1. 1 PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University © Copyright 2005 South-Western, a division of Thomson Learning. All rights reserved. Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc. Chapter M1 Accounting and Management Decisions

2. 2 Managerial accounting is the process of preparing, reporting, and interpreting accounting information for use by an organization’s internal decision makers.

3. 3 Objective 1 Explain the purpose of managerial accounting and why it is important. Once you have completed this chapter, you should be able to:

4. 44 External Users Stockholders, creditors External Users Stockholders, creditors They need summary information about performance for a period of time (financial accounting). Types of Users and Information Needs

5. 55 Top Management Board of Directors Chief executive officers Top Management Board of Directors Chief executive officers They need information for evaluating performance, for establishing goals, and for devising plans to meet goals (financial and managerial accounting). Types of Users and Information Needs

6. 66 Functional and Division Managers Accounting Finance Information systems Marketing Operations Product and territory sales managers Plant managers Functional and Division Managers Accounting Finance Information systems Marketing Operations Product and territory sales managers Plant managers Types of Users and Information Needs

7. 77 They need timely and detailed information for evaluating performance and implementing plans (primarily managerial accounting).

8. 88 Middle Managers Sales representatives Production managers Purchasing managers Service managers Middle Managers Sales representatives Production managers Purchasing managers Service managers Middle managers need very timely and detailed information for day-to- day decisions to achieve company goals (managerial accounting). Types of Users and Information Needs

9. 9ResponsibilityResponsibility Typically, the higher the managers are in the structure, the more responsibility they have for results and the more authority they have to make decisions.

10. 10 Financial accounting provides information that conforms with GAAP. Managerial accounting does not have to conform with GAAP. Managerial accounting information is used only within a company to meet the particular needs of a company’s managers.

11. 11 An accountant who produces managerial accounting information for a specific company is referred to as a managerial accountant.

12. 12 Changing management philosophies frequently involve:  New marketing strategies directed at global markets  Emphasis on customer satisfaction, including a focus on product quality and variety  Large investments in new production technologies, including increased reliance on robotics and computerized manufacturing ContinuedContinued The Changing Needs of Business

13. 13 The Changing Needs of Business  New relationships between management and labor that emphasize a greater role for labor in many decisions  Creation of management teams to make key business decisions with representatives from the various functional areas of business, including accounting  Development of real-time (immediate) business information systems, including use of the Internet to facilitate communication within a company and between a company and its stakeholders

14. 14 What is the intended use of the information produced by a system? How accurate does the information need to be? Is greater accuracy worth the additional cost? 14 These questions should be asked when assessing the adequacy of managerial accounting systems: The Quality of Accounting Information Information

15. 15 Objective 2 Explain the role of managerial accounting in planning and control decisions. Once you have completed this chapter, you should be able to:

16. 16 Develop Plans to Achieve Objectives (c) 16 Modify goals or Plans as Needed (f) Evaluate Performance (e) Implement Plans and Control Actions (d) Set Specific Objectives (b) The Planning and Control Process Identify Company Goals (a) Exhibit 2

17. 17 Planning Strategic planning involves identifying a company’s long-run goals and developing plans for achieving these goals.

18. 18 Planning Operational planning involves identifying objectives for day-to- day activities. It also involves setting performance objectives, which are standards for the desired performance of various divisions of a company.

19. 19 Levels of Planning Strategic financial plan Master budget Operational budgets Several years in the future Annual Monthly to quarterly Planning Time Horizon Type of Planning

20. 20 Levels of Planning Sets major financial goals Provides a one-year financial master plan linking long- range planning with operational planning. Provides specific inputs to the masters budget. Nature of Planning Strategic financial plan Master budget Operational budgets Type of Planning

21. 21 Management Accountants Involvement With Ongoing Decision  to continue producing a product or to drop it from a product line  to retain or close a branch or plant facility  to accept or reject a special product order from a customer ContinuedContinued

22. 22 Management Accountants Involvement With Ongoing Decision  to complete a product or sell it partially completed at a lower price  to produce more of one product or more of another  to keep, reduce, or eliminate certain costs

23. 23ControlControl Control involves identifying and rewarding behavior that encourages desired outcome and detecting and correcting behavior that does not.

24. 24 Identification and detection can be accomplished using three methods:  Observing behavior to assess the quantity and quality of effort  Measuring the outcomes of behavior  Establishing informal work environment habits (corporate culture) that guide behavior ControlControl

25. 25 ACTUAL BEHAVIOR Role of Incentives and Measurement in Planning and Control 25 EXPECTED BEHAVIOR COMPANY GOALS Evaluation Incentives to Meet Expectations Rewards for Meeting Expectations Exhibit 4

26. 26 Objective 3 Discuss ways in which managerial accounting interacts with marketing and operations. Once you have completed this chapter, you should be able to:

27. 27 Interaction Between Departments Exhibit 5 AccountingAccounting MarketingMarketing How many units do we expect to sell? Performance Data

28. 28 Departments Working Together AccountingAccounting Sales Projections Is the product profitable? MarketingMarketing Exhibit 5

29. 29 Departments Working Together AccountingAccounting Operations Will operations change? Cost Analysis Exhibit 5

30. 30 Departments Working Together AccountingAccounting Operations Planned Changes Have we met our cost projections? Exhibit 5

31. 31 Why is accounting information so important in marketing decisions?

32. 32 For companies to be competitive in the new business environment, they require accurate and timely information to support their marketing efforts.

33. 33 The sales force rely on up-to-date accounting information to monitor and control sales activities.

34. 34 What is operations and how do production managers use accounting information?

35. 35 Operations refers to the actions necessary to create and delivery products or services. Production managers need accounting information about the costs of production, such as labor and materials.

36. 36 Objective 4 Explain the scope of managerial accounting. Once you have completed this chapter, you should be able to:

37. 37 The Role of Managerial Accounting in Business Organizations Business Activities Managerial Accounting Systems -Financial reporting system -Operational reporting system Exhibit 6 ContinuedContinued

38. 38 The Role of Managerial Accounting in Business Organizations Managerial Accounting Systems -Financial reporting system -Operational reporting system Business Decisions -External-Internal Exhibit 6

39. 39 Managers rely on operational reporting systems to understand certain dynamics of their processes.

40. 40 Operational reporting systems capture nonfinancial information such as… number of units produced, time required for production, and defect rates.

41. 41 Accounting measurement, especially in the contemporary business environment, includes quantitative and qualitative data about the effectiveness and efficiency of business activities. Ef fi c ncy

42. 42 Operations managers can reduce product cost by eliminating waste, scrap, and spoilage in the production process; product defects; and activities that do not add value.

43. 43 Quality is a major factor in determining the success of most business organizations.

44. 44 THE END Chapter M1

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