Chapter 1

The Changing Role

of Managerial
Accounting in a
Dynamic Business
Environment

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

 Learning
Objective
1

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

Define Managerial Accounting

Managerial accounting is the process of

 Identifying
 Measuring
 Analyzing
 Interpreting
 Communicating information

1-3
 Learning
Objective
2

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

 Managing Resources, Activities,
and People
An organization . . .
Directing

Acquires Resources Decision

Organized
Organized setset Making
of
of activities
activities

Controlling Planning
Hires People

1-5
 Learning
Objective
3

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

 How Managerial Accounting
Adds Value to the Organization
•• Providing
Providing information
information for
for decision
decision making
making and
and
planning.
planning.
•• Assisting
Assisting managers
managers in
in directing
directing and
and controlling
controlling
activities.
activities.
•• Motivating
Motivating managers
managers and
and other
other employees
employees
towards
towards organization’s
organization’s goals.
goals.
•• Measuring
Measuring performance
performance ofof activities,
activities, managers,
managers,
and
and other
other employees.
employees.
•• Assessing
Assessing thethe organization’s
organization’s competitive
competitive position.
position.

1-7
 The Balanced Scorecard
How do we look Financial Perspective
to owner’s? Goals Measures

In which activities
must we excel?

Customer Perspective Operations Perspective

Goals Measures Goals Measures
How do customers
see us?

Innovation Perspective How can we

continue to
Goals Measures improve?

1-8
 Learning
Objective
4

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

 Managerial versus Financial
Accounting
Accounting
Accounting System
System
(accumulates
(accumulates financial
financial and
and
managerial
managerial accounting
accounting data
data in
in the
the
cost
cost accounting
accounting system)
system)

Managerial
Managerial Accounting
Accounting Financial
Financial Accounting
Accounting
Information
Information for
for decision
decision Published
Published financial
financial
making,
making, planning,
planning, and
and statements
statements andand other
other
controlling
controlling an
an financial
financial reports.
reports.
organization’s
organization’s
operations.
operations.
Internal External
Users Users
1-10
 Managerial versus Financial
Accounting
Managerial Accounting Financial Accounting
Users of Information Managers, within the organization. Interested parties, outside the organization.
Regulation Not required and unregulated, since it is intended Required and must conform to generally accepted
only for management. accounting principles. Regulated by the Financial
Accounting Standards Board, and, to a lesser
degree, the Securities and Exchange
Commission.
Source of Data The organization's basic accounting system, plus Almost exclusively drawn from the organization's
various other sources, such as rates of effective basic accounting system, which accumulates
products manufactured, physical quantities of financial information.
material and labor used in production, occupancy
rates in hotels and hospitals, and average take-off
delays in airlines.
Nature of Reports and Reports often focus on subunits within the Reports focus on the enterprise in its entirety.
Procedures organization, such as departments, divisions, Based almost exclusively on historical transaction
geographical regions, or product lines. Based on a data.
combination of historical data, estimates, and
projections of future events.

1-11
 Learning
Objective
5

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

 Line and Staff Positions
•• AA line
line position
position is
is directly
directly •• AA staff
staff position
position supports
supports
involved
involved inin achieving
achieving thethe and
and assists
assists line
line positions.
positions.
basic
basic objectives
objectives ofof an
an –– Example:
Example: AA costcost
organization.
organization. accountant
accountant in in the
the
manufacturing
manufacturing plant.
plant.
–– Example:
Example: AA production
production
supervisor
supervisor in
in aa
manufacturing
manufacturing plant.
plant.

1-13
 Learning
Objective
6

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

 Controller
The
The chief
chief managerial
managerial andand financial
financial accountant
accountant
responsibility
responsibility for:
for:
–– Supervising
Supervising accounting
accounting personnel
personnel
–– Preparation
Preparation ofof information
information and
and reports,
reports, managerial
managerial
and
and financial
financial
–– Analysis
Analysis of
of accounting
accounting information
information
–– Planning
Planning and
and decision
decision making
making

1-15
 Treasurer
Responsible
Responsible for for raising
raising capital
capital and
and safeguarding
safeguarding the the
organization’s
organization’s assets.
assets.
–– Supervises
Supervises relationships
relationships with
with financial
financial institutions.
institutions.
–– Work
Work with
with investors
investors and
and potential
potential
investors.
investors.
–– Manages
Manages investments.
investments.
–– Establishes
Establishes credit
credit policies.
policies.
–– Manages
Manages insurance
insurance coverage
coverage

1-16
 Internal Auditor
Responsible
Responsible forfor reviewing
reviewing accounting
accounting procedures,
procedures,
records,
records, and
and reports
reports in in both
both the
the controller’s
controller’s and
and the
the
treasurer’s
treasurer’s area
area ofof responsibility.
responsibility.
–– Expresses
Expresses anan opinion
opinion toto top
top
management
management regarding
regarding thethe
effectiveness
effectiveness ofof the
the
organizations
organizations accounting
accounting
system.
system.

1-17
 Learning
Objective
7

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

 Major Themes in Managerial
Accounting
Behavioral
Behavioral Costs
Costs and
and
Issues
Issues Benefits
Benefits

Information
Information Evolution
Evolution and
and
and
and Incentives
Incentives Adaptation
Adaptation

Managerial
Accounting
1-19
 Evolution and Adaptation in
Managerial Accounting
E-Business
Service vs. Product Life Cycles
Manufacturing Firms
Time-Based
Competition
Emergence of New
Industries Change Information and
Communication
Global Competition Technology

Focus on the Customer Just-in-Time Inventory

Cross-Functional Teams Total Quality Management

Computer-Integrated Continuous Improvement

Manufacturing 1-20
 Cost Management Systems
Objectives
Objectives

Measure
Measure the
the cost
cost of
of
resources
resources consumed.
consumed.

Identify
Identify and
and eliminate
eliminate
non-value-added
non-value-added Cost
costs.
costs. Management
System

1-21
 Cost Management Systems
Objectives
Objectives

Determine
Determine efficiency
efficiency
and
and effectiveness
effectiveness of of
major
major activities.
activities.

Identify
Identify and
and evaluate
evaluate
new
new activities
activities that
that Cost
Management
can
can improve
improve System
performance.
performance.

1-22
 Learning
Objective
8

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

 Strategic Cost Management and
the Value Chain
Product
Product
Design
Design
Production
Production
Research
Research
and
and
Development
Development Marketing
Marketing
Securing
Securing raw
raw
materials
materials and
and Distribution
Distribution
other
other resources
resources
Customer
Customer
Start Service
Service

1-24
 Theory of Constraints
A sequential process of identifying and
removing constraints in a system.

Restrictions
Restrictions or
or barriers
barriers that
that impede
impede
progress
progress toward
toward anan objective
objective

1-25
 Learning
Objective
9

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

 Ethical Climate of Business
The
The corporate
corporate scandals
scandals experienced
experienced overover the
the last
last
few
few years
years have
have shown
shown us that unethical
us that nethical behavior
behavior
in
in business
business is
is wrong
wrong in
in aa moral
moral sense
sense and
and can
can be
be
disastrous
disastrous in
in the
the economy.
economy. In In addition
addition to
to
Sarbanes-Oxley,
Sarbanes-Oxley, there
there will
will likely
likely be
be more
more reforms
reforms
in
in corporate
corporate governance
governance and and accounting.
accounting.

1-27
 Learning
Objective
10

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All

 Managerial Accounting as a
Career
Professional Organizations
Institute of Management Accountants (IMA)

Develops
Develops
Publishes
Publishes Administers
Administers Standards
Standards of of
Management
Management Certified
Certified Ethical
Ethical
Accounting
Accounting Management
Management Conduct
Conduct for
for
and
and research
research Accountant
Accountant Management
Management
studies.
studies. program
program Accountants
Accountants

1-29
Professional Ethics

Competence
Confidentiality
Integrity
Credibility

1-30
End of Chapter 1

1-31