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Introduction to Management Accounting

FIFTEENTH EDITION

Charles T. Horngren, Stanford University


Gary L. Sundem, University of Washington – Seattle
William O. Stratton, Dixie State College of Utah
David Burgstahler, University of Washington – Seattle
Jeff Schatzberg, University of Arizona

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Introduction to Management Accounting

Chapter 1

Managerial Accounting, the


Business Organization, and
Professional Ethics

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Chapter 1 Learning Objectives

When you have finished studying this chapter,


you should be able to:
1. Describe the major users and uses of
accounting information.
2. Describe the cost-benefit and behavioral
issues involved in designing an accounting
system.
3. Explain the role of budgets and
performance reports in planning and control.

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Chapter 1 Learning Objectives

4. Discuss the role accountants play in the


company’s value-chain functions.
5. Explain why accounting is important in a
variety of career paths.
6. Identify current trends in management
accounting.
7. Explain why ethics and standards of ethical
conduct are important to accountants.

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Learning
Objective 1 Users of Accounting Information

Management Financial
Accounting Accounting

External Users
Internal managers
Investors:
Stockholders
Decisions:
Day-to-day operating Creditors:
Long-range strategic Suppliers
Bankers

Government Authorities
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Decision Making

Scorekeeping:
Evaluate Attention Directing:
Organizational Compare Actual
Performance Results to Expected

Problem Solving:
Assess Possible
Courses of Action

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Accounting Information System

Process of gathering, organizing, and


communicating financial information

Financial
Statements

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Learning Cost-Benefit and Behavioral
Objective 2
Considerations
Cost-benefit Behavioral
balance implications

The system must provide


accurate, timely budgets and
performance reports in a form
useful to managers.

Weigh estimated
costs against Managers must use accounting
probable benefits. reports, or the reports
create no benefits.

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Planning and Control

Accounting information helps managers


plan and control the organization’s operations.

Planning: Control:
Setting objectives Implementing plans
and outlining how and using feedback to
the objectives evaluate the attainment
will be obtained. of objectives.

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The Nature of Planning and Controlling

Management Process Internal Accounting System

Budgets, Other information


Special systems
Planning Reports
Corrections and revisions of

Increase Customer
surveys
Profitability
Competitor
Accounting analysis
System
plans and actions

Advertising
Control impact
– Actions Performance
– Evaluations Reports New items
report

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Learning
Objective 3 Budget and Performance Reports

Budget: quantitative expression of a plan of action

Performance reports:
 compare actual results with budgeted amounts
 provide feedback by comparing results with plans
 highlight variances

Variances: deviations from plans

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Performance Reports

Mayfair Starbucks Store, March 31, 20X1

Budget Actual Variance


Sales $50,000 $50,000 0
Less:
Ingredients 22,000 24,500 $2,500 U
Store labor 12,000 11,600 400 F
Other labor 6,000 6,050 50 U
Utilities, etc. 4,500 4,500 0
Total expenses $44,500 $46,650 $2,150 U
Operating income $ 5,500 $ 3,350 $2,150 U

U= Unfavorable – actual exceeds budget


F – Favorable – actual is less than budget

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Product Life Cycle

Product life cycle refers to the various


stages through which a product passes.

No Sales Sales Growth Stable Sales Level Low sales  No sales

Product Introduction Phase-out


Development to Market Mature Market Product

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The Value Chain

Research
and Product
Development And
Service Service
Process
Design
Customer
Focus

Distribution Production

Marketing

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Learning Management Accountant’s Role
Objective 4
as Internal Consultant

Collects Prepares
and compiles standardized
information reports

Internal
Consultant

Interprets and Is Involved


Analyzes information in decision making

Management
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Organizational Authority and
Responsibility

Line managers:
directly involved with Staff managers: Advisory –
making and selling Support line managers.
products or services.

Cross-functional teams: Found in


modern, “flatter” organizations;
Functional areas work together
in decision-making process.

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Accounting Function

Chief Financial Officer (CFO)

Controller Functions Treasurer Functions

 Provision of capital
 Planning for control
 Investor relations
 Reporting and interpreting
 Short-term financing
 Evaluating and consulting
 Banking and custody
 Tax administration
 Credits and collections
 Government reporting
 Investments
 Protection of assets
 Risk management
 Economic appraisal
(insurance)
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Learning Career Opportunities in
Objective 5
Management Accounting

The Certified Management Accountant (CMA)

CMAs must pass a four-part examination:


1. Business Analysis
2. Management accounting and reporting
3. Strategic Management, and
4. Business Applications.

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Learning Management Accounting
Objective 6
Change Drivers

Shift from a manufacturing-based


to a service-based economy

Increased global competition

Advances in technology

Changes in business processes

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Major Influences on Management
Accounting

Advances in technology:
E-commerce
Enterprise resource planning (ERP)
B2C and B2B

Business process reengineering:


Just-in-time (JIT) philosophy
Lean manufacturing
Computer-integrated manufacturing
Six sigma

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Ethics

Reliability

Trust Integrity

No regulation can be as effective


in ensuring reliability as high
ethical standards of accountants.

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