Managerial accounting and introduction to concepts methods and user 11e by maher chapter 01

CHAPTER 1
Fundamental
Concepts
PowerPoint Presentation by
LuAnn Bean
Professor of Accounting
Florida Institute of Technology
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Managerial Accounting 11E
Maher/Stickney/Weil

1


☼

CHAPTER GOAL

☼

This chapter provides the groundwork for the
book, including tying strategic cost analysis to
the value chain.

2

LO 1

FINANCIAL
FINANCIAL ACCOUNTING:
ACCOUNTING:
Definition
Definition

Reports to users
(shareholders, creditors,
financial analysts, etc.)
outside the organization.

3


LO 1

MANAGERIAL
MANAGERIAL ACCOUNTING:
ACCOUNTING:
Definition
Definition

Reports results of activities
to insiders (managers, etc.).

4

LO 2

When a product is a
“commodity” how do you
compete to achieve/maintain
profitability?

Compete by differentiating
yourself from competition. Focus
on order fulfillment, cutting
costs, etc.

5


LO 2

Can/should the financial or tax
accounting systems be used for
managerial accounting
purposes?

NO! The objectives and
therefore the information
available for decision making is
different.

6

LO 3

FINANCIAL PROFESSIONALS
Financial VP: in charge of all accounting and
finance
 Controller: manages cost and managerial
accounting
Treasurer: manages cash flows; raises cash
Cost accountants/managers: analyze,
manage costs
Internal audit: provides auditing, consulting
services
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ETHICAL, REGULATORY
FRAMEWORK

LO 4

 Standard setting
 Cost Accounting Standards Board sets cost accounting
standards

 Professional organizations
 Institute of Management Accounts (IMA) sponsors
professional certifications

 Certifications
 Certified Management Accountant (CMA)
 Certified Public Accountant (CPA)
 Canadian certifications
Chartered Accountant (CA)
Certified General Accountant (CGA)
8


LO 4

PREVENTING WHITE COLLAR
CRIME
Sarbanes-Oxley Act
Passed in the aftermath of the Enron scandal
Includes
Making CEOs and CFOs sign and accept responsibility
for financial statements
Making CEOs and CFOs responsible for the company’s
system of internal controls
Creating the Public Company Accounting Oversight
Board to oversee public auditors

9


LO 5

TYPES OF COSTS
 Opportunity costs

 Is the forgone income from using an asset in its best
alternative

 Direct costs
 Relate directly to the cost object for which cost is to be
measured

 Indirect costs
 Are indirectly related to the cost of a cost object

 Variable costs
 Change in total as the level of activity changes

 Fixed costs
 Do not change in total with changes in the level of activity
10


LO 5

How do costs and
expenses differ?

While a cost is the sacrifice
of resources, an expense is
a “gone” asset.

11

LO 6

Variable
Variableand
andfixed
fixed
costs
costslumped
lumpedtogether
together
for
for financial
financial
purposes.
purposes.

EXHIBIT 1.3

EXHIBIT 1.2

Variable
Variableand
andfixed
fixed
costs
costsare
arepresented
presented
separately
separatelyfor

for
managerial
managerialpurposes.
purposes.
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LO 7

ACTIVITY
ACTIVITY BASED
BASED
MANAGEMENT
MANAGEMENT (ABM):
(ABM): Definition
Definition
Examines activities and their
associated costs as a means of
developing efficiencies and
reducing non-value-added
costs.
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LO 7

What are “non-valueadded” activities?

What are “value-added”
activities?

Non-value-added
activities are activities that
can be eliminated without
reducing a product’s
service potential to the
customer.

Value-added activities
are activities that
increase a product’s
service to the customer.

14


LO 7

VALUE
VALUE CHAIN:
CHAIN: Definition
Definition

Describes a linked set of
activities that increase the
usefulness (value) of
products/services of an
organization.
15

LO 7

Functions
Functionsof
ofthe
the
value
valuechain
chainhelp
help
management
management
identify
identifyvalue-added
value-added
activities.
activities.

EXHIBIT 1.4
16


LO 7

How do strategic and
tactical cost management
decisions differ?

Strategic decisions choose

between production
alternatives. Tactical decisions
make a particular production
alternative more cost efficient.

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STRATEGY and VALUE
CHAIN

LO 7

Strategic
Strategic cost
cost analysis
analysis identifies
identifies parts
parts
of
of the
the value
value chain
chain that
that generate
generate
most
most profits,
profits, enabling
enabling management

management
to
to position
position their
their business
business at
at the
the best
best
profit
profit points.
points.

18


LO 7

ECONOMIC
ECONOMIC DEPRECIATION:
DEPRECIATION:
Definition
Definition

Measures decline in value
of assets during a period
using either sales value or
replacement cost.

19

LO 7

COST
COST OF
OF CAPITAL:
CAPITAL: Definition
Definition

Is the amount a firm could
earn on its assets by
putting them to their best
alternative use.

20


KEY DEVELOPMENTS IN
MANAGERIAL ACCOUNTING

LO 8

 Integrated information systems
 Tie managerial accounting, financial reporting, customer
databases, supply chain management and other databases
together
 Examples: ERPS, SAP

 Web hosting

 Allows companies to focus on core competencies while
outsourcing portions of information systems

 Just-in-Time (JIT) and lean production
 Eliminate inventory between production departments and
focus on quality and efficiency
Continued
21


LO 8

KEY DEVELOPMENTS IN
MANAGERIAL ACCOUNTING (cont.)
 Total quality management (TQM)
 Measures product reliability and service delivery as well as
profitability while attempting excelling in all dimensions

 Theory of constraints (TOC)
 Identifies the weakest part of the process chain (constraint)
and attempts to improve it

 Benchmarking and continuous improvement
 Benchmarking: continuous process of measuring products,
services, activities against best performance levels,
engaging in continuous improvement

 Fads
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LO 9

INFORMATION
Information
Information is
is not
not free.
free. Management
Management
must
must consider
consider costs
costs and
and benefits
benefits of
of
information
information when
when designing
designing an
an
optimal
optimal accounting
accounting system.
system.

23

LO 10

The Institute of Management Accountants
promulgated the following standards of ethical
conduct for management accountants.
1.

COMPETENCE - ongoing development of their
knowledge and skills in preparing complete reports with
relevant and reliable information.
2.CONFIDENTIALITY – do not disclose confidential
information acquired in the course of their work, except when
authorized.
3.
INTEGRITY - Avoid actual or apparent conflicts of
interest.
4.OBJECTIVITY - Communicate information fairly and
objectively.
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LO 10

RESOLUTION OF ETHICAL CONFLICT
1.Discuss such problems with the immediate superior except when it
appears that the superior is involved, in which case the problem
should be presented initially to the next higher managerial level.
2.If the immediate superior is the chief executive officer or
equivalent, the acceptable reviewing authority may be a group such
as the audit committee, executive committee, board of directors,

board of trustees, or owners.
3.Clarify relevant concepts by confidential discussion with an
objective advisor to obtain an understanding of possible courses of
action.
4.If the ethical conflict still exists after exhausting all levels of
internal review, the management accountant may have no other
recourse on significant matters than to resign from the organization
and to submit an informative memorandum to an appropriate
representative of the organization.
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