchandise inventory).

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Merchandising Organization

• Beginning Merchandise Inventory
• Net Cost of Goods Purchased
• - Ending Merchandise Inventory
• Cost of Goods Sold

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Discussion

• Q. What three inventory accounts does a
  manufacturer maintain?
• A. 1. Materials Inventory.
• 2. Work in Process Inventory.
• 3. Finished Goods Inventory.

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Cost Classification

• In management accounting, a single cost can be
  classified as
• 1. Direct or indirect.
• 2. Variable or fixed.
• 3. Value-adding or non-value-adding.
• 4. Product or period.
• 5. Inventoriable or non-inventoriable.

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Purposes of Cost Analysis

• Purposes of cost analysis by classification
• 1. Traceability (direct or indirect).
• 2. Financial reporting (product or period,
  inventoriable or noninventoriable).
• 3. Behavior (variable or fixed).
• 4. Value (value-adding or non-value-adding).

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Ethical Standards

• The management accountants ethical standards
  relate to
• Competence.
• Confidentiality.
• Integrity.
• Objectivity.

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Competence Standards

• Develop knowledge and skills on an ongoing basis.
• Perform duties in accordance with relevant laws
  and technical standards.
• Prepare complete and clear reports after
  appropriate analysis of information.

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Confidentiality Standards

• Normally, refrain from disclosing confidential
  information.
• Make sure that subordinates refrain from
  disclosing confidential information.
• Refrain from using confidential information for
  unethical or illegal advantage.

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Integrity Standards

• Avoid conflicts of interest.
• Avoid activities that would prejudice ones
  ability to carry out duties ethically.
• Refuse any gift or favor that might influence
  ones actions.
• Avoid activities that could discredit the
  profession.

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Integrity Standards

• Avoid activities that could threaten the
  organizations legitimate and ethical objectives.
• Acknowledge any professional limitations relative
  to the performance of ones job.
• Communicate both favorable and unfavorable
  information and opinions.

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Objectivity Standards

• Communicate information fairly and objectively.
• Disclose fully all relevant information to users.

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Discussion

• Q. Management accountants must adhere to what
  four facets of ethical conduct?
• A. 1. Competence.
• 2. Confidentiality.
• 3. Integrity.
• 4. Objectivity.