Managerial Accounting:
An Overview
Chapter 1
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Objectives
• What is Managerial Accounting?
• Difference between Financial and Managerial
Accounting.
• Work of Management:
• Managerial Accounting Activities:
• Importance of Managerial Accounting in decision
making
• Just-In-Time (JIT) production
Managerial Accounting and
Financial Accounting
Financial accounting Managerial accounting
provides information provides information
to stockholders, to managers of an
creditors and others organization for use
who are outside within the organization.
the organization.
Irwin/McGraw-Hill 3 © The McGraw-Hill Companies, Inc., 2002
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Work of Management
Planning
Controlling
Decision
Making
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Planning
Establish Goals.
Specify How Goals
Will Be Achieved.
Develop Budgets.
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Controlling
The control function gathers feedback to
ensure that plans are being followed.
Feedback in the form of performance reports
that compare actual results with the budget
are an essential part of the control function.
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Decision Making
Decision making involves
making a selection among
competing alternatives.
What should
we be selling?
Who should
we be serving?
How should
we execute?
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Managerial Accounting Activities:
Marketing Majors
Planning
How much should we budget for
TV, print, and internet advertising?
How many salespeople should we
plan to hire to serve a new
territory?
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Managerial Accounting Activities:
Marketing Majors
Controlling
Is the budgeted price cut
increasing unit sales as expected?
Are we accumulating too much
inventory during the holiday
shopping season?
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Managerial Accounting Activities:
Marketing Majors
Decision
Making
Should we sell our services as
one bundle or sell them
separately?
Should we sell directly to
customers or use a distributor?
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Managerial Accounting Activities:
Supply Chain Management Majors
Planning
How many units should we plan to
produce next period?
How much should we budget for
next period’s utility expense?
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Managerial Accounting Activities:
Supply Chain Management Majors
Controlling
Did we spend more or less than
expected for the units we actually
produced?
Are we achieving our goal of
reducing the number of defective
units produced?
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Managerial Accounting Activities:
Supply Chain Management Majors
Decision
Making
Should we transfer production of a
component part to an overseas
supplier?
Should we redesign our
manufacturing process to lower
inventory levels?
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Managerial Accounting Activities:
Human Resource Management Majors
Planning
How much should we plan to
spend for occupational safety
training?
How much should we plan to
spend on employee recruitment
advertising?
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Managerial Accounting Activities:
Human Resource Management Majors
Controlling
Is our employee retention rate
exceeding our goals?
Are we meeting our goal of
completing timely performance
appraisals?
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Managerial Accounting Activities:
Human Resource Management Majors
Decision
Making
Should we hire an on-site medical
staff to lower our healthcare
costs?
Should we hire temporary workers
or full-time employees?
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Why Management Accounting Is Important
in Decision-Making?
The business owners are faced with countless decisions every business day.
Managerial accounting information provides data-driven input to these
decisions, which can improve decision-making over the long term. The
business managers can leverage this powerful tool to help make their
business more successful by understanding how management accounting
benefits common business decision contexts.
• Relevant Cost Analysis:
Managerial accounting information is used by company management to
determine what should be sold and how to sell it. For example, a business
owner may be unsure where he should focus his marketing efforts. To
evaluate this decision, an accounting manager could examine the costs that
differ between advertising alternatives for each product, ignoring common
costs. This process is known as relevant cost analysis and is a technique that
is taught in basic managerial accounting courses. The same process can be
used to determine whether to add product lines or discontinue operations.
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• Activity-based Costing Techniques
Once the company has determined what products to sell, the business needs to
determine to whom they should sell the products. By using activity-based costing
techniques, business management can determine the activities required to produce and
service a product line. Embedded in this information is the cost of customers. Deciding
which customers are more or less profitable allows the business owner to focus
advertising toward the consumers who are the most profitable.
• Make or Buy Analysis
A primary use of managerial accounting information is to provide information used in
manufacturing. For example, a business owner may be considering whether to make or
buy a component needed to manufacture the company's primary product. By completing
a make or buy analysis, he/she can determine which choice is more profitable. While
this technique is certainly useful, business owners should only use these analyses as a
factor in the decision. There could be other non-financial metrics that are important to
consider that would not be part of the analysis.
• Utilizing the Data
Managerial accounting information provides a data-driven look at how to grow a small
business. Budgeting, financial statement projections and balanced scorecards are just a
few examples of how managerial accounting information is used to provide information
to help management guide the future of a company. By focusing on this data, managers
can make decisions that aim for continuous improvement and are justifiable based on
intelligent analysis of the company data, as opposed to gut feelings.
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Managerial Accounting: Beyond the
Numbers
The primary purpose Planning
of this course is to
teach measurement
skills that managers
Controlling
use to support
planning, controlling,
and decision making
Decision
activities.
Making
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Managerial Accounting: Beyond the
Numbers
Measurement What net income should my company
skills help report to its stockholders?
managers Measure and report historical data
answer that complies with applicable rules.
important How will my company serve its customers?
questions. Measure and analyze mostly non-
financial, process-oriented data.
Will my company need to borrow money?
Measure and analyze estimated
future cash flows.
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Lean Production
Customer places Create Production Generate component
an order Order requirements
Goods delivered Production begins Components
when needed as parts arrive are ordered
Lean Production is often called Just-In-Time (JIT) production.
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Lean Production
Traditional Manufacturing
Produce goods in Store Make Sales from
anticipation of Sales Inventory Finished Goods
Inventory
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Lean Production
Because lean thinking only allows production in
response to customer orders, the number of units
produced tends to equal the number of units sold.
The lean approach also results in fewer defects,
less wasted effort, and quicker customer response
times than traditional production methods.
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A Leadership Perspective
Organizational leaders unite the
behavior of employees around
two common themes—pursuing
strategic goals and making
optimal decisions.
Factors that influence behavior:
• Intrinsic Motivation
• Extrinsic Incentives
