Copyright 2015 Pearson Canada

Inc.

Introduction to
Managerial
Accounting
CHAPTER 1

Copyright 2015 Pearson Canada

Inc.

Identify managers four primary

responsibilities

OBJECTIVE 1

Copyright 2015 Pearson Canada

Inc.

Managers Responsibilities
Planning:
Setting goals and
objectives

Decision
Making

Directing:
Overseeing day-today operations

Feedback

Controllin
g:

Evaluating results
of operations
Copyright 2015 Pearson Canada
Inc.

Planning
Setting goals and objectives for the
organization and determining how to achieve
them
Examples of strategic goals:
Generate more sales by opening new
stores
Reduce labour costs by improving
operating efficiencies
Plans may be translated into budgets
Copyright 2015 Pearson Canada
Inc.

Directing
Overseeing organizations day-to-day operations
Examples:
Using daily/weekly sales reports to adjust
marketing decisions
Using product cost reports to adjust raw
material usage
Setting the work schedule for employees

Copyright 2015 Pearson Canada

Inc.

Controlling
Evaluating results of operations against plans
and making adjustments as needed
Examples:
Comparing budgeted sales with actual sales
and take corrective action
Comparing budgeted product costs against
actual product costs and take corrective action
Ensure actual results meet planned results
Copyright 2015 Pearson Canada
Inc.

Decision Making
Management is continually making
decisions while it plans, directs, and
controls operations
Examples:
Location of new stores
Prices of product offerings
Choice of suppliers
Hiring and firing employees
Copyright 2015 Pearson Canada
Inc.

Distinguish financial accounting from

managerial accounting

OBJECTIVE 2

Copyright 2015 Pearson Canada

Inc.

Managerial vs. Financial

Accounting
Issue

Managerial

Financial

Primary users

Internal

External

Purpose of
information

Plan, direct,
control, decide

Users make
investing and
lending decisions

Primary
accounting
product

Internal reports
useful to
management

General purpose
financial
Statements

What is
included?

Defined by
management

Determined by
ASPE or IFRS

Copyright 2015 Pearson Canada

Inc.

10

Managerial vs. Financial

Accounting
Issue

Managerial

Financial

Underlying basis
of information

Internal and
external
transactions,
focus on future

Based on
historical
transactions with
external parties

Emphasis

Data must be
relevant

Data must be
reliable and
objective

Business unit

Segments of the
business

Company as a
whole

Prepared how
often?

Depends on
management
needs

Annually and
quarterly

Copyright 2015 Pearson Canada

Inc.

11

Managerial vs. Financial

Accounting
Issue

Managerial

Financial

Verification

Internal audit

External audit

Information
requirements

No formal
requirement only
best practices

Public companies
must issue
audited financial
statements

Impact on
employee
behaviour

Careful
consideration

Adequacy of
disclosure

Copyright 2015 Pearson Canada

Inc.

12

Describe organizational structure and the

roles and skills required of management
accountants within the organization

OBJECTIVE 3

Copyright 2015 Pearson Canada

Inc.

13

Organizational Structure
Board of
Directors
Audit
Committee
Chief Executive
Officer

Chief Operating
Officer
Vice Presidents
of Various
Operations

Chief Financial
Officer

Treasurer

Controller

Copyright 2015 Pearson Canada

Inc.

Internal Audit

14

The Changing Roles of Management

Accountants

Impact of technology
Ensuring accurate financial records
Planning, analyzing, and interpreting
accounting data
Providing decision support

Copyright 2015 Pearson Canada

Inc.

15

Skills Required of Managerial

Accountants
Solid knowledge of financial and
managerial accounting
Problem-solving and decision-making
skills
Knowledge of how a business functions
Ability to lead and to work in a team
Professionalism and ethical standards
Oral and written communications skills
Copyright 2015 Pearson Canada
Inc.

16

Describe the role of the three professional

accounting designations in Canada and use their
ethical standards to make reasonable ethical
judgments

OBJECTIVE 4

Copyright 2015 Pearson Canada

Inc.

17

Professional Accounting
Designations in Canada
Certified Management Accountant (CMA)
Chartered Accountant (CA)
Certified General Accountant (CGA)
Chartered Public Accountant (CPA)
Merger of the three legacy designations

Copyright 2015 Pearson Canada

Inc.

18

Management Accounting
Ethics
Professional Competence
Confidentiality and
Transparency
Credibility
Credibility in
in Performance
Performance of Duties
Integrity
of Decisions
First level bullet

Managemen
t Accountant
must comply
with five
ethical
standards

- second level dash

8 third level arrow
- fourth level in
dash
Independence
Actions
8 fifth level arrow

Copyright 2015 Pearson Canada

Inc.

19

Ethical Behaviour
Means doing the right thing,
regardless of consequences
Examples of unethical behaviour
Allowing reimbursement of false expense
reports
Manipulating income
Performing tasks not qualified to perform

Copyright 2015 Pearson Canada

Inc.

20

Steps to Resolve Ethical

Dilemmas
Follow companys policies for
reporting unethical behaviour
If not resolved
Discuss with immediate supervisor
Discuss with objective advisor
Consult an attorney

Copyright 2015 Pearson Canada

Inc.

21

Unethical vs. Illegal

Behaviour
Not all unethical behaviour is illegal,
but all illegal behaviour is unethical.
The CMAs ethical concepts include

Honesty
Fairness
Objectivity
Responsibility

Copyright 2015 Pearson Canada

Inc.

22

Discuss and analyze the implications of

regulatory and business trends

OBJECTIVE 5

Copyright 2015 Pearson Canada

Inc.

23

Regulatory and Business

Issues
Sarbanes-Oxley Act of 2002 (SOX) in
the USA
International Financial Reporting
Standards (IFRS)
Shifting economy

Copyright 2015 Pearson Canada

Inc.

24

Sarbanes-Oxley Act of 2002 (SOX)

To restore trust in publicly traded
corporations, management, financial
statements, and auditors
CEO /CFO responsibilities:
Financial statements
Internal control structure
Procedures for financial reporting
Independent audit committee
New requirements for public accounting
firms
Increased white-collar crime penalties
Copyright 2015 Pearson Canada
Inc.

25

International Financial
Reporting Standards
(IFRS)

As a result of globalization,
consistent reporting standards are
needed worldwide
Canada has adopted IFRS from
January 2011
Current IFRS information:
www.IFRS.com
Copyright 2015 Pearson Canada
Inc.

26

Shifting Economy
North American economies have shifted
away from manufacturing toward service
Service companies now make up the
largest sector of the Canadian economy
Since the economy has shifted away
from manufacturing, so has managerial
accounting

Copyright 2015 Pearson Canada

Inc.

27

How Companies Compete in

Todays Global Marketplace
Getting more accurate and timely
information
Deciding whether to expand
sales/production into foreign
countries
Observing international competitors
Lean production
Cost-benefit analysis
Copyright 2015 Pearson Canada
Inc.

28

Sustainability, Social Responsibility,

and the Triple Bottom Line

Sustainability: the ability to meet

the needs of the present without
compromising the ability of future
generations to meet their own needs
Triple bottom line: Recognizes that
a companys performance should
also be viewed in terms of its impact
on people and the planet
Copyright 2015 Pearson Canada
Inc.

29

Tools for Time-Based

Competition
Advanced Information Systems
Enterprise resource planning (ERP)
systems
Help companies save money and respond
quickly to changes, and can replace
hundreds of separate software systems

E-commerce
An important means of supply-chain
management
Copyright 2015 Pearson Canada
Inc.

30

Describe a lean production system

OBJECTIVE 6

Copyright 2015 Pearson Canada

Inc.

31

Lean Production
A philosophy and business strategy
of manufacturing without waste
Lowers costs
Increases competitive position
Incorporates a JIT inventory focus

Copyright 2015 Pearson Canada

Inc.

32

Characteristics of a
Lean Production System
Production occurs in self-contained
cells
Broad employee roles
Small batches produced just in time
Shortened set-up times
Shortened manufacturing cycle
times
Emphasis on quality
Copyright 2015 Pearson Canada
Inc.

33

TQM : Total Quality

Management
Goal is to provide customers with
superior products and services
Continually set higher goals for
quality
International Organization for
Standardization (ISO)

Copyright 2015 Pearson Canada

Inc.

34

Describe and use the costs of quality

framework

OBJECTIVE 7

Copyright 2015 Pearson Canada

Inc.

35

Cost of Quality
Framework
Identify costs as one of four
categories

Prevention costs
Appraisal costs
Internal failure costs
External failure costs

Copyright 2015 Pearson Canada

Inc.

36

Cost of Quality Examples

Prevention Costs
Training employees
Other examples?

Appraisal Costs
Inspection of
materials
Other examples?

Copyright 2015 Pearson Canada

Inc.

37

Cost of Quality Examples

Prevention Costs

Appraisal Costs

Inspection of
Training employees
materials
Evaluating suppliers
Inspection of WIP
Using better
Inspection of final
materials
product
Preventive
Employee
maintenance
evaluations
Improved
Product testing
equipment
Cost of inspection
Redesign the
equipment
product
Redesign theCopyright 2015 Pearson Canada
Inc.
process

38

Cost of Quality Examples

Internal Failure
Costs
Cost of downtime
Other examples?

External Failure
Costs
Warranty costs
Other examples?

Copyright 2015 Pearson Canada

Inc.

39

Cost of Quality Examples

Internal Failure
Costs

Cost of downtime
Rework
Excessive scrap
Cost of rejected
units
Disposal of rejects
Machine
breakdowns

External Failure
Costs
Warranty costs
Service cost at
customer site
Sales returns
Product liability
claims
Cost of recalls
Lost profit from lost
customers
Reputation

Copyright 2015 Pearson Canada

Inc.

40