Managerial Accounting: An Introduction To Concepts, Methods, And

Managerial Accounting: An Introduction To Concepts, Methods, And Uses Chapter 1 Fundamental Concepts Maher, Stickney and Weil

Learning Objectives (Slide 1 of 2) Distinguish between managerial and financial accounting. Understand how managers can use accounting information to implement strategies. Identify the key financial players in the organization. Understand managerial accountants’ professional environment and ethical responsibilities. Master the concept of cost. C1 - 2

Learning Objectives (Slide 2 of 2) Compare and contrast income statements prepared for managerial use and those prepared for external reporting. Understand the concepts useful for managing costs. Describe how managerial accounting supports modern production environments. Understand the importance of effective communication between accountants and users of managerial accounting information. Understand the ethical standards that comprise the Institute of Management Accountants’ Code of Ethics. C1 - 3

Comparison of Financial and Managerial Accounting Financial Accounting Deals with reporting to parties outside the organization Highly regulated Primarily uses historical data Managerial Accounting Deals with activities inside an organization Unregulated May use projections about the future C1 - 4

Implementing Strategies Managerial accounting system should help managers implement organization’s strategy System must be adapted to each organization’s objectives, strategy and environment Information required for decision making, planning, and other managerial activities often is not provided by the financial accounting system C1 - 5

Key Financial Players P a r tia l O r g a n iz a tio n C h a rt P r e s id e n t a n d C h i e f O p e r a t i n g O ffi c e r In d u s tr ia l D e p a rtm e n ts S t a ff a n d A d m in is tr a tiv e D e p a r tm e n ts F in a n c e V ic e - P r e s id e n t T re a s u re r C o s t A c c o u n tin g C o n tr o lle r F in a n c ia l R e p o r tin g O th e r V ic e - P r e s id e n ts In c lu d in g E n g in e e r in g , L e g a l, E m p lo y e e R e la tio n s In te r n a l A u d it T a x C1 - 6

Professional Environment (Slide 1 of 2) Institute of Management Accountants (IMA) Sponsors Certified Management Accountant and Certified in Financial Management programs Publishes a journal, policy statements and research studies on accounting issues Certified Public Accountant Cost Accounting Standards Board Sets accounting standards for contracts between the U.S. government and defense contractors C1 - 7

Professional Environment (Slide 2 of 2) Ethical issues, while always important, have taken on added significance due to recent accounting failures The IMA has developed a Code of Conduct mandating that management accountants have a responsibility to maintain the highest levels of ethical conduct C1 - 8

Basis Cost Concepts (Slide 1 of 4) A cost is a sacrifice of resources You must know the context in which the word cost is used to know its meaning Opportunity cost is the foregone income from using an asset in its best alternative C1 - 9

Basis Cost Concepts (Slide 2 of 4) A cost is distinguished from an expense An outlay of cash may lead to another resource taking its place The term expense is reserved for external reporting under GAAP and for income tax reporting C1 - 10

Basis Cost Concepts (Slide 3 of 4) A cost object is any item for which the manager wishes to measure cost Costs directly related to the cost object are called direct costs Other costs are called indirect costs C1 - 11

Basis Cost Concepts (Slide 4 of 4) The distinction between fixed and variable costs is important since it affects strategic decision making Variable costs change in total as the activity level changes Fixed costs do not change in total when the activity level changes C1 - 12

Income Statement For External Reporting Sales Revenue 400,000 Less Cost of Goods Sold 210,000 Gross Margin 190,000 Less Mktg. and Admin Exp. 80,000 Net Income Before Taxes 110,000 C1 - 13

Contribution Margin Format Income Statement Sales Revenue 400,000 Less Variable Costs: Variable Cost of Sales 160,000 Variable Mktg & Admin 8,000168,000 Contribution Margin 232,000 Less Fixed Costs: Fixed Cost of Sales 50,000 Fixed Mktg & Admin 72,000122,000 Net Income Before Taxes 110,000 C1 - 14

Managing Costs Effective cost control requires managers to understand how producing a product involves activities and how those activities generate costs Activity-based Management studies the need for activities and whether they are operating efficiently C1 - 15

Value-Added Activities Value-added activities increase the product’s service to customers Manager’s try to eliminate non-valueadded activities to reduce costs without reducing the product’s service potential to customers The value chain describes the linked set of activities that add value to the products or services of the organization C1 - 16

The Value Chain Begin Value Chain Research & Development Design Production Marketing Distribution End Value C1 - 17

Managerial Accounting in Modern Production Environments Key developments that reshaped Managerial Accounting include: Integrated information systems Web hosting Just-in-time and lean production Total Quality Management Theory of constraints Benchmarking and continuous improvement C1 - 18

If you have any comments or suggestions concerning this PowerPoint Presentation for Managerial Accounting, An Introduction To Concepts, Methods, And Uses please contact: Dr. Donald R. Trippeer, CPA [email protected] Colorado State University-Pueblo C1 - 19