The Accountants Role in the Organization Chapter 1

Learning Objective 1 Describe how cost accounting supports management accounting and financial accounting. ©

Management Accounting It measures and reports financial and nonfinancial information that helps managers make

Financial Accounting Its focus is on reporting to external parties. It measures and records

Cost Accounting It provides information for both management accounting and financial accounting. It measures

Cost Management It describes the activities of managers in planning and control of costs.

Learning Objective 2 Understand how management accountants affect strategic decisions. © 2003 Prentice Hall

Strategic Cost Management Developing strategy Building resources and capabilities Implementing strategy © 2003 Prentice

Strategic Cost Management Building resources and capabilities Current Assets Long-Term Productive Assets Intangible Assets

Learning Objective 3 Distinguish between the planning and control decisions of managers. © 2003

Planning and Controlling Management Accounting System Planning Budgets Control Accounting System Performance Evaluation Performance

Planning and Controlling What is planning? Setting goals Predicting results Deciding how to attain

Planning and Controlling What is control? Deciding and taking actions Deciding on performance evaluation

Planning and Controlling What are budgets? They are quantitative expressions of a proposed plan

Planning and Controlling What are performance reports? These are reports that compare actual results

Performance Report Example Boone Shop, July 2010 Budget Revenues P 59, 000 Cost of

Performance Report Example Actual cost of goods sold were 72% of revenues instead of

Feedback This involves managers examining past performance and systematically exploring alternative ways to make

Learning Objective 4 Distinguish among the problemsolving, scorekeeping, and attention-directing roles of management accountants.

Problem Solving This involves comparative analysis for decision making. This role asks: Of the

Scorekeeping This involves accumulating data and reporting reliable results to all levels of management.

Attention Directing This involves helping managers properly focus their attention. This role asks: Which

Learning Objective 5 Identify four themes managers need to consider for attaining success. ©

Key Themes in Management Decision Making Customer Focus Value Chain and Supply Chain Analysis

Customer Focus The challenge facing managers is to continue investing sufficient (but not excessive)

Value Chain and Supply Chain Analysis This theme has two related aspects: 1. Treat

Value Chain and Supply Chain Analysis Supply chain – describes the flow of goods,

Key Success Factors These are operational factors that directly affect the economic viability of

Key Success Factors Time – organizations are under pressure to complete activities faster and

Continuous Improvement and Benchmarking Continuous improvement by competitors creates a never-ending search for higher

Learning Objective 6 Describe the set of business functions in the value chain. ©

Value Chain The term “value chain” refers to the sequence of business functions in

Value Chain Management accountants provide decision support for managers in the following six business

Value Chain R&D Design Production Management Accounting Marketing Distribution © 2003 Prentice Hall Business

Value Chain Functions Research and Development It is the process that is conducted to

Value Chain Functions Design It is the detailed planning and engineering of products, services,

Value Chain Functions Production It is the acquisition, coordination, and assembly of resources to

Value Chain Functions Marketing It is the manner by which companies promote and sell

Value Chain Functions Distribution It is the delivery of products or services to the

Value Chain Functions Service It is the after-sale support activities provided to customers. ©

Learning Objective 7 Describe three ways management accountants support managers. © 2003 Prentice Hall

Key Guidelines 1. Cost-benefit approach 2. Full recognition of behavioral as well as technical

Cost-Benefit Approach A cost-benefit approach should be used in order to spend resources if

Behavioral and Technical Considerations A management accounting system should have two simultaneous missions for

Different Costs for Different Purposes A cost concept used for the external reporting purpose

Learning Objective 8 Understand how cost management accounting fits into an organization’s structure. ©

Line and Staff Relationships Line management is directly responsible for attaining the objectives of

Line and Staff Relationships © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Learning Objective 9 Understand what professional ethics mean to management accountants. © 2003 Prentice

Professional Ethics Competence Integrity Confidentiality Objectivity © 2003 Prentice Hall Business Publishing, Cost Accounting

Ethical Guidelines The Institute of Management Accountants (IMA) is the largest association of management

End of Chapter 1 © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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Management Accounting It measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 -3

Financial Accounting Its focus is on reporting to external parties. It measures and records business transactions. It provides financial statements based on generally accepted accounting principles. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 -4

Cost Accounting It provides information for both management accounting and financial accounting. It measures and reports financial and nonfinancial data. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 -5

Cost Management It describes the activities of managers in planning and control of costs. It includes the continuous reduction of costs. It is a key part of general management strategies and their implementation. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 -6

Strategic Cost Management Building resources and capabilities Current Assets Long-Term Productive Assets Intangible Assets © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 -9

Planning and Controlling Management Accounting System Planning Budgets Control Accounting System Performance Evaluation Performance Reports Feedback Management Decision © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 11

Planning and Controlling What is control? Deciding and taking actions Deciding on performance evaluation and feedback © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 13

Planning and Controlling What are budgets? They are quantitative expressions of a proposed plan of action. They aid in the coordination and implementation of the plan. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 14

Planning and Controlling What are performance reports? These are reports that compare actual results with budgeted amounts. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 15

Performance Report Example Boone Shop, July 2010 Budget Revenues P 59, 000 Cost of goods sold 42, 000 Wages 6, 700 General 1, 300 Fixed costs 5, 000 Operating income P 4, 000 Actual P 60, 000 43, 400 7, 000 900 5, 000 P 3, 700 © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Variance P 1, 000 F 1, 400 U 300 U 400 F 0 P 300 U 1 - 16

Performance Report Example Actual cost of goods sold were 72% of revenues instead of the budgeted 71%. Budget % Actual % Revenues P 59, 000 100 P 60, 000 100 Cost of goods sold 42, 000 71 43, 400 72 Gross margin P 17, 000 29 P 16, 600 28 © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 17

Feedback This involves managers examining past performance and systematically exploring alternative ways to make better informed decisions in the future. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 18

Learning Objective 4 Distinguish among the problemsolving, scorekeeping, and attention-directing roles of management accountants. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 19

Problem Solving This involves comparative analysis for decision making. This role asks: Of the several alternatives available, which is the best? © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 20

Scorekeeping This involves accumulating data and reporting reliable results to all levels of management. This role asks: How is the business doing? © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 21

Attention Directing This involves helping managers properly focus their attention. This role asks: Which opportunities and problems should be emphasized first. Attention directing should focus on all opportunities to add value to an organization, not just cost-reduction opportunities. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 22

Key Themes in Management Decision Making Customer Focus Value Chain and Supply Chain Analysis Key Success Factors: Cost and Efficiency, Time, Quality, Innovation Continuous Improvement and Benchmarking © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 24

Customer Focus The challenge facing managers is to continue investing sufficient (but not excessive) resources in customer satisfaction such that profitable customers are attracted and retained. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 25

Value Chain and Supply Chain Analysis This theme has two related aspects: 1. Treat each of the business functions in the value chain as an essential and valued contributor. 2. Integrate and coordinate the efforts of all business functions in addition to developing the capabilities of each individual business function. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 26

Value Chain and Supply Chain Analysis Supply chain – describes the flow of goods, services, and information from cradle to grave, regardless of whether those activities occur in the same organization or other organizations. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 27

Key Success Factors These are operational factors that directly affect the economic viability of the organization. Cost – organizations are under continuous pressure to reduce costs. Quality – customers are expecting higher levels of quality. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 28

Key Success Factors Time – organizations are under pressure to complete activities faster and to meet promised delivery dates more reliably. Innovation – there is now heightened recognition that a continuing flow of innovative products or services is a prerequisite to the ongoing success of most organizations. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 29

Continuous Improvement and Benchmarking Continuous improvement by competitors creates a never-ending search for higher levels of performance within many organizations. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 30

Value Chain The term “value chain” refers to the sequence of business functions in which usefulness is added to the products or services of an organization. The term “value” is used because as the usefulness of the product or service is increased, so is its value to the customer. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 32

Value Chain Management accountants provide decision support for managers in the following six business functions: © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 33

Value Chain Functions Research and Development It is the process that is conducted to generate and experiment with ideas related to new products, services, or processes. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 35

Value Chain Functions Design It is the detailed planning and engineering of products, services, or processes. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 36

Value Chain Functions Production It is the acquisition, coordination, and assembly of resources to produce a product or deliver a service. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 37

Value Chain Functions Marketing It is the manner by which companies promote and sell their products or services to customers or prospective customers. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 38

Key Guidelines 1. Cost-benefit approach 2. Full recognition of behavioral as well as technical considerations 3. Using different costs for different purposes © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 42

Cost-Benefit Approach A cost-benefit approach should be used in order to spend resources if they promote decision making that better attains organization goals in relation to the costs of those resources. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 43

Behavioral and Technical Considerations A management accounting system should have two simultaneous missions for providing information: 1. To help managers make wise economic decisions 2. To help managers and other employees to aim and strive for goals of the organization © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 44

Different Costs for Different Purposes A cost concept used for the external reporting purpose need not be the appropriate concept for the purpose of internal routine reporting to managers. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 45

Line and Staff Relationships Line management is directly responsible for attaining the objectives of the organization. Staff management exists to provide advice and assistance to line management. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 47

Ethical Guidelines 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 Management Accountant. © 2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 52