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An electronic

presentation byDouglas Cloud

Pepperdine University

An electronic

presentation byDouglas Cloud

Pepperdine University


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Task Force Clip ArtTask Force Clip Art

included in this electronicincluded in this electronic

presentation is used withpresentation is used withthe permission of Newthe permission of New

Vision Technology ofVision Technology of

Nepean Ontario, Canada.Nepean Ontario, Canada.


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Introduction:Introduction:

The Role,The Role,

History, andHistory, andDirection ofDirection of

ManagementManagementAccountingAccounting

CHAPTERCHAPTER


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1. Discuss the need for management accounting

information.

2. Differentiate between management accounting

and financial accounting.

3. Provide a brief historical description of

management accounting.

4. Identify the current focus of managementaccounting.

ObjectivesObjectives


After studying thisAfter studying this

chapter, you shouldchapter, you should

be able to:be able to:

After studying thisAfter studying this

chapter, you shouldchapter, you should

be able to:be able to:

ContinuedContinued

ContinuedContinued


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5. Describe the role of management accountants in

an organization.

6. Explain the importance of ethical behavior for

managers and management accountants.

7. List three forms of certification available to

management accountants.




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1. To provide information for costing outservices, products, and other objects ofinterest to management.

2. To provide information for planning,controlling, evaluating, and continuousimprovement.

3. To provide information for decisionmaking.

The managerial accounting system has three

broad objectives:


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OutputsOutputsProcessesProcessesInputsInputs

Economic

Events

Collecting

Measuring

Storing

Analyzing

ReportingManaging

Special Reports

Product Costs

Customer Costs

Budgets

Performance ReportsPersonal Communication

UsersUsers

Management Accounting

Information System


Information System


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TheManagement Process is defined by the

following activities:

Planning

Controlling

Decision Making

Planningrequires

setting objectivesand identifying

methods to achieve

those objectives.

Management ProcessManagement Process


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following activities: Controllingisthe managerial

activity of

monitoring a

plans

implementation

and taking

corrective action

as needed.

Planning

Controlling

Decision Making



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Planning

Controlling

Decision Making

Control isusually achieved

with the use of

feedback.



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Feedbackis information

that can be used to

evaluate or correct the

steps being taken toimplement a plan.

Feedbackis information

that can be used to

evaluate or correct the

steps being taken to

implement a plan.



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Decision

makingis

the process

of choosingamong

competing

alternatives.

Planning

Controlling

Decision Making



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Differentiate Between

Management Accounting and

Financial Accounting


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Management AccountingManagement AccountingManagement AccountingManagement Accounting Financial AccountingFinancial AccountingFinancial AccountingFinancial Accounting

1. Internally focused 1. Externally focused


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Management

accountingfocuses on

providing

information for

internal users.

Targeted UsersTargeted Users


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ABC

Company

AnnualReport

Financial

accounting focuseson provided

information for

external users.

Financial

accounting focuses

on provided

information for

external users.

Targeted UsersTargeted Users


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2. No mandatory rules 2. Must follow externallyimposed rules


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Restrictions on Inputs and ProcessesRestrictions on Inputs and ProcessesRestrictions on Inputs and ProcessesRestrictions on Inputs and Processes

Management accounting is not

subject to the requirements of

generally accepted accounting

principles.

Management accounting is not

subject to the requirements of

generally accepted accounting

principles.

Financial accounting reporting must

follow the accounting procedures set

by the SEC and the FASB.

Financial accounting reporting must

follow the accounting procedures set

by the SEC and the FASB.


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3. Financial andnonfinancial informa-

tion; subjectiveinformation possible

3. Objective financialinformation


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4. Emphasis on the future 4. Historical orientation


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TimeTime OrientationOrientationTimeTimeOrientationOrientation

Management

accounting stronglyemphasizes providing

information about

future events.


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Financialaccounting records

and reports events

that have already

happened.

TimeTime OrientationOrientationTimeTimeOrientationOrientation


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5. Internal evaluation anddecisions based on verydetail information

5. Information about thefirm as a whole


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Management

accounting provides

measures and internalreports used the

evaluate performance of

entities, product lines,

departments, and

managers.

Degree of AggregationDegree of AggregationDegree of AggregationDegree of Aggregation


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Financial

accounting focuses

on overall firm

performance.

Degree of AggregationDegree of AggregationDegree of AggregationDegree of Aggregation


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5. Internal evaluation anddecisions based on verydetail information

5. Information about thefirm as a whole

6. Broad, multidisciplinary 6. More self-contained


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Management accounting is much

broader than financial accounting.

Management accounting is much

broader than financial accounting.

It includes aspects of managerial

economics, industrial engineering,

and management science.

It includes aspects of managerial

economics, industrial engineering,

and management science.

BreadthBreadthBreadthBreadth

Hi t i l D i ti f


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1880 - 1925 Most of the product-costing and internal

accounting procedures used in this century

were developed

1925 Emphasis of inventory costing for externalreporting

1950s/60s Effort to improve the managerial usefulness

of traditional cost systems

1980s/90s Significant efforts have been made toradically change the nature and practice of

management accounting


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Current Focus of Management AccountingCurrent Focus of Management Accounting

Activity-Based ManagementActivity-Based ManagementActivity-Based ManagementActivity-Based Management

Activity-based management is a system

wide, integrated approach that focusesmanagements attention on activities with the

objective of improving customer value and

the resulting profit.


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Customer OrientationCustomer OrientationCustomer OrientationCustomer Orientation

Customer value is the difference between

what the customer receives (customersatisfaction) and what the customer gives up

(customer sacrifice).

What is received is called the total product.


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Strategic PositioningStrategic PositioningStrategic PositioningStrategic Positioning

Strategic cost management is the use of cost data

to develop and identify superior strategies thatwill produce a sustainable competitive advantage.

Strategies:

1) Cost leadership

2) Superior products through differentiation


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Value-Chain FrameworkValue-Chain FrameworkValue-Chain FrameworkValue-Chain Framework

The internal value chain is the set of activities

required to design, develop, produce, market,and deliver products and services to customers.

The industrial value chain is the linked set of

value-creating activities from basic rawmaterials to the disposal to the final products by

end-use customers.


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SupermarketsSupermarkets

Value Chain:

Apple Industry

Planting andPlanting and

CultivatingCultivating

HarvestingHarvesting

Distribution ofDistribution of

ApplesApples

ApplesauceApplesauce

ProductionProduction

ApplesauceApplesauceDistributionDistribution

Firm

B

Firm

C

Firm

A

Product Disposal

End-Use Customer


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Managing the value chain means

that a management accountant

must understand many functions

of the business, from

manufacturing to marketing.

Managing the value chain means

that a management accountant

must understand many functionsof the business, from

manufacturing to marketing.


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The philosophy of total

quality management is to

manufacture perfect products.

The philosophy of total

quality management is to

manufacture perfect products.

This emphasis on quality has

created a demand for managementaccounting systems that provide

financial and nonfinancial

information about quality.

This emphasis on quality has

created a demand for managementaccounting systems that provide

financial and nonfinancial

information about quality.


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The role ofThe role ofmanagementmanagement

accountants in anaccountants in an

organization isorganization is

one of support.one of support.

The role ofThe role of

managementmanagement

accountants in anaccountants in an

organization isorganization is

one of support.one of support.

Partial Organization Chart


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Manufacturing Company

PresidentPresident


Vice PresidentVice President

Line Function

FinancialFinancial

Vice PresidentVice President

Staff Function


SupervisorSupervisor

MachiningMachining

ForemanForeman

AssemblyAssembly

ForemanForeman

ControllerController TreasurerTreasurer

InternalInternal

AuditAuditCostCost FinancialFinancial SystemsSystems

TaTa

xx


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Ethical

Behavior

Ethical

Behavior

Michael Josephsons* Ten Ethical Values:

Honesty

Integrity

Promise keeping

Fidelity

Fairness

Caring for others

Respect for others

Responsible

citizenship

Pursuit of excellence

Accountability

*Michael Josephson, Teaching Ethical Decision Making and Principled

Reasoning


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CMA: One of the main purposes of the CMA was to establish

management accounting as a recognized, professionaldiscipline, separate from the profession of public

accounting.

CPA: The responsibility of a CPA is to provide assurance

concerning the reliability of financial statements.CIA: The focus of the CIA is to recognize competency in

internal auditing rather than external auditing as with

the CPA.

Professional CertificationsProfessional Certifications

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The CMAThe CMA

Four areas emphasized on the exam:

1) Economics, finance, and management

2) Financial accounting and reporting

3) Management report, analysis, and behavioral

issues

4) Decision analysis and information systems

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The EndThe EndThe EndThe End

Chapter OneChapter One