2. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 1 Managerial Accounting and the Business Organization Chapter 1

3. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 2 Learning Objective 1 Describe the major users and uses of accounting information.

4. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 3 Users of Accounting Information use information for day-to-day operating decisions... Internal managers… and for long-range strategic decisions.

5. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 4 Users of Accounting Information External parties: use information for making decisions about the company. Investors Government authorities

6. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 5 What kinds of Accounting Information do Managers Need? Good accounting information helps an organization achieve its goals and objectives.

7. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 6 Uses of Accounting Information This is the accumulating and classification of data. Am I doing well or poorly?

8. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 7 Uses of Accounting Information Which problems should I look into? Attention directing means reporting and interpreting information that helps managers to focus on operating problems.

9. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 8 Uses of Accounting Information This role asks: Of the several alternatives available, which is the best? This often involves special studies.

10. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 9 Learning Objective 2 Describe the cost-benefit and behavioral issues involved in designing an accounting system.

11. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 10 Influences on Accounting Systems An accounting system is a formal mechanism for gathering, organizing, and communicating information about an organization’s activities.

12. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 11 Influences on Accounting Systems Generally accepted accounting principles (GAAP) Foreign Corrupt Practices Act Internal control Management audits

13. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 12 Influences on Accounting Systems In 2002 the Sarbanes-Oxley Act required chief executive officers to sign a statement verifying the accuracy of the company’s financial statements.

14. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 13 Importance of Ethics No regulation can be as effective in ensuring reliability as high ethical standards of accountants.

15. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 14 Management Accounting in Service and Nonprofit Organizations ServiceorganizationsNonprofitorganizations Accounting firms Law firms Real estate firms BanksHotels HospitalsSchoolsLibrariesMuseums Government agencies

16. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 15 Service Organizations Labor is intensive. Output is usually difficult to define. Major inputs and outputs cannot be stored.

17. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 16 Cost-Benefit and Behavioral Considerations 1. Cost-benefit balance 2. Behavioral implications

18. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 17 Cost-Benefit Balance The primary consideration in choosing among accounting systems and methods is weighing estimated costs against probable benefits.

19. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 18 Behavioral Implications The system must provide accurate, timely budgets and performance reports in a form useful to managers. If managers do not use accounting reports, the reports create no benefits.

20. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 19 Learning Objective 3 Explain the role of budgets and performance reports in planning and control.

21. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 20 The Nature of Planning and Controlling It is the purposeful choice from among a set of alternative courses of action designed to achieve some objective. What is decision making? This is the core of the management process.

22. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 21 The Nature of Planning and Controlling The management process internal accounting system: Planning – Improve profitability Controlling – Actions – Evaluations Corrections and revisions of plans and actions Budgets,Specialreports Accountingsystem Performancereports Customersurveys Competitoranalysis Advertisingimpact New items report

23. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 22 Role of Budgets A budget is a quantitative expression of a plan of action. The Starbucks store would express its plan for product growth and improved marketing through revenue and advertising budgets.

24. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 23 Performance Reports What are performance reports? These are reports that compare actual results with budgeted amounts.

25. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 24 Performance Reports Performance reports formalize controls and provide feedback by comparing results with plans and by highlighting variances. Variances are deviations from the plan.

26. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 25 Performance Reports Budget Actual Variance Budget Actual Variance Sales$50,000$50,0000 Less: Ingredients 22,000 24,500 $2,500 U Store labor 12,000 11,600 400 F Other labor 6,000 6,050 50 U Utilities, etc. 4,500 4,5000 Total expenses$44,500$46,650$2,150 U Operating income$ 5,500$ 3,350$2,150 U Starbucks Mayfair Store, March 31, 2004

27. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 26 Objective 4 Discuss the role accountants play in the company’s value chain functions.

28. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 27 Planning and Control for Product Life Cycles and the Value Chain Product life cycle refers to the various stages through which a product passes.

29. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 28 Planning and Control for Product Life Cycles and the Value Chain Productdevelopment Introduction to market Maturemarket Productphase-out

30. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 29 The Value Chain Support functions R & D DesignProduction MarketingDistributionService

31. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 30 Value Chain Functions Research and development… is the generation of, and experimentation with, ideas related to new products, services, or processes.

32. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 31 Value Chain Functions Design… is the detail and engineering of products.

33. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 32 Value Chain Functions Production… is the coordination and assembly of resources to produce a product or deliver a service.

34. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 33 Value Chain Functions Marketing… is the manner by which individuals or groups learn about the value and features of products or services.

35. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 34 Value Chain Functions Distribution… is the mechanism by which products or services are delivered to the customer.

36. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 35 Value Chain Functions Customer service… is the support activities provided to the customer.

37. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 36 Objective 5 Contrast the functions of controllers and treasurers.

38. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 37 Accounting’s Position in the Organization Preparing standardized reports Collecting and compiling information Interpreting and analyzing information Being involved in decision making

39. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 38 Line and Staff Authority Line managers Staff managers Cross-functional teams

40. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 39 Controller and Treasurer Functions Financial Vice-President or CFO TreasurerController

41. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 40 Functions of the Controller  Planning for control  Reporting and interpreting  Evaluating and consulting  Tax administration  Government reporting  Protection of assets  Economic appraisal

42. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 41 Functions of the Treasurer  Provision of capital  Investor relations  Short-term financing  Banking and custody  Credits and collections  Investments  Risk management (insurance)

43. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 42 Learning Objective 6 Explain why accounting is important in a variety of career paths.

44. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 43 Career Opportunities in Management Accounting The Certified Management Accountant (CMA) designation is the internal accountant’s counterpart to the CPA. CMAs must pass an examination that has four parts:

45. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 44 Career Opportunities in Management Accounting 1. Economics, finance, and management 2. Financial accounting and reporting 3. Management reporting, analysis, and behavioral issues 4. Decision analysis and information systems.

46. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 45 Learning Objective 7 Identify current trends in management accounting.

47. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 46 Current Trends Shift from a manufacturing-based to a service-based economy Increased global competition Advances in technology Changes in business processes

48. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 47 Current Trends Just-in-time (JIT) philosophy Computer-aided design Computer-aided manufacturing Computer-integrated manufacturing

49. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 48 Learning Objective 8 Appreciate the importance of ethical conduct to professional accountants.

50. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 49 Standards of Ethical Conduct The Institute of Management Accountants (IMA) is the largest association of management accountants in the United States. The IMA has issued a Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management.

51. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 50 Pressures for Unethical Behavior Ignoring the small stuff Economic cycles Accounting rules Emphasis on short-term results

52. ©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 1 - 51 End of Chapter 1