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The Accountant’s Role in the Organization. Chapter 1. 1/31/05. Learning Objective 1. Describe how cost accounting supports management accounting and financial accounting. Management Accounting. It measures and reports financial and nonfinancial information that helps

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learning objective 1
Learning Objective 1

Describe how cost

accounting supports

management accounting

and financial accounting.

management accounting
Management Accounting

It measures and reports financial and

nonfinancial information that helps

internal managers make decisions to

fulfill the goals of an organization.

financial accounting
Financial Accounting

Its focus is on reporting to external parties.

It measures and records business transactions.

It provides financial statements based on

generally accepted accounting principles.

cost accounting
Cost Accounting

It provides information for both management

accounting and financial accounting.

It measures and reports financial and

nonfinancial data relating to the cost of

acquiring or using resources of the firm.

cost management
Cost Management

It describes the activities of managers in

short-term and long-term planning

and control of costs.

It includes the continuous reduction of costs.

It is a key part of general management

strategies and their implementation.

learning objective 2
Learning Objective 2

Understand how management

accountants affect

strategic decisions.

strategic cost management
Strategic Cost Management

Developing strategy

Providing quality products at low cost

Providing unique products or services

Building resources and capabilities

Implementing strategy

strategic cost management9
Strategic Cost Management

Building resources and capabilities to meet

the firm’s objectives in the Marketplace









Accounts Receivable


Patents, trademarks, research capability, distribution network

Machinery & Equip, Buildings, Computers, Software

learning objective 3
Learning Objective 3

Distinguish between the

planning and control

decisions of managers.

planning and controlling
Planning and Controlling

Management Decision

Management Accounting System











planning and controlling12
Planning and Controlling

What is planning?





Deciding how

to attain goals

Communicating the goals to the entire organization

planning and controlling13
Planning and Controlling

What is control?





Deciding on



and feedback

planning and controlling14
Planning and Controlling

What are budgets?

They are



of a proposed

plan of action.

They aid in the




of the plan.

planning and controlling15
Planning and Controlling

What are performance reports?

These are reports that

compare actual results

with budgeted amounts.

Evaluation of actual

performance versus budget

performance report example
Performance Report Example

Boone Shop, July 2003


Revenues $59,000 $60,000 $1,000 F

Cost of goods sold 42,000 43,400 1,400 U

Wages 6,700 7,000 300 U

General 1,300 900 400 F

Fixed costs 5,000 5,000 0

Operating income $ 4,000 $ 3,700 $ 300 U

performance report example17
Performance Report Example

Actual cost of goods sold were

72% of revenues instead of the budgeted 71%.


Revenues $59,000 100 $60,000 100

Cost of goods sold 42,000 71 43,400 72

Gross margin $17,000 29 $16,600 28


This involves managers examining past performance

and systematically exploring alternative ways to

make better informed decisions in the future.

Why did cost of goods sold increase?

How can that be prevented in the future?

learning objective 4
Learning Objective 4

Distinguish among the problem-

solving, scorekeeping, and

attention-directing roles of

management accountants.

problem solving
Problem Solving

This involves comparative analysis

for decision making.

This role asks: Of the several alternatives

available, which is the best?

Which computer system should we buy?

Which product line should we emphasize?

Which plant should be shut down?


This involves accumulating data and

reporting reliable results to

all levels of management.

This role asks: How is the business doing?

Are we generating enough sales?

Are our costs under control?

Are we generating sufficient cash flow?

attention directing
Attention Directing

This involves helping managers

properly focus their attention.

This role asks: Which opportunities and

problems should be emphasized first.

Attention directing should focus on all

opportunities to add value to an organization,

not just cost-reduction opportunities.

learning objective 5
Learning Objective 5

Identify four themes managers

need to consider for

attaining success.

1 customer focus
1. Customer Focus

The challenge facing managers is to continue

investing sufficient (but not excessive)

resources in customer satisfaction

such that profitable customers

are attracted and retained.

Adding value for the customer.

i.e., frequent flyer miles

2 value chain analysis
2. Value Chain Analysis

This theme has two related aspects:

1. Treat each of the business functions in the value

chain as an essential and valued contributor. See

Exhibit 1-4, page 10

2. Integrate and coordinate the efforts of all business

functions in addition to developing the capabilities

of each individual business function.

3 key success factors
3. Key Success Factors

These are operational factors that directly affect

the economic viability of the organization.

Cost– organizations

are under continuous

pressure to reduce costs.

Quality – customers

are expecting higher

levels of quality.

3 key success factors27
3. Key Success Factors

Time – organizations are under pressure to

complete activities faster and to meet

promised delivery dates more reliably.

Innovation – there is now heightened recognition

that a continuing flow of innovative products

or services is a prerequisite to the ongoing

success of most organizations.

continuous improvement and benchmarking
Continuous Improvementand Benchmarking

Continuous improvement by competitors creates

a never-ending search for higher levels of

performance within many organizations.

You must keep up or stay ahead!

learning objective 6
Learning Objective 6

Describe the set of business

functions in the value chain.

value chain
Value Chain

The term “value chain” refers to the sequence of

business functions in which usefulness is added

to the products or services of an organization.

The term “value” is used because as the usefulness

of the product or service is increased, so is its value

to the customer.

value chain31
Value Chain

Management accountants provide

decision support for managers in the

following six business functions:

value chain32
Value Chain

R & D



Management Accounting




value chain functions
Value Chain Functions

Research and Development

It is the process that is conducted to generate

and experiment with ideas related to new

products, services, or processes.

These ideas may or may not result

in new products.

value chain functions34
Value Chain Functions


It is the detailed planning and engineering

of ideas that will become new

products, services, or processes.

How to configure the product, how to

build it, what features it will have,

functionality, efficient use of resources, etc.

value chain functions35
Value Chain Functions


It is the acquisition, coordination, and

assembly of resources to produce

a product or deliver a service.

Raw materials, machinery and

equipment, facilities, skilled workers, etc.

value chain functions36
Value Chain Functions


It is the manner by which companies

promote and sell their products

or services to customers

or prospective customers.

Advertising, direct contact, market

research, beta sites, etc.

value chain functions37
Value Chain Functions


It is the delivery of products or

services to the customer.

Direct sales, distribution network,

retail outlets, E-Commerce, etc.

value chain functions38
Value Chain Functions


It is the after-sale support activities

provided to customers.

Includes warranty, product support,

updates to software, hotline for

problem solving, etc.

learning objective 7
Learning Objective 7

Describe three ways

management accountants

support managers.

key guidelines
Key Guidelines

1. Cost-benefit approach

2. Full recognition of behavioral as well as

technical considerations

3. Using different costs for different purposes

cost benefit approach
Cost-Benefit Approach

A cost-benefit approach should be used in order

to spend resources if they promote decision

making that better attains organization goals

in relation to the costs of those resources used.

For example, will I earn more than what it costs

me to make it? Would a new budget process

provide more benefit that it would cost?

behavioral and technical considerations
Behavioral and TechnicalConsiderations

A management accounting system should have two

simultaneous missions for providing information:

1. To help managers make wise economic decisions

2. To help managers and other employees to aim and

strive for goals of the organization, add value to

products and help employees perform better.

different costs for different purposes
Different Costs forDifferent Purposes

A cost concept used for the external reporting

purpose need not be the appropriate concept

for the purpose of internal routine reporting

to managers. We do not have to follow GAAP

for internal reporting purposes. So we can

use various non-GAAP cost systems to

evaluate performance within the firm.

learning objective 8
Learning Objective 8

Understand how cost management

accounting fits into an

organization’s structure.

learning objective 9
Learning Objective 9

Understand what

professional ethics mean

to management accountants.

professional ethics
Professional Ethics





  • Maintain level of professional competence, i.e. continuing professional education
  • Perform duties in accordance with relevant laws, regulations and standards
  • Prepare complete and clear reports supported by relevant and reliable information
  • Avoid actual or apparent conflicts of interest
  • Refuse any gift or favor that would appear to influence your behavior or actions
  • Do not subvert the goals of the organization
  • Realize and communicate professional limitations
  • Communicate unfavorable as well as favorable info
  • Refrain from actions that would discredit the firm
  • Do not engage in any unethical activities
  • Do not disclose confidential information unless legally obligated to do so.
  • Inform subordinates regarding confidentiality of information
  • Refrain from using or appearing to use confidential information either personally of through a third party
  • Communicate information fairly and objectively
  • Disclose fully all relevant information that might influence a decision maker or user of that information
resolution of ethical conflicts
Resolution of Ethical Conflicts
  • Discuss problems with immediate supervisor
  • If immediate supervisor involve or uninterested, submit issues to next higher managerial level
  • Do not report confidential issues externally unless legally required to do so.
  • If no satisfaction, consult an attorney
  • Ultimately, you may have to resign, but issue a factual memorandum to the Board of Directors, Audit Committee, or Executive committee of the Board