Managerial Accounting:
An Introduction To Concepts, Methods, And Uses
Chapter 1
Fundamental Concepts
Maher, Stickney and Weil
Learning Objectives
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(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.
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Learning Objectives
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(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.
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Comparison of Financial
and Managerial Accounting
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Financial Accounting
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Deals with reporting to
parties outside the
organization
Highly regulated
Primarily uses historical
data
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Managerial Accounting
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Deals with activities
inside an organization
Unregulated
May use projections
about the future
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Implementing Strategies
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Managerial accounting system should help
managers implement organization’s strategy
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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
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Key Financial Players
Partial Organization Chart
President and
Chief Operating Officer
Industrial
Departments
Staff and
Administrative Departments
Finance
Vice-President
Treasurer
Cost
Accounting
Controller
Financial
Reporting
Other
Vice-Presidents
Including Engineering,
Legal, Employee Relations
Internal Audit
Tax
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Professional Environment
(Slide 1 of 2)
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Institute of Management Accountants (IMA)
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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
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Sets accounting standards for contracts between
the U.S. government and defense contractors
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Professional Environment
(Slide 2 of 2)
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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
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Basis Cost Concepts
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A cost is a sacrifice of resources
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(Slide 1 of 4)
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
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Basis Cost Concepts
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(Slide 2 of 4)
A cost is distinguished from an expense
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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
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Basis Cost Concepts
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(Slide 3 of 4)
A cost object is any item for which the
manager wishes to measure cost
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Costs directly related to the cost object are
called direct costs
Other costs are called indirect costs
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Basis Cost Concepts
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(Slide 4 of 4)
The distinction between fixed and
variable costs is important since it
affects strategic decision making
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Variable costs change in total as the
activity level changes
Fixed costs do not change in total when
the activity level changes
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Income Statement For
External Reporting
Sales Revenue
Less Cost of Goods Sold
Gross Margin
Less Mktg. and Admin Exp.
Net Income Before Taxes
$400,000
210,000
$190,000
80,000
$110,000
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Contribution Margin Format
Income Statement
Sales Revenue
Less Variable Costs:
Variable Cost of Sales $160,000
Variable Mktg & Admin
8,000
Contribution Margin
Less Fixed Costs:
Fixed Cost of Sales
$50,000
Fixed Mktg & Admin
72,000
Net Income Before Taxes
$400,000
168,000
$232,000
122,000
$110,000
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Managing Costs
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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
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Value-Added Activities
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Value-added activities increase the
product’s service to customers
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Manager’s try to eliminate non-value-added
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
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The Value Chain
Begin Value Chain
Research & Development
Design
Production
Marketing
Distribution
End Value Chain
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Managerial Accounting in Modern
Production Environments
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Key developments that reshaped Managerial
Accounting include:
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Integrated information systems
Web hosting
Just-in-time and lean production
Total Quality Management
Theory of constraints
Benchmarking and continuous improvement
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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
donald.trippeer@colostate-pueblo.edu
Colorado State University-Pueblo
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