1 C H A P T E R Introduction to Management Accounting

Learning Objective 1 Understand the essential differences between management and financial accounting.

Why Have Management Accounting?

A Little History What made the DuPont problem interesting? What did Donaldson Brown introduce to management accounting? Discuss the birth of management accounting.

Summarizing DuPont First company to combine different types of industry, creating - a huge management hierarchy. - a complicated production process. - a geographically dispersed business. - an inventory that needed to be turned over rapidly. DuPont developed - extensive budgets to coordinate the flow of resources from raw materials to the final customer. calculation for return on investment (ROI). Brown was the CFO at DuPont.

Return on Investment (ROI) Combined cost management with asset management. A measure of operating performance and efficiency in utilizing assets. What is the formula for ROI?

Learning Objective 2 Understand that successfully managing a company requires good information that supports effective planning, controlling, and evaluating processes.

Management Processes Decision Controlling Making Planning Evaluating - Establish expectations - Create performance measures - Gather results - Compute variances - Identify problems - Identify alternatives - Choose and implement best alternatives - Evaluate alternatives Analyze results, Provide feedback, Reward performance, Identify problems

The Management Process— What are three performance measures of controlling? A process of 1. establishing expectations 2. creating performance measures 3. gathering results 4. computing variances 19

Learning Objective 3 Describe how the concepts of fixed and variable costs are used in C-V-P analysis in the management planning process.

Define Variable and Fixed Costs Variable Costs:

Provide Examples of Variable and Fixed Costs Variable product costs: Variable period costs: Fixed product costs: Fixed period costs:

Learning Objective 4 Realize how the product cost classifications of direct materials, direct labor, and overhead are used in the management controlling process.

Costs incurred that cannot be assigned to a product or service. Period Costs Costs incurred that cannot be assigned to a product or service. Manufacturing Merchandising Service Usually not associated with inventory or any other asset. Selling (sales salaries, advertising, and delivery costs). Administrative (salaries of executives, depreciation and taxes on assets, and miscellaneous office expenditures). Always expensed on the income statement in the same period as incurred.

Define the Three Manufacturing Product Costs Direct materials— Direct labor— Manufacturing overhead—

Match Product Costs to Type of Business Costs associated with products or services offered. Costs necessary to create finished goods ready for sale. All costs related to production. Service Costs incurred to purchase goods and get them ready for resale to customers. Merchandising Labor, supplies, and other costs directly related to provide services. Manufacturing

Complete the Table Type of Company Product Costs Period Costs

Learning Objective 5 Understand the concepts of direct, indirect, and opportunity costs in the management evaluating process.

Define Direct and Indirect Costs

Define Differential and Sunk Costs Differential costs: Sunk costs:

Define Out-of-Pocket and Opportunity Costs Out-of-pocket costs: Opportunity costs:

Understand that management accounting still continues to evolve. Learning Objective 6 Understand that management accounting still continues to evolve.

What Does Just-in-Time Inventory Do?

How are the New Measures of Cost, Quality, and Time Evaluated? 15

Learning Objective 7 Discuss the need for ethics in management accounting and describe the Standards of Ethical Conduct that apply to this profession.

List Ethical Dilemmas Confronting Management Accountants

How Should the Management Accountant Respond to Ethical Conflict?

Chapter One of Managerial is Finished If it sounds good, it is good. Count Basie