MANAGEMENT ACCOUNTING

Dr. Nguyễn Thị Vân Hà

Faculty of Transport and Economics
Departement of Business Administration

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Subject Introduction
Managerial Accounting and the Business
Environment
Cost Concepts and Behaviors
Cost-Volume-Profit Relationships and its
applications for making decisions
Flexible Budgets and Performance Analysis
Pricing Products and Services
Analyzing information of relevant Costs for
Decision Making
McGraw-Hill/Irwin
❖ Reference book
• Management Accounting, Hilton
Ronald (McGraw-Hill, 2003)
• Managerial Accounting, Calvin
Engler (Irwin, 3rd Edition, 2002)
❖ Test and Examination
• Attendance, Participation,
Interaction, Assignments (30%)
• Interim Test (20%)
• Final Examination: 50%
• Type of final examination: Multiple
Choice and Exercises
❖ Group Seminar
Copyright © 2006, The McGraw-Hill Companies, Inc.
 11th Edition
Chapter 1

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 Managerial Accounting and
the Business Environment

Chapter One

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 Work of Management

Planning
Directing and
Motivating

Controlling

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 Planning

Identify
alternatives.

Select alternative that does

the best job of furthering
organization’s objectives.

Develop budgets to guide

progress toward the
selected alternative.
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 Directing and Motivating

Directing and motivating involves managing day-

to-day activities to keep the organization
running smoothly.
 Employee work assignments.
 Routine problem solving.
 Conflict resolution.
 Effective communications.

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 Controlling

The control function ensures

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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 Exh.
1-1
Planning and Control Cycle

Formulating long-
Begin
and short-term plans
(Planning)

Comparing actual
Implementing
to planned Decision plans (Directing
performance Making and Motivating)
(Controlling)

Measuring
performance
(Controlling)

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 Comparison of Financial and Exh.
1-2

Managerial Accounting
Financial Accounting Managerial Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on relevance

versus relevance verifiability for planning and control

4. Precision versus Emphasis on Emphasis on

timeliness precision timeliness

5. Subject Primary focus is on Focuses on segments

the whole organization of an organization

6. GAAP Must follow GAAP Need not follow GAAP

and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory

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 Organizational Structure

Decentralization is the delegation of decision-

making authority throughout an organization.

Corporate Organization Chart

Board of Directors

President

Purchasing Personnel Vice President Chief Financial

Operations Officer

Treasurer Controller

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 Line and Staff Relationships

Line positions are directly Staff positions support

related to achievement of
the basic objectives of an
organization.
 Example: Production
supervisors in a
manufacturing plant.
and assist line positions.
 Example: Cost
accountants in the
manufacturing plant.

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 The Chief Financial Officer (CFO)

A member of the top management team

responsible for:
 Providing timely and relevant data to support
planning and control activities.
 Preparing financial statements for external users.

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 The Changing Business Environment

• Just-in-time production
• Total quality management
• Process reengineering
Business environment
• Theory of constraints changes in the past
• International competition twenty years
• E-commerce
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 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.

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 JIT Consequences

Improved Zero production

plant layout defects

Reduced Flexible
setup time workforce

JIT purchasing
Fewer, but more ultrareliable suppliers.
Frequent JIT deliveries in small lots.
Defect-free supplier deliveries.
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 Benefits of a JIT System

Reduced Freed-up funds

inventory
costs
Greater
customer
Higher quality satisfaction
products

More rapid
response to
Increased customer orders
throughput

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 Total Quality Management (TQM)

TQM improves productivity by encouraging the use of fact

and analysis for decision making and if properly implemented,
avoids counter-productive organizational infighting.

Continuous
Improvement
Systematic
problem solving
using tools such is
as benchmarking

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 Process Reengineering

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

Every step in The process is redesigned

the business to eliminate all
process must non-value-added activities
be justified.

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 Process Reengineering versus TQM

Process Reengineering Total Quality Management

• Radically overhauls • Tweaks existing
existing processes. processes to realize
• Likely to be imposed gradual improvements.
from above and to use • Uses a team approach
outside consultants. involving people who
work directly in the
process.

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 Theory of Constraints

A constraint (also called a bottleneck) is anything that

prevents you from getting more of what you want.

The constraint in a system is determined

by the step that has the smallest capacity.

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 Theory of Constraints

Only actions 2. Allow the

that strengthen weakest link to
the weakest link set the tempo.
in the “chain”
improve the
process.
3. Focus on
1. Identify the improving
weakest link. the weakest
link.

4. Recognize that
the weakest link
is no longer so.
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 International Competition

Increasing sophistication
in international markets.

Fewer tariffs, Improvements

Competition has
quotas, and in global
other barriers become worldwide transportation
to free trade. in most industries. systems.

An excellent management accounting system is needed

to succeed in today’s competitive global marketplace.
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 E-Commerce

In recent years, many dot.com

businesses failed that might have
benefited from the application of
managerial accounting tools:
 Cost concepts (Chapter 2)
 Cost estimation (Chapter 5)
 Cost-volume-profit (Chapter 6)
 Activity-based costing (Chapter 8)
 Budgeting (Chapter 9)
 Decision-making (Chapter 13)
 Capital budgeting (Chapter 14)

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 Code of Conduct for
Management Accountants

The Institute of Management Accountant’s (IMA)

Standards of Ethical Conduct for Practitioners
of Management Accounting and Financial
Management have two major parts offering
guidelines for:
 Ethical behavior.
 Resolution for an ethical conflict.

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 IMA Guidelines for Ethical Behavior

Follow applicable laws,

regulations and
standards.

Maintain
professional Competence
competence.

Prepare complete and clear

reports after appropriate
analysis.
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 IMA Guidelines for Ethical Behavior

Do not disclose confidential

information unless legally
obligated to do so.

Do not use
confidential
information for Confidentiality
personal
advantage.

Ensure that subordinates do

not disclose confidential
information.
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 IMA Guidelines for Ethical Behavior

Avoid conflicts of interest

and advise others of
potential conflicts.

Do not subvert
organization’s
legitimate Integrity
objectives.

Recognize and
communicate personal and
professional limitations.
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 IMA Guidelines for Ethical Behavior

Avoid activities that could

affect your ability to
perform duties.

Refrain from Refuse gifts

activities or favors
that could Integrity that might
discredit the influence
profession. behavior.

Communicate
unfavorable as well as
favorable information.
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 IMA Guidelines for Ethical Behavior

Communicate information
fairly and objectively.

Objectivity

Disclose all information

that might be useful to
management.

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 IMA Guidelines for Resolution
of an Ethical Conflict
• Follow established policies.
• For unresolved ethical conflicts:
 Discuss the conflict with immediate superior
or next highest uninvolved manager.
 Make reference to the Sarbanes-Oxley Act
passed by Congress in 2002 in part to give
legal protection to those reporting
corporate misconduct.
 If immediate superior is the CEO,
consider the board of directors or
the audit committee.

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 IMA Guidelines for Resolution
of an Ethical Conflict
• Follow established policies.
• For unresolved ethical conflicts:
 Except where legally prescribed, maintain
confidentiality.
 Clarify issues in a confidential discussion
with an objective advisor.
 Consult an attorney as to legal obligations.
 The last resort is to resign.

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 Why Have Ethical Standards?

Ethical standards in business are essential for a

smooth functioning advanced market 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
desireable goods and services at higher prices.
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 Codes of Conduct on
the International Level

The Guidelines on Ethics for Professional

Accountants, issued by the International
Federation of Accountants (IFAC), govern the
activities of professional accountants worldwide.

In addition to competence, objectivity, independence,

and confidentiality, the IFAC’s code deals with
the accountant’s ethical responsibilities in:
Taxes
Fees and commissions
Advertising and solicitation
Handling of monies
Cross-border activities.
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 Certified Management Accountant

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

Information about becoming a CMA and the CMA

program can be accessed on the IMA’s website at
www.imanet.org or by calling 1-800-638-4427.
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 End of Chapter 1

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