chapter 1 accounting information and managerial decisions

Chapter 1

Accounting Information and Managerial Decisions

Beginning Topics for Today

Accounting Information

The Users of Accounting Information

The Decision-Making Roles of Managers

The Role of Managerial Accounting

Accounting Information

OBJECTIVES:

Describe a Traditional Accounting Information System

Discuss an Enterprise Resource Planning System

Accounting Information Contents

Key Concept

Accounting information includes both financial (quantitative) and non-financial

(qualitative) information used by decision-makers.

The Users of Accounting Information

OBJECTIVES:

Describe the users of accounting information

Discuss their possible uses of accounting information

Users of Accounting Information

External

Stockholders

Potential Investors

Creditors

Government Agencies

Suppliers

Customers

Internal

Employees

Employee Teams

Departments

Regions

Top Management

The Decision-Making Role of Managers

OBJECTIVES:

Discuss the decision-making role of managers

Describe the planning, operating, and controlling activities involved in the process

Decision-Making Role

Planning

Short-term / operational

Long-term / strategic

Identify resources needed to achieve goals

http://www.benjerry.com

Decision-Making Role

Operating Activities Determining

Day-to-day operations

What to produce

The selling price

Who does what

What to advertise

Decision-Making Role

Controlling

Are we attaining the organization’s goals?

Are we motivating employees?

Are we comparing actual outcomes to planned outcomes?

Decision-Making Role

Pause and Reflect

Identify some potential strategic planning decisions that would be made by a nonprofit organization whose mission is to provide medical services to the poor.

The Role of the Managerial Accountant

Key Concept

Managerial accountants facilitate management decision making.

Today’s Management Accountants

…Instead of preparing financial statements, they interpret the financial information and explain the business implications to managers. They are doing more financial planning and more financial modeling. They work with managers to make informed business decisions.

(Siegal and Kuleza, 1996, IMA)

The Role of the Managerial Accountant

Marketing Managers

Operations/Production Managers

Finance Managers

Human Resource Managers

The Role of the Managerial Accountant

Key Concept

Accounting information systems are constantly evolving to meet the changing

demands of its users.

Accounting Information Needed by Internal vs. External Accountants

More flexible

Geared to specific company

Doesn’t have to meet requirements of SEC, GAAP, IRS

Accounting Information Needed by Internal vs. External Accountants

Forward-looking, emphasizing the future rather than the past

More timely, may sacrifice accuracy

Emphasizes segments of an organization rather than the company as a whole

What have we discussed today?

Accounting Information

The Users of Accounting Information

The Decision-Making Roles of Managers

The Role of the Managerial Accountant

A Decision-Making Discussion

An Introduction

A Decision-Making Model

Relevant Factors and Decision Making

Risk and Decision Making

Ethics and Decision Making

How Did You Decide?

What college to attend?

Which big $$ item to purchase?

Whether to accept a summer job?

Whether to join a particular group?

Decision Making

The process of identifying different courses of action and selecting one decision appropriate to a given situation.

Requires using judgment.

Decision Making

Pause and Reflect

Outline as best you can the process you went through in selecting the last major item you purchased.

Decision Making

OBJECTIVES:

Recall and discuss a basic four-step decision-making model

Explain the role of relevant factors and decision making

Discuss the role of risk and decision making

Discuss the role of ethics and decision making

The Decision-Making Model

Step 1

Define the Problem

The Decision-Making Model

Pause and Reflect

In retrospect, should you have considered other options and variables when making your most recent big purchase?

The Decision-Making Model

Step 2

Identify Objectives

The Decision-Making Model

Step 3

Identify and analyze available options

The Decision-Making Model

Step 4

Select the best option

The Decision-Making Model

Pause and Reflect

What were the risks in your decision to purchase a particular product?

The Decision-Making Model

Implement the decision and evaluate the results.

If the decision turns out to be less than optimal, go back to step one and repeat the process.

The Decision-Making Model

Key Concept

Never make decisions with just the numbers!

Always consider non-numerical (qualitative) information.

The Decision-Making Model

Pause and Reflect

Evaluate your decision to purchase a product. Was your decision a good one?

Relevant Factors and Decision Making

OBJECTIVE:

Explain the role of relevant factors and decision making.

Relevant Factors and Decision Making

Sunk Costs

Costs that have already been incurred.

Sunk costs are not relevant.

Relevant Factors and Decision Making

Pause and Reflect

Assume you are the manager of a consumer electronics manufacturing company that makes televisions and VCRs. What quantitative costs would be relevant in making the decision to stop producing VCRs?

Relevant Factors and Decision Making

Key Concept

Future costs that do not differ between alternatives are not relevant.

Relevant Factors and Decision Making

Opportunity Costs

The benefits foregone by choosing one alternative over another.

Opportunity costs are relevant.

Relevant Factors and Decision Making

Pause and Reflect

In making the decision to stop producing VCRs, what opportunity costs might be involved? Consider, for example, alternative uses of the facilities and other products that might be manufactured instead of VCRs

Risk and Decision Making

Is the decision maker a Risk Seeker or Risk Adverse?

Ethics and Decision Making

Concept Question

What ethical responsibilities does a company have to its shareholders, employees, customers, and the communities in which it is located?

Ethics and Decision Making

Pause and Reflect

The impact of changing prices on the number of units sold is usually not known with certainty. How might you has a manager take this risk into account in determining the selling price of your products?

Ben and Jerry’s Mission Statement

Three Interrelated Parts

Product: make, distribute and sell finest quality all-natural ice cream

Economic: operate company on sound financial basis of profitable growth

Social: initiating innovative ways to improve the quality of life of a broad community

Pause and Reflect

Is adhering to laws and regulations sufficient to ensure ethical behavior in organizations?

Ethics and Decision Making

Ethics and Company Objectives

Step 3 of Decision Model

Principles: integrity, honesty, respect

Laws: IRC, Foreign Corrupt Practices Act

Values: quality and safety of products, earn profit or protect one’s job

Ethics and Company Objectives

Pause and Reflect

A supplier offers to sell you aluminum used in the manufacture of aluminum baseball bats at a sizable discount. After inspecting the aluminum, you find that while it meets your technical qualifications, in some cases it shatters under extreme use. What objectives might you consider to explicitly take into account your company’s ethical responsibilities? What relevant factors should be considered?

Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management

Standards of Ethical Conduct

Competence

Confidentiality

Integrity

Objectivity

Resolution of Ethical ConflictInstitute of Management Accountants

Resolution of Ethical Conflict

Discuss problems with immediate superior except when superior is involved

Clarify relevant ethical issues

Consult your own attorney

If the ethical conflict still exists after exhausting all levels of internal review, you may have to resign

Our Discussion of Decision Making

An Introduction

A Decision-Making Model

Relevant Factors and Decision Making

Risk and Decision Making

Ethics and Decision Making

End of Chapter 1

What decision will you make today?