Chapter 1 Managerial Accounting

Managerial Accounting In the Information Age

CHAPTER 1CHAPTER 1

Managerial Accounting

In the

Information Age

Slide 1-2

Managerial AccountingManagerial Accounting

Accounting (particularly Managerial Accounting) is the “language” of business so it is very important for all majors and professional to understand it

Managerial accounting is designed for internal users

The goal of Managerial Accounting is to provide the information managers need for Planning Control Decision making

Slide 1-3 Learning objective 1: State the primary goal of managerial accounting

Managerial vs. Financial Accounting

Managerial vs. Financial Accounting

Unlike Financial Accounting - Managerial Accounting:

Is directed at internal users May deviate from GAAP Presents more detailed information May present more nonmonetary

information Places more emphasis on the future

Slide 1-4 Learning objective 4: Distinguish between financial and managerial accounting

Duties of OfficersDuties of Officers

Slide 1-5

• Chief Financial Officer (CFO) • Responsible for accounting and

finance operations

• Chief Information Officer (CIO) Responsible for information

technology and computer systems

Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer


Slide 1-6

• Controller• Prepares reports to plan and

evaluate company activities• Provides information needed to

make management decisions• Files all financial accounting

reports and tax filings with IRS and other tax agencies

• Coordinates activities of external auditors


Organizational Chart for the Controller’s Office

Organizational Chart for the Controller’s Office

Slide 1-7 Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer


Slide 1-8

• Treasurer Manages cash and marketable

securities Prepare cash forecasts Obtains financing from banks and

other lenders and manages relationships

Maintain relationships with investors, banks, and other creditors


Ethical Decision MakingEthical Decision Making

Being ETHICAL is very important in business – particularly in accounting

Slide 1-9 Learning objective 8: Describe a framework for ethical decision making

Framework for Ethical Decision Making


When evaluating a decision, ask:1. What decision alternatives are

available?2. What individuals or organizations

have a stake in the outcome of my decision?

3. Will an individual or an organization be harmed by any of the alternatives?

4. Which alternative will do the most good with the least harm?

5. Would someone I respect find any of the alternatives objectionable?Slide 1-10 Learning objective 8: Describe a framework

for ethical decision making



After deciding on a course of action, but before taking action, ask:6. At a gut level, am I comfortable

with the decision I am about to make?

7. Will I be comfortable telling my friends and family about this decision?


Ethical and Unethical BehaviorEthical and Unethical Behavior

Examples of unethical behavior Enron managers mislead investors

by hiding debt, i.e. Kenneth Lay, CEO, found guilty of fraud

WorldCom overstated profits Bernard Ebbers, CEO, received a 25 year prison sentence

Dennis Kozlowski, head of Tyco, was charged with avoiding taxes

Sam Waksal, cofounder of IMClone, was charged with insider trading


Sarbanes-Oxley ActSarbanes-Oxley Act


Enacted by Congress in July 2002 Requires CEO and CFO to certify that the

financial statements do not contain any untrue statements or omissions

Prohibits certain types of work by the company’s auditors to ensure their independence

Provides for longer jail sentences and larger fines for executives (i.e. fines up to $5 million and jail terms up to 20 years)

Requires companies to report on the existence and reliability of internal controls

Institute of Management Accountants (IMA)

Institute of Management Accountants (IMA)


• Professional organization which focuses on management accounting:

Developed Statement of Ethical Professional Practice

Maintains ethics helpline Publishes Strategic Finance and

Management Accounting Quarterly

Conducts comprehensive examination to test knowledge of management accountants

CMA Certification

PlanningPlanning

Planning is a key activity for all companies

Communicates a company’s goals to employees Aids coordination of various

functions such as sales and production

Specifies the resources needed to achieve company goals

Slide 1-15

PlanningPlanning

Budgets for planning Profit budget

Indicates planned income

Cash flow budget Indicates planned cash inflows and outflows

Production budget Indicates the planned quantity of production and expected costs

Slide 1-16 Learning objective 2: Describe how budgets are used in planning

PlanningPlanning

Slide 1-17 Learning objective 2: Describe how budgets are used in planning

ControlControl

Organizations achieve control by:

Evaluating managers to determine how their performance should be rewarded or modified to improve performance

Evaluating operations to provide information as to whether they should be changed or not

Slide 1-18 Learning objective 3: Describe how performance reports are used in the control process

Planning and Control Process

Planning and Control Process

Slide 1-19

Learning objective 3: Describe how performance reports are used in the control process

Sample Performance ReportSample Performance Report

Slide 1-20 Learning objective 3: Describe how performance reports are used in the control process

Cost TerminologyCost Terminology

Variable Costs Change in proportion to changes in

volume or activity

Slide 1-21 Learning objective 5: Define cost terms used in planning, control, and decision making


Fixed Costs Do not change in response to

changes in volume or activity


Which of the following is most likely to be a variable cost?

a. Depreciationb. Cost of materialsc. Rentd. Advertising

Answer:b. Cost of materials

Slide 1-23 Learning objective 5: Define cost terms used in planning, control, and decision

Which of the following is most likely to be a fixed cost?

a. Cost of materialsb. Rentc. Assembly labor costd. Commissions

Answer:b. Rent



Sunk Costs Costs incurred in the past Not relevant to present decisions

Opportunity Costs Values of benefits foregone when

selecting one alternative over another


Costs incurred in the past are:a. Opportunity costsb. Direct costsc. Sunk costsd. Variable costs

Answer:c. Sunk costs



Direct and indirect costs Direct costs are directly traceable to

a product, activity, or department Indirect costs are not traceable

Controllable and non-controllable costs A manager can influence

controllable costs but cannot influence non- controllable costs


Direct and Indirect CostDirect and Indirect Cost


In the past year, Williams Mold & Machine had sales of $8,000,000 and total production costs of $6,000,000. In the coming year, the company believes that production can be increased by 30%, but this will require adding a second shift to work from 4:00 pm to 1:00 am.

Slide 1-29

1. Indicate three production costs that are likely to increase because of adding a second production shift.

Material costs, workers’ salaries, and benefits are all likely to increase

Learning objective 5: Define cost terms used in planning, control, and decision making

In the past year, Williams Mold & Machine had sales of $8,000,000 and total production costs of $6,000,000. In the coming year, the company believes that production can be increased by 30%, but this will require adding a second shift to work from 4:00 pm to 1:00 am.

Slide 1-30

2. What production cost most likely will not increase when the second shift is added?

Depreciation of the building will not increase

Learning objective 5: Define cost terms used in planning, control, and decision making

Two Key Ideas in Managerial Accounting

Two Key Ideas in Managerial Accounting

If you don’t measure it – you can’t manage it !

Slide 1-31

Incremental AnalysisIncremental Analysis

Slide 1-32 Learning objective 6: Explain the two key ideas in managerial accounting

• Incremental analysis: Differences in revenues and costs

between alternatives are incremental Incremental revenue minus

incremental cost equals incremental profit

You Get What you MeasureYou Get What you Measure

Performance measures greatly influence the behavior of managers

Slide 1-33 Learning objective 6: Explain the two key ideas in managerial accounting

Information Age and Managerial Accounting

Information Age and Managerial Accounting

Advances in information technology have:

Increased competition and also created opportunities and cost savings for firms that use information for strategic advantage

Impacted information flows up and down the value chain (i.e. fundamental activities that a firm engages in to create value)

Slide 1-34 Learning objective 7: Discuss the impact of information technology on competition, business processes and the interactions companies have with suppliers and customers

The Value ChainThe Value Chain

Slide 1-35 Learning objective 7: Discuss the impact of information technology on competition, business processes and the interactions companies have with suppliers and customers

Impact of Software Systems on the Value Chain

Impact of Software Systems on the Value Chain

Enterprise Resource Planning (ERP) Computerize inventory control and

production planning

Supply Chain Management (SCM) Organization of activities between a

company and its suppliers

Customer Relationship Management (CRM) Manages a variety of customer

interactionsSlide 1-36 Learning objective 7: Discuss the impact of information technology on competition, business processes and

the interactions companies have with suppliers and customers

Chapter 1 Managerial Accounting

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