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					                               Managerial Accounting
              The Changing Business Environment: A manager’s Perspective
                                      Chapter 15

I. What is Management Accounting?
   Management accounting consists of accounting techniques and procedures for gathering and reporting
   financial, production, and distribution data to meet management’s information needs.
   Management accounting information helps organizations make better decisions. Such decisions make all
   organizations become more cost-effective and help manufacturing retail, and service organizations become
   more profitable.

            Comparing Management and Financial Accounting:




   Both management and financial accounting:
       Assists decision makers by identifying, measuring and processing relevant information and
         communicating this information though reports.
   Chapter 15                                         1                             Author: Anna Rovira Beavers
   Needles 2008                                                                                          8/6/07
        Provide managers with key measures of a company’s performance
        Provide managers with cost information for valuing inventories on the balance sheet


Primary Uses:
1. Financial Accounting:
       Owners or stockholders, lenders, customers, governmental agencies. (These are parties outside
       the organization.)
             i. Financial accounting takes the actual results of management decisions about operating,
                investing, and financing activities and prepares financial statements for parties outside the
                organization.
            ii. Financial accounting must follow standards and procedures specified by generally
                accepted accounting principles (GAAP).
           iii. Must be based on objective and verifiable information. Generally historical and expressed
                in monetary terms
           iv. Prepared and distributed periodically, usually quarterly and annually.

2. Management Accounting:
    May be objective and verifiable expressed in terms of dollar amounts or physical measures of time
      or objects
    If needed for planning purposes, may be subjective based on estimates
    Prepared as often ad needed


         In-Class SE-1

II. Management Accounting and the Management Process:

   Management is expected to:
           Use resources wisely
           Operate profitably
           Pay debts
           Abide by laws and regulations

To fulfill these expectations, managers:
           Establish the goals, objectives, and strategic plans of the organizations
           Guide and control operating, investing, and financing activities accordingly.
               Management actions generally follow a four-stage cycle:
                   a. Planning
                   b. Performing
                   c. Evaluating
                   d. Communicating

Planning:
The key goal of a business is to increase the value of the owner’s interest in the business. For a
corporations, this means increasing stockholders’ value
The value if the company as represented by the total market value of the shares of stock in the corporation.



Chapter 15                                              2                                  Author: Anna Rovira Beavers
Needles 2008                                                                                                    8/6/07
A company’s mission is a statement of the fundamental way in which the company will achieve its goal of
increasing the stockholder’s value. The mission statement is essential to the planning process, which must
consider how to add value through strategic objectives, tactical objectives, and operating objectives

         Strategic objectives:
              Broad, long-term goals
              Determine the fundamental nature and direction of the business
              Serve as a guide for decision making
              Established by top managers

         Tactical objectives:
              Mid-term goals that positions the company to achieve its long-term strategies
              Usually three to five years

         Operating Objectives:
             Short-term goals
             Outline expectations for performance of day-to-day operations

               The development of strategic and operating objectives requires managers to formulate a
               business plan.

               Business Plan:
                A comprehensive statement of how the company will achieve its objectives.
                Usually expressed in financial terms in the form of budgets.
                Often includes performance goals for individuals, teams, products, or services.
                Management accounting provides the information needed for development of strategic and
                  operating objectives as well as writing a business plan.

Performing:
Planning alone does not guarantee satisfactory operating results
Management must implement the business plan in ways that make optimal use of available resources.
Smooth operations require one or more the following:
             Hiring and training personnel
             Matching human and technological resources to the work that must be done
             Purchasing or leasing facilities
             Maintaining an inventory of products for sale
             Identifying operating activities, or tasks, that minimize waste and improve the quality of the
                products or services.

Critical to managing any retail business is the supply chain. The supply chain is the path that leads from
suppliers of the materials from which a product is made to the final customer.

Example of a supply chain for a grocery store:

GROWERS                                                                                      CONSUMERS
                    MANUFACTURES DISTRIBUTERS                      RETIALERS
SUPPLIERS                                                                                    CONSUMERS


Chapter 15                                            3                              Author: Anna Rovira Beavers
Needles 2008                                                                                              8/6/07
      Evaluating
      Managers in this stage compare actual performance with the performance levels established in the
      planning phase.
                   Significant variations are earmarked for further analysis to correct problems
                   May revise original objectives

      Communicating
      It is essential that both internal and external accounting reports provide accurate information and clearly
      communicate this information to the reader.

                        Internal accounting reports
                         Helps management in the decision making process. Inaccurate or unclear information
                         can have a negative impact on a company’s operations and profitability.
                        External accounting reports
                         GAAP requires full disclosure and transparency in financial statements. Violations if this
                         precept can result in stiff penalties.
                         Congress passed legislation, Sarbanes-Oxley Act, on financial reporting following
                         reporting violations by Enron, WorldCom, and other companies. Top management of
                         publicly owned corporations to certify that statements are accurate. Penalties for issuing
                         false statements can include loss of compensations, fines and jail time.


      The key to producing a management accounting report that communicates accurate and useful information
      whose meaning is transparent to the reader is to apply the four w’s: why, who, what, and when

      Why?           The purpose for preparing a report
      Who?           The person or persons who are going to use it. The level detail information will be very
                     different from a report prepared for the manager of research and development that from
                     the Chief Financial Officer, CFO.
      What? What information is needed and how to present it.
      When?         Due date of the report and how often needs to be prepared. Internally a manager may a
                    need a one time report or may need the same report once a month.

      In-Class SE-3, E10

III. Value Chain Analysis
       Each step in the manufacture of a product or the delivery of a service can be thought of as a link in a chain
      that adds value to the product or service.
      The steps that add value to a product or serve ranges from the research and development to customer
      service is known as the primary services. The value chain also includes support services, such as legal
      services and management accounting.




      Chapter 15                                              4                              Author: Anna Rovira Beavers
      Needles 2008                                                                                                8/6/07
      Example of a value chain:




                                                     Mission


                                             Strategic Objectives


                                              Tactical Objectives


                                             Operating Objectives


                                SUPPORT SERVICES IN THE VALUE CHAIN
                                          Human Resources
                                            Legal Services
                                         Information Systems
                                       Management Accounting


                                       Primary Process in the Value Chain

R&D   Design           Supply           Production        Marketing      Distribution    Customer Srvc.


      A. Primary Process and Support Services
                  Research and Development developing or improving a product or service.
                  Design. Creating and improving distinctive shapes, labels or packages for products
                  Supply. Purchasing materials for products or services
                  Production. The manufacturing of a product or providing a service
                  Distribution. Delivering the product or service to the costumer
                  Customer Service. Following up with customer after the sale or after the service has
                    been provided.

      B. Advantages of the Value Chain
        It allows companies to focus on its core competencies. A core competency is what a company does
      best, what gives a company advantage over its competition.
      When a company understand its core competencies, is in tune with the mission statement and understand
      its primary process, it may decide to outsource some areas of production to allowed them to concentrate in
      what they do best.


IV. Management Philosophies of Continuous Improvement

               Several significant management philosophies evolved in the United States to deal with expanding
               global competition: Just-in-time operations techniques, total quality management, activity –based
               management and theories of constrains.
      Chapter 15                                               5                          Author: Anna Rovira Beavers
      Needles 2008                                                                                             8/6/07
         A. Just-in-Time Management, JIT
            JIT requires that all resources, including materials, personnel, and facilities, be acquired and
            used only as needed. Its objectives are to improve productivity and eliminate waste.

         B. Total Quality Management, TQM
            Is a philosophy that requires that all functions work together to build quality into the
            organization’s product or service. TQM has many characteristics as the JIT operating
            philosophy. Workers functions as team members and are empowered to make operating
            decisions that improve both the product or service and the work environment.

         C. Activity-Based Accounting, ABM
            Is an approach to managing an organization that identifies all major operating activities,
            determines what resources are consumed by each activity, identifies what causes resource
            usage of each activity and categorizes the activities as wither adding value or a product or
            service or not adding value. ABM includes a management account practice called activity-
            based costing.

         D. Theory of Constrains, TOC
            According to the theory of constrains, limiting factors, or bottlenecks, occur during the
            production of any product or service. One manager identify such a limitation, or constraint,
            they can focus attention and resources on it and thus achieve significant improvements.


         Continuous Improvement:
         One of the most valuable lessons gained from the emergence of stiff global competition was that
         management can not afford to become complacent. The concept of continuous improvement
         evolved to avoid such complacency.




Chapter 15                                            6                               Author: Anna Rovira Beavers
Needles 2008                                                                                               8/6/07
               In-Class E-7


IV.   Performance Measures and the Analysis of Non-financial Data

      A. Performance measures are quantitative tools that gauge an organization’s performance in relation to a
      specific goal or an expected outcome. Performance measures may be financial or non-financial. Financial
      performance measures include return on investment, net income as a percentage of sales, and the costs of
      poor quality as a percentage of sales. Non-financial measures can include the number of times an object
      (product, service, or activity) occurs or the time taken to perform a task.

      B. The Balance Scorecard
              To achieve its mission and objectives, organizations identify the areas in which it needs to excel
      and establish measures of performance in these critical areas. The Balance Scorecard is a framework that

      Chapter 15                                          7                              Author: Anna Rovira Beavers
      Needles 2008                                                                                            8/6/07
links the perspectives of an organization’s four stakeholder groups to the organization’s mission, objectives,
resources, and performance measures.

The four stakeholders groups are as follows:

               a. Stakeholders with a financial perspective (owners, investors, and creditors) value a return
                  on investment, and increasing net income
               b. Stakeholders with a learning and growth perspective (employees), value high wages, job
                  satisfaction, etc.
               c. Stakeholders who focus on the business’s internal processes value safe and cost effective
                  production
               d. Stakeholders with a customer perspective value high-quality products that are low cost.

C. Benchmarking
     Is a technique for determining a company’s competitive advantage. Benchmarking are measures of
     the best practices in industry.

In-Class SE-8
       Homework Assignments for Chapter 15: E2, E9, P1




Chapter 15                                             8                              Author: Anna Rovira Beavers
Needles 2008                                                                                               8/6/07

				
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