Pepperdine University Pepperdine University

1 -1

An An electronic electronic presentation presentation by by Douglas Douglas Cloud Cloud

Pepperdine PepperdineUniversity University

1 -2

Task Force Clip Art included in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada.

1 -3

CHAPTER

Introduction: The Role, History, and Direction of Management Accounting

1 -4

Objectives Objectives 1. Discuss the need for management accounting After studying this After studying this information. chapter, you should chapter, you should 2. Differentiate between management accounting be able to: be able and financial accounting. to: 3. Provide a brief historical description of management accounting. 4. Identify the current focus of management accounting. Continued Continued

1 -5

Objectives Objectives 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.

1 -6

The managerial accounting system has three broad objectives: 1. To provide information for costing out services, products, and other objects of interest to management. 2. To provide information for planning, controlling, evaluating, and continuous improvement. 3. To provide information for decision making.

Management Management Accounting Accounting Information Information System System

Economic Events

Inputs

1 -7

Collecting Measuring Storing Analyzing Reporting Managing

Special Reports Product Costs Customer Costs Budgets Performance Reports Personal Communication

Processes

Outputs

Users

1 -8

Management Management Process Process The Management Process is defined by the following activities: Planning Controlling Decision Making

Planning requires setting objectives and identifying methods to achieve those objectives.

1 -9

Management Management Process Process The Management Process is defined by the following activities: Controlling is Planning Controlling Decision Making

the managerial activity of monitoring a plan’s implementation and taking corrective action as needed.

1 -10

Management Management Process Process The Management Process is defined by the following activities: Planning Controlling Decision Making

Control is usually achieved with the use of feedback.

1 -11

Management Management Process Process Feedback Feedback isis information information that that can can be be used used to to evaluate evaluate or or correct correct the the steps steps being being taken taken to to implement implement aa plan. plan.

1 -12

Management Management Process Process The Management Process is defined by the following activities: Planning Controlling Decision Making

Decision making is the process of choosing among competing alternatives.

1 -13

Differentiate Between Management Accounting and Financial Accounting

Management ManagementAccounting Accounting

1. Internally focused

Financial FinancialAccounting Accounting

1. Externally focused

1 -14

1 -15

Targeted Targeted Users Users Management accounting focuses on providing information for internal users.

1 -16

Targeted Targeted Users Users

ABC Company Annual Report

Financial Financial accounting accounting focuses focuses on on provided provided information information for for external external users. users.

Management ManagementAccounting Accounting

1. Internally focused 2. No mandatory rules

Financial FinancialAccounting Accounting

1 -17

1. Externally focused 2. Must follow externally imposed rules

1 -18

Restrictions Restrictions on on Inputs Inputs and and Processes Processes Management accounting isis not Management accounting not Financial accounting reporting must Financial accounting reporting must subject to the requirements of subject to the requirements of set follow the accounting procedures follow the accounting procedures set generally accepted accounting generally accepted accounting by the SEC and the FASB. by the SEC and the FASB. principles. principles.

Management ManagementAccounting Accounting

1. Internally focused 2. No mandatory rules 3. Financial and nonfinancial information; subjective information possible

Financial FinancialAccounting Accounting

1 -19

1. Externally focused 2. Must follow externally imposed rules 3. Objective financial information

1 -20

Types of Information For The restrictions accounting, on For Themanagement management restrictions imposed imposed accounting, on the financial financial accounting or tend the financial financial accounting or nonfinancial nonfinancial tend to to produce information objective may and much verifiable more produce information objective may be be and much verifiable more financial subjective information. in financial subjective information. in nature. nature.

Management ManagementAccounting Accounting

1. Internally focused 2. No mandatory rules 3. Financial and nonfinancial information; subjective information possible 4. Emphasis on the future

Financial FinancialAccounting Accounting

1 -21

1. Externally focused 2. Must follow externally imposed rules 3. Objective financial information 4. Historical orientation

1 -22

Time Time Orientation Orientation Management accounting strongly emphasizes providing information about future events.

1 -23

Time Time Orientation Orientation Financial accounting records and reports events that have already happened.

Management ManagementAccounting Accounting

1. Internally focused 2. No mandatory rules 3. Financial and nonfinancial information; subjective information possible 4. Emphasis on the future 5. Internal evaluation and decisions based on very detail information

Financial FinancialAccounting Accounting

1 -24

1. Externally focused 2. Must follow externally imposed rules 3. Objective financial information 4. Historical orientation 5. Information about the firm as a whole

1 -25

Degree Degree of of Aggregation Aggregation Management accounting provides measures and internal reports used the evaluate performance of entities, product lines, departments, and managers.

1 -26

Degree Degree of of Aggregation Aggregation Financial accounting focuses on overall firm performance.

Management ManagementAccounting Accounting

1. Internally focused 2. No mandatory rules 3. Financial and nonfinancial information; subjective information possible 4. Emphasis on the future 5. Internal evaluation and decisions based on very detail information 6. Broad, multidisciplinary

Financial FinancialAccounting Accounting

1 -27

1. Externally focused 2. Must follow externally imposed rules 3. Objective financial information 4. Historical orientation 5. Information about the firm as a whole 6. More self-contained

1 -28

Breadth Breadth ItIt includes aspects of managerial includes aspects of managerial Management accounting isis much Management accounting much economics, industrial engineering, economics, industrial engineering, broader than financial accounting. broader than financial accounting. and management science. and management science.

Historical Description of Management Accounting 1880 - 1925

Most of the product-costing and internal accounting procedures used in this century were developed

1925

Emphasis of inventory costing for external reporting

1950s/60s

Effort to improve the managerial usefulness of traditional cost systems

1980s/90s

Significant efforts have been made to radically change the nature and practice of management accounting

1 -29

1 -30

Current Current Focus Focus of of Management Management Accounting Accounting Activity-Based Activity-Based Management Management

Activity-based management is a system wide, integrated approach that focuses management’s attention on activities with the objective of improving customer value and the resulting profit.

1 -31

Current Current Focus Focus of of Management Management Accounting Accounting Customer Customer Orientation Orientation

Customer value is the difference between what the customer receives (customer satisfaction) and what the customer gives up (customer sacrifice). What is received is called the total product.

1 -32

Current Current Focus Focus of of Management Management Accounting Accounting Strategic Strategic Positioning Positioning

Strategic cost management is the use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage.

Strategies: 1) Cost leadership 2) Superior products through differentiation

1 -33

Current Current Focus Focus of of Management Management Accounting Accounting Value-Chain Value-Chain Framework 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 raw materials to the disposal to the final products by end-use customers.

1 -34

Planting and Cultivating

Value Chain: Apple Industry

Harvesting

Firm B

Distribution of Apples

Firm A

Applesauce Production

Product Disposal

Applesauce Distribution

End-Use Customer

Supermarkets

Firm C

1 -35

Managing Managing the the value value chain chain means means that that aa management management accountant accountant must must understand understand many many functions functions of of the the business, business, from from manufacturing manufacturing to to marketing. marketing.

1 -36

This This emphasis emphasis on on quality quality has has created aa demand for management createdThe demand for management philosophy of total The philosophy of total accounting systems that provide accounting systems that provide quality management isis to quality management to financial and nonfinancial financial andperfect nonfinancial manufacture products. manufacture perfect products. information information about about quality. quality.

1 -37

The The role role of of management management accountants accountants in in an an organization organization isis one one of of support. support.

Partial Organization Chart, Manufacturing Company

1 -38

President Line Function

Staff Function

Production Vice President

Financial Vice President

Production Supervisor

Machining Foreman

Assembly Foreman

Controller

Internal Audit

Cost

Financial

Treasurer

Systems

Ta x

1 -39

Ethical Ethical Behavior Behavior Michael Josephson’s* Ten Ethical Values: Honesty Caring for others Integrity

Respect for others

Promise keeping Fidelity

Responsible citizenship

Fairness

Pursuit of excellence Accountability

*Michael Josephson, “Teaching Ethical Decision Making and Principled Reasoning”

1 -40

Professional Professional Certifications Certifications CMA: One of the main purposes of the CMA was to establish management accounting as a recognized, professional discipline, 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.

1 -41

The The CMA 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

1 -42

Chapter One

The The End End