CHAPTER Fundamental Concepts PowerPoint Presentation by LuAnn Bean Professor of Accounting Florida Institute of Technology © 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Managerial Accounting 11E Maher/Stickney/Weil ☼ CHAPTER GOAL ☼ This chapter provides the groundwork for the book, including tying strategic cost analysis to the value chain LO FINANCIAL FINANCIAL ACCOUNTING: ACCOUNTING: Definition Definition Reports to users (shareholders, creditors, financial analysts, etc.) outside the organization LO MANAGERIAL MANAGERIAL ACCOUNTING: ACCOUNTING: Definition Definition Reports results of activities to insiders (managers, etc.) LO When a product is a “commodity” how you compete to achieve/maintain profitability? Compete by differentiating yourself from competition Focus on order fulfillment, cutting costs, etc LO Can/should the financial or tax accounting systems be used for managerial accounting purposes? NO! The objectives and therefore the information available for decision making is different LO FINANCIAL PROFESSIONALS Financial VP: in charge of all accounting and finance  Controller: manages cost and managerial accounting Treasurer: manages cash flows; raises cash Cost accountants/managers: analyze, manage costs Internal audit: provides auditing, consulting services ETHICAL, REGULATORY FRAMEWORK LO  Standard setting  Cost Accounting Standards Board sets cost accounting standards  Professional organizations  Institute of Management Accounts (IMA) sponsors professional certifications  Certifications  Certified Management Accountant (CMA)  Certified Public Accountant (CPA)  Canadian certifications Chartered Accountant (CA) Certified General Accountant (CGA) LO PREVENTING WHITE COLLAR CRIME Sarbanes-Oxley Act Passed in the aftermath of the Enron scandal Includes Making CEOs and CFOs sign and accept responsibility for financial statements Making CEOs and CFOs responsible for the company’s system of internal controls Creating the Public Company Accounting Oversight Board to oversee public auditors LO TYPES OF COSTS  Opportunity costs  Is the forgone income from using an asset in its best alternative  Direct costs  Relate directly to the cost object for which cost is to be measured  Indirect costs  Are indirectly related to the cost of a cost object  Variable costs  Change in total as the level of activity changes  Fixed costs  Do not change in total with changes in the level of activity 10 LO Variable Variableand andfixed fixed costs costslumped lumpedtogether together for for financial financial purposes purposes EXHIBIT 1.3 EXHIBIT 1.2 Variable Variableand andfixed fixed costs costsare arepresented presented separately separatelyfor for managerial managerialpurposes purposes 12 LO ACTIVITY ACTIVITY BASED BASED MANAGEMENT MANAGEMENT (ABM): (ABM): Definition Definition Examines activities and their associated costs as a means of developing efficiencies and reducing non-value-added costs 13 LO What are “non-valueadded” activities? What are “value-added” activities? Non-value-added activities are activities that can be eliminated without reducing a product’s service potential to the customer Value-added activities are activities that increase a product’s service to the customer 14 LO VALUE VALUE CHAIN: CHAIN: Definition Definition Describes a linked set of activities that increase the usefulness (value) of products/services of an organization 15 LO Functions Functionsof ofthe the value valuechain chainhelp help management management identify identifyvalue-added value-added activities activities EXHIBIT 1.4 16 LO How strategic and tactical cost management decisions differ? Strategic decisions choose between production alternatives Tactical decisions make a particular production alternative more cost efficient 17 STRATEGY and VALUE CHAIN LO Strategic Strategic cost cost analysis analysis identifies identifies parts parts of of the the value value chain chain that that generate generate most most profits, profits, enabling enabling management management to to position position their their business business at at the the best best profit profit points points 18 LO ECONOMIC ECONOMIC DEPRECIATION: DEPRECIATION: Definition Definition Measures decline in value of assets during a period using either sales value or replacement cost 19 LO COST COST OF OF CAPITAL: CAPITAL: Definition Definition Is the amount a firm could earn on its assets by putting them to their best alternative use 20 KEY DEVELOPMENTS IN MANAGERIAL ACCOUNTING LO  Integrated information systems  Tie managerial accounting, financial reporting, customer databases, supply chain management and other databases together  Examples: ERPS, SAP  Web hosting  Allows companies to focus on core competencies while outsourcing portions of information systems  Just-in-Time (JIT) and lean production  Eliminate inventory between production departments and focus on quality and efficiency Continued 21 LO KEY DEVELOPMENTS IN MANAGERIAL ACCOUNTING (cont.)  Total quality management (TQM)  Measures product reliability and service delivery as well as profitability while attempting excelling in all dimensions  Theory of constraints (TOC)  Identifies the weakest part of the process chain (constraint) and attempts to improve it  Benchmarking and continuous improvement  Benchmarking: continuous process of measuring products, services, activities against best performance levels, engaging in continuous improvement  Fads 22 LO INFORMATION Information Information is is not not free free Management Management must must consider consider costs costs and and benefits benefits of of information information when when designing designing an an optimal optimal accounting accounting system system 23 LO 10 The Institute of Management Accountants promulgated the following standards of ethical conduct for management accountants COMPETENCE - ongoing development of their knowledge and skills in preparing complete reports with relevant and reliable information 2.CONFIDENTIALITY – not disclose confidential information acquired in the course of their work, except when authorized INTEGRITY - Avoid actual or apparent conflicts of interest 4.OBJECTIVITY - Communicate information fairly and objectively 24 LO 10 RESOLUTION OF ETHICAL CONFLICT 1.Discuss such problems with the immediate superior except when it appears that the superior is involved, in which case the problem should be presented initially to the next higher managerial level 2.If the immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners 3.Clarify relevant concepts by confidential discussion with an objective advisor to obtain an understanding of possible courses of action 4.If the ethical conflict still exists after exhausting all levels of internal review, the management accountant may have no other recourse on significant matters than to resign from the organization and to submit an informative memorandum to an appropriate representative of the organization 25 End of CHAPTER 26 ... Reports to users (shareholders, creditors, financial analysts, etc.) outside the organization LO MANAGERIAL MANAGERIAL ACCOUNTING: ACCOUNTING: Definition Definition Reports results of activities to. .. assets by putting them to their best alternative use 20 KEY DEVELOPMENTS IN MANAGERIAL ACCOUNTING LO  Integrated information systems  Tie managerial accounting, financial reporting, customer... provides auditing, consulting services ETHICAL, REGULATORY FRAMEWORK LO  Standard setting  Cost Accounting Standards Board sets cost accounting standards  Professional organizations  Institute