Stern School of Business Managerial Accounting Summer 2005 Instructor: Francois Brochet An Introduction to Managerial Accounting How Managers Use Managerial Accounting Information The Managerial Accounting Function
Provides Information for Product and Service Costing Provides Information for Planning And Decision Making Provides Information for Performance Evaluation Information to Determine the
Cost of Products and Services Provides Information to determine the cost of manufactured products and services Information for Decision Making Calculate the financial consequences of alternatives and see how costs will differ among the alternatives. Managerial accounting has little to do with recording past costs, and much to do with estimating future costs.
Information for Planning and Performance Evaluation Cost accountants help management develop effective planning tools and methods to evaluate the performance of responsibility centers. Managerial Accountants Record, measure, determine and analyze costs Analyze operations and costs to find ways to improve
operations and product quality while reducing costs Managerial Accounting and GAAP The primary purpose of financial accounting is to provide stakeholders information regarding company and management performance. The financial data prepared for
this purpose are governed by GAAP. Generally Accepted Accounting Principles (GAAP) are the rules, standards, and conventions that guide the preparation of financial statements for stockholders. Managerial Accounting and
GAAP Cost data for managerial use need not comply with GAAP. Management is free to set its own definitions for Managerial Accounting Information. Decision makers often require different information than that provided in financial statements
to shareholders. Differences Between Financial and Managerial Accounting Creating Value in Organizations Each step of the development, production, and distribution process should add value to the product or service offered. Using Managerial Accounting Information to Increase Value Nonvalue-added activities activities that do not add
value to the product or service. Identify Nonvalueadded activities Eliminate Cost-Benefit Analysis The process of comparing benefits with costs associated with a proposed change within an organization. Costs
Benefits Strategic Cost Analysis If a company can eliminate nonvalue-added activities, it can reduce costs without reducing product value. Reduced costs, with no loss in value, means the company has a competitive advantage. Global Strategies
A strategic advantage exists when your company has invested resources that make it difficult for competitors to match. New entry into the market is difficult because of the magnitude of investment required. E-Commerce During 2001, many dot.com businesses failed that might have benefited from the application of managerial accounting tools: cost concepts (Chap. 2)
cost measurement (Chap. 4) cost estimation (Chap. 5) cost-volume-profit (Chap. 6) activity-based costing (Chap. 8) budgeting (Chap. 9) decision-making (Chap. 13) Focusing on Customers Without customers, the organization loses
its ability to exist. Customers provide the organization with its focus. Many companies identify customers needs before designing and producing products. Users of Managerial Accounting Who are the customers of cost accounting? Users of Managerial Accounting Production needs cost information to control
and improve operations. Users of Managerial Accounting Mid-level managers need cost information that serves as a warning signal when operations are different from expectations. Users of Managerial Accounting I know that senior managers use some cost information to assess overall
performance of the company. Managerial Accounting in HighTech Production Settings Many companies have installed computer-assisted methods of Manufacturing products, Merchandising products, or Providing services. New technologies have had a
major impact on Managerial Accounting. Just-in-Time Method In production or purchasing, each unit is purchased or produced just in time for its use. Lean Production Companies eliminate inventories between production departments . . . Making the quality and efficiency of production the highest priority, Providing the flexibility to change quickly from one
product to another, and Emphasizing training and worker skills. Total Quality Management The organization is managed to excel on all dimensions and quality is ultimately defined by the customer. Benchmarking and Continuous Improvement Benchmarking The
continuous process of measuring ones own products, services and activities against the best levels of performance. Continuous Managers and employees are not satisfied with a particular performance but seek ongoing improvement. Theory of Constraints Every organization usually has at least one
bottleneck that limits production. Management focuses on maximizing profits by identifying constraints and increasing capacity. Theory of Constraints Only actions that strengthen the weakest link in the chain improve the process. 2. 2.Identify
Identify process process constraints constraints 1. 1.Measure Measure process process capacity capacity 3.
3.Use Use bottlenecks bottlenecks effectively. effectively. 4. 4.Coordinate Coordinate processes processes Activity-Based Costing and Management
A product costing method that is useful in industries where overhead is high relative to other costs. Activity-based costing assigns costs to products based on several different activities whereas traditional costing methods only assign costs to products on ABC one or two different activities. Activity-Based Costing and Management A product costing method that is useful in industries where overhead is high relative to other costs. Traditional
method ABC Activities cost drivers Products Products Importance of Ethics in Accounting
Ethical accounting practices build trust and promote loyal, productive relationships with users of accounting information. Many companies and professional organizations, such as the Institute of Management Accountants (IMA), have written codes of ethics which serve as guides for employees. Code of Conduct for Management Accountants IMA Code of Ethics for Management Accountants Four broad areas of responsibility: Maintain a high level of
professional competence treat sensitive matters with confidentiality Maintain personal integrity Be objective in all disclosures IMA Code of Ethics for Management Accountants Follow Followapplicable applicablelaws, laws, regulations regulationsand and
standards. standards. Maintain Maintain professional professional competence. competence. Competence Competence Prepare Preparecomplete completeand andclear
clear reports reports after after appropriate appropriate analysis. analysis. IMA Code of Ethics for Management Accountants Do Donot not disclose discloseconfidential confidential
information information unless unlesslegally legally obligated obligated to to do do so. so. Do Donot not use use confidential confidential
information informationfor for personal personal advantage. advantage. Confidentiality Confidentiality Ensure Ensure that thatsubordinates subordinatesdo do
not not disclose disclose confidential confidential information. information. IMA Code of Ethics for Management Accountants Avoid Avoidconflicts conflictsof ofinterest interest and
and advise adviseothers othersof of potential potentialconflicts. conflicts. Do Donot not subvert subvert organizations organizations legitimate legitimate
objectives. objectives. Integrity Integrity Recognize Recognizeand and communicate communicatepersonal personal and and professional professional limitations. limitations.
IMA Code of Ethics for Management Accountants Avoid Avoid activities activitiesthat thatcould could affect affect your your ability abilityto to perform performduties.
duties. Refrain Refrainfrom from activities activities that thatcould could discredit discredit the the profession. profession.
Integrity Integrity Communicate Communicate unfavorable unfavorableas as well well as as favorable favorable information. information. Refuse Refuse gifts
gifts or or favors favors that thatmight might influence influence behavior. behavior. IMA Code of Ethics for Management Accountants Communicate
Communicate information information fairly fairlyand andobjectively. objectively. Objectivity Objectivity Disclose Disclose all all information information that thatmight
might be beuseful usefulto to management. management. IMA Code of Ethics for Management Accountants Resolution of Ethical Conflict Follow established policies. For unresolved ethical conflicts: Discuss the conflict with immediate superior. If immediate superior is the CEO, consider the board of directors or the audit committee.
Except where legally prescribed, maintain confidentiality. IMA Code of Ethics for Management Accountants Resolution of Ethical Conflict Clarify issues in a confidential discussion with an objective advisor. Consult an attorney as to legal obligations. The last resort is to resign.
