MANAGERIAL ACCOUNTING OVERVIEW & BASIC CONCEPTS CHAPTER 1 MANAGERIAL ACCOUNTING 10TH EDITION BY MAHER, STICKNEY & WEIL PowerPoint Presentation by Gail B. Wright Professor Emeritus of Accounting Bryant University © Copyright 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star Logo, and South-Western are trademarks used herein under license. OVERVIEW & BASIC CONCEPTS

MANAGERIAL APPLICATION LO 1 MANAGERIAL APPLICATION How did cost information help Domino’s Pizza survive? Domino’s dropped its 6-inch pizza when they discovered it was losing money.

FINANCIAL ACCOUNTING: Definition LO 1 FINANCIAL ACCOUNTING: Definition Reports to users (shareholders, creditors, financial analysts, etc.) outside the organization.

FINANCIAL ACCOUNTING: Definition LO 1 FINANCIAL ACCOUNTING: Definition Reports results of activities to users (shareholders, creditors, financial analysts, etc.) outside the organization. Click the button to skip Exercise 6

MANAGERIAL ACCOUNTING: Definition LO 1 MANAGERIAL ACCOUNTING: Definition Reports results of activities to insiders (managers, etc.). Click the button to skip Exercise 6

EXERCISE 6 d) All of the above Managerial accounting is used for Decision making Planning Control All of the above d) All of the above Press “Enter” or click left mouse button for answer.

LO 2 When a product is a “commodity” how do you compete to achieve/maintain profitability? Compete by differentiating yourself from competition. Focus on order fulfillment, cutting costs, etc.

QUESTIONS Press “Enter” or click left mouse button for answer. LO 2 QUESTIONS Which questions are relevant to managerial accounting? What can I sell this old computer for? What did the old computer cost? How much will I get for the old computer if I trade it & pay cash for a new one? What value does this old computer have as a backup if I buy a new one? What is the computer’s book value? What is the computer’s cost basis for tax purposes? Press “Enter” or click left mouse button for answer.

QUESTIONS Press “Enter” or click left mouse button for answer. LO 2 QUESTIONS Which questions are relevant to financial or tax accounting? What can I sell this old computer for? What did the old computer cost? How much will I get for the old computer if I trade it & pay cash for a new one? What value does this old computer have as a backup if I buy a new one? What is the computer’s book value? What is the computer’s cost basis for tax purposes? Press “Enter” or click left mouse button for answer.

Who are the key financial players in the corporation? LO 3 Who are the key financial players in the corporation? Key financial players are Financial Vice President, Controller, Treasurer, Cost Accountants/Managers, & Internal Audit.

LO 3 The financial areas of the corporation report to the President through the Financial VP. EXHIBIT 1.1

FINANCIAL PROFESSIONALS LO 3 FINANCIAL PROFESSIONALS Financial VP: in charge of all accounting & finance Controller: manages cost & managerial accounting Treasurer: manages cash flows; raises cash Cost accountants/managers: analyze, manage costs Internal audit: provides auditing, consulting services Click the button to skip Exercise 7

E!!! LO 4 WHITE COLLAR CRIME Many managers have spent time in jail for activities (e.g., price fixing, sharing information) to benefit their companies, not themselves.

PREVENTING WHITE COLLAR CRIME LO 4 PREVENTING WHITE COLLAR CRIME Sarbanes-Oxley Act Passed in the aftermath of the Enron scandal Includes Making CEOs and CFOs sign and accept responsibility for financial statements Making CEOs and CFOs responsible for the company’s system of internal controls Making BOD take more active role in firm’s financial, operational activities Creating the Public Company Accounting Oversight Board to oversee public auditors

What should the accounting professional do in cases of conflict? LO 4 What should the accounting professional do in cases of conflict? Follow company procedures. Document sources of conflict If not resolved, discuss with superiors In extreme cases, resign.

Is a sacrifice of resources. LO 5 COST: Definition Is a sacrifice of resources.

Click the button to skip Exercise 8 LO 5 TYPES OF COSTS Opportunity costs Is the forgone income from using an asset in its best alternative Direct costs Relate directly to the cost object for which cost is to be measured Indirect costs Indirectly related to the cost of a cost object Variable costs Change in total as the level of activity changes Fixed costs Do not change in total with changes in the level of activity Click the button to skip Exercise 8

LO 5 EXERCISE 8 Zappa, a mechanic, left his $25,000-a-year job at Joe’s Garage to start his own body shop. Zappa now draws an annual salary of $15,000. Identify his opportunity costs? $25,000 Press “Enter” or click left mouse button for answer.

How do costs & expenses differ? LO 5 How do costs & expenses differ? While a cost is the sacrifice of resources, an expense is a “gone” asset.

How do financial and managerial income statements differ? LO 6 How do financial and managerial income statements differ? Managerial income statements present variable and fixed costs separately while financial income statements do not make this distinction.

LO 6 Variable & fixed costs are presented separately for managerial purposes. EXHIBIT 1.2 EXHIBIT 1.3

LO 7 MANAGING COSTS Effective cost control requires managers to understand how producing a product requires activities that generate costs.

ACTIVITY BASED MANAGEMENT (ABM): Definition LO 7 ACTIVITY BASED MANAGEMENT (ABM): Definition Examines activities and their associated costs as a means of developing efficiencies and reducing non-value-added costs.

What are “non-value-added” activities? LO 7 What are “non-value-added” activities? Non-value-added activities are activities that can be eliminated without reducing a product’s service potential to the customer.

What are “value-added” activities? LO 7 What are “value-added” activities? Value-added activities are activities that increase a product’s service to the customer.

LO 7 Functions of the value chain help management identify value-added activities. EXHIBIT 1.4

How do strategic and tactical cost management decisions differ? LO 7 How do strategic and tactical cost management decisions differ? Strategic decisions choose between production alternatives. Tactical decisions make a particular production alternative more cost efficient.

KEY DEVELOPMENTS IN MANAGERIAL ACCOUNTING Integrated information systems Tie managerial accounting, financial reporting, customer databases, supply chain management & other databases together Examples: ERPS, SAP Web hosting Allows companies to focus on core competencies while outsourcing portions of information systems Just-in-Time (JIT) & lean production Eliminate inventory between production departments & focus on quality & efficiency Continued

KEY DEVELOPMENTS IN MANAGERIAL ACCOUNTING (cont.) Total quality management (TQM) Measures product reliability & service delivery as well as profitability while attempting excelling in all dimensions Theory of constraints (TOC) Identifies the weakest part of the process chain (constraint) and attempts to improve it Benchmarking & continuous improvement Benchmarking: continuous process of measuring products, services, activities against best performance levels, engaging in continuous improvement Fads

LO 9 INFORMATION Information is not free. Management must consider costs & benefits of information when designing an optimal accounting system.

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