MANAGERIAL ACCOUNTING OVERVIEW & BASIC CONCEPTS STUDENT 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
LEARNING OBJECTIVES Distinguish between managerial, financial accounting. Understand how managers use accounting information to implement strategies. Identify key financial players in the organization. Understand managerial accounts’ professional environment & ethical responsibilities. Master concept of cost. Continued
LEARNING OBJECTIVES Compare, contrast income statements for managerial use & external reporting. Understand concepts useful for managing costs. Describe how managerial accounting supports modern production environments. Understand importance of effective communication between accountants & users of managerial accounting information. Understand ethical standards that make up IMA code of Ethics (Appendix 1.1).
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.
MANAGERIAL ACCOUNTING: Definition LO 1 MANAGERIAL ACCOUNTING: Definition Reports results of activities to insiders (managers, etc.).
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.
LO 2 Can/should the financial or tax accounting systems be used for managerial accounting purposes? NO! The objectives and therefore the information available for decision making is different.
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.
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
ETHICAL, REGULATORY FRAMEWORK LO 4 ETHICAL, REGULATORY FRAMEWORK Standard setting Cost Accounting Standards Board sets cost accounting standards Professional organizations Institute of Management Accounts (IMA) sponsors professional certifications Certifications Certified Management Accountant (CMA) Certified Public Accountant (CPA) Canadian certifications Chartered Accountant (CA) Certified General Accountant (CGA)
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. If not resolved, discuss with superiors. In extreme cases, resign.
Is a sacrifice of resources. LO 5 COST: Definition Is a sacrifice of resources.
TYPES OF COSTS Opportunity costs Direct costs Indirect costs 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 Are 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
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.
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.
VALUE CHAIN: Definition LO 7 VALUE CHAIN: Definition Describes a linked set of activities that increase the usefulness (value) of products/services of an organization.
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.
LO 7 STRATEGY & VALUE CHAIN Strategic cost analysis identifies parts of the value chain that generate most profits, enabling management to position their business at the best profit points.
ECONOMIC DEPRECIATION: Definition LO 7 ECONOMIC DEPRECIATION: Definition Measures decline in value of assets during a period using either sales value or replacement cost.
COST OF CAPITAL: Definition LO 7 COST OF CAPITAL: Definition Is the amount a firm could earn on its assets by putting them to their best alternative use.
LO 9 INFORMATION Information is not free. Management must consider costs & benefits of information when designing an optimal accounting system.
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