Managerial Accounting: a An Introduction to Concepts, Methods, and Uses Fundamental Concepts4 Learning Objectives (siide 1 of 2) Distinguish between managerial and financial accounting. Understand how managers can use accounting information to implement strategies. Identify the key financial players in the organization. Understand managerial accountants’ professional environment and ethical responsibilities. Master the concept of cost.4 Learning Objectives (siide 2 of 2) Compare and contrast income statements prepared for managerial use and those prepared for external reporting. Understand the concepts useful for managing costs. Describe how managerial accounting supports modern production environments. Understand the importance of effective communication between accountants and users of managerial accounting information. Understand the ethical standards that comprise the Institute of Management Accountants’ Code of Ethics. 3Comparison of Financial and Managerial Accounting = Financial Accounting = Managerial Accounting = Deals with reporting to = Deals with activities parties outside the inside an organization organization = Unregulated = Highly regulated = May use projections = Primarily uses historical about the future data4 Implementing Strategies = Managerial accounting system should help managers implement organization’s strategy = System must be adapted to each organization's objectives, strategy and environment = Information required for decision making, planning, and other managerial activities often is not provided by the financial accounting systemKey Financial Players Partial Organization Chart President and Chief Operating Officer | Industrial ‘Staff and Departments Administrative Departments Other Vice-Presidents Including Engineering, Legal, Employee Relations4 Professional Environment (Slide 1 of 2) = Institute of Management Accountants (IMA) = Sponsors Certified Management Accountant and Certified in Financial Management programs = Publishes a journal, policy statements and research studies on accounting issues = Certified Public Accountant = Cost Accounting Standards Board = Sets accounting standards for contracts between the U.S. government and defense contractors+ Professional Environment (Slide 2 of 2) = Ethical issues, while always important, have taken on added significance due to recent accounting failures = The IMA has developed a Code of Conduct mandating that management accountants have a responsibility to maintain the highest levels of ethical conduct4 Basis Cost Concepts siide 1 of 4) = A costis a sacrifice of resources = You must know the context in which the word costis used to know its meaning = Opportunity cost is the foregone income from using an asset in its best alternative4 Basis Cost Concepts siide 2 of 4) = A cost is distinguished from an expense = An outlay of cash may lead to another resource taking its place = The term expense is reserved for external reporting under GAAP and for income tax reporting4 Basis Cost Concepts siide 3 of 4) = A cost object is any item for which the manager wishes to measure cost = Costs directly related to the cost object are called direct costs = Other costs are called indirect costs4 Basis Cost Concepts siide 4 of 4) = The distinction between fixed and variable costs is important since it affects strategic decision making = Variable costs change in total as the activity level changes = Fixed costs do not change in total when the activity level changesIncome Statement For External Reporting Sales Revenue $400,000 Less Cost of Goods Sold 210,000 Gross Margin $190,000 Less Mktg. and Admin Exp. 80,000 Net Income Before Taxes $110,000Contribution Margin Format Income Statement Sales Revenue $400,000 Less Variable Costs: Variable Cost of Sales $160,000 Variable Mktg & Admin 8,000 168,000 Contribution Margin $232,000 Less Fixed Costs: Fixed Cost of Sales $50,000 Fixed Mktg & Admin 72,000 122,000 Net Income Before Taxes $110,000 144 Managing Costs = Effective cost control requires managers to understand how producing a product involves activities and how those activities generate costs = Activity-based Management studies the need for activities and whether they are operating efficientlyValue-Added Activities = Value-added activities increase the product's service to customers = Manager’s try to eliminate non-value-added activities to reduce costs without reducing the product’s service potential to customers = The value chain describes the linked set of activities that add value to the products or services of the organization 164 The Value Chain Begin Value Chain End Value ChainManagerial Accounting in Modern Production Environments = Key developments that reshaped Managerial Accounting include: = Integrated information systems = Web hosting = Just-in-time and lean production = Total Quality Management = Theory of constraints = Benchmarking and continuous improvement4 Question The main objectives of managerial accounting are ...