Basic Management Accounting
and Control Concepts
Managerial Accounting and
Financial Accounting
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Managerial accounting provides
information for managers inside an
organization who direct and control
operations
Financial accounting provides
information to stockholders, creditors
and others who are outside the
organization
Differences Between Financial
and Managerial Accounting
Financial Accounting Managerial Accounting
1. Users
External persons who
make financial decisions
Managers who plan for
and control an organization
Historical perspective
Future emphasis
3. Verifiability
versus relevance
Emphasis on
verifiability
Emphasis on relevance
for planning and control
4. Precision versus
timeliness
Emphasis on
precision
Emphasis on
timeliness
5. Subject
Primary focus is on
the whole organization
Focuses on segments
of an organization
6. Requirements
Must follow GAAP
and prescribed formats
Need not follow GAAP
or any prescribed format
2. Time focus
International Competition
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Meeting world-class competition
demands a world-class management
accounting system.
Managers must make decisions to plan,
direct, and control a world-class
organization.
Many U.S. companies derive more than
50% of their income from overseas
operations
Evolution and Adaptation in
Managerial Accounting
Theory of Constraints
E-Commerce
Computer-Integrated Mfg.
Service Vs. Mfg. Firms
Six Sigma
Emergence of New
Industries
Global Competition
Focus on the Customer
Lean Manufacturing
Continuous Improvement
Change
Information and
Communication
Technology
Product Life Cycles
Total Quality
Management
Time-Based Competition
Just-in-Time Inventory
© The McGraw-Hill Companies, Inc.
Importance of Ethics
in Accounting
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Ethical accounting practices build trust and
promote loyal, productive relationships with
users of accounting information.
Many companies and professional
organizations, such as the Institute
of Management Accountants (IMA),
have written codes of ethics which
serve as guides for employees.
 Code of Conduct for Management
Accountants
IMA Code of Ethics for
Management Accountants
Four broad areas of responsibility:
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Maintain a high level of professional competence
treat sensitive matters with confidentiality
Maintain personal integrity
Be objective in all disclosures
Managerial Accounting Tools
Failed dot.com and other businesses might have
benefited from the application of managerial
accounting tools:
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Cost concepts
Cost-volume-profit
Activity-based costing
Budgeting
Standard Costs
Decision making
Capital budgeting
Transfer pricing
Measuring Performance
Cost concepts
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Period Costs
Product Costs
Elements of Cost
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Direct material
Direct labor
Manufacturing overhead
Cost concepts (continued)
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Basic Cost Management Concepts
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Cost driver
Variable and fixed costs
Direct and indirect costs
Controllable and uncontrollable costs
Sunk Costs
Differential Costs
Relevant Costs
Cost concepts (continued)
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Manufacturing overhead
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Estimated – budgeted
Applied – allocated
Incurred – actual
Over- or Under-applied Overhead
Cost-Volume-Profit
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Break-even point
Cost structure
Operating leverage
Airlines
Activity-based Costing
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Problems with a single factory-wide
overhead rate
Many different cost drivers
CD versus DVD units
Change in cost allocation under activitybased costing
Budgeting (Profit Planning and
Control)
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Budget – quantitative expression of management’s
goals
Budget function
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Planning
Communicating and coordinating
Allocating limited resources
Control
Performance evaluation
Sales budget
Behavioral impact of budgets
Standard Costs
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Managing costs
Setting standards
Variance analysis and investigation
Behavioral impact of standard costing
Balanced scorecard
Decision-making (Special
Decision Situations)
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Special orders
Add or drop a service, product or
department
Allocation of limited resources
Capital Budgeting
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Discounted cash flow
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Discount rate
Other methods
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Net present value method
Internal rate of return
Payback
Project approval and Post Audit
Transfer Pricing
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Market-based prices
Negotiated prices
Cost-based prices
Goal congruence
Measuring Performance
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Responsibility accounting
Return on investment
Residual income
Economic value added
Sustainability
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Sustainability Reporting
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Economic
Environmental
Social
Triple Bottom Line
Integrated Reporting
Developments in Regulation
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Sarbanes – Oxley
Corporate Governance
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Audit Committees
Internal Control Evaluation
Added Costs
Dodd-Frank