Chapter 1

 Management Accounting

 measures, analyzes, and report financial and non-financial information that helps managers make decisions to fulfill the goals of an organization.

Managerial

V.

Financial 

Managerial Acct -Primarly used by managers, future-oriented, does not follow GAAP, uses various time periods. 

Financial Acct – primarily used by external users (i.e., investors, bankers, regulators, suppliers), past-oriented, regulated by GAAP, generally focuses on quarterly and annual data

Strategy

At the most basic level, management accounting is designed to help a firm identify and implement its strategy. 

Strategy – specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives.

4 Common Questions that Mgmt Acct uses to identify/implement strategy

1.  Who are our most important customers?

2.  What substitutes exist? 

        And how is our product different?

3.  What is our most critical resource?

4.  What is our financial standing?

The Value Chain

Businesses often use value chain or supply chain analysis to find ways to effectively and efficiently put their strategy into action.

Value Chain – the sequence of business functions in which customer usefulness is added to products or services.

6 parts of the value chain (generic)

1.  R&D

2.  Design

3.  Production

4.  Marketing

5.  Distribution

6.  Customer Service

Supply chain (generic)

1.  Production

2.  Supply

3.  Inventory

4.  Location

5.  Transportation

6.  Information

4 Keys to Success

1. Cost and efficiency

2. Quality

3.  Time

4.  Innovation

Planning

 selecting organizational goals, predicting results under various alternatives, deciding how to obtain the desired goals, and communicating the goals and how to attain them to the entire organization.  Budgets are likely the most important planning tool.  Budgets incorporate both financial and non-financial projections into an understandable framework that helps employees work in an organized way towards the same goals.

 taking actions to implement the planning decisions, deciding how to evaluate performance, and providing feedback for future decisions.

Feedback

the link between planning and control.

Common Roles of the Management Accountant

Problem solving

Scorekeeping 

Attention Directing 

Problem solving

of the several different alternatives available to solve our problem, which is the best and why?

Scorekeeping

How are we doing? (i.e. measuring performance)

Attention Directing

Focusing managers’ attention of problems and opportunities

Key Management Accounting Guidelines

Cost-Benefit Approach

Behavioral and Technical Considerations

Different Costs for Different Purposes 

Cost-Benefit Approach

Information is not free!  Managerial accountants must decide if the benefits of measuring, analyzing, and communicating information outweighs the costs of collecting and analyzing the data.

Behavioral and Technical Considerations

Managerial decision not only affect the technical side of the business (i.e. production levels, employee schedules, etc) but they also have a behavioral effect on employees, suppliers, customers, etc

Different Costs for Different Purposes

Costs can be computed a number of different ways.  Managerial accountants need to know what cost is appropriate for each situation.

Managerial Accountants in the Organization

Line management

Staff management

CFO (chief financial officer)

Controller

Treasurer

Line management

directly responsible for attaining the goals of the organization (i.e. production, marketing, and distribution)

Staff management

exist to provide advice and support to line management (i.e. accountants, human resources, information technology)

CFO (chief financial officer)

the executive responsible for overseeing the financial operations of a company.  Usually the CFO is responsible for controllership, treasury, risk management, taxation, investor relations, and possibly internal audit.

Controller

often called the chief accounting officer, the controller is the executive responsible for the financial and managerial accounting systems.

 Treasurer

executive responsible for safeguarding the company’s assets.