Transcript Managerial Accounting

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
Introduction to
Managerial Accounting
Chapter 1
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Outback Steakhouse
• Outback Steakhouse
– Owns over 1400 restaurants in all 50 states and in
21 different countries
– Annual sales have topped $3.9 billion, and
operating income is over $152 million.
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Outback Steakhouse
• Strategies
– Outback won’t invest in a new restaurant unless
the projected annual sales at least double the
initial cost of location’s property, improvements,
and equipment
– Outback open only for dinner because it is found
that the cost of replacing overworked managers
and employees would exceed profits from lunch
time business.
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Outback Steakhouse
• Managers use managerial accounting
information to guide their actions and
decisions.
• These decisions include opening new
restaurants, adding new items to the menu, or
outsourcing the desserts to a local bakery.
• Management accounting information helps
management decide whether any or all of
these actions will be profitable
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What is Managerial Accounting
• Financial accounting:
– Focuses on providing stockholders and creditors
with the information they need to make
investment and lending decisions (the balance
sheet, income statement, statement of
shareholders’ equity, and statement of cash flow)
• Managerial accounting:
– Focuses on providing internal management with
the information it needs to run the company
efficiently and effectively
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Objective 1
Identify managers’ four primary
responsibilities
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Managers’ Responsibilities
Decision
Making
Planning
Setting goals and
objectives
Directing
Overseeing day-to-day
operations
Controlling
Evaluating results
of operations
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Planning
• Setting goals and objectives and how to
achieve them
• Examples of planning:
•
Outback’s goals is to generate more sales. One strategy to
achieve this goal is to open more restaurants, so management
may plan to build and begin operating 25 new steakhouses next
year. Managerial accounting translates these plans into
budgets—the quantitative expression of a plan. Management
analyzes the budgets before proceeding to determine whether its
expansion plans make financial sense.
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Directing
•Overseeing company’s day-to-day operations
•Examples:
•
Management uses product cost reports, product sales
information, and other managerial accounting reports to run daily
business operations. Outback uses product sales data to
determine which menu items are generating the most sales and
then uses that information to adjust menus and marketing
strategies.
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Controlling
•Evaluating results of operations against plans
and making adjustments as needed
•Examples:
•
Outback uses performance reports to compare each restaurant’s
actual performance against the budget and then uses that
feedback to take corrective actions if needed. If actual costs are
higher than planned, or actual sales are lower than planned, then
management may revise its plans or adjust operations. Perhaps
the newly opened steakhouses are not generating as much
income as budgeted. As a result, management may decide to
increase local advertising to increase sales.
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Decision Making
•Management is continually making decisions
while it plans, directs, and controls operations
•Examples:
•
Outback must decide where to open new restaurants, which
restaurants to refurnish, what prices to set for meals, what
entrees to offer, and so forth. Because Outback is in business to
generate profits for its stockholders, management must consider
the financial impact of each of these decisions. Managerial
accounting gathers, summarizes, and reports cost and revenue
data relevant to each of these decisions.
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Objective 2
Distinguish financial accounting from
managerial accounting
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E1-9A
a. Companies must follow GAAP in their
_________ systems.
b. Financial accounting develops reports for
external parties, such as __________ and
_______________.
c. When managers evaluate the company’s
performance compared to the plan, they are
performing the ____________ role of
management.
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E1-9A
d. __________ are decision makers inside a
company.
e. _____________________ provides
information on a company’s past
performance to external parties.
f. ______________________ systems are not
restricted by GAAP, but are chosen by
comparing the costs versus the benefits of
the system.
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E1-9A
g. Choosing goals and the means to achieve
them is the ____________ function of
management.
h. _______________________ systems report
on various segments or business units of the
company.
i. ______________________ statements of
public companies are audited annually by
CPAs.
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Objective 3
Describe organizational structure and the
roles and skills required of management
accountants within the organization
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Organizational Structure
Board of
Directors
Audit
Committee
Chief Executive
Officer
Chief Operating
Officer
Vice Presidents
of various
operations
Chief Financial
Officer
Treasurer
Controller
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Internal Audit
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Stockholders elect a board of directors to oversee the company. The board meets
only periodically, so it hires a chief executive officer (CEO) to manage the
company on a daily basis. The CEO hires other executives to run various aspects
of the organization, such as the chief operating officer (COO) and the chief
financial officer (CFO). The COO is responsible for the company’s operations,
such as research and development (R&D), production, and distribution. The CFO is
responsible for all of the company’s financial concerns. The treasurer and the
controller report directly to the CFO. The treasurer is primarily responsible for
raising capital (through issuing stocks and bonds) and investing funds. The
controller is usually responsible for general financial accounting, managerial
accounting, and tax reporting.
The New York Stock Exchange requires that listed companies have an internal
audit function. The role of the internal audit function is to ensure that the
company’s internal controls and risk management policies are functioning properly.
The internal audit department reports directly to a subcommittee of the board of
directors called the audit committee. The audit committee oversees the internal
audit function as well as the annual audit of the financial statements by
independent CPAs.
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Changing Roles of Management
Accountants
• Impact of technology
• Ensuring accurate financial records
• Planning, analyzing, and interpreting
accounting data
• Providing decision support
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Required Skills of Managerial
Accountants
• Knowledge of financial and managerial
accounting
• Analytical skills (critical thinking)
• Knowledge of how a business functions
• Ability to work on a team
• Oral and written communications skills
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E1-11A
a. The _____ and the _____ report to the CEO.
b. The internal audit function reports to the CFO or
_______ and the _________________.
c. The __________ is directly responsible for
financial accounting, managerial accounting and
tax reporting.
d. The CEO is hired by the _________________.
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E1-11A
e. The __________ is directly responsible for
raising capital and investing funds.
f. The __________ is directly responsible for the
company’s operations.
g. Managerial accountants often work with
__________________________.
h. The subgroup of the board of directors is called
the _________________.
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Objective 4
Describe the role of the Institute of
Management Accountants (IMA) and use its
ethical standards to make reasonable ethical
judgments
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Institute of Management Accountants
(IMA)
• Professional association for management
accountants
• IMA’s functions
•
•
•
•
•
•
Certification (CMA)
Practice Development
Education
Networking
Ethical Standards
Public Education
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Institute of Management
Accountants (IMA)
• The Institute of Management Accountants (IMA) is
the professional association for management
accountants. The goal of the IMA is to advance the
management accounting profession primarily
through certification, practice development,
education and networking. The IMA issues one
professional certifications: the Certified Management
Accountant (CMA). You can find out more about the
IMA and the certifications it offers at its Web site
www.imanet.org.
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Summary of IMA Ethical Standards
Competence
Confidentiality
Integrity
Credibility
The IMA Statement of Ethical Professional Practice requires compliance
with 4 ethical standards: Maintain professional competence, preserve
confidentiality of information, uphold integrity, and perform duties with
credibility. Failure to comply with the standards may result in disciplinary
action.
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Ethical Behavior
• Means doing the right thing, regardless of
consequences
• Examples of unethical behavior
– Allowing reimbursement of false expense reports
– Manipulating income
– Performing tasks not qualified to perform
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Steps to Resolve Ethical Dilemmas
• Follow company’s policies for reporting
unethical behavior
• If not resolved
– Discuss with immediate supervisor
– Discuss with objective advisor
– Consult an attorney
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Unethical vs. Illegal Behavior
• Not all unethical behavior is illegal, but all
illegal behavior is unethical.
• Unethical behavior includes:
–
–
–
–
Dishonesty
Unfairness
Lack objectivity
Irresponsible
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E1-12A
a. The ______ is the professional association
for management accountants.
b. The institute offers a professional
certification called the _______, which
focuses on managerial accounting topics,
economics, and business finance.
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E1-12A
c. The institute find that people holding the
______ certification earn, on average,
______% more than those without the
certification.
d. The institute’s monthly publication, called
____________________, addresses current
topics of interest to management
accountants.
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E1-12A
e. The institute says that approximately _____
percent of accountants work inside of
organizations, rather than at CPA firms.
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Objective 5
Discuss and analyze the implications
of regulatory and business trends
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Regulatory and Business Issues
• Sarbanes-Oxley Act of 2002 (SOX)
• International Financial Reporting Standards
(IFRS)
• Extensible Business Reporting Language
(XBRL)
• Shifting economy
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Sarbanes-Oxley Act of 2002 (SOX)
• Restore trust in publicly traded corporations,
management, financial statements, and
auditors
• CEO /CFO requirements:
– Financial statements
– Internal control structure
– Annual assessment
• Independent audit committee
• Increases white-collar crime penalties
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International Financial Reporting
Standards (IFRS)
• Results of globalization
– Consistent reporting standards
needed worldwide
– SEC is studying IFRS
Current IFRS information:
www.IFRS.com or www.IASB.org
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Extensible Business Reporting
Language (XBRL)
•Standardized tagging system for financial
reports
•Advantages:
–
–
–
–
Decreases retrieval time
Decreases conversion time
Facilitates comparisons
Customizes information
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Shifting Economy
• Shift away from manufacturing toward
service
• Managerial accounting has expanded
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Competing in Global Marketplace
• Barriers to international trade have fallen
• More accurate and timely information needed
– The barriers to international trade have fallen over the past decades, allowing foreign
companies to compete with domestic firms. As a result, managers need more accurate and
timely information. Managers need to decide whether to expand sales and/or production
into foreign countries. Companies can learn new management techniques from foreign
operations. Firms that are not highly efficient, innovative, and responsive to business trends
will vanish from the global market. However, global markets also provide highly competitive
domestic companies with great opportunities for growth.
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Tools for Time-Based
Competition
•
•
•
•
•
•
Enterprise resource planning (ERP)
E-commerce
Supply-chain management
Lean production
Just-in-time (JIT)
Total quality management (TQM)
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Enterprise Resource Planning
(ERP)
• System that integrates a company’s functions,
departments, and data
• Advantages
• Streamline operations
• Respond quickly to changes
• Replace separate software systems
• Disadvantage -- expensive
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E-Commerce
• Needed to survive in global economy
• E-commerce is needed to survive in a
competitive, globally wired economy.
Companies use the Internet in everyday
operations such as budgeting, planning,
selling, and customer service.
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Supply-Chain Management
• Exchange of information with suppliers
• Reduce costs
• Improve quality
• Speed the delivery
– Supply-chain management is where companies
exchange information with suppliers to reduce
costs, improve quality, and speed delivery of
goods and services from suppliers to the
company itself.
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Lean Production
• A philosophy and business strategy of
manufacturing without waste
• Lowers costs
• Increases competitive position
– Lean production is both a philosophy and a business strategy of
manufacturing without waste. The more waste that is eliminated, the
lower the company’s costs will be. Why is this important? With lower
costs, companies are better able to compete. One primary goal of a
lean production system is to eliminate the waste of time and money
that accompanies large inventories.
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Just in Time Inventory (JIT)
• Manufacture “just in time” to fill orders
• Reduces:
– Raw materials inventory
– Finished goods inventory
– Storage costs
– Handling costs
• (JIT) inventory philosophy was first pioneered by Toyota. By manufacturing
product just in time to fill customer orders, and no sooner, companies are
able to substantially reduce the quantity of raw materials and finished
product kept on hand. This, in turn, reduces storage costs and handling
costs
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TQM : Total Quality Management
• Goal to provide customers with superior
products and services
• Continually set higher goals for quality
• International Organization for Standardization
(ISO)
•
(TQM) is one key to succeeding in the global economy. The goal of TQM is to delight customers by
providing them with superior products and services. As part of TQM, each business function examines its
own activities and works to improve performance by continually setting higher goals.
•
Many firms want to demonstrate their commitment to continuous quality improvement. The International
Organization for Standardization (ISO), made up of 157 member countries, has developed international
quality management standards and guidelines. Firms may become ISO 9001:2008 certified by complying
with the quality management standards set forth by the ISO and undergoing extensive audits of their
quality management processes.
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E1-15A
a. ________ is a language that utilizes a
standardized coding system companies use to
tag each piece of financial and business
information in a format that can be quickly
and efficiently accessed over the Internet.
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b. _______________________________
involves the exchange of information with
suppliers to reduce costs, improve quality,
and speed delivery of goods and services
from suppliers to the company and its
customers.
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E1-15A
c. The _______________________________
was enacted to restore trust in publicly
traded corporations, their management, their
financial statements, and their auditors.
d. The goal of ___________________________
is to meet customers’ expectations by
providing them with superior products and
services by eliminating defects and waste
throughout the value chain.
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E1-15A
e. Most of the costs of adopting ERP, expanding
into a foreign market, or improving quality
are incurred in the _______; but most of the
benefits occur in the _______.
f. ________________ is the time between
buying raw materials and selling the finished
products.
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E1-15A
g. _______________________________ serves
the information needs of people in
accounting as well as people in marketing
and in the warehouse.
h. Firms adopt _______________ to conduct
business on the Internet.
i. Firms acquire the _________________
certification to demonstrate their
commitment to quality.
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E1-15A
j. ___________________ is a philosophy that
embraces the concept that the lower the
company’s waste is, the lower the company’s
costs will be.
k. ______________________________________
is a data tagging system that enables
companies to release financial and business
information in a format that can be quickly,
efficiently, and cost-effectively accessed,
sorted, and analyzed over the internet.
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E1-15A
l. The SEC is expected to require the adoption
of
_____________________________________
for all publicly traded companies within the
next few years, which differs from the GAAP
that companies are currently required to use.
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E1-15A
m. Toyota first pioneered an inventory
philosophy in which a product is
manufactured ______________ to fill
customer orders; companies are able to
substantially reduce the quantity of raw
materials and finished goods inventories.
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E1-15A
n. ____________________________ is a
management philosophy of delighting
customers with superior products and
services by continually setting higher goals
and improving the performance of every
business function.
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End of Chapter 1
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