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CA. K.N.Modi

MANAGEMENT ACCOUNTING

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Management AccountingInformation Systems

Inputs Processes Outputs

Users

Economic

Events

CollectingMeasuringStoring

AnalyzingReportingManaging

Special ReportsProduct Costs

Customer CostsPerformance ReportsPersonalCommunication

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The Management Process

The Management Process is defined by thefollowing activities:

Planning

Controlling

Decision making

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The Management Process(continued)

Planningrequires setting

objectives and identifyingmethods to achieve thoseobjectives.

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The Management Process(continued)

Controllingis the managerial activity of monitoring aplans implementation and taking corrective actionas needed.

Control is usually achieved with the use offeedback,which is information that can be used to evaluate orcorrect the steps being taken to implement a plan.

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The Management Process(continued)

Decision makingis the

process of choosing amongcompeting alternatives.

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Conceptual Framework ofManagement Accounting

q Cost Accounting Systems Know your costs

The how to of cost accumulation & allocation

q Managerial Decision Making

What difference will it make when a choice is to be made betweenalternative courses of action?

We assume economically-rational organizations and de-emphasize therole of individual decision-makers

q Planning & Control Systems Focus on how organizations run by delegation & accountability

Information asymmetry (subordinate knows what superior does notknow) results in problems of harmony of objectives. We assumeeconomically rational decision makers who have their own goalswithin the organization

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Management Accounting Financial Accounting

1. Internal focus

2. No mandatory rules

3. Financial and nonfinancialinformation; subjective

information possible

4. Emphasis on the future

5. Internal evaluation and

decisions based on detailed

information

6. Broad, multidisciplinary

1. External focus

2. Externally imposed rules

3. Objective financialinformation

4. Historical orientation

5. Information about the

firm as a whole

6. More self-contained

Comparison of Management andFinancial Accounting

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Historical Description ofManagement Accounting

1880 - 1925 Most of the product-costing and internalaccounting procedures used in thiscentury were developed

1925 Emphasis of inventory costing for externalreporting

1950s/60s Effort to improve the managerialusefulness of traditional cost systems

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

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Emerging Themes ofManagement Accounting

q Activity-Based Management

q Customer Orientation

q Cross-Functional Perspectiveq Total Quality Management

q Time as a Competitive Element

q Efficiency

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Partial Organization Chart -Manufacturing Company

President

Production

Vice-presidentFinancial

Vice-president

Controller Treasurer Machining

SupervisorAssembly

Supervisor

Treasurer's

Functions

Controllers

Functions

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Role of Controller and

Treasurer

Controller Treasurer

1. Collection of cash

2. Monitoring of cash

payments

3. Monitors cash availability

4. Short-term investments5. Short and long-term

borrowing

6. Issuing of capital stock

1. Financial reports

2. Securities commission reporting

3. Tax planning and reporting

4. Performance reporting

5. Internal auditing

6. Budgeting

7. Accounting systems and

internal controls