mahm6e ch01.ab.az
TRANSCRIPT
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An electronic
presentation byDouglas CloudPepperdine University
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Task Force Clip Art
included in this electronic
presentation is used withthe permission of New
Vision Technology of
Nepean Ontario, Canada.
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Introduction:
The Role,
History, andDirection of
ManagementAccounting
CHAPTER
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1. Discuss the need for management accounting
information.
2. Differentiate between management accounting
and financial accounting.
3. Provide a brief historical description of
management accounting.
4. Identify the current focus of managementaccounting.
Objectives
After studying this
chapter, you should
be able to:
Continued
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5. Describe the role of management accountants in
an organization.
6. Explain the importance of ethical behavior for
managers and management accountants.
7. List three forms of certification available to
management accountants.
Objectives
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1. To provide information for costing outservices, products, and other objects ofinterest to management.
2. To provide information for planning,controlling, evaluating, and continuousimprovement.
3. To provide information for decisionmaking.
The managerial accounting system has three
broad objectives:
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OutputsProcessesInputsEconomic Events
Collecting
Measuring
Storing
Analyzing
ReportingManaging
Special Reports
Product Costs
Customer Costs
Budgets
Performance ReportsPersonal Communication
Users
Management Accounting
Information System
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TheManagement Process is defined by the
following activities:
Planning
Controlling
Decision Making
Planning requires
setting objectivesand identifying
methods to achieve
those objectives.
Management Process
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TheManagement Process is defined by the
following activities: Controlling isthe managerial
activity of
monitoring a
plans
implementation
and taking
corrective action
as needed.
Planning
Controlling
Decision Making
Management Process
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TheManagement Process is defined by the
following activities:
Planning
Controlling
Decision Making
Control isusually achieved
with the use of
feedback.
Management Process
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Feedback is information
that can be used to evaluate
or correct the steps being
taken to implement a plan.
Management Process
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TheManagement Process is defined by the
following activities:
Decision
making is
the process
of choosingamong
competing
alternatives.
Planning
Controlling
Decision Making
Management Process
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Differentiate Between
Management Accounting and
Financial Accounting
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
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Management
accounting
focuses on
providing
information for
internal users.
Targeted Users
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ABC
Company
AnnualReport
Financial
accounting focuses
on provided
information for
external users.
Targeted Users
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
2. No mandatory rules 2. Must follow externallyimposed rules
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Restrictions on Inputs and Processes
Management accounting is not subject
to the requirements of generally
accepted accounting principles.
Financial accounting reporting must
follow the accounting procedures set by
the SEC and the FASB.
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
2. No mandatory rules 2. Must follow externallyimposed rules
3. Financial andnonfinancial informa-
tion; subjectiveinformation possible
3. Objective financialinformation
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Types of Information
The restrictions imposed on
financial accounting tend to
produce objective and verifiable
financial information.
For management accounting, the
financial or nonfinancial
information may be much more
subjective in nature.
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
2. No mandatory rules 2. Must follow externallyimposed rules
3. Financial andnonfinancial informa-
tion; subjectiveinformation possible
3. Objective financialinformation
4. Emphasis on the future 4. Historical orientation
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TimeOrientation
Management
accounting stronglyemphasizes providing
information about
future events.
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Financialaccounting records
and reports events
that have already
happened.
TimeOrientation
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
2. No mandatory rules 2. Must follow externallyimposed rules
3. Financial andnonfinancial informa-
tion; subjectiveinformation possible
3. Objective financialinformation
4. Emphasis on the future 4. Historical orientation
5. Internal evaluation anddecisions based on verydetail information
5. Information about thefirm as a whole
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Management
accounting provides
measures and internalreports used the
evaluate performance of
entities, product lines,
departments, and
managers.
Degree of Aggregation
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Financial
accounting focuses
on overall firm
performance.
Degree of Aggregation
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Management Accounting Financial Accounting
1. Internally focused 1. Externally focused
2. No mandatory rules 2. Must follow externallyimposed rules
3. Financial andnonfinancial informa-
tion; subjectiveinformation possible
3. Objective financialinformation
4. Emphasis on the future 4. Historical orientation
5. Internal evaluation anddecisions based on verydetail information
5. Information about thefirm as a whole
6. Broad, multidisciplinary 6. More self-contained
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Management accounting is much
broader than financial accounting.
It includes aspects of managerial
economics, industrial engineering,
and management science.
Breadth
Historical Description of
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Management Accounting
1880 - 1925 Most of the product-costing and internal
accounting procedures used in this century
were developed
1925 Emphasis of inventory costing for externalreporting
1950s/60s Effort to improve the managerial
usefulness of traditional cost systems
1980s/90s Significant efforts have been made toradically change the nature and practice of
management accounting
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Current Focus of Management Accounting
Activity-Based Management
Activity-based management is a system
wide, integrated approach that focusesmanagements attention on activities with the
objective of improving customer value and
the resulting profit.
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Current Focus of Management Accounting
Customer Orientation
Customer value is the difference between
what the customer receives (customersatisfaction) and what the customer gives up
(customer sacrifice).
What is received is called the total product.
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Current Focus of Management Accounting
Strategic Positioning
Strategic cost management is the use of cost data
to develop and identify superior strategies thatwill produce a sustainable competitive advantage.
Strategies:
1) Cost leadership
2) Superior products through differentiation
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Current Focus of Management Accounting
Value-Chain Framework
The internal value chain is the set of activities
required to design, develop, produce, market,and deliver products and services to customers.
The industrial value chain is the linked set of
value-creating activities from basic rawmaterials to the disposal to the final products by
end-use customers.
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Supermarkets
Value Chain:
Apple Industry
Planting and
Cultivating
Harvesting
Distribution of
Apples
Applesauce
Production
ApplesauceDistribution
Firm
B
Firm
C
Firm
A
Product Disposal
End-Use Customer
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Managing the value chain means
that a management accountant
must understand many functionsof the business, from
manufacturing to marketing.
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The philosophy of total quality
management is to manufacture
perfect products.
This emphasis on quality has
created a demand for managementaccounting systems that provide
financial and nonfinancial
information about quality.
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The role of
management
accountants in an
organization is one
of support.
Partial Organization Chart
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Manufacturing Company
President
Production
Vice President
Line Function
Financial
Vice President
Staff Function
Production
Supervisor
Machining
Foreman
Assembly
Foreman
Controller Treasurer
Internal
AuditCost Financial Systems
Ta
x
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Ethical
Behavior
Michael Josephsons* Ten Ethical Values:
Honesty
Integrity
Promise keeping
Fidelity
Fairness
Caring for others
Respect for others
Responsible
citizenship
Pursuit of excellence
Accountability
*Michael Josephson, Teaching Ethical Decision Making and Principled
Reasoning
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CMA: One of the main purposes of the CMA was to establish
management accounting as a recognized, professional
discipline, separate from the profession of public
accounting.
CPA: The responsibility of a CPA is to provide assurance
concerning the reliability of financial statements.CIA: The focus of the CIA is to recognize competency in
internal auditing rather than external auditing as with
the CPA.
Professional Certifications
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The CMA
Four areas emphasized on the exam:
1) Economics, finance, and management
2) Financial accounting and reporting
3) Management report, analysis, and behavioral
issues
4) Decision analysis and information systems
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The End
Chapter One