FINAL EXAM STUDY GUIDE 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 Managerial Accounting Primary users Internal managers and decision makers Financial Accounting External investors and creditors GAAP None Mandated rules Reporting unit Organizational segments such as decisions locations and product lines Organization as a whole Time horizon Past results and projected future results Past Results Timing of information As needed even if information is not exact After the end of an accounting period Internal versus External Users Managerial accounting benefits internal users o It 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 o Many 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 o Decision makers need to know about product lines manufacturing plants business segments and operating divisions Focus on Future Financial accounting exists to report the results of operations o It 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 decisions o To evaluate whether a decision will have a positive or negative effect on the company Managerial accountants place more emphasis on the timely delivery of information than on the Emphasis on Timeliness delivery of information that is precise to the penny The Manager s Role controlling evaluating and decision making Controlling Planning Evaluating What is it Decision Making Choosing a course of action Monitoring day to day operations to ensure that processes operate as required Comparing actual results to planned results for the period Managerial accounting is designed to assist managers with 4 general activities planning Who does it Managers and workers Managers Managers and workers Strategic deciding on long term direction of corporation Operational deciding how to implement long term strategy Strategic upper managemen t Operational upper and middle managemen t When is it done Strategic annually focusing on a 5 10 year period In real time hourly daily the sooner the better Weekly monthly quarterly annually Examples Preparing the annual operating budget that allocates resources Checking a sample of products to determine whether they are in compliance with customer specifications Reviewing the regional sales history for the year during the regional sales manager s annual performance appraisal As needed Dropping a slow selling product from the catalog 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 expectations o Evaluating activity Decision Making Decision making the forefront of managerial activity Need info about available alternatives o Managerial 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 Information Matching 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 processes Market 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 share 4 strategies Build Hold Harvest Divest o 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 Performance The 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 goals o Driven by organization s strategy Not limited to financial results 1 3 Ethical Considerations in Managerial Accounting Ethical consideration knowing right from wrong and conducting yourself accordingly so that your decisions are consistent with
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