The Role of Management Accounting in the OrganizationThe purpose of management accounting in the organization is to support competitive decision making by collecting, processing, and communicating information that helps management plan, control, and evaluate business processes and company strategy. The interesting thing about management accounting is that it is rare to find an individual within a company with the title of “management accountant.” Often many individuals function as accountants within the organization, but these individuals typically operate as financial accountants, costs accountants, tax accountants, or internal auditors. However, the ability to develop and use good management accounting (which covers a lot more ground than the product costing done by cost accountants) is actually an important ability for many individuals, including finance professionals, operational and marketing managers, top-level executives, and information technologists.

Generally, in a very large company, each division has a top accountant called the controller, and much of the management accounting that is done in these divisions comes under the leadership of the controller. On the other hand, the controller usually reports to the vice president of finance for the division who, in turn, reports to the division’s president and/or overall chief financial officer (CFO). All of these individuals are responsible for the flow of good accounting information that supports the planning, control, and evaluation work that takes place within the organization.

NETWORKDon’t make the mistake of believing that the career path of an accountant is limited to auditing and tax work. Spend some time at the AICPA Accounting career web site at http://www.aicpa.org/nolimits/index.htm. What are the basic career paths that an accountant can follow? Be sure to review some of the work that an accounting professional might pursue within each of these career paths. You may also want to spend time at http://www.accounting.com/ to see what actual jobs are currently available to accountants.

As should be clear by now, the process of management accounting is the process of creating and using cost, quality, and time-based information to make effective decisions within the organization. Many people in the organization play a role in this process. The internal audit department has the responsibility of ensuring that controls are followed and operations are efficient. Financial accounting, while providing information to outsiders (such as creditors, investors, and government agencies), must also provide relevant financial reports to decision makers within the organization. Systems professionals have the responsibility to process information so that it is available to management in formats useful for decision making. Tax department experts make sure that the organization complies with the tax laws and pays no more than its legally obligated tax liability, but these people also participate in good planning, control, and evaluation of processes and decisions that will affect future tax expense exposure. Finally, cost accounting obviously plays a key role in tracking and reporting relevant product and service costs. Overall, the controller works to bring together all this information as an integral part of the planning, controlling, evaluating, and decision-making activities that take place throughout the organization.

FYIIndividuals interested in developing and demonstrating a professional competency in management accounting can obtain a professional certificate that is much like the CPA certification. The Certificate in Management Accounting (CMA) is sponsored by the Institute of Management Accountants (IMA), a national organization of professional management accountants. Five areas of study are emphasized on the CMA exam: (1) economics and finance, (2) organizational behavior, (3) public reporting, (4) periodic reporting for internal and external purposes, and (5) decision analysis, including modeling and information systems.

Technology and the Management AccountantAs you have read this introductory chapter to management accounting, you have likely noticed that the goals of management accounting information provided to the management and executive teams inside the organization are quite different from the financial accounting information provided to groups outside the organization, such as investors, creditors, and regulators. You may even ask how information and performance measures regarding quality and time can be provided by a typical general ledger system that is limited to debits and credits of dollar amounts. This is a good question! For most of the twentieth century, management accountants have been able to successfully produce management accounting information using the general ledger system of financial accounting. This marriage of management accounting and financial accounting information systems worked as long as the goal of management accounting was strictly to track cost information. Now, however, the emergence of JIT, coupled with increased competition in a worldwide market, has forced most organizations to compete on issues of quality and timeliness, as well as cost. The problem is that it is very difficult to use a debit/credit

system to track organizational performance regarding quality and time. Thankfully, computerized information systems, specifically database systems, have progressed to a point where it is economically feasible for organizations to track just about any kind of information. Now the real challenge for current and future management accountants is to organize the immense amount of data that can be provided to support decision making without creating information overload in managers and executives. In this process, management accountants should understand how to use the most current technology. Typically, developing knowledge and skills in computer technologies will require additional courses of study for the future business professional. The goal of the remainder of this book is to provide you with a framework for developing cost, quality, and time-based information that supports the management process. This framework must then be used with top-notch technology in order to provide information that truly adds competitive value to organizations!

Looking Forward in the Management Accounting ProfessionBusiness professionals involved in management accounting have come a long way since the early days of management accounting in the 1800s. Today, management accounting professionals play a key role in many organizations. The nature of their work continues to expand as new industries develop and computer technology grows in importance in the gathering and use of information by decision makers. For example, you’ve spent the bulk of this chapter being introduced to management accounting in the context of DuPont, a manufacturing business. However, businesses focused on service rather than manufacturing (e.g., law firms, banks, hospitals, transportation, hotels) are far and away the dominant industries in the U.S. economy. Further, merchandising companies (retailers and wholesalers) combine to be as strong an economic force as the manufacturing industry. And as you’re certainly aware, the explosion of the Internet has established a new aspect in our economy—e-commerce. At this point, e-commerce is generally a growing delivery platform for many service and merchandising companies, rather than a separate industry. You need to be aware of these trends as you work through this textbook. We will spend a lot of time applying concepts and tools of management accounting to nonmanufacturing settings. As we close this chapter, we want to leave you with two lingering, but important, questions. First, can a service or merchandising company effectively perform C-V-P analysis, product costing, and segment analysis? Or are these techniques useful only for manufacturing companies? Second, does the arrival of e-commerce in service, merchandising, or manufacturing organizations change your response to the first question? That is, as companies shift more and more of their operations (such as sales of software, financial services, and groceries) into the “virtual environment” of the Internet, does e-commerce affect the use of any management accounting techniques that you are studying in this textbook? Think about these questions. We plan to spend a lot of time in the next several chapters exploring some possible answers with you.

FYI By 2004, e-commerce activities across the world will be enormous, amounting to $6.8 trillion, or 8.6% of the global sales of all goods and services. Interestingly, while the United States accounted for 75% of worldwide e-commerce sales in 2000, that share is expected to drop to a little less than 50% by 2004.Source: “Global eCommerce Approaches Hypergrowth,” Forrester Research, Inc., April 18, 2000

TO SUMMARIZEManagement accounting plays a key role in organizations today. The top accountant in most organizations is the controller. All accounting functions report to this individual, including the cost accountants, the financial and tax accountants, the internal auditors, and systems support personnel. Though much management accounting originates within these positions, all decision makers in the organization must understand how to create and use good management accounting information. Management accounting is also being significantly affected by dramatic improvements in computer technology. Today’s technology allows management to track performance information that goes beyond the cost-based information of historic general ledger systems. Good management accounting involves a responsibility to manage a wide variety of critical information. Hence, those involved need to anticipate and be prepared to deal with various ethical dilemmas. And finally, though we’ve used DuPont as the example company in this chapter, you need to understand that management accounting is not just for manufacturing companies. Service and merchandising industries represent a much larger portion of the U.S. economy than does the manufacturing industry. Further, the advent of the Internet and e-commerce is bringing dramatic changes to many companies and industries. This textbook will explore management accounting in all types of business. As you work through the remainder of this textbook, you should consider how each new concept you learn could be applied in multiple types of business settings.

What Are the Duties of a Distribution Manager for Inventory Management?

How to Improve Inventory Management Control

Factors Affecting Inventory Control Policies

What Are the Advantages of Inventory Control in a Healthcare Organization?

About Inventory Control

Setting Up an Inventory Control System

Working in the operations or supply chain department of a company, an inventory control manager performs a

variety of duties aimed at ensuring that all inventory used for manufacturing goods are at required levels.

Employers require candidates for this role to possess at least a four-year degree with a minimum of seven

years of related professional experience, according to data reported by Salary.com in 2010. The median annual

wage paid to inventory control managers in the United States is $76,645.

Inventory control

Learn everything you need to know about inventory control.

NextLevelPurchasing.com/inventoryStaff ManagementAn inventory control manager supervises a team of junior professionals who work together to ensure that the

necessary amount of inventory is maintained. She recruits, hires and trains each of these individuals,

terminating employment as required. She also, in conjunction with the human resources department,

administers performance appraisals on a regular basis.

Policy CreationAs the head of the department, an inventory control manager develops all policies and procedures surrounding

the maintenance of proper inventory levels. He often does this in partnership with the sales and marketing

teams. Once guidelines have been established, the manager ensures that each member of the inventory control

team is thoroughly trained on them. He may also create a handbook that highlights each of these rules.

PurchasingAlthough many organizations employ a purchasing department that negotiates and signs contracts with all

external suppliers, an inventory control manager must maintain relationships with each vendor. As inventory

levels dip, it is her responsibility to contact the appropriate vendor and reorder materials. When doing so, it is

important that she work within the guidelines of any pre-existing service agreement. In addition, she must follow

any procedures prescribed by her employer, such as the creation of purchase orders, documenting financial

transactions and obtaining any required approvals.

AuditingOn a consistent basis, an inventory control manager leads his team in an audit of all inventory levels. This duty

may be carried out in a variety of ways. For example, in a fully automated warehouse, he may run a report that

documents all inventory housed in the facility. Alternatively, in a less sophisticated environment, an audit may

require that the inventory control team physically count all merchandise housed in the warehouse.

New InventoryWhen new goods are stored in the warehouse, such as when a new product line is launched, an inventory

control manager must properly track the new materials. Manually or using an electronic inventory management

system, she must enter the item numbers into the database, including any other information required by

company policy.