Managerial Accounting

and The Business

Environment
Prepared & Edited by
Nazim Uddin
National Institute of Textile Engineering & Research

Accounting

The
Language
of
Business
 Accounting
□ Provides information to external parties
■ Stockholders, creditors, regulators
□ Estimates the cost of products produced
and services provided
□ Provides information to internal decision
makers
■ To plan, control, and evaluate performance

Types of Accounting

Financial Accounting Management Accounting

□ Meets external □ Meets internal information
information needs needs
□ Complies with GAAP □ Provides product costing
information

Cost Accounting
□ Provides information for both management accounting and
financial accounting
□ Measures and reports financial and nonfinancial information relating
to the cost of acquiring or utilizing resources in an organization
□ Includes those parts of both management accounting & financial
accounting in which cost information is collected and analyzed
Managerial Accounting, Cost Accounting
and Financial Accounting
Managerial Cost Accounting Financial
Accounting measures and Accounting
measures and reports financial measures and
reports financial and nonfinancial records business
and nonfinancial information to transactions and
information that managers relating prepares and
helps managers to the cost of provides financial
make decisions to acquiring or statements
fulfill the goals of utilizing resources to external
an organization. in an organization. parties.

Relationship of Financial,
Management, and Cost Accounting

FINANCIAL COST MANAGEMENT

ACCOUNTING ACCOUNTING ACCOUNTING
 MANAGERIAL ACCOUNTING
▪ Managerial Accounting measures and reports
financial and nonfinancial information that
helps managers make decisions to fulfill the
goals of an organization.
▪ Managers use management accounting
information to choose, communicate, and
implement strategy.
▪ They also use management accounting
information to coordinate product design,
production, and marketing decisions.
▪ Management accounting focuses on internal
reporting.

MANAGERIAL ACCOUNTING
Activities Include:

▪ Explaining manufacturing and

nonmanufacturing costs and how they are
reported in the financial statements
▪ Computing the cost of providing a service or
manufacturing a product
▪ Determining the behavior of costs and
expenses as activity levels change
▪ Analyzing cost-volume profit relationships
within a company
 MANAGERIAL ACCOUNTING
Activities Include (continued):

▪ Assisting management in profit planning and

budgeting
▪ Providing a basis for controlling costs and
expenses by comparing actual results with
planned objectives and standard costs
▪ Accumulating and presenting relevant data for
management decision making

Comparison of Financial and Managerial

Accounting

1. Users

2. Time Focus
3. Verifiability vs.
Relevance

4. Precision vs.
Timeliness

5. Subject

6. Requirement
Work of Management

Planni
ng Directing
and
Motivating

Controll
ing

The Changing Business Environment

A more competitive
environment emphasizing:
❶ Global competition
❷ Lower prices and costs
Business environment
❸ Higher quality products
changes in the past
❹ More product choices twenty years
The Changing Business Environment

New tools for

managers!

Just-In-Time
Total Quality
Management
Process Reengineering
Theory of Constraints

Just-in-Time (JIT) Systems

Receive
customer Complete products
orders. just in time to
ship customers.

Schedule
production.

Receive materials Complete parts

just in time for just in time for
production. assembly into products.
Just-in-Time (JIT)

Reduced Greater
inventory customer
costs satisfaction

Higher quality Less warehouse

products space needed

More rapid
Zero
response to
defects
customer orders

Total Quality Management (TQM)

Where are we?
Where do we want to go?
Benchmarking
Plan

Do we need How do
to change Act Do
the plan? is we start?

Check Continuous
Improvement
How are we doing?
Process Reengineering
❶A business process
is diagrammed
in detail.

❷Every step in ❸The process is

the business redesigned to include
process must only those steps that make
be justified. our product more valuable.

Process Reengineering
❶A business process Anticipated results:
is diagrammed ❶ Process is simplified.
in detail. ❷ Process is completed
in less time.
❸ Costs are reduced.
❹ Opportunities for
errors are reduced.

❷Every step in ❸The process is

the business redesigned to include
process must only those steps that make
be justified. our product more valuable.
Theory of Constraints (TOC)
A sequential process of identifying and
removing constraints in a system.

Restrictions or barriers that impede

progress toward an objective

Organizational Structure
An organization is a group of people
united for a common purpose.
Decentralization
Delegation of decision-making authority
throughout an organization.

De
t ion ce
l i za ng de
cis
ntra
n tra a ki ion liz
a
e ce n–m –m tion
D s io ak
c i ing
de

Line and Staff Relationships

Line positions are Staff positions support
directly related to and assist line
achievement of the positions.
basic objectives of an ■ Example: Cost
organization. accountants in the
■ Example: Production manufacturing plant.
supervisors in a
manufacturing plant.
The Chief Financial Officer (CFO)

The CFO is:

■ A member of top management.
■ Responsible for providing timely and relevant
data for planning and control activities.
■ Responsible for external financial reporting.

Questions