Part One
Introduction to
Management and Cost
Accounting
For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
Chapter 1
Introduction to
Management Accounting
For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
Internal
External
Managers
Shareholders
Employees
Users
Creditors
Government
SARS
Management accounting provides
people within the organisation with
information to help them make better
decisions and improve the efficiency and
effectiveness of existing operations
Financial
Accounting
For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
Management Accounting
•
•
•
•
Does not have to comply with any legal framework like IFRS
Focuses on individual parts of the business. E.g. profitability of a particular product’
Companies can do as much or as little management accounting as they see fit.
Concentrates on the future and is therefore uncertain. Requires estimates and
predictions. Subjective and influenced by the outlook of the preparer.
• Management accounting reports are frequent. Monthly, weekly or daily
For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
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For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
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1. Identifying objectives
The main objective of a company is to seek to maximise future profits.
This means in decision making all
stakeholders must be considered.
Employees
Government
The company must act in an ethical way
or face reputational damage.
Stakeholders will no longer support it.
Consider the social responsibility of a company.
Consider Triple Bottom Line reporting.
Community
Stakeholders
Creditors
Shareholders
Customers
For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
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For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
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2. Searching for alternative courses of action
Involves executives from all functions incl:
•
Marketing
•
Manufacturing
•
Research and development
•
IT
Involves the acquisition of information concerning future opportunities and environments.
3. Implementation
Decisions are implemented as part of the long term plan and are incorporated into the budget.
The budget is a financial plan for implementing the decisions that management made.
END LECTURE 1
For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
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The impact of a changing business
environment
Global competition
Less duties and tariffs, increase in free trade zones. Improved communication and transport.
Increased competition
More accurate costing required
Shorter product life cycles
Need to be fast to market. Need new innovative products all the time.
Manufacturing technologies are advancing
Must be able to provide innovative product/services – high quality – low cost – top customer service
For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
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For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
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For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
12
Information technology
E-commerce
Customer has choice, no borders, fast comparisons
Allowed cost savings for business so can make products cheaper
On-line shopping and deliveries – 60/60
Changed role of management accountant from processor of info to advisor!
Big Data
AI
Internet of Things
Environmental Issues and Sustainability
Reputation – public hold companies accountable
Social responsibility, safety and environmental issues.
Not enough to just obey the law
Use what they do to enhance reputation
Ethics
Code of ethics is an essential part of corporate structure.
Management is obligated to uphold ethical standards
Tone is set at the top!
For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
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Privatisation
Government owned monopolies have decreased, more competition.
Less pricing and competitive restrictions.
Lower import duties mean local manufacturers are less protected – must compete
All activities must create value to be competitive.
Cost management seeks to eliminate non-value adding activities
Customer orientation
Customer satisfaction is key!
Cheep
Quality
Fast
Innovative – continuous improvement – benchmarking – employee empowerment.
For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury
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Functions of Management Accounting
The system should:
• Allocate costs between cost of goods sold and inventory for
internal and external reporting
• Provide relevant information to help managers make better
decisions
• Provide information for planning, control, performance
measurement and continuous improvement
The person sets up the system, interprets the output information
and recommends actions to be taken.
For use with Management and Cost Accounting in South Africa 1e by Colin Drury (ISBN 9781473773943) © 2023 Colin Drury