Managerial accounting 5th jiambalvo ch01

Prepared by
Debby Bloom-Hill
CMA, CFM


CHAPTER 1
Managerial Accounting
In the
Information Age

Slide 1-2


Managerial Accounting
 Managerial accounting is designed for
internal users
 The goal of Managerial Accounting is
to provide the information managers
need for
 Planning
 Control
 Decision making

Slide 1-3

Learning objective 1: State the primary goal of
managerial accounting


Planning
 Planning is a key activity for all

companies
 Communicates a company’s goals to
employees
 Aids coordination of various functions
such as sales and production

 Specifies the resources needed to
achieve company goals

Slide 1-4


Planning
 Budgets for planning
 Profit budget
 Indicates planned income

 Cash flow budget
 Indicates planned cash inflows and
outflows

 Production budget
 Indicates the planned quantity of
production and expected costs

Slide 1-5

Learning objective 2: Describe how budgets
are used in planning

Planning

Slide 1-6

Learning objective 2: Describe how budgets
are used in planning


Control
 Organizations achieve control by:
 Evaluating managers to determine how
their performance should be rewarded
or punished
 Evaluating operations to provide
information as to whether they should
be changed or not

Slide 1-7

Learning objective 3: Describe how performance reports are
used in the control process


Planning and Control Process

Slide 1-8

Learning objective 3: Describe how performance reports are
used in the control process

Sample Performance Report

Slide 1-9

Learning objective 3: Describe how performance reports are
used in the control process


Managerial vs Financial
Accounting
 Unlike Financial Accounting,
Managerial Accounting:





Is directed at internal users
May deviate from GAAP
Presents more detailed information
May present more nonmonetary
information
 Places more emphasis on the future

Slide 1-10

Learning objective 4: Distinguish between financial
and managerial accounting

Variable Costs
Change in proportion to changes in volume
or activity

Slide 1-11

Learning objective 5: Define cost terms used in
planning, control, and decision making


Fixed Costs
Do not change in response to changes in
volume or activity

Slide 1-12

Learning objective 5: Define cost terms used in
planning, control, and decision making


Test Your Knowledge 1
Which of the following is most likely to be a
variable cost?
a. Depreciation
b. Cost of materials
c. Rent
d. Advertising

Answer:
b. Cost of materials
Slide 1-13

Learning objective 5: Define cost terms used in
planning, control, and decision


Test Your Knowledge 2
Which of the following is most likely to be a
fixed cost?
a. Cost of materials
b. Rent
c. Assembly labor cost
d. Commissions

Answer:
b. Rent

Slide 1-14

Learning objective 5: Define cost terms used in planning,
control, and decision making


Cost Terminology
 Sunk Costs
 Costs incurred in the past
 Not relevant to present decisions

 Opportunity Costs
 Values of benefits foregone when
selecting one alternative over another

Slide 1-15

Learning objective 5: Define cost terms used in planning,
control, and decision making


Test Your Knowledge 3
Costs incurred in the past are:
a. Opportunity costs
b. Direct costs
c. Sunk costs
d. Variable costs

Answer:
c. Sunk costs

Slide 1-16

Learning objective 5: Define cost terms used in
planning, control, and decision making


Cost Terminology
 Direct and indirect costs
 Direct costs are directly traceable to a
product, activity, or department,

indirect costs are not traceable

 Controllable and non-controllable
costs
 A manager can influence controllable
costs but cannot influence noncontrollable costs
Slide 1-17

Learning objective 5: Define cost terms used in
planning, control, and decision making


Direct and Indirect Cost

Slide 1-18

Learning objective 5: Define cost terms used in
planning, control, and decision making


Test Your Knowledge 4
In the past year, Williams Mold & Machine had
sales of $8,000,000 and total production costs
of $6,000,000. In the coming year, the company
believes that production can be increased by
30%, but this will require adding a second shift
to work from 4:00 pm to 1:00 am.
1.

Indicate three production costs that

are likely to increase because of adding a
second production shift.
Material costs, workers’ salaries,
and benefits are all likely to increase

Slide 1-19

Learning objective 5: Define cost terms used in
planning, control, and decision making


Test Your Knowledge 5
In the past year, Williams Mold & Machine had sales of
$8,000,000 and total production costs of $6,000,000. In
the coming year, the company believes that production
can be increased by 30%, but this will require adding a
second shift to work from 4:00 pm to 1:00 am.

2. What production cost most likely will not
increase when the second shift is added?
Depreciation of the building will not
increase

Slide 1-20

Learning objective 5: Define cost terms used in
planning, control, and decision making


Two Key Ideas in Managerial

Accounting

Slide 1-21

Learning objective 6: Explain the two key
ideas in managerial accounting


Incremental Analysis
• Incremental analysis:
 Differences in revenues and costs
between alternatives are incremental
 Incremental revenue minus incremental
cost equals incremental profit

Slide 1-22

Learning objective 6: Explain the two key
ideas in managerial accounting


You Get What you Measure
Performance measures greatly influence
the behavior of managers

Slide 1-23

Learning objective 6: Explain the two key
ideas in managerial accounting

You Get What you Measure

Slide 1-24

Learning objective 6: Explain the two key
ideas in managerial accounting


Information Age and Managerial
Accounting
 Advances in information technology
have:
 Increased competition and also created
opportunities and cost savings for firms
that use information for strategic
advantage
 Impacted information flows up and
down the value chain (i.e. fundamental
activities that a firm engages in to
create value)
Slide 1-25

Learning objective 7: Discuss the impact of information technology on competition, business processes and
the interactions companies have with suppliers and customers