©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Managerial Accounting and the Business Organization Chapter 1

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Learning Objective 1 Describe the major users and uses of accounting information.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Users of Accounting Information use information for day-to-day operating decisions... Internal managers… and for long-range strategic decisions.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Users of Accounting Information External parties: use information for making decisions about the company. Investors Government authorities

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton What kinds of Accounting Information do Managers Need? Good accounting information helps an organization achieve its goals and objectives.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Uses of Accounting Information This is the accumulating and classification of data. Am I doing well or poorly?

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Uses of Accounting Information Which problems should I look into? Attention directing means reporting and interpreting information that helps managers to focus on operating problems.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Uses of Accounting Information This role asks: Of the several alternatives available, which is the best? This often involves special studies.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Learning Objective 2 Describe the cost-benefit and behavioral issues involved in designing an accounting system.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Influences on Accounting Systems An accounting system is a formal mechanism for gathering, organizing, and communicating information about an organization’s activities.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Influences on Accounting Systems Generally accepted accounting principles (GAAP) Foreign Corrupt Practices Act Internal control Management audits

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Influences on Accounting Systems In 2002 the Sarbanes-Oxley Act required chief executive officers to sign a statement verifying the accuracy of the company’s financial statements.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Importance of Ethics No regulation can be as effective in ensuring reliability as high ethical standards of accountants.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Management Accounting in Service and Nonprofit Organizations ServiceorganizationsNonprofitorganizations Accounting firms Law firms Real estate firms BanksHotels HospitalsSchoolsLibrariesMuseums Government agencies

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Service Organizations Labor is intensive. Output is usually difficult to define. Major inputs and outputs cannot be stored.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Cost-Benefit and Behavioral Considerations 1. Cost-benefit balance 2. Behavioral implications

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Cost-Benefit Balance The primary consideration in choosing among accounting systems and methods is weighing estimated costs against probable benefits.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Behavioral Implications The system must provide accurate, timely budgets and performance reports in a form useful to managers. If managers do not use accounting reports, the reports create no benefits.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Learning Objective 3 Explain the role of budgets and performance reports in planning and control.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton The Nature of Planning and Controlling It is the purposeful choice from among a set of alternative courses of action designed to achieve some objective. What is decision making? This is the core of the management process.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton The Nature of Planning and Controlling The management process internal accounting system: Planning – Improve profitability Controlling – Actions – Evaluations Corrections and revisions of plans and actions Budgets,Specialreports Accountingsystem Performancereports Customersurveys Competitoranalysis Advertisingimpact New items report

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Role of Budgets A budget is a quantitative expression of a plan of action. The Starbucks store would express its plan for product growth and improved marketing through revenue and advertising budgets.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Performance Reports What are performance reports? These are reports that compare actual results with budgeted amounts.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Performance Reports Performance reports formalize controls and provide feedback by comparing results with plans and by highlighting variances. Variances are deviations from the plan.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Performance Reports Budget Actual Variance Budget Actual Variance Sales$50,000$50,0000 Less: Ingredients 22,000 24,500 $2,500 U Store labor 12,000 11, F Other labor 6,000 6, U Utilities, etc. 4,500 4,5000 Total expenses$44,500$46,650$2,150 U Operating income$ 5,500$ 3,350$2,150 U Starbucks Mayfair Store, March 31, 2004

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Objective 4 Discuss the role accountants play in the company’s value chain functions.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Planning and Control for Product Life Cycles and the Value Chain Product life cycle refers to the various stages through which a product passes.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Planning and Control for Product Life Cycles and the Value Chain Productdevelopment Introduction to market Maturemarket Productphase-out

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton The Value Chain Support functions R & D DesignProduction MarketingDistributionService

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Value Chain Functions Research and development… is the generation of, and experimentation with, ideas related to new products, services, or processes.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Value Chain Functions Design… is the detail and engineering of products.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Value Chain Functions Production… is the coordination and assembly of resources to produce a product or deliver a service.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Value Chain Functions Marketing… is the manner by which individuals or groups learn about the value and features of products or services.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Value Chain Functions Distribution… is the mechanism by which products or services are delivered to the customer.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Value Chain Functions Customer service… is the support activities provided to the customer.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Objective 5 Contrast the functions of controllers and treasurers.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Accounting’s Position in the Organization Preparing standardized reports Collecting and compiling information Interpreting and analyzing information Being involved in decision making

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Line and Staff Authority Line managers Staff managers Cross-functional teams

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Controller and Treasurer Functions Financial Vice-President or CFO TreasurerController

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Functions of the Controller  Planning for control  Reporting and interpreting  Evaluating and consulting  Tax administration  Government reporting  Protection of assets  Economic appraisal

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Functions of the Treasurer  Provision of capital  Investor relations  Short-term financing  Banking and custody  Credits and collections  Investments  Risk management (insurance)

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Learning Objective 6 Explain why accounting is important in a variety of career paths.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Career Opportunities in Management Accounting The Certified Management Accountant (CMA) designation is the internal accountant’s counterpart to the CPA. CMAs must pass an examination that has four parts:

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Career Opportunities in Management Accounting 1. Economics, finance, and management 2. Financial accounting and reporting 3. Management reporting, analysis, and behavioral issues 4. Decision analysis and information systems.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Learning Objective 7 Identify current trends in management accounting.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Current Trends Shift from a manufacturing-based to a service-based economy Increased global competition Advances in technology Changes in business processes

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Current Trends Just-in-time (JIT) philosophy Computer-aided design Computer-aided manufacturing Computer-integrated manufacturing

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Learning Objective 8 Appreciate the importance of ethical conduct to professional accountants.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Standards of Ethical Conduct The Institute of Management Accountants (IMA) is the largest association of management accountants in the United States. The IMA has issued a Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Pressures for Unethical Behavior Ignoring the small stuff Economic cycles Accounting rules Emphasis on short-term results

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton End of Chapter 1