1. Copyright © 2007 Prentice-Hall. All rights reserved 1 Introduction to Management Accounting Chapter 1

2. Copyright © 2007 Prentice-Hall. All rights reserved 2 Objective 1 Identify managers’ four primary responsibilities

3. Copyright © 2007 Prentice-Hall. All rights reserved 3 Setting goals and objectives Overseeing day-to- day operations Evaluating results of operations Managers’ Responsibilities Directing Controlling Decision Making Planning

4. Copyright © 2007 Prentice-Hall. All rights reserved 4 Objective 2 Distinguish financial accounting from management accounting

5. Copyright © 2007 Prentice-Hall. All rights reserved 5 Primary Users? Management Internal Managers Financial External Investors, creditors, government regulators

6. Copyright © 2007 Prentice-Hall. All rights reserved 6 Purpose of Information? Management Help managers plan, direct, and control business operations Financial Help investors and creditors make investment and credit decisions

7. Copyright © 2007 Prentice-Hall. All rights reserved 7 Primary Accounting Product? Management Any internal accounting report deemed worthwhile by management Financial General-purpose financial statements

8. Copyright © 2007 Prentice-Hall. All rights reserved 8 What must be included? Management Whatever management needs as long as benefits of using report exceeds cost of preparing it Financial Determined by GAAP

9. Copyright © 2007 Prentice-Hall. All rights reserved 9 Underlying basis of the information? Management Focus on future Information on external and internal transactions Financial Based on historical transactions External transactions

10. Copyright © 2007 Prentice-Hall. All rights reserved 10 Information characteristic emphasized? Management Relevance Financial Reliable and objective

11. Copyright © 2007 Prentice-Hall. All rights reserved 11 Business unit? Management Segments – products, geographical regions, customers Financial Company as a whole

12. Copyright © 2007 Prentice-Hall. All rights reserved 12 How often prepared? Management Depends on management needs Financial Annually and quarterly

13. Copyright © 2007 Prentice-Hall. All rights reserved 13 Verification? Management No independent audits Internal audits may occur Financial Independent audits of publicly traded companies

14. Copyright © 2007 Prentice-Hall. All rights reserved 14 Required by outside group? Management No Financial Yes – SEC for publicly traded companies

15. Copyright © 2007 Prentice-Hall. All rights reserved 15 Concern over how reports affect employee behavior? Management Yes Financial Concern is about adequacy of disclosure

16. Copyright © 2007 Prentice-Hall. All rights reserved 16 E1-10 a.Companies must follow GAAP in their ____________________ systems. b.Financial accounting develops reports for external parties, such as __________ and _______________. c.When managers evaluate the company’s performance compared to the plan, they are performing the __________ role of management. Financial accounting Creditors Shareholders Controlling

17. Copyright © 2007 Prentice-Hall. All rights reserved 17 E1-10 d.__________ are decision makers inside a company. e.___________________ provides information on a company’s past performance to external parties. f.______________________ systems are not restricted by GAAP but are chosen by comparing the costs versus the benefits of the system. Managers Financial accounting Management accounting

18. Copyright © 2007 Prentice-Hall. All rights reserved 18 E1-10 g.Choosing goals and the means to achieve them is the __________ function of management. h._____________________ systems report on various segments or business units of the company. i.____________________ statements of public companies are audited annually by CPAs. Planning Managerial accounting Financial accounting

19. Copyright © 2007 Prentice-Hall. All rights reserved 19 Objective 3 Describe organizational structure and the roles and skills required of management accountants within the organization

20. Copyright © 2007 Prentice-Hall. All rights reserved 20 Organizational Structure Audit Committee Audit Committee

21. Copyright © 2007 Prentice-Hall. All rights reserved 21 Management Accountants Often part of cross-functional teams Report to various vice-presidents of operations Role is to analyze financial impact of business decisions Internal consultants

22. Copyright © 2007 Prentice-Hall. All rights reserved 22 Roles of Management Accountants Ensuring accurate financial records –Helping to design information systems –Recording non-routine transactions –Making adjustments to financial records Planning, analyzing, and interpreting accounting data Providing decision support

23. Copyright © 2007 Prentice-Hall. All rights reserved 23 Required Skills Knowledge of financial and managerial accounting Analytical skills Knowledge of how a business functions Ability to work on a team Oral and written communications skills

24. Copyright © 2007 Prentice-Hall. All rights reserved 24 E1-11 a.The _____ and the _____ report to the CEO. b.The internal audit function reports to the CFO or _______ and the _____________. c.The __________ is directly responsible for financial accounting, managerial accounting, and tax reporting. d.The CEO is hired by the _____________. CFOCOO CEO controller audit committee Board of Directors

25. Copyright © 2007 Prentice-Hall. All rights reserved 25 E1-11 e.The __________ is directly responsible for raising capital and investing funds. f.The __________ is directly responsible for the company’s operations. g.Management accountants often work with __________________________. h.The subgroup of the board of directors is called the _________________. treasurer COO cross functional teams audit committee

26. Copyright © 2007 Prentice-Hall. All rights reserved 26 Objective 4 Describe the role of the Institute of Management Accountants (IMA) and use its ethical standards to make reasonable ethical judgments

27. Copyright © 2007 Prentice-Hall. All rights reserved 27 IMA Professional association for managerial accountants Goal –Advance management accounting profession –Educate society about role of managerial accountants Certifications –Certified Management Accountant (CMA) –Certified Financial Managers (CFM)

28. Copyright © 2007 Prentice-Hall. All rights reserved 28 Ethics Statement of Ethical Professional Practice (IMA) –Maintain professional competence –Preserve confidentiality of information –Uphold their integrity –Perform duties with credibility –Consult an attorney

29. Copyright © 2007 Prentice-Hall. All rights reserved 29 Steps to Resolve Ethical Dilemmas Follow company’s policies for reporting unethical behavior If not resolved –Discuss with immediate supervisor –Discuss with objective advisor

30. Copyright © 2007 Prentice-Hall. All rights reserved 30 E1-13 a.The ______ is the professional association for management accountants. b.The institute offers two types of certification: The _____ and _____. c.The __________ exam focuses on managerial accounting topics, economics, and business finance. IMA CMACFM CMA

31. Copyright © 2007 Prentice-Hall. All rights reserved 31 E1-13 d.The ______ exam focuses on financial statement analysis, business valuation, risk management, working capital policy, and capital structure. e.The institute’s monthly publication, called ________________, addresses current topics of interest to managerial accountants. CFM Strategic Finance

32. Copyright © 2007 Prentice-Hall. All rights reserved 32 E1-13 f. The institute says that approximately _____ percent of accountants work inside of organizations, rather than at CPA firms. 85

33. Copyright © 2007 Prentice-Hall. All rights reserved 33 Objective 5 Discuss trends in the business environment

34. Copyright © 2007 Prentice-Hall. All rights reserved 34 Sarbanes-Oxley Act of 2002 CEO and CFO - responsible for financial statements, internal control system, procedures for financial reporting Audit committee – independent and should include a financial expert CPA firms – limited non-audit services for audit clients and periodic quality review Stiffer penalties for white-collar crimes

35. Copyright © 2007 Prentice-Hall. All rights reserved 35 Trends Shift toward service economy Competing in global marketplace Time-based competition –ERP systems –E-Commerce –Just-in-Time Management Total Quality Management

36. Copyright © 2007 Prentice-Hall. All rights reserved 36 Trends Cost-Benefit Analysis – weighing costs against benefits to help make decisions

37. Copyright © 2007 Prentice-Hall. All rights reserved 37 Today’s Business Trends Shift toward a service economy Global competition Time-based competition –Advanced information systems –E-Commerce –Just-in-Time management Total Quality Management

38. Copyright © 2007 Prentice-Hall. All rights reserved 38 E1-16 a.To account for uncertainty in the amounts of future costs and benefits, we compute the ______________ by multiplying the probability of each outcome by the dollar value of that outcome. b.To make a cost-benefit decision today, we must find the ______________ of the costs and benefits that are incurred in the future. expected value present value

39. Copyright © 2007 Prentice-Hall. All rights reserved 39 E1-16 c. The goal of _______ is to meet customers’ expectations by providing them with superior products and services by eliminating defects and waste throughout the value chain. TQM

40. Copyright © 2007 Prentice-Hall. All rights reserved 40 E1-16 d. Most of the costs of adopting ERP, JIT, expanding into a foreign market, or improving quality are incurred in the ________, but most of the benefits occur in the _______. present future

41. Copyright © 2007 Prentice-Hall. All rights reserved 41 E1-16 e. _______________ is the time between buying raw materials and selling the finished products. f. __________ serves the information needs of people in accounting, as well as people in marketing and in the warehouse. g. Firms adopt __________ to conduct business on the Internet. Throughput time ERP e-commerce

42. Copyright © 2007 Prentice-Hall. All rights reserved 42 E1-16 h. Firms acquire the ______________ certification to demonstrate their commitment to quality. ISO9001:2000

43. Copyright © 2007 Prentice-Hall. All rights reserved 43 Objective 6 Use cost-benefit analysis to make business decisions

44. Copyright © 2007 Prentice-Hall. All rights reserved 44 E1-18 1. What are the total costs of adopting JIT? Employee training $13,500 Streamline production process 37,000 Supplier identification 8,000 Total costs$58,500

45. Copyright © 2007 Prentice-Hall. All rights reserved 45 E1-18 2. What are the total benefits of adopting JIT? Savings in warehouse expenses$97,000 Lower spoilage costs 46,000 Total benefits$143,000

46. Copyright © 2007 Prentice-Hall. All rights reserved 46 E1-18 3. Should Wild Rides adopt JIT? Why or why not? Expected total benefits$143,000 Expected total costs(58,500) Excess of benefits over costs$ 84,500 Wild Rides should adopt JIT because the expected benefits exceed the costs.

47. Copyright © 2007 Prentice-Hall. All rights reserved 47 S1-8 Expected value of additional benefits: OutcomeBenefitsProbabilityExpected value Moderately successful $20 million  0.85= Extremely successful $80 million  0.15= $17 million $12 million $29 million

48. Copyright © 2007 Prentice-Hall. All rights reserved 48 S1-8 Total benefits: Benefits already realized$170 million Expected value of additional benefits 29 million Total expected benefits$199 million Total costs$200 million

49. Copyright © 2007 Prentice-Hall. All rights reserved 49 S1-8 The costs of $200 million just exceed the total expected benefits of $199 million. Under these circumstances, the quality program does not appear to have been a worthwhile investment.

50. Copyright © 2007 Prentice-Hall. All rights reserved 50 End of Chapter 1