CHAPTER 1 - INTRODUCTION TO MANAGERIAL ACCOUNTING What is Managerial Accounting? Managerial accounting for internal users (managers, executives and workers)
Not bound by any formal system such as GAAP or IFRS Financial + nonfinancial information; subjective Emphasis on the future Deals with specific decisions, departments, products and jobs
Financial accounting is for external users (investors, creditors and suppliers)
Information is historical Follows externally imposed rules Focuses on overall performance, aggregated viewpoint
Three objectives: 1. To provide information for planning the organization’s actions 2. To provide information for controlling the organization’s actions 3. To provide information for making effective decisions Planning requires setting objectives and identifying methods to achieve those objectives Controlling refers to a plans implementation and monitoring by managers to ensure that it is being carried out as intended. Based on feedback managers may decide to take corrective action and do midstream replanning. Decision Making is the process of managers choosing among competing alternatives. Activity-based costing (ABC)
More detailed approach to determining the cost of goods and services Emphasizing cost of activities / task that must be done to produce a product or offer a service Focus on the way companies create value for customers, find ways to perform necessary activities more efficiently to eliminate things which do not create value
Customer Orientation Customer Value = What Customer Receives – What Customer Gives Up Customer value deals with both tangible and intangible benefits that a customer receives and what they have to give up (time, money, opportunity cost, etc.) Strategic Positioning 1. Cost leadership provide the same or better value to customers at a lower cost 2. Superior products through differentiation strives to increase customer value by providing something to customers not provided by competitors
The Product Life Cycles 1. 2. 3. 4. 5. 6.
Conception Introduction into the market Growth Maturity Decline Withdrawal from the market
The Value Chain refers to the set of business functions that add value to an organization’s product or service Design > Develop > Produce > Market > Deliver
Inbound Logistics Raw material and goods are received from the company’s suppliers Operations Goods are manufactured or assembled Outbound Logistics Sending finished goods to wholesaler, retailer to final customer Marketing and Sales developing a marketing communications and promotions mix to meet the needs of targeted customers Service providing customers with installation, after-sale service, complaint handling
The value chain also deals with support activities
Procurement Securing the lowest prices for input of the highest quality, and deciding which components or operations will be provided in-house and which will be outsourced Technology Development Innovating to reduce costs. This includes sustaining competitive advantage through lean manufacturing, customer relationship management, Internet marketing Developing infrastructure Includes strategic planning in terms of structuring the firm’s reporting, planning, control, management information systems
Cross-Functional Perspective tells us all disciplines in the business are interrelated. Allows us to see the big picture which helps managers to increase quality + efficiency, reduce waste and increase customer value Total Quality Management
Continuous improvement continual search for ways to increase the overall efficiency and productivity of a business Little waste + high performance are the twin objectives of world-class firms Firms now operate to create perfection (zero-defect) products, “acceptable quality” attitude is no longer used Management now must provide financial and nonfinancial information about quality to reach zero-defect products successfully
Lean accounting refers to cutting out waste along the value chain, increasing organizational value Enterprise Risk Management (ERM) formal way for managerial accountants to identify and respond to important threats o Becoming increasingly important for long-term success
Time as a Competitive Element
World-class firms are successful for delivering products quickly by eliminating non-value adding time Decreasing non-value-added time goes hand in hand with increasing quality Managers must be able to respond quickly to changing market conditions especially within technology (products can become obsolete in under a year)
The Role of the Managerial Accountant
Line Positions have direct responsibility for the basic objectives of an organization (Vice president of manufacturing, marketing, factory management) Staff Positions are supportive in nature and have only indirect responsibility for an organization’s basic objectives (Managerial accountant, human resources, cost accountant, purchasing manager) Controller or Chief Accounting Officer is located in the administration department and reports directly to General Manager and Chief Operating Officer (COO). Responsible for internal auditing, cost accounting, financial accounting and system accounting Treasurer is responsible for the finance function. Raises capital and manages cash and investments. Responsible for credit, collection and insurance