introduction: the role, history, and direction of management accounting
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Introduction: The Role, History, and Direction of Management Accounting. CHAPTER. Objectives. Discuss the need for management accounting information. Differentiate between management accounting and financial accounting. Provide a brief historical description of management accounting. - PowerPoint PPT PresentationTRANSCRIPT
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Introduction: Introduction: The Role, The Role,
History, and History, and Direction of Direction of Management Management AccountingAccounting
CHAPTERCHAPTER
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1. Discuss the need for management accounting information.
2. Differentiate between management accounting and financial accounting.
3. Provide a brief historical description of management accounting.
4. Identify the current focus of management accounting.
ObjectivesObjectives
ContinuedContinued
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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.
ObjectivesObjectives
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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.
The managerial accounting system has three broad objectives:
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OutputsOutputsProcessesProcessesInputsInputs
Economic Events
CollectingMeasuring
StoringAnalyzingReportingManaging
Special ReportsProduct Costs
Customer CostsBudgets
Performance ReportsPersonal Communication
UsersUsers
Management Accounting Information System
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The Management Process is defined by the following activities:
Planning
Controlling
Decision Making
Planning requires setting objectives and identifying methods to achieve those objectives.
Management Process
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The Management Process is defined by the following activities: Controlling is
the managerial activity of monitoring a plan’s implementation and taking corrective action as needed.
Planning
Controlling
Decision Making
Management Process
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The Management Process is defined by the following activities:
Planning
Controlling
Decision Making
Control is usually achieved with the use of feedback.
Management Process
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Feedback is information that can be used to
evaluate or correct the steps being taken to implement a plan.
Management Process
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The Management Process is defined by the following activities:
Decision making is the process of choosing among competing alternatives.
Planning
Controlling
Decision Making
Management Process
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Differentiate Between Management Accounting and
Financial Accounting
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1 -12 Management AccountingManagement Accounting Financial AccountingFinancial Accounting
1. Internally focused 1. Externally focused
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Management accounting focuses on providing
information for internal users.
Targeted Users
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ABC Company Annual Report
Financial accounting focuses
on provided information for external users.
Targeted Users
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1 -15 Management AccountingManagement Accounting Financial AccountingFinancial Accounting
1. Internally focused 1. Externally focused2. No mandatory rules 2. Must follow externally
imposed rules
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Restrictions on Inputs and ProcessesRestrictions on Inputs and ProcessesManagement accounting is not subject to the requirements of generally accepted accounting
principles.
Financial accounting reporting must follow the accounting procedures set
by the SEC and the FASB.
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1 -17 Management AccountingManagement Accounting Financial AccountingFinancial Accounting
1. Internally focused 1. Externally focused2. No mandatory rules 2. Must follow externally
imposed rules3. Financial and
nonfinancial informa-tion; subjective information possible
3. Objective financial information
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Types of Information
The restrictions imposed on financial accounting tend to
produce objective and verifiable financial information.
For management accounting, the financial or nonfinancial
information may be much more subjective in nature.
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1 -19 Management AccountingManagement Accounting Financial AccountingFinancial Accounting
1. Internally focused 1. Externally focused2. No mandatory rules 2. Must follow externally
imposed rules3. Financial and
nonfinancial informa-tion; subjective information possible
3. Objective financial information
4. Emphasis on the future 4. Historical orientation
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TimeTime OrientationOrientation
Management accounting strongly
emphasizes providing information about
future events.
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Financial accounting records and reports events that have already
happened.
TimeTime OrientationOrientation
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1 -22 Management AccountingManagement Accounting Financial AccountingFinancial Accounting
1. Internally focused 1. Externally focused2. No mandatory rules 2. Must follow externally
imposed rules3. Financial and
nonfinancial informa-tion; subjective information possible
3. Objective financial information
4. Emphasis on the future 4. Historical orientation5. Internal evaluation and
decisions based on very detail information
5. Information about the firm as a whole
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Management accounting provides
measures and internal reports used the
evaluate performance of entities, product lines,
departments, and managers.
Degree of AggregationDegree of Aggregation
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Financial accounting focuses
on overall firm performance.
Degree of AggregationDegree of Aggregation
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1 -25 Management AccountingManagement Accounting Financial AccountingFinancial Accounting
1. Internally focused 1. Externally focused2. No mandatory rules 2. Must follow externally
imposed rules3. Financial and
nonfinancial informa-tion; subjective information possible
3. Objective financial information
4. Emphasis on the future 4. Historical orientation5. Internal evaluation and
decisions based on very detail information
5. Information about the firm as a whole
6. Broad, multidisciplinary 6. More self-contained
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Management accounting is much broader than financial accounting.
It includes aspects of managerial economics, industrial engineering,
and management science.
BreadthBreadth
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1 -27 Historical Description ofManagement 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
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Current Focus of Management Accounting
Activity-Based ManagementActivity-Based 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.
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Current Focus of Management Accounting
Customer OrientationCustomer 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.
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Current Focus of Management Accounting
Strategic PositioningStrategic 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 leadership2) Superior products through differentiation
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Current Focus of Management Accounting
Value-Chain FrameworkValue-Chain 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.
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SupermarketsSupermarkets
Value Chain: Apple Industry
Planting and Planting and CultivatingCultivating
HarvestingHarvesting
Distribution of Distribution of ApplesApples
Applesauce Applesauce ProductionProduction
Applesauce Applesauce DistributionDistribution
Firm B
Firm C
Firm A
Product Disposal
End-Use Customer
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Managing the value chain means that a management accountant
must understand many functions of the business, from
manufacturing to marketing.
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The philosophy of total quality management is to
manufacture perfect products.
This emphasis on quality has created a demand for management accounting systems that provide
financial and nonfinancial information about quality.
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The role of The role of management management
accountants in an accountants in an organization is organization is one of support.one of support.
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1 -36 Partial Organization Chart, Manufacturing Company
PresidentPresident
Production Production Vice PresidentVice President
Line Function
Financial Financial Vice PresidentVice President
Staff Function
Production Production SupervisorSupervisor
Machining Machining ForemanForeman
Assembly Assembly ForemanForeman
ControllerController TreasurerTreasurer
Internal Internal AuditAudit CostCost FinancialFinancial SystemsSystems TaTa
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