Transcript Managerial Accounting and the Business Organization

Chapter 1
Managerial Accounting &
The Business Organization
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Objective 1
Describe the major users
of accounting information.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Users of
Accounting Information
Internal managers…
use information for short-term planning
and controlling routine operations.
use information for making
nonroutine decisions and formulating
overall policies and long-range plans.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Users of
Accounting Information
External parties:
use information for
Investors
making decisions
Government authorities about the company.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Management Accounting
What is Management Accounting?
It is the process of identifying, measuring,
accumulating, analyzing, preparing,
interpreting, and communicating
information that managers use to
fulfill organizational objectives.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Financial Accounting
What is Financial Accounting?
It refers to accounting information
developed for the use of external parties
such as stockholders, suppliers, banks,
and government regulatory agencies.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Uses of
Accounting Information
Scorekeeping is the accumulation and
classification of data.
Attention directing involves reporting
and interpreting information.
Problem solving quantifies the likely
results of possible courses of action.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Accounting Systems
An accounting system is a formal mechanism
for gathering, organizing, and communicating
information about an organization’s activities.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Accounting Systems
Generally accepted accounting principles
(GAAP) include broad guidelines and detailed
rules and procedures that make up accepted
accounting practices at a given time.
Internal accounting reports need not be
restricted by GAAP.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Service Organizations
Labor is intensive.
Output is usually difficult to define.
Major inputs and outputs cannot be stored.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Objective 2
Explain the role of budgets
and performance reports
in planning and control.
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Planning and Controlling
What is decision making?
It is the purposeful choice from among
a set of alternative courses of action
designed to achieve some objective.
This is the core of the management process.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Planning and Controlling
Corrections and Revisions
of Plans and Actions
The Management Process
Planning
•Increase
Productivity
Controlling
•Actions
•Evaluations
Internal Accounting System
Budgets,
Special Reports
Financial
Accounting
System
Performance
Reports
Customer
surveys
Competitor
analysis
Advertising
impact
New items
report
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Role of Budgets
A budget is a quantitative expression of a
plan of action and is an aid to coordinating
and implementing the plan.
 Budgets are the chief devices for
compelling and disciplining management
planning.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Role of
Performance Reports
Performance reports formalize controls and
provide feedback by comparing results with
plans and by highlighting variances.
Variances are deviations from the plan.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Performance Report
Budgeted Actual
Amount Amount
Revenues
25,000 19,000
Expenses
20,000 15,000
Net Income
5,000
4,000
 F = Favorable
 U = Unfavorable
Variance
Amount
6,000 U
5,000 F
1,000 U
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Authority and Responsibility
Line authority is granted to managers
who supervise subordinates and are
accountable for assets and operations.
Staff authority is the authority to advise
and support management personnel.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Objective 3
Identify current trends
in management accounting.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Current Management
Accounting Trends
Factors causing changes in management accounting:
Shift from a manufacturing-based
to a service-based economy
Increased global competition
Advances in technology
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Just-in-Time (JIT)
What is the just-in-time philosophy?
Eliminate waste by reducing the time
products spend in the production process.
Eliminate the time products spend in
activities that do not add value.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Computer-Aided Design
(CAD)...
allows companies to design products that
can be manufactured efficiently.
 Even small changes in design often lead to
large manufacturing cost savings.
–
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Computer-Aided Manufacturing
(CAM)...
allows computers to direct and control
production equipment.
 CAM often leads to a smoother, more
efficient flow of production with fewer
delays.
–
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Computer-Integrated
Manufacturing (CIM)...
utilizes both CAD and CAM together with
robots and computer-controlled machines.
 The small amount of labor required in this
manufacturing process allows for great
flexibility since changes are made to
computer programs without retraining an
entire workforce.
–
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Objective 4
Understand how managerial
accounting is used in
companies.
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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Vital Role of
Accounting Information
Management accounting plays a vital role
in the achievement of company goals and
objectives.
 Management accounting information is
used across the entire value chain of
activities as well as throughout the life
cycle of products and services.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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End of Chapter 1
©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton
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