1 Module 14 Managerial Accounting for MBAs. 2 Financial Accounting Defined as the preparation of financial statements and other data for parties external.

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Presentation transcript:

1 Module 14 Managerial Accounting for MBAs

2 Financial Accounting Defined as the preparation of financial statements and other data for parties external to the firm. External parties include shareholders, creditors, tax authorities, regulatory bodies, other stakeholders. Governed by generally accepted accounting principles (GAAP) and legal requirements (SEC). Primarily concerned with reporting historical data. Information provided relates to the organization as a whole.

3 Managerial Accounting Defined as the collection and transformation of cost and related information for use by parties internal to the firm. Not governed by GAAP; no legal requirements. A future rather than historical orientation. Provides both financial and non-financial information. Emphasis on subunits of the firm rather than on the firm as a whole. Integrates a number of business disciplines. Relevant, subjective data is encouraged.

4 Objectives of Managerial Accounting Providing managers with information for planning future activities – goals and strategies like expansion, budgeting, borrowing, etc. Assisting managers in organizing decisions regarding company interactions like scheduling, ordering, outsourcing, advertising, etc. Assisting managers in directing and controlling operational activities to meet company goals, including evaluation of performance of employees, managers, segments.

5 Terminology for Analysis Activity - a unit of work (ex: seating customer, taking order, preparing food, delivering food to customer. Cost driver - factor that causes or influences costs. Activity Cost Drivers: –Examples of activity cost drivers include: number of meals served, number of employees in the service area, number of cooks, training needed for new employees, any activity that influences cost.

6 Terminology for Analysis Structural cost drivers - broader than activity cost drivers, involve decisions about the structure of the company. Examples include: number, size and location of restaurants; appearance/construction of the restaurants; menus and foods to be served in the restaurants. Organizational cost drivers - decisions regarding the types of activities and costs of activities performed to satisfy customer needs. Examples include: selection of suppliers for quality of product; training employees to improve customer satisfaction.

7 Use of Cost Drivers Detailed analysis of a company’s cost structure, resource consumption, capacity utilization, customer satisfaction, etc., allow the company to find the weak links and make changes where necessary. Macro reporting (for external purposes) will not aid a company in making continual and timely strategic decisions to improve every aspect of its business model. Managerial accounting supplies managers with the timely, specific information that is needed to make these strategic decisions.

8 Ethics and Decision Making Managers must make decisions in an ethical framework. Development of this framework is the responsibility of the company and the individual. Ethics versus legal guidelines, page 15. Whistle-blowing: World-Com