1. Management Accounting and Management Decisions1
Management Accounting and Management Decisions

2. Management Accounting for Managers
Management accounting exists because managers require information to make decisions
Primary focus of management accounting is towards users within an organization
Management accounting does not exist to generate data, but it exists because managers require information for decisions
Framework for Management Accounting
Management accounting is: user driver (not data driver)
and is used to make decisions
MA Info System
Internal use > external
Multiple users w/ various purposes
Info for product costing, pricing and segment profitability
Strategic Planning
Management Control
Operational Control
Focus on organization’s objectives
Effectiveness and efficiency of resource use
Effectiveness and efficiency of tasks

3. Frameworks for Management Accounting
OPERATIONAL MANAGEMENT STRATEGIC
CONTROL CONTROL PLANNING
Structured Accounts receivable Budget analysis Tanker fleet mix
Order entry Short-term Warehouse and
forecasting factory location
Inventory reordering Engineered costs
Inventory control Variance analysis Mergers and acquisitions
Semi-
Structured Production scheduling Overall budget Capital acquisition analysis
Bond trading Budget preparation New product planning
Cash management
Unstructured PERT COST systems Sales and production R and D planning
Across the top is the “type of decisions” to be made
Across the side is the characteristics of decisions
Structured are routine and normal decisions where info requirements and decision processes are relatively well understood (monthly revenue forecasts)
Unstructured: are unique and uncommon and thus info and decision processes need to be developed for that decision.
eg. Expansion of Area G to accommodate donation of equipment from industry, equipment from Devon eviction plus growing R&D program

4. Management Decision Process
1. Identify the problem.
2. Perform the necessary quantitative and qualitative analyses.
3. Identify alternative solutions to the problem.
4. Evaluate the alternative solutions.
Key to successful management accountant …. To clearly understand the decision to be made in order to capture the correct information.
The following process is very effective
Problem: fibre program growing, need more space to accommodate equipment but does benefit outweigh the cost (ie are they making enough money to justify cost)
Possible solutions included: a new building, renovating existing space, addition to current space
5. Recommend one of the alternative solutions.
6. Implement the recommendation.

5. Management accounting is ….
The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information that assists managers in making decisions
Following diagram illustrates 3 roles of management accountant

6. Accounting Information
Management
Major Means:
Accounting Information
Major Ends:
Helping Decisions
Problem-solving information
Managers for long-range planning and special decisions
2. Attention-directing information
2. Managers for planning and controlling routine operations
1 – usually associated with non-recurring decisions – identifying possible courses of action w/ recommendations
2 – helps to focus on operating problems, imperfections, inefficiences and opportunities
Associated with current planning and control and the recurring routine internal accounting reports
3 – accumulation of info to evaluate org’s performance and position
3. Scorekeeping information
3. Outsiders for investors, tax collectors, regulators & others

7. Planning and Controlling
Evaluation
Action
Planning involves setting objectives and the means to their attainment
What is desired?
When and how is it to be accomplished?
How is success to be evaluated?
Controlling involves the implementation of plans and the use of feedback to monitor achievements
These three are intertwined in reality … but often separated for study purposes and often with job duties
(managers plan, financial administrators creates budget, financial stuff do ledges, A/R, A/P etc)
What happens when activities are no longer intertwined????
No accountability, no responsibility, FAILURE!!
BUM plans program and determines appropriate budget … Sr management sees overall numbers, adjusts and sends back
BUM has two options: implement original plan or implement Sr Mgmt plan
Either way: failure expected (original plan won’t meet sr mgmnt targets) or (w/o competencies, resources to deliver)

8. Performance Reports
Feedback provided by comparing results with plans and by highlighting variances
Reports:
Budget amounts
Actual amounts
Deviations or Variance
Explanation

9. Performance Report

10. Example #1:
The Parent Teacher Organization (PTO) of Trudeau Elementary School held a fund-raising fair in the school gymnasium. The PTO president had prepared the following budget, assuming 200 attendees who spend an average of $20 each, and donations of all other resources:
Revenues $4,000
Costs: 
Food and beverages  
Prizes  
Supplies  
Custodial services
Total costs $1,800
Income $2,200
Afterwards, the PTO treasurer determined that 150 people had attended the fair, and total revenues were $2,250. Cost of food and beverages was $750. All prizes were awarded. Supplies cost $180, and custodial services were $500 due to damage to the gymnasium floor.

11. Example #1: (cont’d)
Prepare a performance report that shows how actual results differ from budgeted results.
Which variances deserve further examination?
Management by Exception

12. Management Accounting
Roots based in manufacturing
Evolved to include service organizations
Elements applicable to non-profits
Key Success Factors
The factors that must be managed successfully to achieve organizational success
Key success factors:
Profit margin per unit, low costs, revenue

13. Introduction to Market
Product Life Cycle
The various stages through which a product passes, from conception and development through introduction into the market through maturation and, finally, withdrawal from the market
Sales over Typical
Product Life Cycle
Why is this here??
During the planning process .. Managers must recognize revenues and costs over the life cycle. Accounting needs to track actual costs/revenues
Periodic comparisions b/w planned and actual allows managers to asses the current profitability of a product, determine its current product life cycle stage and make any needed changes in strategy
How does this impact you if you manufacture VCR’s?
How does this differ from a DVD manufacturer?
Product
Development
Introduction to Market
Mature
Market
Phase-Out
of Product

14. The Value Chain
Value chain is the set of business functions that add value to the products or services of an organization
Research
and
Development
Product
& Service
Process
Design
Customer
Service
CUSTOMER
FOCUS
Accountants play a role in all areas:
R&D & design stages is the greatest contribution of accountant
– estimated revenue and cost data so engineers/managers can reduce life cycle costs
Prod’n – track effects of production improvements, budgeting/performance reports
Marketing – cost/benefit analysis
Distribution – can determine best option (direct to retailer or wholesaler, how to transport etc)
Cust Service – warranty, repair costs, cost of goods returned
The value chain, adding value and focusing on the customer are key to companies. Therefore book will often use this focal point.
Distribution
Production
Marketing

15. Example 2: Starbucks Value Chain
For each activity, identify the value chain function that is being performomed:
Process engineers investigate methods to reduce the time to roast coffee beans and better preserve their flavor
A direct-to-your-home mail order system is established to sell custom coffees
Arabica coffee beans are purchased and transported to company processing plants
Focus groups investigate the feasibility of a new line of Frappuccino drinks
A hot line is established for mail-order customers to call with comments on quality and speed of delivery
Each company owned retail store provides information to customers about the process used to make its coffee products
Process Design
Distribution
Production
R&D
Customer Service
Marketing

16. Two Themes
There are two themes when choosing among accounting systems and methods
Cost-Benefit Theme
How well the system and methods will achieve management goals in relation to their costs?
Incremental cost of implementing versus incremental benefits
Behavioral Theme
How will the system and methods affect the decisions (behavior) of managers?
Budgets force managers to plan
Performance reports have enormous impact on behavior
Cost/benefit theme:
Hospital eg
Behavior: performance reports can provide desirable and undesired motivation.
… the choices of content, format, timing and distribution of performance reports should all be made within an understanding of the impact on motivation.

17. Distinctions Between Management Accounting and Financial Accounting
Primary Users
Choices
Behavioural
Implications
Time Focus
Time Span
Reports
Activities
Management
Accounting
Organization managers
Costs versus benefits
Influence on managerial
behaviour
Future orientation
Flexible
Detailed
Less sharply defined
Financial
Accounting
External parties
G.A.A.P.
Measurement of
economic activity
Past orientation
Less flexible
Summary reports
More sharply defined

18. Additional Topics Line versus Staff authority
Controller versus Comptroller versus Treasurer
JIT and CIM philosophy
Professional Ethics
Adapting to Change

19. Suggested Problems Summary Problems 1, 2, 4 (page 27)
Questions 2-4, 6-8, 10, 12, 16 (page 31)
Problems 2, 8, 12 (page 32)
Case 2 (page 37)

20. Assignments Due January 15
Chapter 1 Assignment
Question 9
Problem 3, 7, 11
Case 1, 2
Accounting Resume
Readings
Chapter 2
Chapter 3

21. Case 1: Augustana Coffee News
You are the owner of “Augustana Coffee News”, a newsprint paper that is free to the public. Revenue is based solely on advertising sales.
Identify all costs involved in operating this business. Identify any assumptions made