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 1-3 Learning objective 1: Explain the primary goal of managerial accounting and distinguish between financial and 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 Learning objective 1: Explain the primary goal of managerial accounting and distinguish between financial and managerial accounting.

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 1-5 Learning objective 1: Explain the primary goal of managerial accounting and distinguish between financial and managerial accounting.

PlanningPlanning Slide 1-6 Learning objective 1: Explain the primary goal of managerial accounting and distinguish between financial and managerial accounting.

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 1-7 Learning objective 1: Explain the primary goal of managerial accounting and distinguish between financial and managerial accounting.

Planning and Control Process Slide 1-8 Learning objective 1: Explain the primary goal of managerial accounting and distinguish between financial and managerial accounting.

Sample Performance Report Slide 1-9 Learning objective 1: Explain the primary goal of managerial accounting and distinguish between financial and managerial accounting.

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 1-10 Learning objective 1: Explain the primary goal of managerial accounting and distinguish between financial and managerial accounting.

Cost Terminology  Variable Costs  Increase or decrease in proportion to changes in volume or activity  Materials and labor are generally considered to be variable costs Slide 1-11Learning objective 2: 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  Depreciation and rent are examples of fixed costs Slide 1-12Learning objective 2: Define cost terms used in planning, control, and decision making.

Which of the following is most likely to be a variable cost?  Depreciation  Cost of materials  Rent  Advertising Answer: b. Cost of materials Slide 1-13Learning objective 2: Define cost terms used in planning, control, and decision.

Which of the following is most likely to be a fixed cost?  Cost of materials  Rent  Assembly labor cost  Commissions Answer: b. Rent Slide 1-14Learning objective 2: 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 2: Define cost terms used in planning, control, and decision making.

Costs incurred in the past are:  Opportunity costs  Direct costs  Sunk costs  Variable costs Answer: c. Sunk costs Slide 1-16Learning objective 2: 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 2: Define cost terms used in planning, control, and decision making.

Direct and Indirect Cost Slide 1-18Learning objective 2: 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 2: 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 1-20  What production cost most likely will not increase when the second shift is added? Depreciation of the building will not increase. Learning objective 2: Define cost terms used in planning, control, and decision making.

Two Key Ideas in Managerial Accounting Slide 1-21Learning objective 3: Explain the two key ideas in managerial accounting.

Incremental Analysis Slide 1-22Learning objective 3: 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 3: Explain the two key ideas in managerial accounting.

Test Your Knowledge 6  Jason Deen is the owner of Deen’s Custom Motorcycles. Recently, his cousin, Jake, crashed his bike and brought it in for repairs. Jason offered to fix the bike and charge his cousin for just the incremental costs.  Which of the following is an incremental cost associated with the repair job? a.Depreciation on tools b.Salary paid to the accountant at Deen’s c.Required parts d.Utilities (e.g., heat and electricity) Answer: c. Required parts Slide 1-24Learning objective 3: 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 4: Discuss the impact of information technology on business processes and the interactions companies have with suppliers and customers.

The Value Chain Slide 1-26Learning objective 4: Discuss the impact of information technology on 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 information related to a variety of customer interactions Slide 1-27Learning objective 4: Discuss the impact of information technology on 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 1-28 Learning objective 5: Describe a framework for ethical decision making, and discuss the duties of the controller.

Sarbanes-Oxley Act Slide 1-29  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 Learning objective 5: Describe a framework for ethical decision making, and discuss the duties of the controller.

Sarbanes-Oxley Act Slide 1-30  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 Learning objective 5: Describe a framework for ethical decision making, and discuss the duties of the controller.

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

Framework for Ethical Decision Making  After deciding on a course of action, but before taking action, ask:  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 1-32 Learning objective 5: Describe a framework for ethical decision making, and discuss the duties of the controller.

Institute of Management Accountants (IMA) Slide 1-33 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 Learning objective 5: Describe a framework for ethical decision making, and discuss the duties of the controller.

Controller as Top Management Accountant 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 5: Describe a framework for ethical decision making, and discuss the duties of the controller.

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 5: Describe a framework for ethical decision making, and discuss the duties of the controller.

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 5: Describe a framework for ethical decision making, and discuss the duties of the controller.

Organizational Chart for the Controller’s Office Slide 1-37 Learning objective 5: Describe a framework for ethical decision making, and discuss the duties of the controller.

Decision Making Slide 1-38

CopyrightCopyright © 2016 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein. Slide 1-39