ACC 350 Week 1: The Manager and Management Accounting

Slide
Topic
#
1
Introduction

Narration
Welcome to Accounting Three-Fifty: Cost Accounting.
Throughout this course, the focus is how cost accountants helps
managers make better decisions. The focus of this course is on
cost accounting concepts, analytical tools, and practices that
helps provide key data to managers for planning and controlling.
In this lesson, we will discuss the accountants role in the
organization.

Course
Objectives

When you complete this lesson, you will be able to:

Distinguish financial accounting from management accounting
Understand how management accountants help firms make
strategic decisions
Describe the set of business functions in the value chain and
identify the dimensions of performance that customers are
expecting of companies
Explains the five-step decision making process and its role in
management accounting
Describe three guidelines management accountants follow in
supporting mangers
Understand how management accounting fits into an
organizations structure
Understand what professional ethics mean to management
accountants

Financial
Accounting,
Management
Accounting,
and Cost
Accounting

Accounting systems take economic events and transactions that

have occurred and process that data into information that useful
in making decisions. Managers use accounting information for
two purposes: to administer each of the activity or functional
areas for which they are responsible, and to coordinate those
activities or functions within the framework of the organization
as a whole.

Financial
Accounting,
Management
Accounting,
and Cost
Accounting
(Cont.)

When we discuss accounting, we talk about financial accounting

and management accounting. These two areas of accounting
have different goals. Financial accounting focuses on reporting
to external parties. Financial accounting provides financial
statements that are based on generally accepted accounting
principles, or GAAP. On the other hand, management
accounting measures and reports financial and non-financial
information that helps managers make decisions to fulfill the
goals of the organization
Cost accounting provides information for both management and
financial accounting. Cost accounting measures and reports
financial and non-financial information relating to the cost of
acquiring or utilizing resources in an organization.
The focus of cost management is very broad. In order to reduce
costs, there may be components of revenue and profit planning.
Additionally, increasing value to customers may involve
advertising, product modification, and product development.

Strategic
Decisions and
the
Management
Accountant

The key to a companys success is to create a strategy that

provides value to the customer and differentiates the company
from its competitors. The management accountant provides
input that aids in developing strategy, building resources and
capabilities, and implementing the strategy.
Strategy specifies how an organization matches its own
capabilities with the opportunities in the marketplace to
accomplish its objectives. There are two broad strategies that
companies can follow. The first strategy is to provide quality
products at low prices. The second strategy is to offer unique
products or services that are often priced higher than the
products or services of competitors.
Management accountants work closely with managers in
formulating strategy by providing information about the sources
of competitive advantage. The management accountant also
helps formulate a strategy by answering questions such as:
Who are our most important customers?
How sensitive are their purchases to price, quality, and service?
Who are our most important suppliers?
What substitute products exist in the marketplace?
Is the industry demand growing or shrinking?

And is there overcapacity?

6

Value-Chain
and SupplyChain Analysis
and Key
Success
Factors

The second theme is value-chain and supply-chain analysis.

Value chain refers to the sequence of business functions where
value is added to the products or services offered by the
company. There are six business functions involved in the value
chain.
The first is research and development. This is the generation and
experimentation with ideas related to new products, services, or
processes.
The second is the design of products, services, or processes.
This is the detailed planning and engineering of products,
services, or processes.
The third function is production. Production is the acquisition,
coordination, and assembly of resources to produce a product.
Next is marketing. This is the promotion and sale of products or
services to customers or prospective customers.
The fifth function is distribution. Distribution is the delivery of
products or services to customers.
The final function is customer service. This is where the
company provides after-sale support to customers.
Now that we have looked at the value chain, lets take a look at
the supply chain. The term supply chain describes the flow of
goods, services, and information from the initial sources of
materials to the delivery of products to consumers. Key factors
accomplishing this delivery include the following:
Cost and efficiency Determine the cost customer willing to
pay and set a target price.
Quality Customer expect high level of quality.
Time New product development time and customer response
time are two element of this factor.
Innovation A constant flow of new products or services is the
basis for ongoing company success.

Sustainability The key success factors of cost and efficiency,

quality, time and innovation to promote sustainability.
7

Decision
Making,
Planning, and
Control: The
Five Step
DecisionMaking
Process
Interaction
Slide

Intro & Directions: Managers should go through a routine

process in order to make effective decisions. The five-step
decisions process can be utilized to make a variety of decisions.
Click on each step to learn more.
1. Identify the problem and uncertainties. What are the
choices that are being faced and where do the
uncertainties lie?
2. Obtain information. Gathering information before
making a decision helps managers gain a better
understanding of uncertainties.
3. Make predictions about the future. On the basis of the
information obtained attempt to predict the outcome of
each course of action.
4. Make decisions by choosing among alternatives. The has
been gathered and projections made. Select alternative.
5. Implement the decision, evaluate performances, and
learn.

Key
Management
Accounting
Guidelines

The key guidelines for management accountants includes:

support managers are the cost-benefit approach, behavioral and
technical considerations and calculating different costs for
different purposes.
Cost-benefit approach. The expected benefits should exceed
expected costs.
Behavioral and technical considerations. Consider the
motivational aspect of the decision. Technical considerations
provide managers with appropriate information at appropriate
interval to assist in decision making.
Different costs for different purposes. Performance evaluation,
external reporting, and internal decision making three purposes
that might require a different view of cost.

Key
Management
Accounting
Guidelines
(Cont.)

There are three distinct ways that management accountants

support managers. The first is through the use of a cost-benefit
approach. Under a cost-benefit approach, resources should be
spent if they are expected to attain company goals in relation to
the expected costs of those resources. The expected benefits
should exceed expected costs.
Another way management accountants support managers is to
give full recognition to behavioral considerations as well as
technical considerations. When a management accountant
provides information, he or she should be doing so with two
things in mind: helping managers make wise economic
decisions, and motivating managers and other employees to aim
and strive for the goals of the organization. This is because
management is primarily a human activity that should focus on
how to help individuals do their jobs better.
Finally, management accountants support managers by using
different costs for different purposes. For example, a cost
concept used for external reporting purposes may not be
appropriate for internal, routine reporting to managers. Since
there are multiple internal and external parties that use financial
information, no one specific accounting method will be the
preferred method for all parties.

10

Organization
Structure and
the
Management
Accountant

Organization structure affects the reporting responsibilities of

management accountants. Most organizations distinguish
between line management and staff management. Line
management, such as manufacturing and marketing, is directly
responsible for attaining the goals of the organization. Staff
management, such as management accountants and information
technology management, exists to provide advice and assistance
to line management. For example, a plant manager may need
assistance from a management accountant when investing in a
new piece of equipment.

11

Professional
Ethics

Accountants have special responsibilities regarding ethics,

because of their responsibility for the integrity of financial
information provided to internal and external parties. The
Institute of Management Accountants, or IMA, which is the
largest association of management accountants in the United
States, has Standards of Ethical Conduct for Management

Accountants. These standards provide guidance on issues

relating to competence, confidentiality, integrity, and objectivity.
In addition, the IMA provides its members with an ethics hotline
service. Counselors are available to help identify the key ethical
issues and possible alternatives to resolving them.
12

Check Your
Understanding

The value chain

a. Involves external companies as well as internal activities.
b. Is the sequence of business functions in which customer
usefulness is added to product or services.
c. Applies only to manufacturing companies.
d. Is not relevant in todays cost accounting environment.

13

Summary

We have reached the end of this lesson. Lets take a look at what
weve covered.
Financial accounting information is reported to external users
and used by investors, lenders, suppliers, and other external
users. Financial accounting must follow GAAP. Management
accounting provides financial and nonfinancial information to
internal users employing whatever format or costing approach
that will help managers to make the best decisions.
The management accountant affects strategic decisions by
providing input that aids in developing strategy, building
resources and capabilities, and implementing the strategy.
Managers need to consider customer focus, value-chain and
supply-chain analysis, key success factors, and continuous
improvement and benchmarking for attaining success.
Value chain refers to the sequence of business functions where
value is added to the products or services offered by the
company. The functions in the value chain include research and
development; design of products, services, or processes;
production; marketing; distribution; and customer service.
The five-step decision process includes identify the problem,
obtain information, make predictions about outcomes, make a
decision and implement the decisions.
Management accountants support managers by employing a
cost-benefit approach, giving full recognition to behavioral
considerations as well as technical considerations, and using
different costs for different purposes.

Management accounting fits into an organizations structure

under staff management, which exists to provide advice and
assistance to line management. The management accountant
falls under the controller, who falls under the CFO.
Finally, accountants have special responsibilities regarding
ethics, because of their responsibility for the integrity of
financial information provided to internal and external parties.
The Sarbanes-Oxley Act of 2002 provides ethical guidelines for
public traded companies. AICPA provides ethical guidelines for
private companies and IMA for cost accountants.