The Manager and Management Accounting Copyright © 2015 Pearson Education, Inc. All Rights Reserved

The Manager and Management Accounting

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

1. Distinguish financial accounting from management accounting

2. Understand how management accountants help firms make strategic decisions

3. Describe the set of business functions in the value chain and identify the dimensions of performance that customers are expecting of companies

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Copyright © 2015 Pearson Education, Inc. All Rights Reserved.

4. Explain the five-step decision-making process and its role in management accounting

5. Describe three guidelines management accountants follow in supporting managers

6. Understand how management accounting fits into an organization’s structure

7. Understand what professional ethics mean to management accountants

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Management accounting—measures, analyzes, and reports financial and nonfinancial information to help managers make decisions to fulfill organizational goals. Management accounting need not be GAAP compliant.

Financial accounting—focuses on reporting to external users including investors, creditors, banks, suppliers, and governmental agencies. Financial statements must be based on GAAP.

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Cost accounting – measures, analyzes and reports financial and nonfinancial information related to the costs of acquiring or using resources in an organization.

Today, most accounting professionals take the position that cost information is part of management accounting; therefore, the distinction between the two is not clear-cut and in this book, we often use the terms interchangeably.

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Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace. There are two broad strategies: cost leadership or product differentiation

Strategic cost management—describes cost management that specifically focuses on strategic issues.

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Management accounting helps answer important questions such as:

Who are our most important customers, and how can we be competitive and deliver value to them?

What substitute products exist in the marketplace, and how do they differ from our own?

What is our most critical capability? Will adequate cash be available to fund the strategy

or will additional funds need to be raised?

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Creating value is an important part of planning and implementing strategy.

Value is the usefulness a customer gains from a company’s product or service. The entire customer experience determines the value a customer derives from a product.

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The Value chain is the sequence of business functions in which a product is made progressively more useful to customers.

The Value chain consists of:1. Research & development2. Design of Products and Processes3. Production4. Marketing5. Distribution6. Customer service

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Production and Distribution are the parts of the value chain associated with producing and delivering a product or service.

These two functions together are known as the Supply-Chain

The supply chain describes the flow of goods, services and information from the initial sources of materials, services, and information to their delivery regardless of whether the activities occur in one organization or in multiple organizations.

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Customers want companies to use the value chain and supply chain to deliver ever-improving levels of performance when it comes to several (or even all) of the following:Cost and efficiencyQualityTime InnovationSustainability

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1. Identify the problem and uncertainties.2. Obtain information.3. Make predictions about the future.4. Make decisions by choosing between

alternatives.5. Implement the decision, evaluate

performance, and learn.

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Planning selects goals and strategies, predicts results, decides how to attain goals, and communicates this to the organization. Budget—the most important planning tool-is

the quantitative expression of a plan of activity by management and is an aid to coordinating what needs to be done to execute that plan.

Control takes actions that implement the planning decision, evaluates performance, and provides feedback and learning to the organization.

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Three guidelines help management accountants provide the most value to the strategic and operational decision- making of their companies:Cost–benefit approach: benefits of an action/purchase generally must exceed costs as a basic decision rule.Behavioral and technical considerations: people are involved in decisions, not just dollars and cents.Different Costs for Different Purposes: Managers use alternative ways to compute costs in different decision-making situations.

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The four standards of ethical conduct for management accountants as advanced by the Institute of Management Accountants are:CompetenceConfidentiality IntegrityObjectivity

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The Sarbanes-Oxley legislation was passed in 2002 in response to a series of corporate scandals. The act focuses on improving:1.Internal controls2.Corporate governance3.Monitoring of managers4.Disclosure practices of public companies

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TERMS to LEARN Page Number Reference

Budget Page 11

Chief Financial Officer Page 14

Control Page 11

Controller Page 14

Cost Accounting Page 4

Cost-Benefit approach Page 12

Cost Management Page 4

Customer Relationship Management (CRM)

Page 7

Customer Service Page 6

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Design of products and processes

Page 6

Distribution Page 6

Finance Director Page 14

Financial Accounting Page 3

Learning Page 12

Line Management Page 14

Management Accounting Page 4

Marketing Page 6

Planning Page 11

Production Page 6

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Research & Development (R&D)

Page 6

Staff Management Page 14

Strategic Cost Management Page 5

Strategy Page 5

Supply Chain Page 7

Sustainability Page 8

Total Quality Management (TQM)

Page 8

Value Chain Page 8

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Documents

The Manager and Management Accounting Copyright © 2015 Pearson Education, Inc. All Rights Reserved