1 MANAGERIAL ACCOUNTING Lecturer Nguyen Phong Nguyen Auditor - PricewaterhouseCoopers Lecturer in Accounting - University of Economics HCMC MA. Monash University (Australia) DBA Candidate. University of Western Sydney (Australia) 2 Section 1 Introduction to Managerial Accounting Learning Objectives 1. Explain the meaning of managerial accounting. 2. Explain the objectives of managerial accounting. 3. Explain the differences between managerial accounting and financial accounting. 4. Explain the importance of ethical behavior for managers and managerial accountants. 3 The Meaning of Managerial Accounting ►Managerial Accounting is the provision of accounting information for a company’s internal users. ►Managerial accounting has three broad objectives: Comparison of Financial and Managerial Accounting Aggregation Time orientation Types of information Restrictions Users Managerial Accounting Financial Accounting Internal users External users No mandatory rules for preparing reports Must follow GAAP when preparing FSs Financial and non- financial information Financial information Future oriented Historical oriented Detailed information about product line, departments Information about overall firm performance 4 Comparison of Financial and Managerial Accounting (continued) The key point is flexibility— the accounting system should be able to supply different information for different purposes. Managerial Accounting and Ethical Conduct ►The objective of profit maximization should be constrained by the requirement that profits be achieved through legal and ethical means. ►Ethical behavior involves choosing actions that are right, proper, and just. 5 IMA Ethical Principles ►Competence – maintain an appropriate level of professional expertise by continually developing knowledge and skills; ►Confidentiality – refrain using confidential information for unethical or illegal advantage; ►Integrity – abstain from engaging in or supporting any activity that might discredit the profession; and ►Credibility – communicate information fairly and objectively. Study questions – Q1 ►How do managerial accounting and financial accounting differ? ►Managerial accounting is internally focused, does not follow mandatory rules, keeps track of both financial and nonfinancial information, emphasizes the future, and provides detailed information about various aspects of company management. Financial accounting, on the other hand, is externally focused, follows externally imposed rules (such as GAAP), keeps track of financial information, has a historical orientation, and provides information about the company as a whole. 6 Study questions – Q2 ►What are the three broad objectives of managerial accounting? ►The three broad objectives of managerial accounting are planning, controlling, and decision making. Study questions – Q3 ►What is ethical behavior? Explain the underlying code of ethics of the IMA. ►Ethical behavior is choosing actions that are right, proper, and just . The code of ethics of IMA includes four principles: competence, confidentiality, integrity, and credibility [See the slide with title “IMA ethical principles”]. 7 Study questions – Q4 ►Should a MAS provide both financial and non- financial information? ►A managerial accounting information system typically provides both financial and nonfi-nancial information. For example, financial information on cost of production is tracked. Other information, such as the number of warranty returns, may also be tracked by the management information system. Section 2: Basic Cost Concepts and Classifications 8 Learning Objectives 1. Explain the meaning of cost and how costs are assigned to products and services. 2. Define how costs are classified (cost classification). 3. Apply cost estimation methods to separate mixed costs into fixed and variable elements. What is cost? ►Cost is the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization. 9 Cost Objects ►A cost object is any item such as a product, customer, department, project, geographic region, plant, and so on, for which costs are measured and assigned. Assigning Costs What is the cost object for the phone call? Assigning costs is the way that a cost is linked to some cost object. To support Manufacturing? To support Selling the Product? ????? ????? 10 Direct Costs ►Direct costs are those costs that can be easily and accurately traced to a cost object. ►When we say that a cost is EASY TO TRACE, we often mean that the relationship between the cost and the object can be physically observed and is easy to track. ►The more costs that can be traced to the object, the more accurate are the cost assignments. Indirect Costs ►Indirect costs are costs that CANNOT BE EASILY AND ACCURATELY TRACED to a cost object. ►Allocation means that an indirect cost is assigned to a cost object by using a reasonable and convenient method. [...]... variable components help managers understand cost behavior and consequently make good business decisions Comparison of Methods for Separating Fixed Costs into Fixed and Variable Components 34 Managerial Judgment ► Managerial judgment is critically important in determining cost behavior and is by far the most widely used method in practice ► Many managers simply use their experience and past observation... variable components Managerial Judgment (continued) ► Finally, management may use experience and judgment to refine statistical estimation results ► Perhaps the experienced manager might ‘‘eyeball’’ the data and throw out several points as being highly unusual or revise the results of estimation account for projected changes in cost structure or technology ► The advantage of using managerial judgment... cannot reasonably be assigned to either selling or production are administrative costs ►Examples of general administrative costs are executive salaries, legal fees, printing the annual report, and general accounting ►Research and development costs are the costs associated with designing and developing new products and must be expensed in the period incurred 18 Cornerstone 2-3 Calculating Direct Materials... the machine can only produce 1,000 units and the company grows, they will have to lease additional machines for each 1,000 units of production needed (resulting in the wide steps shown in the graph) 25 Accounting Records and Need for Cost Separation ► Only through a formal effort to separate costs can all costs be classified into the appropriate cost behavior categories ► If mixed costs are a very small . 1 Introduction to Managerial Accounting Learning Objectives 1. Explain the meaning of managerial accounting. 2. Explain the objectives of managerial accounting. 3. Explain the differences between managerial. managerial accounting and financial accounting. 4. Explain the importance of ethical behavior for managers and managerial accountants. 3 The Meaning of Managerial Accounting Managerial Accounting. Accounting is the provision of accounting information for a company’s internal users. Managerial accounting has three broad objectives: Comparison of Financial and Managerial Accounting Aggregation Time