Introduction to Management Accounting Introduction to Management Accounting C H A P T E R 1

Learning Objective 1 Understand the essential differences between management and financial accounting.

Why Have Management Accounting?

A Little History n What made the DuPont problem interesting? n What did Donaldson Brown introduce to management accounting? n Discuss the birth of management accounting.

Summarizing DuPont First company to combine different types of industry, creating - a huge management hierarchy. - a complicated production process. - a geographically dispersed business. - an inventory that needed to be turned over rapidly. DuPont developed - extensive budgets to coordinate the flow of resources from raw materials to the final customer. - calculation for return on investment (ROI). Brown was the CFO at DuPont.

Return on Investment (ROI) y Combined cost management with asset management. y A measure of operating performance and efficiency in utilizing assets. y What is the formula for ROI?

Learning Objective 2 Understand that successfully managing a company requires good information that supports effective planning, controlling, and evaluating processes.

- Identify problems - Identify alternatives - Choose and implement best alternatives - Evaluate alternatives Management Processes Decision Making Planning Controlling Evaluating Planning Controlling Evaluating Planning Controlling Evaluating - Establish expectations - Create performance measures - Gather results - Compute variances Analyze results, Provide feedback, Reward performance, Identify problems

The Management Process— What are three performance measures of controlling? A process of 1.establishing expectations 2.creating performance measures 3.gathering results 4.computing variances

Learning Objective 3 Describe how the concepts of fixed and variable costs are used in C-V-P analysis in the management planning process.

Define Variable and Fixed Costs Fixed Costs: Variable Costs:

Provide Examples of Variable and Fixed Costs Fixed product costs: Fixed period costs: Variable product costs: Variable period costs:

Learning Objective 4 Realize how the product cost classifications of direct materials, direct labor, and overhead are used in the management controlling process.

Period Costs ManufacturingMerchandisingService Usually not associated with inventory or any other asset. Selling (sales salaries, advertising, and delivery costs). Administrative (salaries of executives, depreciation and taxes on assets, and miscellaneous office expenditures). Always expensed on the income statement in the same period as incurred. Costs incurred that cannot be assigned to a product or service.

Manufacturing overhead — Define the Three Manufacturing Product Costs Direct labor — Direct materials —

Match Product Costs to Type of Business Manufacturing Merchandising Service Labor, supplies, and other costs directly related to provide services. Costs necessary to create finished goods ready for sale. All costs related to production. Costs incurred to purchase goods and get them ready for resale to customers. Costs associated with products or services offered.

Complete the Table Type of CompanyProduct CostsPeriod Costs

Learning Objective 5 Understand the concepts of direct, indirect, and opportunity costs in the management evaluating process.

Define Direct and Indirect Costs Indirect costs: Direct costs:

Define Differential and Sunk Costs Differential costs: Sunk costs:

Define Out-of-Pocket and Opportunity Costs Out-of-pocket costs: Opportunity costs:

Learning Objective 6 Understand that management accounting still continues to evolve.

What Does Just-in-Time Inventory Do?

How are the New Measures of Cost, Quality, and Time Evaluated?

Learning Objective 7 Discuss the need for ethics in management accounting and describe the Standards of Ethical Conduct that apply to this profession.

List Ethical Dilemmas Confronting Management Accountants

How Should the Management Accountant Respond to Ethical Conflict?

Chapter One of Managerial is Finished