1. The Manager and Management Accounting © 2012 Pearson Education. All rights reserved.

2. Accounting Discipline Overview Managerial accounting —measures, analyzes, and reports financial and nonfinancial information to help managers make decisions to fulfill organizational goals. Managerial accounting need not be GAAP compliant. Financial accounting —focus on reporting to external users including investors, creditors, and governmental agencies. Financial statements must be based on GAAP. © 2012 Pearson Education. All rights reserved.

3. Major Differences Between Financial and Managerial Accounting Managerial AccountingFinancial Accounting PurposeDecision making Communicate financial position to outsiders Primary UsersInternal managersExternal users Focus/EmphasisFuture-orientedPast-oriented Rules Do not have to follow GAAP; cost vs. benefit GAAP compliant; CPA audited Time Span Ultra current to very long time horizons Historical monthly, quarterly reports Behavioral Issues Designed to influence employee behavior Indirect effects on employee behavior © 2012 Pearson Education. All rights reserved.

4. Strategy and Management Accounting Strategy—specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. Strategic cost management—focuses specifically on the cost dimension within a firm’s overall strategy © 2012 Pearson Education. All rights reserved.

5. Strategy and Management Accounting Management accounting helps answer important questions such as: Who are our most important customers, and how do we deliver value to them? What substitute products exist in the marketplace, and how do they differ from our own? What is our critical capability? Will we have enough cash to support our strategy or will we need to seek additional sources? © 2012 Pearson Education. All rights reserved.

6. Management Accounting and Value Creating value is an important part of planning and implementing strategy. Value is the usefulness a customer gains from a company’s product or service. © 2012 Pearson Education. All rights reserved.

7. Management Accounting and Value Value chain is the sequence of business functions in which customer usefulness is added to products or services. The Value chain consists of: 1. Research & development 2. Design 3. Production 4. Marketing 5. Distribution 6. Customer service © 2012 Pearson Education. All rights reserved.

8. The Value Chain Illustrated © 2012 Pearson Education. All rights reserved.

9. Value chain and classification of costs Classify each of the cost items (a – h) as one of the business functions of the value chain shown in Exhibit 1-2 (p. 7). Burger King, a hamburger fast food restaurant, incurs the following costs: Exercise 1-18 a. Production b. Distribution c. Marketing d. Marketing a. Cost of oil for the deep fryer b. Wages of the counter help who give customers the food they order c. Cost of the costume for the King on the Burger King television commercials d. Cost of children’s toys given away free with kids’ meals

10. e. Cost of the posters indicating the special “two cheeseburgers for $2” f. Costs of frozen onion rings and French fries g. Salaries of the food specialists who create new sandwiches for the restaurant chain h. Cost of “to-go” bags requested by customers who could not finish their meals in the restaurant e. Marketing f. Production g. Design of products, services or processes h. Customer service

11. A Value Chain Implementation © 2012 Pearson Education. All rights reserved.

12. Key Success Factors The dimensions of performance that customers expect, and that are key to the success of a company include: Cost and efficiency Quality Time Innovation © 2012 Pearson Education. All rights reserved.

13. A Five-Step Decision Making Process in Planning and Control 1. Identify the problem and uncertainties. 2. Obtain information. 3. Make predictions about the future. 4. Make decisions by choosing between alternatives. 5. Implement the decision, evaluate performance, and learn. © 2012 Pearson Education. All rights reserved.

14. Planning and Control Systems Planning selects goals, predicts results, decides how to attain goals, and communicates this to the organization. Budget—the most important planning tool Control takes actions that implement the planning decision, decides how to evaluate performance, and provides feedback to the organization. © 2012 Pearson Education. All rights reserved.

15. Exercise 1-21 Five-step decision-making process, manufacturing Garnicki Foods makes frozen dinners that it sells through grocery stores. Typical products include turkey dinners, pot roast, fried chicken, and meat loaf. The managers at Garnicki have recently introduced a line of frozen chicken pies. They take the following actions with regard to this decision. Classify each action as a step in the five-step decision- making process (identify the problem and uncertainties, obtain information, make predictions about the future, choose among alternatives, implement the decision, evaluate performance, and learn).

16. a. Garnicki performs a taste test at the local shopping mall to see if consumers like the taste of its proposed new chicken pie product. b. Garnicki sales managers estimate they will sell more meat pies in their northern sales territory than in their southern sales territory. c. Garnicki managers discuss the possibility of introducing a new product. Five-step decision-making process Obtain information Make predictions about the future Identify the problem and uncertainties

17. d. Garnicki managers compare actual costs of making chicken pies with their budgeted costs. e. Costs for making chicken pies are budgeted. f. Garnicki decides to make chicken pies. g. The purchasing manager calls a supplier to check the prices of chicken. Five-step decision-making process Implement the decision, evaluate performance, and learn Make predictions about the future Make decisions by choosing among alternatives Obtain information

18. Management Accounting Guidelines Cost–benefit approach is commonly used: benefits generally must exceed costs as a basic decision rule. Behavioral and technical considerations—people are involved in decisions, not just dollars and cents. Managers use alternative ways to compute costs in different decision-making situations. © 2012 Pearson Education. All rights reserved.

19. A Typical Organizational Structure and the Management Accountant © 2012 Pearson Education. All rights reserved.

20. Professional Ethics The four standards of ethical conduct for management accountants as advanced by the Institute of Management Accountants: Competence Confidentiality Integrity Objectivity © 2012 Pearson Education. All rights reserved.