basic management accounting and control concepts
TRANSCRIPT
Basic Management Accounting and Control Concepts
Managerial Accounting and Financial Accounting Managerial accounting provides
information for managers inside an organization who direct and control operations
Financial accounting provides information to stockholders, creditors and others who are outside the organization
Differences Between Financial and Managerial Accounting
Financial Accounting Managerial Accounting1. Users External persons who Managers who plan for
make financial decisions and control an organization
2. Time focus Historical perspective Future emphasis
3. Verifiability Emphasis on Emphasis on relevance versus relevance verifiability for planning and control
4. Precision versus Emphasis on Emphasis on timeliness precision timeliness
5. Subject Primary focus is on Focuses on segments the whole organization of an organization
6. Requirements Must follow GAAP Need not follow GAAPand prescribed formats or any prescribed format
International Competition Meeting world-class competition
demands a world-class management accounting system.
Managers must make decisions to plan, direct, and control a world-class organization.
Many U.S. companies derive more than 50% of their income from overseas operations
Evolution and Adaptation in Managerial Accounting
Service Vs. Mfg. Firms
Emergence of NewIndustries
Global Competition
Focus on the Customer
Lean Manufacturing
Continuous Improvement
Theory of Constraints
Information andCommunication
Technology
Product Life Cycles
Total QualityManagement
Time-Based Competition
Just-in-Time Inventory
Change
© The McGraw-Hill Companies, Inc.
E-Commerce
Computer-Integrated Mfg.
Six Sigma
Importance of Ethicsin Accounting
Ethical accounting practices build trust and promote loyal, productive relationships with users of accounting information.
Many companies and professional organizations, such as the Instituteof Management Accountants (IMA),have written codes of ethics whichserve as guides for employees. Code of Conduct for Management
Accountants
IMA Code of Ethics for Management Accountants
Four broad areas of responsibility: Maintain a high level of professional
competence treat sensitive matters with confidentiality Maintain personal integrity Be objective in all disclosures
Managerial Accounting Tools
Failed dot.com and other businesses might have benefited from the application of managerial accounting tools:
Cost concepts Cost-volume-profit Activity-based costing Budgeting Standard Costs Decision making Capital budgeting Transfer pricing Measuring Performance
Cost concepts Period Costs Product Costs Elements of Cost
Direct material Direct labor Manufacturing overhead
Cost concepts (continued) Basic Cost Management Concepts
Cost driver Variable and fixed costs Direct and indirect costs Controllable and uncontrollable costs
Sunk Costs Differential Costs Relevant Costs
Cost concepts (continued) Manufacturing overhead
Estimated – budgeted Applied – allocated Incurred – actual
Over- or Under-applied Overhead
Cost-Volume-Profit Break-even point Cost structure Operating leverage Airlines
Activity-based Costing Problems with a single factory-wide
overhead rate Many different cost drivers CD versus DVD units Change in cost allocation under
activity-based costing
Budgeting (Profit Planning and Control)
Budget – quantitative expression of management’s goals
Budget function Planning Communicating and coordinating Allocating limited resources Control Performance evaluation
Sales budget Behavioral impact of budgets
Standard Costs Managing costs Setting standards Variance analysis and investigation Behavioral impact of standard
costing Balanced scorecard
Decision-making (Special Decision Situations) Special orders Add or drop a service, product or
department Allocation of limited resources
Capital Budgeting Discounted cash flow
Net present value method Internal rate of return
Discount rate Other methods
Payback Project approval and Post Audit
Transfer Pricing Market-based prices Negotiated prices Cost-based prices Goal congruence
Measuring Performance Responsibility accounting Return on investment Residual income Economic value added
Sustainability Sustainability Reporting
Economic Environmental Social
Triple Bottom Line Integrated Reporting
Developments in Regulation
Sarbanes – Oxley Corporate Governance
Audit Committees Internal Control Evaluation Added Costs
Dodd-Frank