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Managerial Accounting

by James Jiambalvo
Chapter 1:
Introduction to Managerial
Accounting

Slides Prepared by:


Scott Peterson
Northern State University
Chapter 1: Introduction to
Managerial Accounting
Chapter Themes: Learning Objectives:
State the primary goal of
 It’s all about using
1.
managerial accounting.
information to plan, 2. Describe how budgets are used in
control and make planning
decisions. 3. Describe how performance
reports are used in the control
 Accountants produce process.
information and managers 4. Distinguish between financial and
managerial accounting.
use information.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Primary Goal of Managerial
Accounting
Effective managers must be Related Learning Objectives:
adept at planning, controlling 1. State the primary goal of
managerial accounting.
and decision making.
2. Describe how budgets are used in
planning
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Planning
Planning has to do with Related Learning Objectives:
budgeting in a managerial 1. State the primary goal of
managerial accounting.
context. It is in this way that a
2. Describe how budgets are used
company’s goals are in planning.
communicated to all 3. Describe how performance
employees. reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
Budgets include profit
5. Define cost terms used in
budgets, cash-flow budgets, planning, control and decision
production budgets and making.
many others. 6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Controlling
The notion of managerial control Related Learning Objectives:
has to do with measuring and 1. State the primary goal of
evaluating the performance of managerial accounting.
both the manager and the 2. Describe how budgets are used in
operation(s) for which the planning.
manager is responsible. 3. Describe how performance
reports are used in the control
process.
There is an important distinction
to be made here. A manager is 4. Distinguish between financial and
managerial accounting.
evaluated, at least in part, based
5. Define cost terms used in
on her overall performance. Each planning, control and decision
operation for which she is making.
responsible is evaluated in order 6. Explain the two key ideas in
to optimize future goals and managerial accounting.
objectives. 7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Decision Making
An integral part of the Related Learning Objectives:
planning and controlling 1. State the primary goal of
managerial accounting.
process, decision making
2. Describe how budgets are used
includes both rewarding or in planning.
punishing managers for their 3. Describe how performance
performance AND dropping, reports are used in the control
process.
adding or otherwise changing 4. Distinguish between financial and
some aspect of operations managerial accounting.
going forward. 5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
A Comparison of Managerial
and Financial Accounting
Managerial accounting: Related Learning Objectives:
1. Is meant primarily for 1. State the primary goal of
managerial accounting.
internal users while
2. Describe how budgets are used in
financial accounting is planning.
meant for external users. 3. Describe how performance
2. Is not driven by GAAP. reports are used in the control
process.
3. May be much more
4. Distinguish between financial
detailed than financial and managerial accounting.
(external) accounting 5. Define cost terms used in
reports. planning, control and decision
4. May include much making.
6. Explain the two key ideas in
nonfinancial data. managerial accounting.
5. Is forward looking rather 7. Discuss the duties of the
than retrospective. controller, the treasurer and the
chief financial officer (CFO).
Similarities Between Financial
and Managerial Accounting
Although managerial Related Learning Objectives:
accounting is meant for 1. State the primary goal of
managerial accounting.
internal users (management)
2. Describe how budgets are used in
and financial accounting is planning.
meant for external users, 3. Describe how performance
managers DO make use of reports are used in the control
process.
financial accounting 4. Distinguish between financial
information. and managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Cost Terms
The term “cost” appears in Related Learning Objectives:
many contexts and carries a 1. State the primary goal of
managerial accounting.
number of meanings.
2. Describe how budgets are used in
planning.
3. Describe how performance
Different categories of cost reports are used in the control
terms are merely different process.
ways to look at costs or to 4. Distinguish between financial and
managerial accounting.
slice and dice cost
5. Define cost terms used in
information. They are not planning, control and decision
necessarily complementary making.
to or mutually exclusive of 6. Explain the two key ideas in
managerial accounting.
other cost categories.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Variable and Fixed Costs
Variable costs: costs Related Learning Objectives:
that increase or 1. State the primary goal of
managerial accounting.
decrease (in total) 2. Describe how budgets are used in
relative to increases or planning.
Describe how performance
decreases in the level of 3.
reports are used in the control
business activity. process.
4. Distinguish between financial and
managerial accounting.
Fixed costs: costs that 5. Define cost terms used in
planning, control and decision
do not change (in total) making.
relative to changes in 6. Explain the two key ideas in
managerial accounting.
business activity.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Sunk Costs
Sometimes called “past Related Learning Objectives:
costs.” These costs are NOT 1. State the primary goal of
managerial accounting.
relevant to the decision
2. Describe how budgets are used in
making process. planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Opportunity Costs
These are the values of Related Learning Objectives:
potential benefits foregone 1. State the primary goal of
managerial accounting.
when a decision is made.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Direct and Indirect Costs
Direct costs: costs that are Related Learning Objectives:
directly traceable to some 1. State the primary goal of
managerial accounting.
object such as a product,
2. Describe how budgets are used in
activity or department. planning.
3. Describe how performance
reports are used in the control
Indirect costs: costs that are process.
NOT directly traceable to a 4. Distinguish between financial and
managerial accounting.
product, activity or
5. Define cost terms used in
department. planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Controllable and
Noncontrollable Costs
Yet another way to slice and dice Related Learning Objectives:
costs. This time it has to do with 1. State the primary goal of
the degree of influence a managerial accounting.
manager has over the cost. If a 2. Describe how budgets are used in
planning.
management decision can
3. Describe how performance
impact the cost in the short term, reports are used in the control
it is considered controllable. process.
Conversely, if a manager cannot 4. Distinguish between financial and
influence (control) the cost in the managerial accounting.
short term, then it is 5. Define cost terms used in
noncontrollable. A manager’s planning, control and decision
making.
performance should NOT include
6. Explain the two key ideas in
an assessment of managerial accounting.
noncontrollable costs. 7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Two Key Ideas in Managerial
Accounting
They are: Related Learning Objectives:
1. State the primary goal of
managerial accounting.
1. Decision making relies 2. Describe how budgets are used in
on incremental planning.
3. Describe how performance
analysis—an analysis of reports are used in the control
revenues and costs that process.
increase or decrease if a 4. Distinguish between financial and
managerial accounting.
particular decision
5. Define cost terms used in
alternative is selected. planning, control and decision
2. You get what you making.
6. Explain the two key ideas in
measure! managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Decision Making Relies on
Incremental Analysis
Incremental means Related Learning Objectives:
“difference.” Here decision 1. State the primary goal of
managerial accounting.
making looks at the
2. Describe how budgets are used in
difference between revenues planning.
and expenses if selection (a) 3. Describe how performance
is made as opposed to reports are used in the control
process.
selection (b). 4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
You Get What You Measure
Performance measurement Related Learning Objectives:
impacts management 1. State the primary goal of
managerial accounting.
behavior.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
The Controller As the Top
Management Accountant
Controller: The top management Related Learning Objectives:
accountant responsible for 1. State the primary goal of
preparing information for managerial accounting.
planning, controlling and 2. Describe how budgets are used in
decision making. planning.
3. Describe how performance
Treasurer: The treasury function reports are used in the control
process.
is custodial in nature; custody of
assets. 4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
Chief Financial Officer (CFO): planning, control and decision
The senior executive to whom making.
both the controller and CFO 6. Explain the two key ideas in
report. managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
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