Introduction to Management Accounting
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©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler
Introduction to Management Accounting
Chapter 1
Managerial Accounting, the
Business Organization, and
Professional Ethics
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©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler
Learning
Objective 1
Users of Accounting Information
Management Accounting
Financial Accounting
External Users
Internal managers
Investors: Stockholders
Day-to-day operating decisions
Long-range strategic decisions
Creditors:
Suppliers
Bankers
Government Authorities
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Decision Making
Scorekeeping:
Evaluate
Organizational
Performance
Attention Directing:
Compare Actual Results
to Expected
Problem Solving:
Assess Possible
Courses of Action
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©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler
Accounting Information System
Process of gathering, organizing, and
Communicating financial information
Financial
Statements
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Influences on Accounting Systems
Generally accepted accounting principles (GAAP)
Foreign Corrupt Practices Act
Internal controls
Internal auditors
Sarbanes-Oxley Act
Management audits
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Learning
Objective 2
Sarbanes-Oxley Act
In 2002, the Sarbanes-Oxley Act required
chief executive officers to sign a
statement verifying the accuracy of
the company’s financial statements.
External auditors must examine and report
on the company’s internal control system.
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Ethics
Reliability
Trust
Integrity
No regulation can be as effective in
ensuring reliability as high ethical
standards of accountants.
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Service and Nonprofit Organizations
Service
organizations
Accounting firms
Law firms
Real estate firms
Banks
Hotels
Nonprofit
organizations
Hospitals
Schools
Libraries
Museums
Government agencies
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Learning
Objective 3
Cost-Benefit and Behavioral
Considerations
Cost-benefit
balance
Behavioral
implications
The system must provide
accurate, timely budgets and
performance reports in a form
useful to managers.
Weigh estimated
costs against
probable benefits.
Managers must use accounting
reports, or the reports
create no benefits.
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Decision Making
Decision making: the purposeful choice
from among a set of alternative courses
of action designed to achieve some objective.
Planning: Setting
objectives and outlining
how the objectives will
be obtained.
Control: Implementing
plans and using feedback
to evaluate the attainment
of objectives.
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Learning
Objective 4
The Nature of Planning and
Controlling
Corrections and revisions of plans and actions
Management Process
Planning
Increase
Profitability
Internal Accounting System
Budgets,
Special
Reports
Accounting
System
Control
– Actions
– Evaluations
Performance
Reports
Other information
systems
Customer
surveys
Competitor
analysis
Advertising
impact
New items
report
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Budget and Performance Reports
Budget: quantitative expression of a plan of action
Performance reports:
 compare actual results with budgeted amounts
 provide feedback by comparing results with plans
 highlight variances
Variances: deviations from plans
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Performance Reports
Mayfair Starbucks Store, March 31, 20X7
Sales
Less:
Ingredients
Store labor
Other labor
Utilities, etc.
Total expenses
Operating income
Budget
$50,000
Actual
$50,000
Variance
0
22,000
12,000
6,000
4,500
$44,500
$ 5,500
24,500
11,600
6,050
4,500
$46,650
$ 3,350
$2,500 U
400 F
50 U
0
$2,150 U
$2,150 U
U= Unfavorable – actual exceeds budget
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Publishing,
Introduction
Management Accounting 14/e, Horngren/Sundem/Stratton
F – Favorable
– actual
is less
thanto budget.
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Product Life Cycle
Product life cycle refers to the various
stages through which a product passes.
Low sales  No sales
No Sales
Product
Sales Growth
Development Introduction to Market
Stable Sales Level
Phase-out
Mature Market
Product
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Econ. Can Help Explain Life-Cycle:
1. Returns to Scale in Production (the Cost Side)
a. U-Shaped Average Cost Curve
b. Demand can cut Average Cost at Decreasing or
Increasing Average Costs
2. Network Returns to Scale in Demand
a. User-Networks Build Value
b. Learning Curves and Lock-In
c. Microsoft Case (see articles by Paul Krugman and
Brian Arthur)
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The Value Chain
Service
Research
and
Development
Product
And
Service
Process
Design
Customer
Focus
Distribution
Production
Marketing
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Learning
Objective 5
Management Accountant’s Role as
Internal Consultant
Collects
and compiles
information
Prepares
standardized
reports
Internal
Consultant
Interprets and
Analyzes information
Is Involved
In decision making
Management
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Organizational Authority and Responsibility
Line managers:
directly involved with
making and selling
products or services.
Staff managers: Advisory –
Support line managers.
Cross-functional teams: Found in
modern, “flatter” organizations;
Functional areas work together
In decision making process.
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Learning
Objective 6
Accounting Function
Chief Financial Officer (CFO)
Controller Functions
Treasurer Functions
 Planning for control
 Provision of capital
 Reporting and interpreting
 Investor relations
 Evaluating and consulting
 Short-term financing
 Tax administration
 Banking and custody
 Government reporting
 Credits and collections
 Protection of assets
 Investments
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Economic appraisal
Risk management (insurance)
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Learning
Objective 7
Career Opportunities in Management Accounting
The Certified Management Accountant (CMA)
CMAs must pass a four-part examination:
1. Business Analysis
2. Management accounting and reporting
3. Strategic Management, and
4. Business Applications.
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Learning
Objective 8
Management Accounting Change Drivers
Shift from a manufacturing-based
to a service-based economy
Increased global competition
Advances in technology
Changes in business processes
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Major Influences on Management
Accounting
Advances in technology:
E-commerce
Enterprise resource planning (ERP)
Business process reengineering:
Just-in-time (JIT) philosophy
Lean manufacturing
Computer-integrated manufacturing
Six sigma
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Learning
Objective 9
Standards of Ethical Conduct
The Institute of Management Accountants (IMA)
Statement of Ethical Professional Practice for
Management Accounting Members
Requires members to adhere
to a code of conduct regarding:
Competence,
Confidentiality,
Integrity, and
Credibility.
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Ethical Dilemmas
Managers must choose an alternative and there are:

Significant value conflicts among differing interests.

Real alternatives that are all justifiable, and

Significant consequences on stakeholders in the situation.
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Unethical Behavior Temptations
Emphasis on short-term results:
Pressure to meet expected profit numbers.
1.
Ignoring the small stuff:
Large misdeeds often result from many small ones.
2.
Economic cycles:
A downturn market can reveal what an upturn market conceals.
Vigilance in all stages of economic markets maintains high ethical standards.
3.
Accounting rules
Avoid creative interpretations of the rules.
Practice full and fair disclosure to convey company’s performance.
4.
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The End
End of Chapter 1
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