Chapter 1
Managerial Accounting &
The Business Organization
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Objective 1
Describe the major users
of accounting information.
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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.
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Users of
Accounting Information
External parties:
use information for
Investors
making decisions
Government authorities about the company.
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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.
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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.
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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.
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Accounting Systems
An accounting system is a formal mechanism
for gathering, organizing, and communicating
information about an organization’s activities.
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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.
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Service Organizations
Labor is intensive.
Output is usually difficult to define.
Major inputs and outputs cannot be stored.
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Objective 2
Explain the cost-benefit and
behavioral issues involved in
designing an accounting system.
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Accounting System
Costs and Benefits
Benefits
Costs
Benefits
Costs
Obtain
system
Costs
Seek
alternatives
Benefits
>
<
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Accounting System
Costs and Benefits
The accounting system’s effect on the
behavior (decisions) of managers should
be considered.
 If the system fails to provide information
that is timely or in a useful format, there
will be a lack of acceptance by users.

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Objective 3
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.
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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
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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.

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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.
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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
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Objective 4
Discuss the role accountants
play in the company’s
value chain functions.
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Product Life Cycle
Product
Development
Introduction
to Market
Mature
Market
Product
Phase-out
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Value Chain
Research and
Development
Marketing
Design
Production
Distribution
Customer
Service
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Value Chain Functions
Research and development…
is the generation of, and experimentation with,
ideas related to new products, services, or processes.
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Value Chain Functions
Design…
is the detail and engineering of products.
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Value Chain Functions
Production…
is the coordination and assembly of resources to
produce a product or deliver a service.
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Value Chain Functions
Marketing…
is the manner by which individuals or groups
learn about the value and features
of products or services.
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Value Chain Functions
Distribution…
is the mechanism by which products or
services are delivered to the customer.
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Value Chain Functions
Customer service…
is the support activities provided to the customer.
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Objective 5
Contrast the functions of
controllers and treasurers.
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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.
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Organization Chart
Controller
General
Accounting
Internal
Audit
Taxes
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Functions of the Controller
1
2
3
4
5
6
7
Planning for control
Reporting and interpreting
Evaluating and consulting
Tax administration
Government reporting
Protection of assets
Economic appraisal
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Functions of the Treasurer
1
2
3
4
5
6
7
Provision of capital
Investor relations
Short-term financing
Banking and custody
Credits and collections
Investments
Risk management (insurance)
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Objective 6
Identify current trends
in management accounting.
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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
Changes in business processes
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Advances in Technology
E-Commerce: conducting business online.
B2C, B2C.
 Enterprise resource planning (EPR) systems:
integrated information systems that support
all functional areas of a company.
 XBRL (eXtensible Business Reporting
Language) that helps communicate financial
information electronically

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Changes in Business Processes
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.
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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.
–
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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.
–
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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.
–
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Changes in Business Processes
 TQM: initiates that minimize costs by
maximizing quality.
 Six Sigma: a continuous process
improvement effort designed to reduce costs
by improving quality.
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Objective 7
Explain a management
accountant’s ethical
responsibilities.
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Standards of
Ethical Conduct
Management accountants have an obligation to the
organizations they serve with the following standards:
Competence
Confidentiality
Integrity
Objectivity
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Objective 8
Understand how managerial
accounting is used in
companies.
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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.

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