Nature of Management

Accounting

A managerial perspective
Learning Objectives
 Distinguish among the different
accounting systems.
 Identify four themes managers need
to consider for attaining success.
 Describe the set of business functions
in the value chain.
Management Accounting
 Management accounting measures and reports financial and non-
financial information that helps managers make decisions to fulfill
the goals of an organization
 Managers use management accounting information to
 choose, communicate and implement strategy
 coordinate product design, production and marketing decisions

 Management accounting focuses on

internal reporting
 Management accounting is future
oriented

Pages 2-3
Characteristics of Management
Accounting
 Providing Accounting Information
 Cause & Effect Analysis.
 Use of special techniques & concepts.
 Taking Important decisions
 Achieving of objectives.
 No Fixed Norms followed.
 Increase in efficiency
 Supplies information and not decision.
 Concerned with forecasting.
Functions of Management
Accounting

Scorekeeping: Attention Directing:

Evaluate Compare Actual Results
Organizational to Expected
Performance

Problem Solving:
Assess Possible
Courses of Action
Scope of Management Accounting
 Financial Accounting
 Cost Accounting
 Financial Management
 Budgeting & forecasting
 Inventory control
 Reporting to management.
 Interpretation of data.
 Control procedures & methods.
 Internal Audit
 Tax Accounting
 Office services.
 Financial Accounting
 Financial accounting measures and records business
transactions and provides financial statements that are
based on generally accepted accounting principles
(GAAP)
 Managers are responsible for the financial statements
issued to investors, government regulators, and other
parties outside the organization
 Financial accounting focuses on external parties
 Financial accounting reports on what happened in the
past

Pages 2-3
 Cost Accounting and Cost
Management
 Cost accounting measures and reports information relating
to the cost of acquiring and utilizing resources
 Cost accounting provides information for management and
financial accounting

 Cost management describes the approaches and activities of

managers in short-run and long-run planning and control
decisions
 These decisions increase value of customers and lower costs
of products and services
 Cost management is an integral part of a company’s
strategy

Pages 3-4
 Users of Accounting
Information
Management Accounting Financial Accounting

External Users
Internal managers
Investors: Stockholders

Creditors:
Day-to-day operating decisions Suppliers
Long-range strategic decisions Bankers

Government Authorities
Management Accounting & Financial
Accounting
 A close relationship but certain distinctions:
 Object
 Nature
 Subject-matter
 Compulsion
 Precision
 Reporting
 Description
 Quickness
 Accounting Principles
 Period
 Publication & Audit
Management Accounting & Cost Accounting
 Some overlapping between cost
accounting and management
accounting:
 Object
 Scope
 Nature
 Data used
 Development
 Principle followed
 Cost-Benefit and Behavioral 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.
Decision Making

Decision making: the purposeful choice

from among a set of alternative courses
of action designed to achieve some objective.

Planning: Setting objectives Control: Implementing

and outlining how the
plans and using feedback
objectives will be obtained.
to evaluate the attainment
of objectives.
 The Nature of Planning and
Controlling

Management Process Internal Accounting System

Budgets,
Budgets, Other information
Special
Corrections and revisions of plans and actions

Special systems
Planning
Planning Reports
Reports Customer
Customer
Increase
Increase surveys
surveys
Profitability
Profitability Competitor
Accounting Competitor
Accounting analysis
analysis
System
System Advertising
Advertising
Control
Control impact
impact
––Actions
Actions Performance
Performance New
Newitems
items
––Evaluations
Evaluations Reports
Reports report
report
Key Management Accounting Guidelines

Cost-Benefit Approach
 spend resources if they promote decision making that better
attains the organization’s goals in relation to the cost of these
resources

Behavioural and Technical Considerations

 systems are not confined exclusively to technical matters
 always consider the influences of human activity

Different Costs for Different Purposes

 define”cost” depending on the situation under
consideration
Performance Reports
Performance Report on Advertising Revenue

Actual Budgeted Difference Difference (%)

Advertising Pages sold 760 pg 800 pg 40pg( UF) 5% UF

Average Rate /Page 5080 5200 120 (UF) 2.3%UF
Advertising revenue 3860800 4160000 299200(UF) 7.2%UF
 Product Life Cycle

Product life cycle refers to the various

stages through which a product passes.
No Sales Low sales  No
sales
Product Sales Growth Stable Sales Level
Phase-out
Development Introduction to Market Mature Market
Product
 Four Themes of Value Enhancement
1. Customer Focus
 attract and retain profitable customers

2. Value-chain and supply-chain analysis

 manage these critical functions

3. Key success factors (KSFs)

 keep attention focused on critical factors relative to our competitors

4. Continuous improvement and benchmarking

 never-ending search for higher levels of performance

Page 12 - 15
The Value Chain

Research
Research
and Product
Product
and And
Development
Development And
Service
Service Service
Service
Process
Process
Design
Design
Customer
Customer
Focus
Focus

Distribution
Distribution Production
Production
Marketing
Marketing
 The Value Chain

 Sequence of business functions in which utility (usefulness)

is added to the products or services of an organization
 Management accounting helps managers to administer each
of these business functions

Product,
Research Customer
Service
and Production Marketing Distribution Service
Process
Development
Design

Management Accounting
Page 14
 E-Business Value Matrix
Business
Criticality High Operational Breakthrough
Excellence Strategies
(Importance
of the
application New Rational
to the Low Fundamentals Experimentation
success of
the
Low High
business)
Practice Innovation
(Creating new markets or new
ways of doing business)

Page 16
 Starbucks coffee company Is the
leading roaster and retailer of
specialty coffee in North America with
annual sales revenue of more than
1.5 billion .For each of the following
activities, indicate the value chain
function that is being performed
CONTD….
 Process engineers investigate methods to
reduce the time to roast coffee beans and
to better preserve their flavor.
 A direct to your home mail order system is
established to sell custom coffees.
 Arabica coffee beans are purchased and
transported to company processing plants.
 Focus groups investigate the feasibility of a
new line of Frappuccino drinks.
 A hot line is established for mail-
order customers to call with
comments on the equity and speed of
delivery.
 Each company owned retail store
provides information to customers
about the processes used to make its
coffee products.