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Since 1977
MANAGEMENT SERVICES
MS 3401 – Overview of Management Services
LECTURE NOTES
Three objectives of management accounting:
1. To provide information for costing services,
products, and other objects of interest to
management.
2. To provide information for planning, controlling,
evaluation, and continuous improvement.
3. To provide information for decision making.
Distinctions Between Management Accounting and Financial Accounting
Management Accounting
Targeted user: internal users
managers
Restrictions: no mandatory rules for preparing
reports
Types of information: financial and nonfinancial information
Time orientation: emphasizes the future (planning and
decision making)
Aggregation: detailed information about product
line, departments, etc.
In general, accounting information needed by internal
users differs from that needed by external users in the
following ways:
a. More flexible
b. Does not have to comply with GAAP or other rules
c. Forward looking
d. Timely
e. Emphasizes segments, not necessarily the entire
organization
The Work of Management and the Planning and
Control Cycle. The work of managers can be usefully
classified into three major categories: planning,
directing and motivating, and controlling. All of these
activities involve making decisions.
1. Planning consists of strategic planning and
developing more detailed short-term plans. Most
of what we refer to below is with reference to the
more detailed short-term plans.
2. Directing and motivating involves mobilizing
people to implement the plan.
3. Control is concerned with ensuring that the plan
is followed. Accountants maintain the databases
and prepare the reports that provide feedback to
managers. The feedback can be used to reward
particularly successful employees, but more
importantly the feedback can be used to identify
potential problems and opportunities that were not
anticipated in the plan.
4. Decision-making is an integral part of the other
three management activities.
HOW MANAGERIAL ACCOUNTING ADDS VALUE
• Provides managers with information (e.g., product
costs, budgets, cash flows). The information
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TRINIDAD
MAY 2023
Three roles of management accountants
• Problem-solving: comparative analysis for decision
making
• Scorekeeping: accumulating data and reporting
reliable results
• Attention directing: The function of managerial-
accounting information in pointing out to managers
issues that need their attention, thereby helping
managers properly focus their attention.
Financial Accounting
external users
stockholders and creditors
must follow GAAP when preparing
financial statements
financial information
historical orientation (reports what
has already occurred)
information about overall firm
performance
includes financial and nonfinancial data to help
managers with strategic planning and decision
making.
• Assists in directing and controlling (analyzing and
comparing actual performance to budgeted plans;
attention-directing to highlight successful or
problem areas).
• Motivates managers to achieve the organization's
goals by communicating the plans, providing a
measurement of how well the plan was achieved,
and prompting an explanation of deviations from
plans.
• Measures performance not only for the entire
organization, as in financial accounting, but also
for many subunits (divisions, departments,
managers).
• Assesses the organization's competitive position in
the rapidly changing business environment. Looks
at how well the firm is doing internally, in the eyes
of its customers, from the standpoint of innovation
and continuous improvement, and financially.
The Changing Business Environment
1. Just-In-Time - The term JIT means that materials
are received just in time to be used in production,
manufactured parts are completed just in time to
be assembled into products, and products are
completed just in time to be shipped to customers.
As a result, inventories are virtually eliminated in
a JIT system.
Key Elements of JIT
• Improved plant layout
• Reduced setup time
• Low defect rates
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• Flexible workforce
Benefits of JIT
• Inventories are reduced.
• Space is freed up.
• Throughput time is reduced.
• Defect rates are reduced.
2. Total Quality Management (TQM) - Total Quality
Management means different things to different
people. Nevertheless, most TQM programs seem to
share at least two common elements—a focus on the
customer and systematic problem-solving using
teams made up largely of front-line workers.
3. Process Reengineering - involves completely
redesigning a business process from the ground up.
In this respect, it can be differentiated from TQM
which tends to emphasize small, incremental
improvements. The process is redesigned with a
focus on simplification and elimination of non-value-
added activities.
4. Theory of Constraints (TOC) - The goal in the
Theory of Constraints is not to eliminate all
constraints; there is always a constraint
somewhere in the system if the goal is to make
more money. However, constraints determine the
performance of the entire system, so they should
be intelligently managed.
5. Organizational Structure
• Centralization vs. decentralization
• Line and staff relationships
• The controller
6. Strategic decisions and management accounting -
key to a company’s success in creating value for
customers while differentiating itself from its
competitors.
• Providing a quality product or service at a lower
price than competitors
• Providing a unique product or service at a higher
price than competitors
Role of Accountants and Treasurer
The chief financial officer (CFO) or controller is
the chief accountant responsible for:
• the supervision of the accounting department
• preparation of reports
• the interpretation of information to line
managers.
The treasurer is responsible for:
• raising capital
• safeguarding assets
• managing investments
• insurance coverage
• credit policy of an organization.
Line personnel are directly involved in carrying out
the mission of the organization (e.g., assembly
workers in a factory, doctors in a hospital,
teachers in a school).
Staff personnel (accountants, lawyers, personnel
directors, and other administrative positions) provide
support for the organization's mission.
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Value Chain - The value chain is a set of value-
adding functions or processes that convert inputs
into products and services for the organization’s
customers:
1. Research and Development—experimenting to
reduce costs or improve quality.
2. Design—developing alternative product,
service, or process designs.
3. Supply—managing raw materials received from
vendors to reduce costs and improve quality.
4. Production—acquiring and assembling
resources to produce a product or render a
service.
5. Marketing—promoting a product or service to
current and prospective customers.
6. Distribution—delivering a product or service to
a customer.
7. Customer Service—supporting customers after
the sale of a product or service.
Corporate governance
Corporate governance is designed to compensate for
the agency problem resulting from the fact that
corporations are managed by professional
management that may not operate them in the best
interest of the shareholders.
Components of Corporate governance
Policies, procedures and mechanism that are
established to control management. These major
controls over management include:
• compensation systems,
o boards of directors (including major
committees),
o external auditors, internal auditors, attorneys,
regulators, creditors, securities analysts. and
internal control systems.
Forms of Executive Compensation
A key objective in setting executive compensation is to
align management's decisions and actions
with the long-term interests of shareholders (e.g., long-
term stock price). If managers are given too much fixed
compensation, they may become too complacent and not
take appropriate risks to increase share price. If
managers are given too much incentive compensation
based on operating profit or short-term stock price, they
have incentives to manage profit or take excessive risks
to maximize their compensation.
Common types of management compensation
a. Base salary and bonuses. Using this system,
managers are compensated based on performance
which is typically measured by accounting profit.
Compensation systems based on accounting
measures of profit are problematic because
accounting profit can be manipulated or managed.
b. Stock options. The use of stock options as a form of
compensation provides managers with an incentive
to manage the corporation to increase the stock
price, which is consistent with the goal of
shareholders. A disadvantage of stock options is
that managers may have an incentive to increase the
stock price in the short-term at the expense of long-
term stock value, even by manipulating accounting
income to increase stock price. In addition, stock
options may encourage management to take on risks
that are that are in excess of shareholders' risk
appetite.
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c. Stock grants- Stock grants involve issuing shares of
stock as part of management's compensation. Two
common types of stock grants:
(1) Restricted stock. The issuance of stock that
cannot be sold by the manager for a specific
period of time, usually about 10 years. This form
of compensation is effective because it
encourages managers to undertake operations
that increase the long-term value of the
corporation's stock price.
(2) Performance shares. The issuance of stock to
management if certain levels of performance are
met. If the price of the corporation's stock
increases, the value of the manager's
compensation increases.
d. Executive perquisites (perks). Management also
may get various perquisites such as retirement
benefits, use of corporate assets, golden parachutes,
and corporate loans.
e. The best forms of executive compensation-It is
generally believed that the best compensation
systems include a combination of fixed compensation
and incentive compensation that is related to long-
term stock price.
Audit committee - a "committee established by and
amongst the board of directors of an issuer for the
purpose of overseeing the accounting and financial
reporting processes of the issuer, and audits of the
financial statements of the issuer." A major
responsibility of the audit committee is the appointment,
compensation and oversight of the corporation's external
auditor, including the resolution of any disagreements
between management and the external auditor
Other important characteristics of an audit
committee
(a) At least one member should be a "financial expert."
The names of the financial experts must be
disclosed. A financial expert is one that possesses all
of the following attributes:
1] An understanding of generally accepted
accounting principles and financial statements;
2] Experience in preparing, auditing, analyzing, or
evaluating financial statements of the breadth
and complexity expected to be encountered with
the company;
3] An understanding of internal controls and
procedures for financial reporting: and
4] An understanding of audit committee functions.
Enterprise risk management: Enterprise risk
management is a process, effected by an entity's board
of directors, management and other personnel, applied
in a strategy-setting and across the enterprise, designed
to identify potential events that may affect the entity,
and manage risk to be within its risk appetite, to provide
reasonable assurance regarding the achievement of
entity objectives.
ERM helps align the risk appetite of the organization with
its strategy, enhances risk response decisions, reduces
operational surprises and losses, identifies and manages
cross-enterprise risks, provides integrated responses to
multiple risks, helps the organization seize opportunities,
and improves the deployment of capital.
A key aspect of ERM is the identification and
management of events that have a negative impact,
positive impact, or both. Events with negative impact
represent risks. Events with positive impact may offset
negative impacts or represent opportunities. The risk
management process involves (1) identifying risks,
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assessing risks, prioritizing risks, determining risk
responses. and monitoring risk responses.
Interrelated components of ERM
(1) internal environment
(2) objective setting
(3) event identification
(4) risk assessment
(5) risk response
(6) control activities
(7) information and communication
(8) monitoring.
TERMINOLOGIES
Benchmarking (or competitive benchmarking) - The
continual search for the most effective method of
accomplishing a task, by comparing existing
methods and performance levels with those of
other organizations or with other subunits within
the same organization.
Continuous improvement - The constant effort to
eliminate waste, reduce response time, simplify
the design of both products and processes, and
improve quality and customer service.
Empowerment - The concept of encouraging and
authorizing workers to take the initiative to
improve operations, reduce costs, and improve
product quality and customer service.
Line position - Position held by managers who are
directly involved in providing the goods or services
that constitute an organization's primary goals.
Non-value-added costs - The costs of activities that
can be eliminated without deterioration of product
quality, performance, or perceived value.
Reengineering - The complete redesign of a process,
with an emphasis on finding creative new ways to
accomplish an objective.
Total quality management (TQM) - The broad set of
management and control processes designed to
focus an entire organization and all of its
employees on providing products or services that
do the best possible job of satisfying the customer.
Treasurer - An accountant in a staff position who is
responsible for managing an organization's
relationships with investors and creditors and
maintaining custody of the organization's cash,
investments, and other assets.
Theory of constraints - A management approach that
focuses on identifying and relaxing the constraints
that limit an organization's ability to reach a
higher level of goal attainment.
Type of Cost
Out-of-pocket costs require a cash outlay.
Opportunity costs are the benefits you give up when
you choose one alternative over another.
Direct costs can be directly and conveniently traced
to a specific cost object.
Indirect costs either cannot be traced to a specific
cost object or are not worth the effort of tracing.
Variable costs change, in total, in direct proportion to
changes in activity.
Fixed costs remain the same, in total, regardless of
activity.
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Manufacturing costs are associated with making a
physical product. They can be classified as direct
materials, direct labor, or manufacturing
overhead.
Nonmanufacturing costs are associated with selling a
product or service or running the overall
business.
Product costs are assigned to a product as it is being
produced; they accumulate in inventory accounts
until the product is sold.
Period costs are reported as expenses as they are
incurred.
Relevant costs are future oriented costs that differ
among decision alternatives.
Irrelevant costs are those that remain the same
regardless of the alternatives and thus will not
affect the decision.
IMA Standards of Ethical Conduct for Management
Accountants
1. Competence
• Maintain an appropriate level of professional
competence by ongoing development of their
knowledge and skills.
• Perform their professional duties in accordance
with relevant laws, regulations, and technical
standards.
• Prepare complete and clear reports and
recommendations after appropriate analyses of
relevant and reliable information.
2. Confidentiality
• Refrain from disclosing confidential information
acquired in the course of their work except when
authorized unless legally obligated to do so.
• Inform subordinates as appropriate regarding the
confidentiality of information acquired in the
course of their work and monitor their activities to
assure the maintenance of that confidentiality.
• Refrain from using or appearing to use confidential
information acquired in the course of their work for
unethical or illegal advantage either personally or
through third parties.
3 Integrity
• Avoid actual or apparent conflicts of interest and
advise all appropriate parties of any potential
conflict.
• Refrain from engaging in any activity that would
prejudice their ability to carry out their duties
ethically.
• Refuse any gift, favor, or hospitality that would
influence or would appear to influence their
actions.
• Refrain from either actively or passively subverting
the attainment of the organization/s legitimate and
ethical objectives.
• Recognize and communicate professional
limitations or other constraints that would preclude
responsible judgment or successful performance of
an activity.
• Communicate unfavorable as well as favorable
information and professional judgments or
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opinions.
• Refrain from engaging in or supporting any activity
that would discredit the profession.
4 Objectivity
• Communicate information fairly and
objectively.
• Disclose full all relevant information that could
reasonably be expected to influence an
intended user’s understanding of the reports,
comments, and recommendations presented.
Resolution of Ethical Conflict
In applying the standards of ethical conduct,
management accountants may encounter problems in
identifying unethical behavior or in resolving an ethical
conflict. When faced with significant ethical issues,
management accountants should follow the
established polies of the organization bearing on the
resolution of such conflict. If these polies do no
resolve the ethical conflict, management accountants
should consider the following courses of actions:
• Discuss such problems with the immediate
superior except when it appears that the
superior is involved, in which case the problem
should be presented initially to the next higher
management level. If satisfactory resolution
cannot be achieved when the problem is
initially presented, submit the issues to the
next higher managerial level.
• If the immediate superior is the chief executive
officer, or equivalent, the acceptable reviewing
authority may be a group such as the audit
committee, executive committee, board of
directors, board of trustees or owners.
Contact with levels above the immediate
superior should be initiated only with the
superior’s knowledge, assuming the superior is
not involved.
• Clarify relevant concepts by confidential
discussion with an objective advisor to obtain
an understanding of possible courses of action.
• If the ethical conflict still exists after
exhausting all levels of internal review, the
management accountant may have no other
recourse on significant matters that to resign
from the organization and to submit an
informative memorandum to an appropriate
representative of the organization.
Except where legally prescribed, communication of
such problems to authorities or individuals not
employed or engaged by the organization is not
considered appropriate.
Exercise No. 1
Indicate whether each of the following pertains to
financial accounting or managerial accounting.
1. The report is verifiable and reliable.
2. It provides reasonable and timely estimates.
3. The reports are generally delayed and
historical.
4. The scope tends to be highly aggregated.
5. Reliance on the criterion of usefulness rather
than formal guidelines or restrictions for
gathering and reporting information.
6. Contribution approach income statement.
7. The audience tends to be stockholders,
creditors, and tax authorities.
8. External users of financial report.
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EXCEL PROFESSIONAL SERVICES, INC.

9. Focuses on estimating future revenues, costs, A. Stockholders C. Production supervisors

and other measures to forecast activities and
their results
10. Emphasizes relevance and flexibility rather
than precision.
11. Complies with Securities and Exchange
Commission rules and regulations.
12. Uses cost-benefit analysis to determine the
amount of detail presented.
B. Sales representatives D. Managers
7. Which of the following does not relate to
management services by CPAs?
A. Design and/or installation of accounting systems.
B. Financial analysis for project feasibility studies.
C. Cost analysis of major investment decisions.
D. None of the above.

Exercise No. 2 8. Which of the following managerial functions involves

Classify each of the following as either line manager or a detailed financial and operational description of
staff manager. anticipated operations?
1. Chief financial officer (CFO). a. Decision making.
2. Vice-president for government relations b. Planning.
3. Controller c. Directing operational activities.
4. Manager of food and beverage services d. Controlling.
5. Flight attendant
9. Trio Company has set various goals, and
Exercise No. 3 management is now taking appropriate action to
MULTIPLE CHOICE QUESTIONS ensure that the firm achieves these goals. One such
1. Which of the following is not an objective of action is to reduce outlays for overhead, which have
managerial accounting? exceeded budgeted amounts. Which of the following
a. Providing information for decision making and functions best describes this process?
planning. a. Decision making.
b. Assisting in directing and controlling b. Planning.
operations. c. Coordinating.
c. Maximizing profits and minimizing costs. d. Controlling.
d. Measuring the performance of managers and
subunits. 10. Which of the following functions is best described as
e. All of the above are objectives of managerial choosing among available alternatives?
accounting a. Decision making.
b. Planning.
2. Which statement about the degree of detail in a c. Directing operational activities.
report is true? d. Controlling.
a. It depends on the level of the manager
receiving the report. 11. Which of the functions of management involves
b. It may depend on the frequency of the report. overseeing day-to-day activities?
c. It depends on the type of manager receiving a. Planning
the report. b. Directing and motivating
d. All of the above. c. Controlling
d. Decision making
3. The unit of measurement used in management
accounting is 12. The professional certification most relevant for
a. primarily the historical peso. managerial accountants is the
b. usually current replacement cost. a. CMA c. CSA
c. any measurement unit that is useful in a b. CPA d. MAS
particular situation.
d. the measurement unit used by competing 13. Who is the manager in charge of raising cash for
companies. operations and managing cash and near-cash
assets?
4. The following characteristics refer to Financial a. Chief financial officer.
Accounting, except b. Controller.
a. Provides information to external users c. Treasurer.
b. Emphasizes on objective data d. Internal auditor.
c. Has no externally imposed standards
d. Generates general purpose financial statement 14. The functions of planning for control, evaluating and
consulting, and governmental reporting are typically
5. Which of the following characteristics does not assumed within organizations by:
relate to management accounting? a. the company treasurer
A. Accounting reports may include non-monetary b. the company controller
information c. the company vice-president of marketing
B. It is subject to restrictions imposed by GAAP. d. external auditors
C. Reports are often based on estimates and are
seldom useful for anything other than the 15. The linked set of activities that increases the
purpose for which they are prepared. usefulness (or value) of the products or services of
D. It provides data for internal users within the an organization is the
business organization. a. direct chain c. value chain
b. indirect chain d. variable chain
6. Which of the following groups would be LEAST likely
to receive detailed management accounting
reports?

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EXCEL PROFESSIONAL SERVICES, INC.
16. Which of the following reflects the correct order in a
value-chain?
a. Research & Development, Design, Production
b. Distribution, Customer Service, Marketing
c. Design, Research & Development, Production
d. Distribution, Marketing, Research & 25. Which of the following are two generic strategies
Development
17. A just-in-time manufacturer is more likely than a
conventional manufacturer to
a. receive more frequent deliveries of materials
b. spend less money on advertising
c. need workers with fewer skills
d. all of the above
18. A conventional manufacturer is more likely than a
just-in-time manufacturer to
a. have a short production cycle
b. produce goods in small batches
c. hold large inventories to serve as buffers
d. none of the above
19. After careful planning, Jammu Manufacturing
Corporation has decided to switch to a just-in-time
inventory system. At the beginning of this switch,
Jammu has 30 units of product in inventory. Jammu
has 2,000 labor hours available in the first month of
this switch. These hours could produce 500 units of
product. Customer demand for this first month is
400 units. If just-in-time principles are correctly
followed, how many units should Jammu plan to
produce in the first month of the switch?
a. 370 c. 430
b. 400 d. 470
20. A company has a bottleneck operation that slows
production. Which of the following tools or
approaches could the firm use to determine the
most cost-effective ways to eliminate this problem?
a. Linear programming.
b. Theory of constraints.
c. Decision-tree diagrams.
d. Strategic path analysis (SPA).
21. Benchmarking allows managers to:
a. determine who in the industry performs similar
processes most effectively.
b. determine the processes that have high value-
to-cost relationships.
c. compare certain internal processes, services
and activities to those of other companies in
order to identify strengths and weaknesses.
d. reproduce another company’s product design
and manufacturing processes to eliminate
competitive advantage.
22. An approach to developing new ways to perform
existing activities is called
a. process value analysis
b. re-engineering
c. caveat analysis
d. benchmarking
23. Process Reengineering includes all of the following
steps except:
a. constructing a diagram flowcharting the
current process.
b. redesigning the process.
c. elimination of non-value-added activities.
d. elimination of all constraints.
24. An advantage of downsizing is
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a. decreased costs in the long run.
b. layoffs.
c. one-time losses.
d. reduced communication.
that a company can use?
a. growth and product differentiation
b. price recovery and growth
c. product differentiation and cost leadership
d. cost leadership and price recovery
26. Which item is not an IMA Standard for Ethical
Conduct?
a. Integrity c. Loyalty
b. Competence d. Objectivity
27. A managerial accountant who prepares clear reports
and recommendations after analyzing relevant facts
is exercising which of the following standards?
a. Objectivity c. Competence
b. Integrity d. Confidentiality
28. This principle imposes the obligation on all
professional accountants to be fair, intellectually
honest, and free of conflicts and interests.
a. Integrity
b. Objectivity
c. Maturity
d. Independence in mental attitude
29. Which ethical standard is violated when an
accountant uses information from a financial
statements he is preparing to advise a relative of a
stock purchase?
a. Competence c. Integrity
b. Confidentiality d. Credibility
30. Which of the following statements relating to
Standards of Ethical Conduct for Management
Accountants is correct?
a. A management accountant should refuse all
gifts and hospitality offered by one of the
company’s suppliers.
b. A management accountant should inform his
superiors regarding the confidentiality of
information acquired in the course of their
work and monitor their activities to assure the
maintenance of that confidentiality.
c. A management accountant should prepare
complete and clear reports and
recommendations before appropriate analyses
of relevant and reliable information.
d. Management accountants have a responsibility
to disclose fully all relevant information that
could reasonably be expected to influence an
intended user’s understanding of the reports,
comments, and recommendations presented.
31. The Standards of Ethical Conduct for Management
Accountants developed by the Institute of
Management Accountants state that when faced
with significant ethical issues, management
accountants should first:
a. discuss such problems with the immediate
superior except when it appears that the
superior is involved.
b. clarify relevant concepts by confidential
discussion with an objective advisor to obtain
an understanding of possible courses of action.
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EXCEL PROFESSIONAL SERVICES, INC.
c. follow the established policies of the
organization bearing on the resolution of such
conflict.
d. submit an informative memorandum describing
the ethical issue to an appropriate
representative of the organization and resign if
no action is taken as a result of the
memorandum.
32. The Standards of Ethical Conduct for Management
Accountants developed by the Institute of
Management Accountants states that significant
ethical issues should be discussed with an
immediate superior unless the superior is involved.
If satisfactory resolution cannot be achieved when
the problem is initially presented, then the issues
should be:
a. submitted to the next higher managerial level.
b. submitted to the chief executive officer.
c. submitted to the audit committee, executive
committee, board of directors, or owners.
d. submitted to outside legal counsel.
33. Samantha Galloway is a managerial accountant in
the accounting department of Mustang Industries,
Inc. Samantha has just discovered evidence that
some of the corporation's marketing managers have
been wrongfully inflating their expense reports in
order to obtain higher reimbursements from the
firm. According to the Institute of Management
“There is only one difference between dream and aim. Dream requires soundless sleep to see whereas aim
requires sleepless effort to achieve.” - Anonymous
– end -
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Accountants' Standards of Ethical Conduct, what
should Samantha do upon discovering this
evidence?
a. notify the controller.
b. notify the marketing managers involved.
c. notify the president of the corporation.
d. ignore the evidence because she is not part of
the Marketing Department.
34. The performance measurement tool generally
associated with the display of information
evaluating multiple dimensions of business
outcomes is referred to as the:
a. Balanced scorecard. c. Kaizen.
b. Return on Investment. d. Market value added
35. Which of the following best identifies the reason
that effective corporate governance is important?
a. The separation of ownership from management.
b. The goal of profit maximization.
c. Excess management compensation.
d. Lack of oversight by boards of directors.
MS.3401