ACCT2121
Introductory Management
Accounting
Chapter 1
The Manager and
Management Accounting
17th Edition, Global Edition
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ACCT2121 Overview
Instructor: Prof. Ya (Bella) KANG
– Email: yakang@cuhk.edu.hk
– Office: Room1018, CYT
TA: Miss Yang QIU (PhD)
– Email: yangqiu@link.cuhk.edu.hk
You may find
recordings here, if
there is any.
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ACCT2121 Overview
Textbook: 17th Edition
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ACCT2121 Overview
Midterm Exam (Mar 3rd, 2023): Ch1 – Ch5 & Ch10
Final Exam (TBD): Ch1 – Ch12
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Ch.1 Learning Objectives
1 Management accounting, financial accounting, cost
accounting
2 Strategies and strategic decisions
3 Value chain (seven business functions) and supply chain
4 Five key success factors
5 The five-step decision-making process
6 Three guidelines management accountants follow in
supporting managers
7 Four professional ethics
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Accounting Discipline Overview (1 of 2)
Financial accounting focuses on reporting financial information to external
parties such as investors, governmental agencies, banks, and suppliers,
based on IFRS or GAAP.
Management accounting measures, analyzes, and reports financial and
nonfinancial information that helps managers make decisions to fulfill
organizational goals. Management accounting need not be IFRS or GAAP
compliant.
Managers use management accounting information to:
– Develop, communicate and implement strategies
– Coordinate product design, production, and marketing decisions and
evaluate a company’s performance
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Accounting Discipline Overview (2 of 2)
Cost Accounting measures, analyzes and reports financial and nonfinancial
information related to the costs of acquiring or using resources in an
organization.
– The term is used interchangeably with cost accounting
Example of nonfinancial information
– Quality and process times
– More subjective measurements, such as:
 Customer satisfaction
 Employee capabilities
 New product performance
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Major Differences Between Management and
Financial Accounting (#1)
Management Accounting
Financial Accounting
Purpose of
information
Help managers make decisions to
fulfill an organization’s goals
Communicate an organization’s
financial position to investors,
banks, regulators, and other
outside parties
Primary users
Managers of the organization
External users such as investors,
banks, regulators, and suppliers
Focus and
emphasis
Future-oriented (budget for 2020
prepared in 2019)
Past-oriented (reports on 2019
performance prepared in 2020)
Rules of
measurement and
reporting
Internal measures and reports do
not have to follow GAAP but are
based on cost-benefit analyses
Management Accounting
Financial statements must be
prepared in accordance with GAAP
and be certified by external,
Financial Accounting
independent
auditors
Time span and type
of reports
Varies from hourly information to
15 to 20 years, with financial and
nonfinancial reports on products,
departments, territories, and
strategies
Annual and quarterly financial
reports, primarily on the company
as a whole
Behavioral
implications
Designed to influence the behavior
of managers and other employees
Primarily reports economic events
but also influences behavior
because manager’s compensation
is often based on reported financial
results
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Major Differences Between Management and
Financial Accounting (#1)
Management accounting
Financial accounting
Who do they
report to?
Internal
External
Time Focus
Forward looking
Historical
No
Yes
Varies
Quarterly or Annually
Disaggregated
Aggregated
Mandatory
reporting rules
Time span
Type of reports
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Strategic Decisions (#2) (1 of 2)
• Strategy specifies how an organization matches its own capabilities with
the opportunities in the marketplace
– The best way to utilize a firm’s resources to maximize gains
• Two broad strategies:
– Price competition (cost leadership)
– Product differentiation
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Strategic Decisions (2 of 2)
Management accounting information helps managers formulate strategy by
answering questions such as the following:
• Who are our most important customers and what critical capability do we
have to be competitive and deliver value to our customers?
• What is the bargaining power of our customers and suppliers (alternative
choices)?
• Will adequate cash be available to fund the strategy, or will additional funds
need to be raised?
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Value-chain and Supply-Chain Analysis (#3) (1 of 6)
Creating value is an important part of planning and implementing strategy.
• Value is the usefulness a customer gains from a company’s product or
service. The entire customer experience determines the value a customer
derives from a product.
– What does a customer value?
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The Value Chain Illustrated
(2 of 6)
• Value chain: a sequence of 6 business functions Plus Administration
(accounting, human resources, information technology, etc.)
？ Different firms create value in different ways
• IKEA
• HKTVMall
• LV/Gucci
• Pfizer
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The Value Chain In detailed Explanation
(Read it yourself)
(3 of 6)
• Value chain: a sequence of 6 business functions Plus Administration
– 1.Research and development (R&D)—generating and experimenting with ideas related to
new products, services, or processes. At Sony, this function includes research on alternative
television signal transmission and on the picture quality of different shapes and thicknesses of
television screens.
– 2.Design of products and processes—detailed planning, engineering, and testing of products
and processes. Design at Sony includes deciding on the component parts in a television set
and determining the effect alternative product designs will have on the set’s quality and
manufacturing costs. Some representations of the value chain collectively refer to the first two
steps as technology development.
– 3.Production—procuring, transporting, and storing (“inbound logistics”) and coordinating and
assembling (“operations”) resources to produce a product or deliver a service. The production
of a Sony television set includes the procurement and assembly of the electronic parts, the
screen and the packaging used for shipping.
– 4.Marketing (including sales)—promoting and selling products or services to customers or
prospective customers. Sony markets its televisions at tradeshows, via advertisements in
newspapers and magazines, on the Internet, and through its sales force.
– 5.Distribution—processing orders and shipping products or delivering services to customers
(“outbound logistics”). Distribution for Sony includes shipping to retail outlets, catalog vendors,
direct sales via the Internet, and other channels through which customers purchase new
televisions.
– 6.Customer service—providing after-sales service to customers. Sony provides customer
service on its televisions in the form of customer-help telephone lines, support on the Internet,
and warranty repair work.
– Administration function, which includes accounting and finance, human resource
management, and information technology and supports the six primary business functions
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Customer Relationship Management (CRM)
(4 of 6)
• CRM is a strategy that integrates people and technology in all business
functions to deepen relationships with customers, partners and
distributors.
• CRM integrates people and technology to coordinate all customer-facing
activities (design, production, etc.) necessary to introduce and deliver
products and/or services to customers.
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Supply-Chain Analysis
(5 of 6)
• Supply Chain = (Production and Distribution) of one firm + flow from
suppliers + flow to customers
• The supply chain describes the flow of goods, services and information
from the initial sources of materials, services and information to their
delivery regardless of whether the activities occur in one organization or in
multiple organizations.
– What is delivered? goods, services and information
– Flow within one firm: Production and Distribution are the components of the
value chain associated with producing and delivering a product or service.
– Flow across firms: (suppliers  manufacturers (focal firms)  suppliers)
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Supply Chain
(6 of 6)
EXHIBT 1.3 Supply Chain for a Cola Bottling Company
？ Value chain vs. supply chain
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Key Success Factors (#4)
Customers want companies to use the value chain (including supply chain) to
deliver ever-improving levels of performance when it comes to several (or even
all) of the following:
1. Cost and efficiency
 Reducing cost
2. Quality
 Using Total Quality Management (TQM) to ensure quality and less
product defects
3. Time
 Delivering in time
4. Innovation
 New products; new technology
5. Sustainability
 Environmental, Social and Governance [ESG] (Corporate Social
Responsibility [CSR])
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Key Success Factors-Sustainability (ESG or CSR)
• The interest in sustainability appears to be intensifying among
companies for several reasons. Some of them are:
• More and more investors care about sustainability
• Companies that emphasize sustainability find that sustainability goals
attract and inspire employees
• Customers prefer the products of companies with good sustainability
records and boycott companies with poor sustainability records
• Society and activist, nongovernmental organizations monitor the
sustainability performance of firms and take legal action against those
that violate environmental laws.
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Decision-making, Planning and Control: The Fivestep Decision-making Process (#5)
1. Identify the problems / uncertainties
2. Obtain information
Planning
3. Make predictions about the future
4. Make decisions by choosing among alternatives
Control
5. Implement decision, evaluate performance, and learn
When implementing strategy, the most important planning
tool is a budget
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Management Accounting Guidelines (#6)
Three guidelines help management accountants make decisions for their
companies:
1. The Cost-benefit approach compares the benefits of an action/purchase
to the costs. Generally, of course, the benefits should exceed the costs.
2. Managers use alternative ways to compare costs in different decisionmaking situations because there are different costs for different
purposes.
3. Behavioral and technical considerations recognize, among other
things, that management is primarily a human activity that should focus
on encouraging individuals to do their jobs better.
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Management Accounting Guidelines
More on behavioral implication:
–
People react when they are being measured, and they react to the
measurements
–
They focus on the variables and behavior being measured and spend
less attention on those not measured
Two old sayings recognize these phenomena:
“What gets measured gets managed”
“If I can’t measure it, I can’t manage it.”
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Line and Staff Relationships
Line management is
Staff management
directly responsible
provides advice,
for achieving the goals
support and assistance
of the organization.
to line management.
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Professional Ethics (#7)
Four standards of ethical conduct for management accountants as
advanced by the Institute of Management Accountants (IMA) are:
1. Competence
2. Confidentiality
3. Integrity
4. Credibility
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Sarbanes-Oxley Act (SOX)
The Sarbanes-Oxley legislation was passed in 2002 in
response to a series of corporate scandals. The act focuses
on improving:
 Internal controls
 Corporate governance
 Monitoring of managers
 Disclosure practices of public companies
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In-Class Exercise
1. Which of the following is not true about strategy?
a. It involves matching its capabilities with the opportunities in the
marketplace to accomplish its objective.
b. It has a short-term focus.
c. It can be implemented through price competition or product
differentiation.
d. It involves the use of strategic cost management.
2. The value chain
a. involves external companies as well as internal activities.
b. is the sequence of business functions in which customer usefulness is
added to products or services.
c. applies only to manufacturing companies.
d. is not relevant in today’s cost accounting environment.
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In-Class Exercise
3. Which of the following is not a key success factor in a
company’s effort to deliver increased levels of performance to the
customer?
a.
b.
c.
d.
Time
Innovation
Quality
Price reduction
4. The five-step decision process
a.
b.
c.
d.
includes planning and control activities.
is performed exclusively by management accountants.
is not often used, as the costs exceed the benefits.
must be performed following GAAP guidelines.
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In-Class Exercise
5. In supporting managers, management accountants have three
guidelines. These guidelines are:
a. Cost–benefit analysis, performance reporting, behavioral
considerations, and technical considerations.
b. Cost–benefit analysis, behavioral considerations and technical
considerations, and different costs for different purposes.
c. Financial statement preparation, technical considerations, strategic
direction, and budgeting.
d. Following functional lines of authority, cost–benefit analysis,
behavioral considerations, and use of the value chain.
6. _____ management exists to provide advice and assistance to
those responsible for attaining the objectives of the organization.
a.
b.
c.
d.
Line
Functional
Staff
Risk
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End of chapter
Thank you
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