MODULE 1 - Basic Management Accounting Concept

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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Documents

MODULE 1 - Basic Management Accounting Concept