Chapter 1

The Changing Role of

Managerial
Accounting in a
Dynamic Business
Environment

McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objective 1-1 – Define managerial accounting
and describe its role in the management process.

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Managerial Accounting: A Business
Partnership with Management

Managerial accounting is the process of

 Identifying
 Measuring
 Analyzing
 Interpreting
 Communicating information

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Learning Objective 1-2 - Explain four fundamental
management processes that help organizations attain their
goals.

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Managing Resources, Activities, and People
An organization . . .
Decision
Making

Acquires Resources Planning

Planning
Organized
Organized setset
of
of activities
activities

Controlling
Controlling Directing
Hires People
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Learning Objective 1-3 – List and describe five
objectives of managerial accounting activity.

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 Objectives of Managerial Accounting
Activity

Providing
 Providing information
information for
for decision
decision making
making and
and planning.
planning.
Assisting
 Assisting managers
managers in
in directing
directing and
and controlling
controlling activities.
activities.
Motivating
 Motivating managers
managers and
and other
other employees
employees towards
towards
organization’s
organization’s goals.
goals.
Measuring
 Measuring performance
performance ofof subunits,
subunits, activities,
activities, managers,
managers,
and
and other
other employees
employees within
within the
the organization.
organization.
Assessing
 Assessing the
the organization’s
organization’s competitive
competitive position
position and
and
working
working with
with other
other managers
managers to to ensure
ensure the
the organization’s
organization’s
long-run
long-run competitiveness
competitiveness inin its
its industry.
industry.

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 Examples of Management
Accounting Practices
Facebook’s initial IPO found stock shares trading at
50% below their initial per share price. Management
accountants analyzed costs and benefits of different
courses of action to help improve the company’s
monetization. A few years later, Facebook was trading
at three times its IPO price.
Walmart was slow to embrace internet sales. Walmart
is still experimenting with ways to be profitable.
Managerial accounting analyses are showing which
initiatives are profitable.
 The Balanced Scorecard
How do we Financial Perspective
look to Goals Measures
In which
owners? activities
must we
excel?
Customer Perspective Operations Perspective
Goals Measures Goals Measures
How do
customers
see us?
How can we
Innovation Perspective continue to
Goals Measures improve and
create value? 1-9
Learning Objective 1-4 – Explain the major differences
between managerial and financial accounting.

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Managerial versus Financial Accounting
Accounting
Accounting System
System
(accumulates
(accumulates financial
financial and
and
managerial
managerial accounting
accounting data
data in
in the
the
cost
cost accounting
accounting system)
system)

Managerial
Managerial Accounting
Accounting Financial
Financial Accounting
Accounting
Information
Information for
for decision
decision Published
Published financial
financial
making,
making, planning,
planning, and
and statements
statements andand other
other
controlling
controlling an
an financial
financial reports.
reports.
organization’s
organization’s
operations.
operations.
Internal External
Users Users
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Managerial versus Financial Accounting
Managerial Accounting Financial Accounting
Users of Interested parties, outside the
Information Managers, within the organization. organization.
Regulation Not required and unregulated, since it Required and must conform to
is intended only for management. generally accepted accounting
principles. Regulated by the Financial
Accounting Standards Board, and, to
a lesser degree, the Securities and
Exchange Commission.
Source of The organization's basic accounting Almost exclusively drawn from the
Data system, plus various other sources, organization's basic accounting
such as rates of effective products system, which accumulates financial
manufactured, physical quantities of
information.
material and labor used in production,
occupancy rates in hotels and
hospitals, and average take-off delays.
Nature of Reports often focus on subunits within Reports focus on the enterprise in its
Reports and the organization, such as departments, entirety. Based almost exclusively on
Procedures divisions, geographical regions, or historical transaction data.
product lines. Based on a combination
of historical data, estimates, and
projections of future events.

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Learning Objective 1-5 – Describe the accounting and
finance structure in an organization.

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Line and Staff Positions
A
 A line
line position
position is
is directly
directly A
 A staff
staff position
position supports
supports and
and
involved
involved in
in achieving
achieving the
the assists
assists line
line positions.
positions.
basic
basic objectives
objectives of
of an
an Example:
Example: A A cost
cost
organization.
organization. accountant
accountant inin the
the
manufacturing
manufacturing plant.
plant.
Example:
 Example: A
A production
production
supervisor
supervisor in
in aa
manufacturing
manufacturing plant.
plant.

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Learning Objective 1-6 - Describe the roles of an
organization’s chief financial officer (CFO) or controller,
treasurer, and internal auditor.

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CFO or Controller
The
The chief
chief managerial
managerial andand financial
financial accountant
accountant is
is
responsible
responsible for:
for:
Supervising
Supervising accounting
accounting personnel.
personnel.
Preparation
Preparation ofof information
information and
and reports,
reports, managerial
managerial and
and
financial.
financial.
Analysis
Analysis ofof accounting
accounting information.
information.
Planning
Planning and
and decision
decision making.
making.

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Treasurer
Responsible
Responsible forfor raising
raising capital
capital and
and safeguarding
safeguarding thethe
organization’s
organization’s assets.
assets.
Supervises
Supervises relationships
relationships with
with financial
financial institutions.
institutions.
Work
Work with
with investors
investors and
and potential
potential
investors.
investors.
Manages
Manages investments.
investments.
Establishes
Establishes credit
credit policies.
policies.
Manages
Manages insurance
insurance coverage
coverage

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Internal Auditor
Responsible
Responsible for
for reviewing
reviewing accounting
accounting procedures,
procedures, records,
records, and
and
reports
reports in
in both
both the
the controller’s
controller’s and
and the
the treasurer’s
treasurer’s area
area of
of
responsibility.
responsibility.
Expresses
Expresses anan opinion
opinion to
to top
top
management
management regarding
regarding the
the
effectiveness
effectiveness of of the
the
organization’s
organization’s accounting
accounting
system
system and
and its
its system
system of
of
internal
internal controls.
controls.

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Learning Objective 1-7 – Understand and explain the
value chain concept.

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 Strategic Cost Management and the Value
Chain

Product
Product
Design
Design
Production
Production
Research
Research
and
and
Development
Development Marketing
Marketing
Securing
Securing raw
raw
materials
materials and
and Distribution
Distribution
other
other resources
resources
Customer
Customer
Start Service
Service

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 Strategic Cost Management
Strategic cost management is the process of reducing
total costs while improving the strategic position of a
business. This goal can be accomplished by having a
thorough understanding of which costs support a
company's strategic position and which costs either
weaken it or have no impact. Subsequent cost reduction
initiatives should focus on those costs in the second
category.
Learning Objective 1-8 - Explain how investments in
capacity affect managerial decision making.

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Capacity
Theoretical Capacity is the upper limit on the amount
of goods or services if everything works perfectly.

Practical capacity allows for normal occurrences such

as cash register downtime and cashier fatigue or illness.
 Cost Management Systems
Objectives
Objectives
Measure
Measure the
the cost
cost of
of resources
resources consumed.
consumed.
Identify
Identify and
and eliminate
eliminate non-value-added
non-value-added costs.
costs.
Determine
Determine efficiency
efficiency and
and effectiveness
effectiveness of
of major
major
activities.
activities.
Identify
Identify and
and evaluate
evaluate new
new activities
activities that
that can
can
improve
improve performance.
performance.

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Learning Objective 1-9 – Discuss the professional
organizations and certifications in the field of managerial
accounting.

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Managerial Accounting as a Career
Professional Organizations

Institute of Management Accountants (IMA)

Administers
Administers Develops
Develops
Publishes
Publishes Certified Standards
Certified Standards ofof
Management
Management Management Ethical
Management Ethical
Accounting
Accounting Accountant Conduct
Accountant Conduct for
for
and
and research
research (CMA) Management
(CMA) Management
studies.
studies. program Accountants
program Accountants
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Learning Objective 1-10 – Describe the ethical
responsibilities and ethical standards that apply to managerial
accounting.

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Ethical Climate of Business
The
The corporate
corporate scandals
scandals experienced
experienced over
over the
the last
last few
few
years
years have
have shown
shown usus that
that unethical
unethical behavior
behavior inin business
business
is
is wrong
wrong in
in aa moral
moral sense
sense and
and can
can be
be disastrous
disastrous in
in the
the
economy.
economy. In In addition
addition to
to Sarbanes-Oxley,
Sarbanes-Oxley, there
there will
will
likely
likely be
be more
more reforms
reforms inin corporate
corporate governance
governance and and
accounting.
accounting.

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Professional Ethics

Competence
Confidentiality
Integrity
Credibility

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End of Chapter

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