Introduction to Management

Accounting
Chapter 1

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 Objective 1

Identify managers’ four primary

responsibilities

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 Managers’ Responsibilities
Setting goals and
Planning
objectives

Decision Overseeing day-to-

Making Directing
day operations

Controlling Evaluating results

of operations

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 Objective 2

Distinguish financial accounting

from management accounting

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 Primary Users?
Management Financial
• Internal • External
• Managers • Investors, creditors,
government
regulators

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 Purpose of Information?
Management Financial
• Help managers plan, • Help investors and
direct, and control creditors make
business operations investment and credit
decisions

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 Primary Accounting Product?
Management Financial
• Any internal • General-purpose
accounting report financial statements
deemed worthwhile
by management

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 What must be included?
Management Financial
• Whatever • Determined by GAAP
management needs
as long as benefits of
using report exceeds
cost of preparing it

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 Underlying basis of the
information?
Management Financial
• Focus on future • Based on historical
• Information on transactions
external and internal • External transactions
transactions

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 Information characteristic
emphasized?
Management Financial
• Relevance • Reliable and objective

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 Business unit?
Management Financial
• Segments – products, • Company as a whole
geographical regions,
customers

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 How often prepared?
Management Financial
• Depends on • Annually and
management needs quarterly

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 Verification?
Management Financial
• No independent • Independent audits of
audits publicly traded
• Internal audits may companies
occur

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 Required by outside group?
Management Financial
• No • Yes – SEC for
publicly traded
companies

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Concern over how reports affect
employee behavior?
Management Financial
• Yes • Concern is about
adequacy of
disclosure

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 E1-10
a. Companies must follow GAAP in their
Financial accounting
____________________ systems.
b. Financial accounting develops reports for
external parties, such as __________
Creditors
Shareholders
and _______________.
c. When managers evaluate the company’s
performance compared to the plan, they
Controlling role of
are performing the __________
management.

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 E1-10
d. __________
Managers are decision makers inside
a company.
e. ___________________
Financial accounting provides
information on a company’s past
performance to external parties.
Management accounting systems are
f. ______________________
not restricted by GAAP but are chosen
by comparing the costs versus the
benefits of the system.

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 E1-10
g. Choosing goals and the means to
Planning function
achieve them is the __________
of management.
h. _____________________
Managerial accounting systems report
on various segments or business units of
the company.
Financial accounting
i. ____________________ statements of
public companies are audited annually by
CPAs.

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 Objective 3

Describe organizational structure and the

roles and skills required of management
accountants within the organization

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 Organizational Structure
Board of
Directors
Audit
Committee
Chief Executive
Officer

Chief Operating Chief Financial

Officer Officer

Vice Presidents
of various Treasurer Controller Internal Audit
operations

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 Management Accountants
• Often part of cross-functional teams
• Report to various vice-presidents of
operations
• Role is to analyze financial impact of
business decisions
• Internal consultants

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 Roles of Management
Accountants
• Ensuring accurate financial records
– Helping to design information systems
– Recording non-routine transactions
– Making adjustments to financial records
• Planning, analyzing, and interpreting
accounting data
• Providing decision support

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 Required Skills
• Knowledge of financial and managerial
accounting
• Analytical skills
• Knowledge of how a business functions
• Ability to work on a team
• Oral and written communications skills

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 E1-11
a. The _____
CFO and the _____COO report to the
CEO.
b. The internal audit function reports to the
CFO or _______ audit committee
CEO and the _____________.
c. The __________
controller is directly responsible for
financial accounting, managerial
accounting, and tax reporting.
Board of Directors
d. The CEO is hired by the _____________.

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 E1-11
e. The __________
treasurer is directly responsible
for raising capital and investing funds.
f. The __________
COO is directly responsible
for the company’s operations.
g. Management accountants often work
cross functional teams
with __________________________.
h. The subgroup of the board of directors is
audit committee
called the _________________.

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 Objective 4

Describe the role of the Institute of

Management Accountants (IMA) and use
its ethical standards to make reasonable
ethical judgments
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 IMA
• Professional association for managerial
accountants
• Goal
– Advance management accounting profession
– Educate society about role of managerial
accountants
• Certifications
– Certified Management Accountant (CMA)
– Certified Financial Managers (CFM)

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 Ethics
• Statement of Ethical Professional Practice
(IMA)
– Maintain professional competence
– Preserve confidentiality of information
– Uphold their integrity
– Perform duties with credibility
– Consult an attorney

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 Steps to Resolve
Ethical Dilemmas
• Follow company’s policies for reporting
unethical behavior
• If not resolved
– Discuss with immediate supervisor
– Discuss with objective advisor

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 E1-13
a. The ______
IMA is the professional
association for management
accountants.
b. The institute offers two types of
certification: The _____
CMA and _____.
CFM
CMA
c. The __________ exam focuses on
managerial accounting topics,
economics, and business finance.

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 E1-13
CFM exam focuses on financial
d. The ______
statement analysis, business valuation,
risk management, working capital policy,
and capital structure.
e. The institute’s monthly publication, called
________________,
Strategic Finance addresses current
topics of interest to managerial
accountants.

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 E1-13
f. The institute says that approximately
85 percent of accountants work inside
_____
of organizations, rather than at CPA
firms.

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 Objective 5

Discuss trends in the business

environment

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 Sarbanes-Oxley Act of 2002
• CEO and CFO - responsible for financial
statements, internal control system,
procedures for financial reporting
• Audit committee – independent and should
include a financial expert
• CPA firms – limited non-audit services for
audit clients and periodic quality review
• Stiffer penalties for white-collar crimes

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 Trends
• Shift toward service economy
• Competing in global marketplace
• Time-based competition
– ERP systems
– E-Commerce
– Just-in-Time Management
• Total Quality Management

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 Trends
• Cost-Benefit Analysis – weighing costs
against benefits to help make decisions

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 E1-16
a. To account for uncertainty in the amounts
of future costs and benefits, we compute
the ______________
expected value by multiplying the
probability of each outcome by the dollar
value of that outcome.
b. To make a cost-benefit decision today, we
present value
must find the ______________ of the
costs and benefits that are incurred in the
future.

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 E1-16
c. The goal of _______
TQM is to meet
customers’ expectations by providing them
with superior products and services by
eliminating defects and waste throughout
the value chain.

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 E1-16
d. Most of the costs of adopting ERP, JIT,
expanding into a foreign market, or
improving quality are incurred in the
present
________, but most of the benefits occur
in the _______.
future

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 E1-16
e. _______________
Throughput time is the time between
buying raw materials and selling the
finished products.
f. __________
ERP serves the information needs
of people in accounting, as well as people
in marketing and in the warehouse.
g. Firms adopt __________
e-commerce to conduct
business on the Internet.

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 E1-16
h. Firms acquire the ______________
ISO9001:2000
certification to demonstrate their
commitment to quality.

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 Objective 6

Use cost-benefit analysis to make

business decisions

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 E1-18
1. What are the total costs of adopting JIT?

Employee training $13,500

Streamline production process 37,000
Supplier identification 8,000
Total costs $58,500

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 E1-18
2. What are the total benefits of adopting
JIT?

Savings in warehouse expenses $97,000

Lower spoilage costs 46,000
Total benefits $143,000

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 E1-18
3. Should Wild Rides adopt JIT? Why or
why not?

Expected total benefits $143,000

Expected total costs (58,500)
Excess of benefits over costs $ 84,500

Wild Rides should adopt JIT because the

expected benefits exceed the costs.
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 S1-8
Expected value of additional benefits:
Outcome Benefits Probability Expected
value
Moderately $20 million  0.85 = $17 million
successful
Extremely $80 million  0.15 = $12 million
successful
$29 million

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 S1-8
Total benefits:
Benefits already realized $170 million
Expected value of
additional benefits 29 million
Total expected benefits $199 million

Total costs $200 million

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 S1-8
The costs of $200 million just exceed the
total expected benefits of $199 million.
Under these circumstances, the quality
program does not appear to have been a
worthwhile investment.

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End of Chapter 1

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