1. ACTG2P12-Introduction to Management Accounting
Today’s experience
will focus on
ensuring that you have a clear
understanding of goals and
objectives of this course
Who are we and why are we here?
What are your expectations of this course?
What is Management Accounting?
What do we hope to cover in the next 14 weeks?

2. Definition of Management Accounting
The Institute of Management Accountants (IMA):
“The process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial (and non financial) information used by management to plan, evaluate, and control within the organization and to assure appropriate use and accountability for its resources.

3. Comparison of Management and Financial Accounting
Areas of
Comparison
Management
Accounting
Financial
Report format
Flexible format, driven by
user's needs
Based on generally
accepted accounting
principles
Purpose of
reports
Provides information for
planning, control,
performance
measurement, and
decision making
Report on past
Primary users
Employees, managers,
suppliers
Owners, lenders,
customers,
government agencies

4. Comparison of Management and Financial Accounting
Areas of
Comparison
Management
Accounting
Financial
Units of
measure
Historical or future dollar;
physical measure in time
or number of objects
Historical dollar
Nature of
information
Future-oriented; objective
for decision making; more
subjective for planning;
relies on estimates
Historical, objective
Frequency of
reports
Prepared as needed; may
or may not be on a
regular basis
Prepared on a regular
basis (minimum of
once a year)

5. The Functions of Management
Acting
(Executing)
Controlling
(Reviewing)
Planning
Feedback
(Reporting)

6. The Management Cycle
Traditionally, management operates in four stages:
Planning
Long and short term.
To support decision-making and set expectations.
Executing
Hiring, scheduling, acquiring assets (including inventory), reducing waster, generating revenues.
Reviewing
Controlling operations.
Comparing actual performance to plan.
Reporting
To stockholders, creditors, other managers, other interested parties.

7. The Management Cycle

8. Meeting Demands of Global Competition
Identify major trends in the business environment, and use cost-benefit analysis to make business decisions.

9. Shift to a Service Economy
In Canada, 57% of the workforce
is employed in service companies.

10. Competing in the Global Marketplace
Foreign operations account
for over 30% of GE’s revenues,
but generate two-thirds of the profit.

11. E-commerce
Conducting everyday business practices such as budgeting, planning, purchasing, and selling using the Internet.
Business-to-business E-commerce.
Important means of supply chain management.

12. New Management Philosophies
Three significant new management philosophies are as follows:
Just-in-time (JIT) operating environment.
Total quality management (TQM).
Activity-based management (ABM).

13. Just-in-Time
JIT philosophy means that the company schedules production just in time to satisfy needs.
Speeding up of the production process reduces throughput time.
Throughput time is the time between buying raw materials and selling the finished products.

14. Total Quality Management
The goal of total quality management (TQM) is to attract customers by providing them with superior products and services.
TQM emphasizes educating, training, and cross-training employees.
Quality improvement programs cost money today.
The benefits usually do not occur until later.

15. Theory of Constraints
Identify performance or production bottlenecks (limiting factors).
Overcome limitation.
Identify next bottleneck.

16. The Continuous Improvement Environment

17. The Goal: Continuous Improvement
Avoid complacency.
Constantly seek a better method.
Reduce defects or poor quality.
Reduce or eliminate non value-adding activities.
Results: Product/service costs and delivery times reduced. Quality and customer satisfaction increases.

18. Examples of Performance Measures
Financial performance measures:
Return on investment.
Net income as a percentage of sales.
Costs of poor quality as a percentage of sales.
Non-financial performance measures:
Number of customer complaints.
Hours of inspection.
Time to fill an order.

19. Performance Measures
Performance measures are useful in reducing waste in operating activities.
Management uses performance measures in all stages of the management cycle.
In planning to motivate.
In executing to guide, and assign costs.
In reviewing to improve future performance.
In reporting to communicate results.

20. The Balanced Scorecard
A framework that links the perspective of stake holder groups
Financial Perspective (investors)
Learning and Growth Perspective (employees)
Internal Business Perspective (managers/employees)
Customer Perspective (customers)
with the organization’s mission, vision, plans, and resources.
Provides clear, measurable performance targets.

21. Analysis of Non-financial Data – Bank
Kings Beach National Bank
Summary of Number of Customers Served
For the Quarter Ended December 31, 20xx
Part A
Number of Customers Served
Window
October
November
December
Quarter
Totals 1
5,428
5,186
5,162
15,776 2
5,280
4,820
4,960
15,060 3
4,593
4,494
4,580
13,667
15,301
14,500
14,702
44,503

22. Analysis of Non-financial Data – Bank
Kings Beach National Bank
Summary of Number of Customers Served
For the Quarter Ended December 31, 20xx
Part B
Number of Customers Served per Hour
Window
October
November
December
Quarter
Averages 1
31.93
30.51
30.36
30.93 2
31.06
28.35
29.18
29.53 3
27.02
26.44
26.94
26.80
Totals
90.01
85.30
86.48
87.26

23. The Four W’s Report preparation depends on: Why? What? Who? When?
Why are we preparing the report?
What?
What information is needed?
Who?
Who is the audience for the report?
When?
When is the report due?

24. Service, Merchandising, and Manufacturing Organizations

25. Service Organizations
provides intangible services,
rather than tangible products
Sells services, not products
No inventory accounts in the balance sheet
Use cost of services sold instead of cost of goods sold
Cost of Sales = Net Cost of Services Sold

26. Merchandising Organizations
resells products previously
purchased from suppliers
Purchases products that are ready for sale
Maintains one inventory account on balance sheet
Include cost of purchases in cost of goods sold
Cost of Goods Sold = Beginning merchandise inventory
+ Net cost of purchases
- Ending merchandise inventory

27. Manufacturing Organizations
uses labour and factory assets to shape
raw materials into finished products
Designs and manufactures products for sale
Maintains three inventory accounts
(1) Material inventory
(2) Work in process inventory
(3) Finished goods inventory
Include cost of goods manufactured in cost of goods sold
Cost of Goods Sold = Beginning finished goods inventory
+ Cost of goods manufactured
- Ending finished goods inventory

28. Income Statement Format
Sales Revenue
deduct
Cost of Goods Sold or
Cost of sales
when
sales
occur
equals Gross Margin
deduct
Period
Costs
Operating
Expenses
equals Operating Income Or Net Income

29. Financial Statements for Service Organizations
There is no inventory and thus no inventoriable costs.
The income statement does not include cost of goods sold.
Revenues – Expenses = Operating income

30. Financial Statements for Merchandising Companies
BALANCE SHEET
INCOME STATEMENT
Inventoriable
Costs
Sales Revenue
when
sales
occur
deduct
Purchases of
Inventory plus
Freight-In
Inventory
Cost of
Goods Sold
equals Gross Margin
deduct
Period
Costs
Operating
Expenses
equals Operating Income

31. Financial Statements for Manufacturing Companies
BALANCE SHEET
INCOME STATEMENT
Inventoriable
Costs
Sales Revenue
Materials
Inventory
when
sales
occur
deduct
Finished
Goods
Inventory
Cost of
Goods Sold
equals Gross Margin
deduct
Work in
Process
Inventory
Period
Costs
Operating
Expenses
equals Operating Income

32. Comparison of Financial Statements for Service, Merchandising, and Manufacturing Organizations

33. Use reasonable standards to make ethical judgments.
Ethics
Use reasonable standards to
make ethical judgments.

34. Professional Ethics for Management Accountants
In many situations the ethical path is not so clear.
The Society of Management Accountants of Canada (CMA Canada) has developed standards to help management accountants deal with these situations.

35. Standards of Ethical Conduct for Management Accountants
Competence
Integrity
Confidentiality
Objectivity

36. Competence Standards Develop knowledge and skills on an ongoing basis.
Perform duties in accordance with relevant laws and technical standards.
Prepare complete and clear reports after appropriate analysis of information.

37. Confidentiality Standards
Refrain from disclosing confidential information.
Make sure that subordinates refrain from disclosing confidential information.
Refrain from using confidential information for unethical or illegal advantage.

38. Integrity Standards Avoid actual or apparent conflicts of interest.
Avoid activities that would prejudice one’s ability to carry out duties ethically.
Refuse any gift or favor that might influence one’s actions.
Avoid activities that could discredit the profession.

39. Integrity Standards
Avoid activities that could threaten the organization’s legitimate and ethical objectives.
Acknowledge any professional limitations relative to the performance of one’s job.
Communicate both favorable and unfavorable information and opinions.

40. Objectivity Standards
Communicate information fairly and objectively.
Disclose fully all relevant information to users.

41. Resolution of Ethical Conflict
Follow organizational policies.
If these do not resolve the conflict:
Discuss with the immediate superior, or next higher level authority involved. (Do not communicate with external parties.)
Clarify issues with an objective advisor.
Consult your own attorney about legal obligations and rights.
If ethical issues cannot be resolved, consider resignation.