1 -1
Introduction:
CHAPTER
The Role,
History, and
Direction of
Management
Accounting
1 -2
Objectives
1. Discuss the need for management accounting
information.
2. Differentiate between management accounting
and financial accounting.
3. Provide a brief historical description of
management accounting.
4. Identify the current focus of management
accounting.
Continued
1 -3
Objectives
5. Describe the role of management accountants in
an organization.
6. Explain the importance of ethical behavior for
managers and management accountants.
7. List three forms of certification available to
management accountants.
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The managerial accounting system has three
broad objectives:
1. To provide information for costing out
services, products, and other objects of
interest to management.
2. To provide information for planning,
controlling, evaluating, and continuous
improvement.
3. To provide information for decision
making.
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Management Accounting
Information System
Collecting Special Reports
Measuring Product Costs
Storing Customer Costs
Analyzing Budgets
Reporting Performance Reports
Economic Events Managing Personal Communication
Inputs Processes Outputs
Users
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Management Process
The Management Process is defined by the
following activities:
Planning requires
Planning setting objectives
and identifying
Controlling methods to achieve
those objectives.
Decision Making
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Management Process
The Management Process is defined by the
following activities: Controlling is
the managerial
Planning activity of
Controlling monitoring a
plan’s
Decision Making implementation
and taking
corrective action
as needed.
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Management Process
The Management Process is defined by the
following activities:
Planning Control is
usually achieved
Controlling
with the use of
Decision Making feedback.
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Management Process
Feedback is information
that can be used to evaluate
or correct the steps being
taken to implement a plan.
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Management Process
The Management Process is defined by the
following activities:
Planning
Decision
Controlling making is
the process
Decision Making of choosing
among
competing
alternatives.
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Differentiate Between
Management Accounting and
Financial Accounting
1 -12
Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
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Targeted Users
Management
accounting
focuses on
providing
information for
internal users.
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Targeted Users
Financial
accounting focuses
on provided
information for
ABC external users.
Company
Annual
Report
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
2. No mandatory rules 2. Must follow externally
imposed rules
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Restrictions on Inputs and Processes
Management accounting is not subject
Financial accounting reporting must
to the accounting procedures set
followthe requirements of generally by
the SEC and the principles.
accepted accounting FASB.
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
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Types of Information
The restrictions imposed on
For management accounting, the
financial or nonfinancial
financial accounting tend to
information may and verifiable
produce objectivebe much more
subjective in nature.
financial information.
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
4. Emphasis on the future 4. Historical orientation
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Time Orientation
Management
accounting strongly
emphasizes providing
information about
future events.
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Time Orientation
Financial
accounting records
and reports events
that have already
happened.
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
4. Emphasis on the future 4. Historical orientation
5. Internal evaluation and 5. Information about the
decisions based on very firm as a whole
detail information
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Degree of Aggregation
Management
accounting provides
measures and internal
reports used the
evaluate performance of
entities, product lines,
departments, and
managers.
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Degree of Aggregation
Financial
accounting focuses
on overall firm
performance.
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
4. Emphasis on the future 4. Historical orientation
5. Internal evaluation and 5. Information about the
decisions based on very firm as a whole
detail information
6. Broad, multidisciplinary 6. More self-contained
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Breadth
It includes aspects of managerial
Management accounting is much
economics, industrial engineering,
broader than financial accounting.
and management science.
Historical Description of 1 -27
Management Accounting
1880 - 1925 Most of the product-costing and internal
accounting procedures used in this century
were developed
1925 Emphasis of inventory costing for external
reporting
1950s/60s Effort to improve the managerial
usefulness of traditional cost systems
1980s/90s Significant efforts have been made to
radically change the nature and practice of
management accounting
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Current Focus of Management Accounting
Activity-Based Management
Activity-based management is a system
wide, integrated approach that focuses
management’s attention on activities with the
objective of improving customer value and
the resulting profit.
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Current Focus of Management Accounting
Customer Orientation
Customer value is the difference between
what the customer receives (customer
satisfaction) and what the customer gives up
(customer sacrifice).
What is received is called the total product.
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Current Focus of Management Accounting
Strategic Positioning
Strategic cost management is the use of cost data
to develop and identify superior strategies that
will produce a sustainable competitive advantage.
Strategies:
1) Cost leadership
2) Superior products through differentiation
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Current Focus of Management Accounting
Value-Chain Framework
The internal value chain is the set of activities
required to design, develop, produce, market,
and deliver products and services to customers.
The industrial value chain is the linked set of
value-creating activities from basic raw
materials to the disposal to the final products by
end-use customers.
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Planting and
Value Chain: Cultivating
Apple Industry
Harvesting Firm
B
Distribution of
Apples
Firm
A Applesauce
Production Firm
C
Product Disposal Applesauce
Distribution
End-Use Customer Supermarkets
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Managing the value chain means
that a management accountant
must understand many functions
of the business, from
manufacturing to marketing.
1 -34
This emphasis on quality has
created a demand for management
The philosophy of total quality
accounting systems that provide
management is to manufacture
financial and nonfinancial
perfect products.
information about quality.
1 -35
The role of
management
accountants in an
organization is one
of support.
Partial Organization Chart, 1 -36
Manufacturing Company
President
Line Function Staff Function
Production Financial
Vice President Vice President
Production
Supervisor Controller Treasurer
Machining Assembly Internal Ta
Foreman Foreman Audit
Cost Financial Systems
x