1 - Managerial Accounting PDF

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Summer 2019 - Hwee Cheng Tan...

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1: Managerial Accounting Wednesday, May 8, 2019

4:17 PM

Learning Objectives • • • •

Explain the distinguishing features of managerial accounting Identify the three broad functions of management and the role of management accoun an organizational structure Explain the importance of business ethics Identify changes and trends in managerial accounting

1.1 Managerial Accounting Basics Learning Objective - Explain the distinguishing features of managerial accounting

Introduction Managerial Accounting a field of accounting that provides economic and financial informatio managers and other internal users • Applies to all types of businesses (service, merchandising, manufacturing) • Applies to all forms of businesses (proprietorships, partnerships, corporations) • Needed for not-for-profit entities and profit-orientated enterprises 1. 2.

Methods used to determine amount and type of cost in a product changed as work environment has become more automated Responsible for strategic cost management ○ Help management evaluate how well the company is employing its resources

Comparing Managerial and Financial Accounting Similarities between managerial and financial accounting: D l ith th i t f b i

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Managerial accounting system has two functions: ○ Accumulates cost by its nature such as labour, materials, and overhead ○ Assigns costs to cost objects Information from managerial accounting system used in: ○ Inventory measurement ○ Profit measurement ○ Decision making ○ Performance measurement and control

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Deal with the economic events of a business ○ Determining unit cost of manufacturing a product - managerial accounting ○ Reporting total cost of goods manufactured and sold - financial accounting Require company's economic events be quantified and communicated to interest parti

Differences between managerial and financial accounting: Feature

Financial Accounting

Managerial Accounting

Primary users of reports

External users (shareholders, creditors, regulators)

Internal users (officers and mana

Regulations

• Accounting standards and stock exchange regulations

• None - if information is publish then it must be regulated

Time Focus

Historical

Future and historical

Types and frequency • Financial statements • Quarterly and annually of reports

• Internal reports • As frequently as needed

Purpose of reports

General-purpose

Special-purpose for specific decis

Content of reports

• Pertains to business as a whole • Highly aggregated • Limited to double-entry accounting and cost data • Generally accepted accounting principles

• Pertains to subunits of the bus • Very detailed • Extends beyond double-entry accounting to any relevant dat • Standard is relevance to decisio

Verification process

Audited by CPA (Chartered Professional Accountant)

No independent audits

1.2 Management Functions and Organizational Structures Learning Objective - identify the three broad functions of management and the role of mana accountants in an organizational structure

Management Functions Managers' activities and responsibilities can be classified into three functions: 1. Planning responsibility that requires management to look ahead and to establish objec ○ Maximizing short-term profits and market share

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Maintaining commitment to environmental protection Contributing to social programs Value the measure of a trading price of a company's shares and the potential sel of the company Directing responsibility that involves coordinating company's diverse activities and hum resources to produce a smoothly running operation ○ Implementing planned objectives ○ Providing necessary incentives to motivate employees ○ Selecting executives ○ Appointing managers and supervisors ○ Hiring and training employees Controlling the process of keeping the company's activities on track ○ Determining whether planned goals are being achieved ○ Deciding what changes are needed to get back on track when there are deviation objectives ○ ○ ○

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3.

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Decision-making = the outcome of exercise of good judgement in planning, directing, a controlling

Organizational Structures Organization Charts an illustration that depicts the interrelationships of activities and delega authority and responsibility within the company

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Leading • Directing and motivating all involved parties and resolving conflicts Organizing • Determining what needs to be done, how it will be done, and who is to do it

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Shareholders those who own the corporation on of Board of Directors a group of people, elected by the shareholders, that manage the co

Chief Executive Officer (CEO) an individual that has overall responsibility for managing • Delegates responsibilities to other officers

Line Positions employees that are directly involved in the company's main revenue-ge operating activities • Vice president of operations, vice president of marketing • Plant managers, supervisors, production personnel Staff Positions employees that are involved in activities that support the efforts of the • Finance, legal, human resource departments Chief Financial Officer (CFO) an individual responsible for all accounting and finance is

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Internal Audit Staff a group of people serving the CFO with responsibilities that include revie reliability and integrity of financial institutions provided by the controller and treasurer • Ensure internal control systems are functioning properly to safeguard corporate assets • Investigate compliance with policies and regulations • Determine whether resources are being used in most economical and efficient fashion

1.3 Business Ethics Learning Objective - Explain the importance of business ethics •

All employees are expected to act ethically in business activities

Creating Proper Incentives • •

Dedicating substantial resources to monitor and effectively evaluate actions of employ Companies must prepare budgets to provide direction

Code of Ethical Standards Statement of Ethical Professional Practice provides codes of conduct regarding: Competence • Maintaining professional competence • Performing professional duties in accordance with relevant laws, regulations, and tech standards • Preparing complete and clear reports and recommendations • Communicating professional limitations that would preclude responsible judgement or successful performance of an activity Confidentiality

company faces Controller an individual responsible for: ○ Maintaining the accounting records ○ Maintaining an adequate system of internal control ○ Preparing financial statements, tax returns, internal reports Treasurer an individual with custody of the corporation's funds and is responsib maintaining the company's cash position ng

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Confidentiality • Refraining from disclosing confidential information • Informing subordinates at to how to handle confidential information • Refraining from using confidential information for unethical or illegal advantage Integrity • Avoiding conflicts of interest • Refraining from activity that would prejudice ability to carry out their duties ethically • Refraining from engaging in or supporting any activity that would discredit the account profession Credibility • Communicating information fairly and objectively • Disclosing fully all relevant information that could reasonably be expected to influence understanding of the reports, comments, and recommendations presented

Corporate Social Responsibility Corporate Social Responsibility consideration of a company's efforts to employ sustainable b practices with regard to its employees and the environment Triple Bottom Line an evaluation of a company's performance with regard to people, p and profit Sustainable business practices present numerous issues for management and managerial accountants 1. Companies must decide what items need to be measured 2. For each item identified, company must determine measurable attributes that provide information about company's performance in regards to the item 3. Company needs to consider materiality of the item, cost of measuring attributes, and r of measurements

1.4 Managerial Accounting Today Learning Objective - Identify changes and trends in managerial accounting •

To compete successfully in global environment - corporations have begun to implemen strategic management programs ○ Designed to improve quality reduce costs and regain competitive position

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Designed to improve quality, reduce costs, and regain competitive position Focusses on long-term goals and objectives of organization and full analysis of environment business is operating in § Internal operations and resources of organization § External aspects of organization's environment Requires changes to traditional management accounting § Criticized for being too narrow, highly quantitative, aimed only at needs of reporting, and contributes little to overall policy and direction of organizat

Service Industry Trends

Managerial Accounting Practices Focus on the Value Chain • Value Chain all activities associated with providing a product or service

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Technological Change • Plays a large role in the value chain • Enterprise Resource Planning (ERP) Software Systems computer system that provides a comprehensive, centralized, and integrated source of information used to manage all m business processes • Computer-Integrated Manufacturing (CIM) the use of computer systems to manufactu products that do not need human interaction ○ Can significantly reduce labour costs • Computers reduced the cost of accumulating, storing, and reporting managerial accou information • Affects the value chain through B2B ecommerce on the Internet Just-in-Time Inventory Methods • Just-in-Time (JIT) Inventory an inventory system in which goods are manufactured or p just in time for use ○ Goods are manufactured or purchased just in time for use • Innovation that resulted from focus on value chain Quality • JIT inventory systems require increased emphasis on product quality • Total Quality Management (TQM) a system implemented to reduce defects in finished with the goal of achieving zero defects ○ Require timely data on defective products, rework costs, and cost of honouring w contracts ○ Provide information on non-financial measures Activity-Based Costing • Overhead costs are a large component of product and service costs ○ Cannot be directly traced to individual products • Activity-Based Costing (ABC) a method of allocating overhead costs based on each prod use of activities ○ Results in more accurate product costing and in more careful scrutiny of all activ the supply chain

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Supply Chain all activities from the receipt of an order to the delivery of a produc service

Theory of Constraints • Theory of Constraints the practice of identifying constraints that impede a company's a provide a good or service, and dealing with constraints to maximize profitability Lean Manufacturing • Process increasingly used by many firms to manage their operations more efficiently a more control • Eliminates waste and concentrates more accurately on customer needs 1. 2. 3. 4.

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Specify a value - the process of 'target costing,' the acceptable cost customers are willi for a specific product Identify the value stream - the entire flow of a product's life cycle through each stage o production Create flow - the need for production process to have a continuous flow The pull principle - a product should not be made until a customer orders it ○ Company's production capacity must be flexible and each stage of value chain m well designed and defined Aim for perfection - the target quality that management seeks to obtain via its custome needs

Balanced Scorecard • Balanced Scorecard a performance measurement approach that uses both financial an financial measures to evaluate all aspects of a company's operations in an integrated w

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