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Chapter 1

Chapter 1. Managerial Accounting & The Business Organization. Objective 1. Describe the major users of accounting information. Users of Accounting Information. Internal managers…. use information for short-term planning and controlling routine operations. use information for making

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Chapter 1

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  1. Chapter 1 Managerial Accounting & The Business Organization

  2. Objective 1 Describe the major users of accounting information.

  3. Users ofAccounting Information Internal managers… useinformation for short-term planning and controlling routine operations. useinformation for making nonroutine decisions and formulating overall policies and long-range plans.

  4. Users of Accounting Information External parties: useinformation for making decisions about the company. Investors Government authorities

  5. 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.

  6. 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.

  7. Uses of Accounting Information Scorekeeping is the accumulation and classification of data. Attentiondirecting involves reporting and interpreting information. Problemsolving quantifies the likely results of possible courses of action.

  8. Accounting Systems An accounting system is a formal mechanism for gathering, organizing, and communicating information about an organization’s activities.

  9. 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.

  10. Service Organizations Labor is intensive. Output is usually difficult to define. Major inputs and outputs cannot be stored.

  11. Explain the role of budgets and performance reports in planning and control. Objective 2

  12. 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.

  13. Planning and Controlling The Management Process Internal Accounting System • Planning • Increase • Productivity Budgets, Special Reports Customer surveys Corrections and Revisions of Plans and Actions Competitor analysis Financial Accounting System Advertising impact New items report • Controlling • Actions • Evaluations Performance Reports

  14. 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.

  15. Role ofPerformance Reports Performance reports formalize controls and provide feedback by comparing results with plans and by highlighting variances. Variances are deviations from the plan.

  16. Budgeted Actual Variance AmountAmountAmount Revenues 25,000 19,000 6,000 U Expenses 20,00015,0005,000 F Net Income 5,000 4,000 1,000 U F = Favorable U = Unfavorable Performance Report

  17. 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.

  18. Objective 3 Identify current trends in management accounting.

  19. 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

  20. 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.

  21. 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.

  22. 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.

  23. 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.

  24. Objective 4 Understand how managerial accounting is used in companies.

  25. 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.

  26. End of Chapter 1

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