Chapter 1

How Management Accounting

Information Supports
Decision Making

PART I:
UNDERSTANDING MANAGEMENT
ACCOUNTING

WHAT IS MANAGEMENT ACCOUNTING

Management accounting:
is the process of supplying the managers and
employees in an organization with relevant
information, both financial and nonfinancial, for
making
decisions,
allocating
resources,
and
monitoring, evaluating, and rewarding performance
IMA Definition of Management Accounting:
Management accounting is a profession that involves
partnering in management decision making, devising
planning and performance management systems and
providing expertise in financial reporting and control
to assist management in the formulation and

Management Accounting
Vs Financial Accounting
Manageme
nt
Accountin
g

Financial
Accountin
g

Future
Orientation

From
Historical
transaction

Supporting
Decision
making

For
external
users

Flexible or
No Rules

Comply to
Standards

A Brief History of
Management Accounting
Early 19th
century

Middle 19th
Century

Determining cost of
clothing and weapon
production
determining cost of railroad
transportation

Late 19
Century

cost reduction in
manufacturing driven by
business competition

Early 20th
Century

Planning and Control

th

PART II:
UNDERSTANDING
STRATEGY

Strategy

Strategy is about an organization

making choices about what it will do and,
equally important, about what it will not
do
Strategic planning involves choosing a
strategy that provides the best fit between
the organizations environment and its
internal resources in order to achieve the
organizations objectives

Strategy contd
Selecting a strategy forces managers to make
choices about what markets the organization
should target and how the organization will
compete in those markets
The
organization
needs
management
accounting information to help implement the
strategy, allocate resources for the strategy,
communicate the strategy, and link employees
and operational processes to achieve the strategy
Management
accounting
information
provides feedback about where it is working

The PlanDoCheckAct (PDCA) Cycle

Edwards Deming Deming Cycles

PART III:
BEHAVIORAL IMPLICATIONS OF
MANAGEMENT ACCOUNTING
INFORMATION

Performance Measurement Systems

Individuals and groups alter their behavior
when they know they are being studied and
their performance is being measure
They focus on the variables and behavior
being measured and pay less attention to
those not being measured
What gets measured gets done
If you dont measure it, you cant manage
and improve it