Chapter 1 Accounting as a Tool For Management Unit 1.1 What is Managerial Accounting?Definition of Managerial Accounting•Managerial accounting: the generation and analysis of relevant information to support managers' strategic decision-making activities Comparison of Managerial and Financial Accounting ManagerialAccountingFinancial AccountingPrimary usersInternal-managers and decision makersExternal- investors and creditorsMandated rulesNone GAAPReporting unitOrganizational segments such as decisions, locations, and product linesOrganization as a wholeTime horizonPast results and projected future resultsPast ResultsTiming of informationAs needed, even if information is not exactAfter the end of an accounting period Internal versus External Users•Managerial accounting benefits internal usersoIt includes reports and information prepared for a range of decision makers within the organization•The information provided by managerial accountants is not disseminated to the general public Lack of Mandated Rules•All public companies that are traded on a US stock exchange and foverened by the SEC must prepare financial statements following GAAP.oMany other nonpublic companies prepare GAAP-based financial statements at the request of creditors.•Managerial accounting has no comparable set of rules for governing what information must be provided to decision makers or how that information is presented Focus on Operating Segments•GAAP based financial statements present a picture of the financial health of the company as a whole•Because most managerial decisions are made at an operating-segment level, managerial accounting information must focus on smaller units of the company.oDecision makers need to know about product lines, manufacturing plants, business segments, and operating divisionsFocus on Future•Financial accounting exists to report the results of operationsoIt is considered historical information•Managerial accounting reports historical info, often with the purpose of comparing actual results to budgeted results.•But managerial accounting helps managers to make decisions that will affect the company's future by projecting the results of certain decisionsoTo evaluate whether a decision will have a positive or negative effect on the company Emphasis on Timeliness•Managerial accountants place more emphasis on the timely delivery of information than on the delivery of information that is precise to the penny The Manager's Role•Managerial accounting is designed to assist managers with 4 general activities, planning, controlling, evaluating, and decision making Planning Controlling Evaluating Decision MakingWhat is it?Strategic: deciding on long-term direction of corporation Operational: deciding how to implement long-term strategyMonitoring day-to-day operations to ensure that processes operate as requiredComparing actual results to planned results for the periodChoosing a course of actionWho does it?Strategic: upper management Operational: upper and middle managementManagers and workersManagers Managers and workersWhen is it done?Strategic: annually, focusing on a 5-10 year-periodIn real time, hourly, daily--the sooner the betterWeekly, monthly, quarterly, annuallyAs neededExamplesPreparing the annual operating budget that allocates Checking a sample of products to determine whether they Reviewing the regional sales history for the year during the Dropping a slow-selling product from the catalogresources are in compliance with customer specificationsregional sales manager's annual performance appraisal Planning•Managers participate in both short-term and long-term planning activities•Long-term planning, often referred to as strategic planning, establishes the direction in which an organization wishes to go•Once a strategy has been established for the organization as a whole, managers begin to develop plans for achieving that strategy•Short-term planning or operational planning translates the long-term strategy into a short-term plan to be completed within the next year. Controlling and Evaluating•After plans have been put in place and the organization has begun to move toward its goals, managers become involved in controlling activities•One purpose of controlling activities is to monitor day-to-day operations to ensure that processes are operating as expected.•Managers want to motivate employees to help the organization achieve its strategic plan and must assess how well they have performed relative to expectationsoEvaluating activity Decision Making•Decision making: the forefront of managerial activity•Need info about available alternativesoManagerial accountants provide most of this The Managerial Accountant's Role•Can be provided by a controller, a plant accountant, a cost accountant, a financial analyst, a budge or cost analyst, a general accountant, or even a CFO.Unit 1.2 Different Strategies, Different InformationMatching Accounting Information to an Organization's Strategy•Strategic priorities Product Differentiation versus Low-Cost Production•Strategic framework to develop a comparative advantage: product differentiation vs. low-cost production•Monitoring these requires different accounting information•For product differentiation: info on quantity•For low cost: info production processesMarket Share: Build, Hold, Harvest, or Divest•Strategies can be classified based on a firm's approach to market share growth, or the trade-off between short term earnings and market shareo4 strategies: Build, Hold, Harvest, Divest•Build strategy: company aims to increase its market share and competitive position relative to others in the industry, even at the expense of short-term earnings and cash flows•Hold's strategy" a company seeks to maintain its current market share and generate a reasonable ROI•Harvest strategy: short term profits and cash, even at the expense of market share•Divest strategy: appropriate when a company desires to exit a particular market Monitoring Strategic PerformanceThe Balanced Scorecard•One tool that managerial accountants have developed to assist in monitoring organizational performance is the balanced scorecard•A collection of performance measures that track an organization's progress toward achieving its goalsoDriven by organization's strategy•Not limited to financial results 1.3 Ethical Considerations in Managerial Accounting•Ethical consideration: knowing right from wrong
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