Session 1 A (Ch1)

Cost Accounting
Sixteenth Edition, Global Edition
Session 1 A
Management Accounting /
Manager (Chapter 1)
Copyright © 2018, 2016, 2015 Pearson Education, Ltd. All Rights Reserved.
Learning Objectives
1.1 Understand how management accountants help firms
make strategic decisions
1.2 Describe the set of business functions in the value chain
and identify the dimensions of performance that customers
are expecting of companies
1.3 Explain the five-step decision-making process and its
role in management accounting
1.4 Describe three guidelines management accountants
follow in supporting managers
1.5 Understand what professional ethics mean to
management accountants
Management accounting
Management accounting
• measures, analyzes, and reports financial and
nonfinancial information that helps managers make
decisions to fulfill organizational goals.
• provides information critical to the planning and control
decisions of managers.
• need not be GAAP compliant.
Strategic Decisions and the Management
Accountant (1 of 2)
• From Strategic perspective, Management Accountants

provide management accounting information and financial
analysis to assist managers to
 Determine how an organization matches its own
capabilities with the opportunities in the marketplace
 Develop, communicate and implement strategies
 Coordinate product design, production, and marketing
decisions and evaluate a company’s performance
Strategic Decisions and the Management
Accountant (2 of 2)
Strategic cost management
 specifically focused on strategic issues.
 Apply cost management techniques that simultaneously
improve the strategic position of a firm and reduce costs
An example: the strategy of a manufacturing firm offering rapid

turnaround of customer orders
 Cost spending/Cutting on Bottleneck Production operation versus
Non - Bottleneck Production
Value-chain Analysis – (1 of 2)
 Creating value is an important part of planning and implementing

strategy.
 Value-chain analysis - an approach that looks at what the
organization does through the eyes of the customer.
 Organizations do many things, but from a customer perspective, only
some activities provide value to the customer. Those activities are
included the value chain.
 Management Accountants need to understand the value-chain.
 In our previous example, not worthwhile to cut costs in strategically
important areas, i.e. the bottle-neck operation, since doing so
reduces the customer experience and therefore will eventually lead
to a decline in sales.
Value-chain Analysis – (2 of 2)
The value chain is the sequence of business

functions by which a product is made progressively
more useful to customers. The value chain consists
of:
 Research & Development
 Design of Products and Processes
 Production
 Marketing (including Sales)
 Distribution
 Customer Service
The Value Chain Illustrated
EXHIBT 1.2 Different Parts of the Value Chain
Decision-making, Planning and Control: The
Five-step Decision-making Process
1. Identify the problem/uncertainties

2. Obtain information
3. Make predictions about the future
4. Make decisions by choosing among alternatives
5. Implement the decision, evaluate performance and learn.
Planning and Control Systems
(1 of 2)
Planning consists of
1. selecting an organization’s goals and strategies
2. predicting results under various alternative ways of
achieving those goals
3. deciding how to attain the desired goals, and
4. communicating the goals and how to achieve them to the
entire organization.
Management accountants serve as business partners in
these planning activities.
Planning and Control Systems
(2 of 2)
Control comprises
 taking actions that implement the planning decisions evaluating past
performance, and
 providing feedback and learning to help future decision making.
The most important planning tool when implementing strategy is a

budget. A budget is the quantitative expression of a proposed plan of
action by management and is an aid to coordinating what needs to be
done to execute that plan.
Management Accounting Guidelines
Three guidelines for management accountants - provide the

most value to the strategic and operational decision-making
of their companies:
1. The Cost-benefit approach compares the benefits of an
action/purchase to the costs. Generally, of course, the benefits
should exceed the costs.
2. Behavioral and technical considerations recognize, among other
things, that management is primarily a human activity that should
focus on encouraging individuals to do their jobs better.
3. Managers use alternative ways to compare costs in different
decision-making situations because there different cost concepts are
relevant for different purposes.
Professional Ethics
The four standards of ethical conduct for

management accountants as advanced by the
Institute of Management Accountants (IMA) are:
• Competence
• Confidentiality
• Integrity
• Credibility
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Session 1 A (Ch1)

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Cost Accounting

Sixteenth Edition, Global Edition

• From Strategic perspective, Management Accountants

An example: the strategy of a manufacturing firm offering rapid

 Creating value is an important part of planning and implementing

The value chain is the sequence of business

1. Identify the problem/uncertainties

The most important planning tool when implementing strategy is a

Three guidelines for management accountants - provide the

The four standards of ethical conduct for

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