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
Copyright2012byTheMcGrawHillCompanies,Inc.Allrightsreserved.

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Financial and Managerial

Accounting: Seven Key Differences

1-3

Work of Management
Planning
Planning

Controlling
Controlling
Decision
Decision
Making
Making

1-4

Planning
Establish
Establish Goals.
Goals.

Specify
Specify How
How Goals
Goals
Will
Will Be
Be Achieved.
Achieved.

Develop
Develop Budgets.
Budgets.

1-5

Controlling
The
The control
control function
function gathers
gathers feedback
feedback to
to
ensure
ensure that
that plans
plans are
are being
being followed.
followed.
Feedback
Feedback in
in the
the form
form of
of performance
performance reports
reports
that
that compare
compare actual
actual results
results with
with the
the budget
budget
are
are an
an essential
essential part
part of
of the
the control
control function.
function.

1-6

Decision Making
Decision making
making involves
involves
making
making aa selection
selection among
competing
competing alternatives.
alternatives.
What
What should
should
we
we be
be selling?
selling?

Who
Who should
should
we
we be
be serving?
serving?

How
How should
should
we
we execute?
execute?

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Managerial Accounting Activities:

Marketing Majors
Planning
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?

1-8

Managerial Accounting Activities:

Marketing Majors
Controlling
Controlling
Is the budgeted price cut increasing
unit sales as expected?
Are we accumulating too much
inventory during the holiday
shopping season?

1-9

Managerial Accounting Activities:

Marketing Majors
Decision
Decision
Making
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:

Operations Management Majors
Planning
Planning
How many units should we plan to
produce next period?
How much should we budget for
next periods utility expense?

1-11

Managerial Accounting Activities:

Operations Management Majors
Controlling
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?

1-12

Managerial Accounting Activities:

Operations Management Majors
Decision
Decision
Making
Making
Should we buy a new piece of
equipment or upgrade our existing
machine?
Should we redesign our
manufacturing process to lower
inventory levels?

1-13

Managerial Accounting Activities:

Human Resource Management Majors
Planning
Planning
How much should we plan to
spend for occupational safety
training?
How much should we plan to
spend on employee recruitment
advertising?

1-14

Managerial Accounting Activities:

Human Resource Management Majors
Controlling
Controlling
Is our employee retention rate
exceeding our goals?
Are we meeting our goal of
completing timely performance
appraisals?

1-15

Managerial Accounting Activities:

Human Resource Management Majors
Decision
Decision
Making
Making
Should we hire an on-site medical
staff to lower our healthcare
costs?
Should we hire temporary workers
or full-time employees?

1-16

Accounting Majors
Many accounting graduates
begin working for public
accounting firms. However,
most leave at some point to
work in other organizations.

80%

The IMA estimates that 80%

of professional accountants in
the U.S. work in non-public
accounting environments.

1-17

Certified Management Accountant

A management
management accountant
accountant
who
who has
has the
the necessary qualifications
qualifications
and
and who
who passes a rigorous professional
exam
exam earns
earns the
the right
right to
to be
be known
known as
as aa
Certified
Certified Management
Management Accountant
Accountant
(CMA).
(CMA).

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CMA Exam
Part 1 Financial Planning, Performance and Control
Planning, budgeting, and forecasting
Performance management
Cost management
Internal controls
Professional ethics
Part 2 Financial Decision Making
Financial statement analysis
Corporate finance
Decision analysis and risk management
Investment decisions
Professional ethics
Information
Information about
about becoming
becoming aa CMA
CMA and
and the
the CMA
CMA program
program can
can be
be accessed
accessed
on
on the
the IMAs
IMAs website
website at
at www.imanet.org
www.imanet.org or
or by
by calling
calling 1-800-638-4427.
1-800-638-4427.

1-19

Strategic Management Skills

A strategy
is a game plan
that enables a company
to attract customers
by distinguishing itself
from competitors.
The
The focal point
point of a
companys
companys strategy
strategy should
should
be its
its target
target customers.
customers.

1-20

Customer Value Propositions

Customer
Intimacy
Strategy

Understand and respond to

individual customer needs.

Operational
Excellence
Strategy

Deliver products and services

faster, more conveniently,
and at lower prices.

Product
Leadership
Strategy

Offer higher quality products.

1-21

Enterprise Risk Management

A process used
by a company to
proactively identify
and manage risk.

Should I try to avoid the

risk, accept the risk, or
reduce the risk?

Once
Once aa company
company identifies
identifies its risks, perhaps
perhaps the
most
most common
common risk
risk management
management tactic
tactic is
is to reduce
reduce
risks
risks by
by implementing
implementing specific
specific controls.
controls.

1-22

Enterprise Risk Management

1-23

Process Management
A business
process is a series of
steps that are followed in order to
carry out some task in
a business.

R&D

Product
Design

Customer
Manufacturing Marketing Distribution Service

Business functions making up the value chain

1-24

Lean Production

Customer places
an order

Create Production
Order

Generate component
requirements

Goods delivered
when needed

Production begins
as parts arrive

Components
are ordered

Lean Production is often called Just-In-Time (JIT) production.

1-25

Lean Production
Traditional Manufacturing

Produce goods in
anticipation of Sales

Store
Inventory

Make Sales from

Finished Goods
Inventory

1-26

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.

1-27

Theory of Constraints
A constraint (also called a bottleneck) is anything that
prevents you from getting more of what you want.
The Theory of Constraints (TOC) is based on the observation
that effectively managing the constraint is the key to success.

The constraint in a system is determined

by the step that has the smallest capacity.

1-28

Theory of Constraints
2. Allow the
weakest link to
set the tempo.

Only actions
that
strengthen the
weakest link in
the chain
improve the
process.

3. Focus on
improving
the weakest
link.

1. Identify the
weakest link.

4. Recognize that
the weakest link
is stronger.

1-29

Measurement Skills
A good manager
complements an
understanding of
strategy, risks, and
business processes with
data-driven analysis.
The key to effective analysis is to understand that
the question you are addressing defines what you
measure and how you analyze the data.

1-30

Measurement Skills
What
What net
net income
income should
should my
my company
company report
report
to
to its
its stockholders?
stockholders?
Measure
Measure and
and report
report historical
historical data
data that
that
complies
complies with
with applicable
applicable rules.
rules.
How
How will
will my
my company
company serve
serve its
its customers?
customers?
Measure
Measure and
and analyze
analyze mostly
mostly non-financial,
non-financial,
process-oriented
process-oriented data.
data.
Will
Will my
my company
company need
need to
to borrow
borrow money?
money?
Measure
Measure and
and analyze
analyze estimated
estimated future
future cash
cash
flows.
flows.

1-31

Measurement Skills
The primary purpose
of this course is to
teach measurement
skills that managers
use to support
planning, controlling,
and decision making
activities.

Planning
Planning

Controlling
Controlling
Decision
Decision
Making
Making

1-32

Leadership Skills
Six Skills of an Effective Leader
1. Technical competence
2. High integrity
3. Understand how to implement organizational
change
4. Strong communication skills
5. Capable of motivating and mentoring other
people
6. Effectively manage team-based decision
processes

1-33

Code of Conduct for Management

Accountants
The Institute of Management Accountants (IMA)
Statement of Ethical Professional Practice
consists of two parts that offer guidelines for:
Ethical behavior.
Resolution for an ethical conflict.

1-34

IMA Guidelines for Ethical Behavior

Recognize
Recognize and
and
communicate
communicate professional
professional
limitations
limitations that
that preclude
preclude
responsible
responsible judgment.
judgment.

Maintain
Maintain
professional
professional
competence.
competence.

Competence

Follow
Follow applicable
applicable
laws,
laws, regulations
regulations
and
and standards.
standards.

Provide
Provide accurate,
accurate, clear,
clear,
concise,
concise, and
and timely
timely decision
decision
support
support information.
information.

1-35

IMA Guidelines for Ethical Behavior

Do
Do not
not disclose
disclose confidential
confidential
information
information unless
unless legally
legally
obligated
obligated to
to do
do so.
so.
Do
Do not
not use
use
confidential
confidential
information
information for
for
unethical
unethical or
or illegal
illegal
advantage.
advantage.

Confidentiality
Confidentiality
Ensure
Ensure that
that subordinates
subordinates do
do
not
not disclose
disclose confidential
confidential
information.
information.

1-36

IMA Guidelines for Ethical Behavior

Mitigate
Mitigate conflicts
conflicts of
of
interest
interest and
and advise
advise others
others
of
of potential
potential conflicts.
conflicts.
Refrain
Refrain from
from
conduct
conduct that
that
would
would prejudice
prejudice
carrying
carrying out
out
duties
duties ethically.
ethically.

Integrity
Abstain
Abstain from
from activities
activities that
that
might
might discredit
discredit the
the
profession.
profession.

1-37

IMA Guidelines for Ethical Behavior

Communicate
Communicate information
information
fairly
fairly and
and objectively.
objectively.

Credibility
Credibility
Disclose
Disclose all
all relevant
relevant
information
information that
that could
could
influence
influence aa users
users
understanding
understanding of
of reports
reports
and
and recommendations.
recommendations.

Disclose
Disclose delays
delays or
or
deficiencies
deficiencies in
in information
information
timeliness,
timeliness, processing,
processing, or
or
internal
internal controls.
controls.

1-38

IMA Guidelines for Resolution of an

Ethical Conflict
Follow
Follow employers
employers established
established policies.
policies.
For
For an
an unresolved
unresolved ethical
ethical conflict:
conflict:
Discuss
Discuss the
the conflict
conflict with
with immediate
immediate supervisor
supervisor or
or next
next
highest
highest uninvolved
uninvolved managerial
managerial level.
level.
IfIf immediate
immediate supervisor
supervisor is
is the
the CEO,
CEO, consider
consider the
the
board
board of
of directors
directors or
or the
the audit
audit committee.
committee.
Contact
Contact with
with levels
levels above
above the
the immediate
immediate supervisor
supervisor
should
should only
only be
be initiated
initiated with
with the
the supervisors
supervisors
knowledge,
knowledge, assuming
assuming the
the supervisor
supervisor is
is not
not involved.
involved.

1-39

IMA Guidelines for Resolution of an

Ethical Conflict
Follow
Follow employers
employers established
established policies.
policies.
For
For an
an unresolved
unresolved ethical
ethical conflict:
conflict:
Except
Except where
where legally
legally prescribed,
prescribed, maintain
maintain
confidentiality.
confidentiality.
Clarify
Clarify issues
issues in
in aa confidential
confidential discussion
discussion with
with an
an
objective
objective advisor.
advisor.
Consult
Consult an
an attorney
attorney as
as to
to legal
legal obligations.
obligations.

1-40

Why Have Ethical Standards?

Ethical
Ethical standards
standards in
in business
business are
are essential
essential for
for aa
smooth
smooth functioning
functioning economy.
economy.

Without ethical standards in business, the

economy, and all of us who depend on it for
jobs, goods, and services, would suffer.

Abandoning ethical standards in business would

lead to a lower quality of life with less
desirable goods and services at higher prices.

1-41

Corporate Social Responsibility

Corporate social responsibility (CSR) is a concept
whereby organizations consider the needs
of all stakeholders when making decisions.

Customers

Employees

Suppliers

Communities

Stockholders

CSR extends beyond legal compliance

to include voluntary actions that satisfy
stakeholder expectations.

Environmental
& Human Rights
Advocates

1-42

Corporate Social Responsibility