Managerial Accounting & The Business Organization

Chapter 1
Managerial Accounting &

The Business Organization
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 1-1
Objective 1
Describe the major users

of accounting information.
Users of
Accounting Information
Internal managers…
use information for short-term planning
and controlling routine operations.
use information for making
nonroutine decisions and formulating
overall policies and long-range plans.
Users of
External parties: use information for

Investors making decisions
Government authorities about the company.
Management Accounting
What is Management Accounting?

It is the process of identifying, measuring,
accumulating, analyzing, preparing,
interpreting, and communicating
information that managers use to
fulfill organizational objectives.
Financial Accounting
What is Financial Accounting?

It refers to accounting information
developed for the use of external parties
such as stockholders, suppliers, banks,
and government regulatory agencies.
Uses of
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.
Accounting Systems
An accounting system is a formal mechanism

for gathering, organizing, and communicating
information about an organization’s activities.
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.
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 1 - 10
Objective 2
Explain the cost-benefit and

behavioral issues involved in
designing an accounting system.
Accounting System
Costs and Benefits
Benefits Costs
Obtain
Benefits > Costs
system
Seek
Benefits < Costs
alternatives
Accounting System
Costs and Benefits
 The accounting system’s effect on the
behavior (decisions) of managers should
be considered.
 If the system fails to provide information
that is timely or in a useful format, there
will be a lack of acceptance by users.
Objective 3
Explain the role of budgets

and performance reports
in planning and control.
Planning and Controlling
What is decision making?

It is the purposeful choice from among
a set of alternative courses of action
designed to achieve some objective.
This is the core of the management process.
Planning and Controlling
The Management Process Internal Accounting System
Planning Budgets, Customer

surveys
Corrections and Revisions
•Increase Special Reports

of Plans and Actions
Competitor
Productivity analysis
Financial
Accounting Advertising
System impact
New items
Controlling report
•Actions Performance
Reports
•Evaluations
Role of Budgets
 A budget is a quantitative expression of a
plan of action and is an aid to coordinating
and implementing the plan.
 Budgets are the chief devices for
compelling and disciplining management
planning.
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.
Performance Report
Budgeted Actual Variance

Amount Amount Amount
Revenues 25,000 19,000 6,000 U
Expenses 20,000 15,000 5,000 F
Net Income 5,000 4,000 1,000 U
 F = Favorable
 U = Unfavorable
Objective 4
Discuss the role accountants

play in the company’s
value chain functions.
Product Life Cycle
Product Introduction
Development to Market
Mature Product
Market Phase-out
Value Chain
Research and
Design Production
Development
Customer
Marketing Distribution
Service
Value Chain Functions
Research and development…

is the generation of, and experimentation with,
ideas related to new products, services, or processes.
Design…
is the detail and engineering of products.
Production…
is the coordination and assembly of resources to
produce a product or deliver a service.
Marketing…
is the manner by which individuals or groups
learn about the value and features
of products or services.
Distribution…
is the mechanism by which products or
services are delivered to the customer.
Customer service…
is the support activities provided to the customer.
Objective 5
Contrast the functions of

controllers and treasurers.
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.
Organization Chart
Controller
General Internal
Taxes
Accounting Audit
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
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)
Objective 6
Identify current trends

in management accounting.
Current Management
Accounting Trends
Factors causing changes in management accounting:
Shift from a manufacturing-based

to a service-based economy
Increased global competition
Advances in technology
Just-in-Time (JIT)
What is the just-in-time philosophy?
Eliminate waste by reducing the time

products spend in the production process.
Eliminate the time products spend in

activities that do not add value.
Computer-Aided Design
(CAD)...
– allows companies to design products that
can be manufactured efficiently.
 Even small changes in design often lead to
large manufacturing cost savings.
Computer-Aided Manufacturing
(CAM)...
– allows computers to direct and control
production equipment.
 CAM often leads to a smoother, more
efficient flow of production with fewer
delays.
Computer-Integrated
Manufacturing (CIM)...
– utilizes both CAD and CAM together with
robots and computer-controlled machines.
 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.
Objective 7
Explain a management
accountant’s ethical
responsibilities.
Standards of
Ethical Conduct
Management accountants have an obligation to the

organizations they serve with the following standards:
Competence Confidentiality
Integrity Objectivity
Objective 8
Understand how managerial

accounting is used in
companies.
Vital Role of
 Management accounting plays a vital role
in the achievement of company goals and
objectives.
 Management accounting information is
used across the entire value chain of
activities as well as throughout the life
cycle of products and services.

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Chapter 1

Managerial Accounting &

Describe the major users

External parties: use information for

What is Management Accounting?

What is Financial Accounting?

Scorekeeping is the accumulation and

Attention directing involves reporting

Problem solving quantifies the likely

An accounting system is a formal mechanism

Generally accepted accounting principles

Internal accounting reports need not be

Output is usually difficult to define.

Major inputs and outputs cannot be stored.

Explain the cost-benefit and

Explain the role of budgets

What is decision making?

This is the core of the management process.

Planning Budgets, Customer

•Increase Special Reports

Performance reports formalize controls and

Variances are deviations from the plan.

Budgeted Actual Variance

Discuss the role accountants

Research and development…

Contrast the functions of

Line authority is granted to managers

Staff authority is the authority to advise

Identify current trends

Factors causing changes in management accounting:

Shift from a manufacturing-based

Increased global competition

What is the just-in-time philosophy?

Eliminate waste by reducing the time

Eliminate the time products spend in

Management accountants have an obligation to the

Understand how managerial

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