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8/2/2019 MODULE 1 - Basic Management Accounting Concept
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1. Forecasting and planning2. Performance Evaluation3. Cost determination, pricing
and cost management4. Operations control and
management5. Incremental decision making6. Financial Reporting7. Motivation of managers
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1. It means planning for the future.
2. The bases are historical data to
understand PAST RELATIONSHIP.3. This is in the form of BUDGET for it
sets a plan of actions for the
coming year.
4. This plan or budget motivates
managers to achieve and creates a
basis for evaluating actual results.
Forecasting and Planning
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1. After decisions have been made
and action taken, actual resultsflow in (and reported in the
financial reports).2. Comparing actual plan to actual
results.3. Differences helps evaluate the
performance of managers, business
segments, or even the entire firm.
4. It will give insights where changeswill be made.
Performance Evaluation
EVALUATION
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FORECASTING/ BUDGETING
By usingFINANCIAL
REPORTS
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1. The focus here is WHAT IS THE
TRUE COST OF A PRODUCT OR
SERVICE?
2. COST DETERMINATION is also
known as Product Costing.3. PRICING can be market based or
cost based.
4. COST MANAGEMENT is finding
ways to control more efficientlythe activities that incur costs.
COST DETERMINATION, PRICING, AND COST MANAGEMENT
PROFITMAXIMIZATI
ON
INCREASE INSELLING PRICETO INCREASE
REVENUE
MINIMIZATION OF COSTS
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1. By using various accounting tools,we can measure how well operating
activities were managed.
2. Accounting tools include FLEXIBLE
BUDGETS, STANDARD COSTS,and COST CONTROL CHARTS that
allow managers to monitor
operating activities.
Operations Control and Improvement
CONTINUOUS
IMPROVEMENTSTRATEGYIt examines every aspect
of a process and of entireprocess for increased
efficiency, cost reduction,
and higher quality.
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This is the evaluation of the decisionscosts and benefits (COST-BENEFIT
RELATIONSHIP).
1. Where and when to sell and at
what price2. Whether to make or buy
3. Where to use resources
4. Whether a segment should be
added or deleted
Incremental Decision Making
What accountinginformation is needed?
Each decision has specificinformation needs, an
analysis format and decisionrules. Future incrementalrevenues and costs are
RELEVANT; Past costs areIRRELEVANT.
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Financial results are reported to bothinternal and external users.
Financial statements are importantinternally as indicators of how segments ofthe business and THEIR MANAGERS areperforming.
The performance of managers is measured
in the light of how investors, shareholders,creditors, tax authorities, and, in the publicsector, voters view their results.
FINANCIAL REPORTING
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1. The financial goal of the firm isto: Maximize thee long-term
wealth of shareholders, or
Maximize the present valueof shareholders future cashflows from the firm.
2. Corporate managers, on the
other hand, have a stronginterest on profits.
At a minimum,
management mustuse its resources in amanner that attainsdesired goal in aefficient manner.
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TOPMANAGEMENT
MIDDLEMANAGEMENT
LOWER MANAGEMENT
Generally face unstructured and semi-structured problems common tostrategic planning.
Deals with semi-structured problemsrelating primarily to obtaining and usingresources effectively and efficiently.
Faces more structured tasks. Their
information needs are detailed, timedependent, and reported routinely.
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GLOBALIZATION1. This is being world-wide in scope or application.
2. This can also be defined as becoming universal.
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VALUE CHAIN and VALUE ADDED1. Value Chain looks strategically at each part of the firms operations
and asks what key contribution each part makes to the competitive
strength of the firm as a whole.2. Value Added is the increase in the worth of the firm, its products, and
its activities.
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QUALITY ASSURANCEWays or means to ensure that high quality of output is achieved, whether in
terms of products , services or management.
1. Total Quality Management Program (TQM)2. Quality Circles (QC)
3. Continuous improvement program
4. Employee empowerment processes
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TECHNICAL EVOLUTIONIt impacted mostly the manufacturing
companies.
1. Computer Aided Design (CAD).
This is the use of high-qualitygraphics and software to create new
products or to change existing
products.2. Computer Aided Manufacturing
(CAM). Machines or entire
production lines are run andcoordinated by computers.
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TECHNICAL EVOLUTION
Management Information
System (MIS). It allows
information to be literally on
the desktop of everymanagers.
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MANAGEMENT COMPLEXITY
DOWSIZING. Also known as rightsizing.
Common approach to large companies.
To remove the entire layers of management and to make theorganization lean and mean.
BENCHMARKING A method of comparing operations, costs, productivity with world
class performers in those areas.
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MANAGEMENT ACCOUNTINGIt is a branch of accounting that meets managers information needs.
It is designed to assist managers.
Managers must define which data are relevant for a particular purpose andwhich are not.
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1. The Management Accountantmaintains accounting records,prepares financial statements,generates managerial reports and
analyses, and coordinates budgetingefforts.
2. He is an advisor, an internalconsultant, and an integral part of
management.
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Competence:
Practitioners of management accounting and financial management have a responsibility to: Maintain an appropriate level of professional competence by ongoing development of
their knowledge and skills. Perform their professional duties in accordance with relevant laws, regulations and
technical standards. Prepare complete and clear reports and recommendations after appropriate analysis
of relevant and reliable information
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Confidentiality:
Practitioners of management accounting and financial management have a responsibility to: Refrain from disclosing confidential information acquired in the course of their work
except when authorized, unless legally obligated to do so. Inform subordinates as appropriate regarding the confidentiality of information
acquired in the course of their work and monitor their activities to assure themaintenance of that confidentiality
Refrain from using or appearing to use confidential information acquired in thecourse of their work for unethical or illegal advantage either personally or through
third parties.
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Objectivity:
Practitioners of management accounting and financial management have a responsibility to: Communicate information fairly and objectively Disclose fully all relevant information that could reasonably be expected to influence
an intended user's understanding of the reports, comments, and recommendations
presented.
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Resolution of Ethical Conflicts:
In applying the standards of ethical conduct, practitioners of managementaccounting andfinancial management may encounter problems in identifying unethicalbehavior or in resolving an ethical conflict. When faced with significant ethical issuespractitioners of management accounting and financial management should follow theestablished policies of the organization bearing on the resolution of such conflict. If thesepolicies do not resolve the ethical conflict, such practitioner should consider the followingcourse of action.
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Discuss such problems with immediate superior except when it appears that superioris involved, in which case the problem should be presented to the next highermanagerial level. If a satisfactory resolution cannot be achieved when the problem isinitially presented, submit the issue to the next higher managerial level.
If the immediate superior is the chief executive officer or equivalent, the acceptablereviewing authority may be a group such as the audit committee, executivecommittee, board of directors, board of trustees, or owners. Contact with a levelabove the immediate superior should be initiated only with the superior's knowledge.assuming the superior is not involved. Except where legally prescribed,
communication of such problems to authorities or individuals not employed orengaged by the organization is not considered appropriate.
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Clarify relevant ethical issues by confidential discussion with an objective adviser toobtain a better understanding of possible course of action
Consult your own attorney as to legal obligations and rights concerning the ethicalconflict.
If the ethical conflict still exists after exhausting all levels of internal review, theremay be no other recourse on significant matters than to resign from the organizationand to submit an informative memorandum to an appropriate representative of theorganization. After resignation, depending on the nature of the ethical conflict, it mayalso be appropriate to notify other parties.
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