Prepared by Debby Bloom-Hill CMA, CFM

CHAPTER 1 Managerial Accounting In the Information Age Slide 1-2

Managerial Accounting  Managerial accounting is designed for internal users  The goal of Managerial Accounting is to provide the information managers need for  Planning  Control  Decision making Slide 1-3Learning objective 1: State the primary goal of managerial accounting

PlanningPlanning  Planning is a key activity for all companies  Communicates a company’s goals to employees  Aids coordination of various functions such as sales and production  Specifies the resources needed to achieve company goals Slide 1-4

PlanningPlanning  Budgets for planning  Profit budget  Indicates planned income  Cash flow budget  Indicates planned cash inflows and outflows  Production budget  Indicates the planned quantity of production and expected costs Slide 1-5Learning objective 2: Describe how budgets are used in planning

PlanningPlanning Slide 1-6Learning objective 2: Describe how budgets are used in planning

ControlControl  Organizations achieve control by:  Evaluating managers to determine how their performance should be rewarded or punished  Evaluating operations to provide information as to whether they should be changed or not Slide 1-7Learning objective 3: Describe how performance reports are used in the control process

Planning and Control Process Slide 1-8 Learning objective 3: Describe how performance reports are used in the control process

Sample Performance Report Slide 1-9Learning objective 3: Describe how performance reports are used in the control process

Managerial vs Financial Accounting  Unlike Financial Accounting, Managerial Accounting:  Is directed at internal users  May deviate from GAAP  Presents more detailed information  May present more nonmonetary information  Places more emphasis on the future Slide 1-10Learning objective 4: Distinguish between financial and managerial accounting

Cost Terminology  Variable Costs  Change in proportion to changes in volume or activity Slide 1-11Learning objective 5: Define cost terms used in planning, control, and decision making

Cost Terminology  Fixed Costs  Do not change in response to changes in volume or activity Slide 1-12Learning objective 5: Define cost terms used in planning, control, and decision making

Which of the following is most likely to be a variable cost? a.Depreciation b.Cost of materials c.Rent d.Advertising Answer: b. Cost of materials Slide 1-13Learning objective 5: Define cost terms used in planning, control, and decision

Which of the following is most likely to be a fixed cost? a.Cost of materials b.Rent c.Assembly labor cost d.Commissions Answer: b. Rent Slide 1-14Learning objective 5: Define cost terms used in planning, control, and decision making

Cost Terminology  Sunk Costs  Costs incurred in the past  Not relevant to present decisions  Opportunity Costs  Values of benefits foregone when selecting one alternative over another Slide 1-15Learning objective 5: Define cost terms used in planning, control, and decision making

Costs incurred in the past are: a.Opportunity costs b.Direct costs c.Sunk costs d.Variable costs Answer: c. Sunk costs Slide 1-16Learning objective 5: Define cost terms used in planning, control, and decision making

Cost Terminology  Direct and indirect costs  Direct costs are directly traceable to a product, activity, or department, indirect costs are not traceable  Controllable and non-controllable costs  A manager can influence controllable costs but cannot influence non- controllable costs Slide 1-17Learning objective 5: Define cost terms used in planning, control, and decision making

Direct and Indirect Cost Slide 1-18Learning objective 5: Define cost terms used in planning, control, and decision making

In the past year, Williams Mold & Machine had sales of $8,000,000 and total production costs of $6,000,000. In the coming year, the company believes that production can be increased by 30%, but this will require adding a second shift to work from 4:00 pm to 1:00 am. Slide Indicate three production costs that are likely to increase because of adding a second production shift. Material costs, workers’ salaries, and benefits are all likely to increase Learning objective 5: Define cost terms used in planning, control, and decision making

In the past year, Williams Mold & Machine had sales of $8,000,000 and total production costs of $6,000,000. In the coming year, the company believes that production can be increased by 30%, but this will require adding a second shift to work from 4:00 pm to 1:00 am. Slide What production cost most likely will not increase when the second shift is added? Depreciation of the building will not increase Learning objective 5: Define cost terms used in planning, control, and decision making

Two Key Ideas in Managerial Accounting Slide 1-21Learning objective 6: Explain the two key ideas in managerial accounting

Incremental Analysis Slide 1-22Learning objective 6: Explain the two key ideas in managerial accounting Incremental analysis:  Differences in revenues and costs between alternatives are incremental  Incremental revenue minus incremental cost equals incremental profit

You Get What you Measure Performance measures greatly influence the behavior of managers Slide 1-23Learning objective 6: Explain the two key ideas in managerial accounting

You Get What you Measure Slide 1-24Learning objective 6: Explain the two key ideas in managerial accounting

Information Age and Managerial Accounting  Advances in information technology have:  Increased competition and also created opportunities and cost savings for firms that use information for strategic advantage  Impacted information flows up and down the value chain (i.e. fundamental activities that a firm engages in to create value) Slide 1-25Learning objective 7: Discuss the impact of information technology on competition, business processes and the interactions companies have with suppliers and customers

The Value Chain Slide 1-26Learning objective 7: Discuss the impact of information technology on competition, business processes and the interactions companies have with suppliers and customers

Impact of Software Systems on the Value Chain  Enterprise Resource Planning (ERP)  Computerize inventory control and production planning  Supply Chain Management (SCM)  Organization of activities between a company and its suppliers  Customer Relationship Management (CRM)  Manages a variety of customer interactions Slide 1-27Learning objective 7: Discuss the impact of information technology on competition, business processes and the interactions companies have with suppliers and customers

Ethical and Unethical Behavior  Examples of unethical behavior  Enron managers mislead investors by hiding debt, i.e. Kenneth Lay, CEO, found guilty of fraud  WorldCom overstated profits  Bernard Ebbers, CEO, received a 25 year prison sentence  Dennis Kozlowski, head of Tyco, was charged with avoiding taxes  Sam Waksal, cofounder of IMClone, was charged with insider trading Slide 1-28Learning objective 8: Describe a framework for ethical decision making

Sarbanes-Oxley Act Slide 1-29Learning objective 8: Describe a framework for ethical decision making  Enacted by Congress in July 2002  Requires CEO and CFO to certify that the financial statements do not contain any untrue statements or omissions  Bans certain types of work by the company’s auditors to ensure their independence

Sarbanes-Oxley Act Slide 1-30Learning objective 8: Describe a framework for ethical decision making  Provides for longer jail sentences and larger fines for executives (i.e. fines up to $5 million and jail terms up to 20 years)  Requires companies to report on the existence and reliability of internal controls

Framework for Ethical Decision Making  When evaluating a decision, ask: 1.What decision alternatives are available? 2.What individuals or organizations have a stake in the outcome of my decision? 3.Will an individual or an organization be harmed by any of the alternatives? 4.Which alternative will do the most good with the least harm? 5.Would someone I respect find any of the alternatives objectionable? Slide 1-31Learning objective 8: Describe a framework for ethical decision making

Framework for Ethical Decision Making  After deciding on a course of action, but before taking action, ask: 6.At a gut level, am I comfortable with the decision I am about to make? 7.Will I be comfortable telling my friends and family about this decision? Slide 1-32Learning objective 8: Describe a framework for ethical decision making

Institute of Management Accountants (IMA) Slide 1-33Learning objective 8: Describe a framework for ethical decision making Professional organization which focuses on management accounting:  Developed Statement of Ethical Professional Practice  Maintains ethics helpline  Publishes Strategic Finance and Management Accounting Quarterly  Conducts comprehensive examination to test knowledge of management accountants

Duties of Officers Slide 1-34 Controller Prepares reports to plan and evaluate company activities Provides information needed to make management decisions Files all financial accounting reports and tax filings with IRS and other tax agencies Coordinates activities of external auditors Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer

Duties of Officers Slide 1-35 Treasurer  Manages cash and marketable securities  Prepare cash forecasts  Obtains financing from banks and other lenders  Maintain relationships with investors, banks, and other creditors Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer

Duties of Officers Slide 1-36 Chief Information Officer (CIO)  Responsible for information technology and computer systems Chief Financial Officer (CFO) Responsible for accounting and finance operations Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer

Organizational Chart for the Controller’s Office Slide 1-37Learning objective 9: Discuss the duties of the controller, the treasurer, the chief information officer, and the chief financial officer

Decision Making Slide 1-38

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