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Introduction to Managerial Accounting

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Management Accounting for Managers

• Management accounting exists because managers require information to make decisions

• Primary focus of management accounting is towards users within an organization

• Management accounting does not exist to generate data, but it exists because managers require information for decisions

Framework for Management Accounting

Strategic Planning

Management Control

Operational Control

Focus on organization’s objectives

Effectiveness and efficiency of resource use

Effectiveness and efficiency of tasks

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Frameworks for Management Accounting

OPERATIONAL MANAGEMENT STRATEGIC

CONTROL CONTROL PLANNING

Accounts receivable Budget analysis Tanker fleet mix

Order entry Short-term Warehouse and

forecasting factory location

Structured Inventory reordering Engineered costs

Inventory control Variance analysis Mergers and acquisitions

Semi-

Structured Production scheduling Overall budget Capital acquisition analysis

Bond trading Budget preparation New product planning

Cash management

Unstructured PERT COST systems Sales and production R and D planning

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Management Decision Process

1. Identify the problem.

2. Perform the necessary quantitative and qualitative analyses.

3. Identify alternative solutions to the problem.

4. Evaluate the alternative solutions.

5. Recommend one of the alternative solutions.

6. Implement the recommendation.

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Management

Major Means:Accounting Information

1. Problem-solving information

2. Attention-directing information

3. Scorekeeping information

Major Ends:Helping Decisions

1. Managers for long-range planning and special decisions

2. Managers for planning and controlling routine operations

3. Outsiders for investors, tax collectors, regulators & others

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Planning and Controlling

• Planning involves setting objectives and the means to their attainment• What is desired?• When and how is it to be accomplished?• How is success to be evaluated?

• Controlling involves the implementation of plans and the use of feedback to monitor achievements

Planning

ActionEvaluation

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Product Life Cycle• The various stages through which a product passes,

from conception and development through introduction into the market through maturation and, finally, withdrawal from the market

ProductDevelopment

Introduction to Market

MatureMarket

Phase-Outof Product

Sales over TypicalProduct Life Cycle

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The Value Chain• Value chain is the set of business functions that add value

to the products or services of an organization

CUSTOMERFOCUS

Researchand

Development

Marketing

Production

Product& ServiceProcessDesign

Distribution

CustomerService

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Distinctions Between Management Accounting and Financial Accounting

ManagementAccounting

Organization managers

Costs versus benefits

Influence on managerial behaviour

Future orientation

Flexible

Detailed

Less sharply defined

FinancialAccounting

External parties

G.A.A.P.

Measurement of economic activity

Past orientation

Less flexible

Summary reports

More sharply defined

Primary Users

Choices

BehaviouralImplications

Time Focus

Time Span

Reports

Activities