Hilton MA 12e Chap001

Chapter 1
The Crucial Role of

Managerial
Accounting in a
Dynamic Business
Environment
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of 1-1
McGraw-Hill/Irwin McGraw-Hill Education.
Learning Objective 1-1 – Define managerial accounting and
describe its role in the management process.
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of
1-2
1-2
McGraw-Hill Education.
Managerial Accounting: A Business
Partnership with Management
Managerial accounting is the process of:

 Identifying
 Measuring
 Analyzing
 Interpreting
 Communicating information
McGraw-Hill Education. 1-3
Learning Objective 1-2 – Explain four fundamental
management processes that help organizations attain their
goals.
McGraw-Hill Education. 1-4
Managing Resources, Activities, and
People
An organization . . .
Decision
Making
Acquires
Resources: (i.e.
funding, patents,
and buildings) Planning
Organized set
of activities
Hires People
Controlling Directing
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written 1-5
consent of McGraw-Hill Education.
Learning Objective 1-3 – List and describe five objectives of
managerial accounting activity.
Objectives of Managerial Accounting
Activity
 Providing information for decision making and planning.
 Assisting managers in directing and controlling activities.
 Motivating managers and other employees toward the
organization’s goals.
 Measuring performance of subunits, activities, managers,
and other employees within the organization.
 Assessing the organization’s competitive position and
working with other managers to ensure the organization’s long-
run competitiveness in its industry.
How Managerial Accounting Adds Value
to the Organization
Shortly after its IPO, Facebook Though slow to embrace online sales
shares were trading 50% below because of their investment in brick-
and-mortar stores, Walmart sees an
their initial share price. opportunity in providing what
Management accountants analyzed Amazon cannot with their physical
the costs and benefits of different networks. Management accounting
courses of action to help improve helps identify cost efficiencies from
the company’s monetization. By using Walmart’s massive existing
mid-2018, the stock was trading at supply chain to innovatively deliver
five to six times the IPO price. products.
REI see an opportunity to monetize News organizations that were built
the Internet in conjunction with their on print ad revenues are trying to
stores as well. They offer events and monetize their online presences in a
skills clinics to draw consumers in. world where online content is
When services are provided free of generally free. Managerial
charge, it must be demonstrated that accounting techniques help to divide
this will lead to increased sales and costs and allocate revenue among
net profit. Managerial accounting different channels to better
tools help provide that insight. understand profitability.
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 How can we
see us? continue to
Innovation Perspective improve and
Goals Measures create value?
Learning Objective 1-4 – Explain the major differences
between managerial and financial accounting.
Managerial versus Financial
Accounting
Accounting System
(accumulates financial and
managerial accounting data in the
cost accounting system)
Managerial Accounting Financial Accounting

Information for decision Published financial
making, planning, and statements and other
controlling an financial reports.
organization’s
operations.
Internal External
Users Users
Users of Information
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.
Learning Objective 1-5 – Describe the accounting and
finance structure in an organization.
Line and Staff Positions
CEO
• A line position is • A staff position

directly involved in supports and assists
the provision of line positions.
goods or services.
• Example: A production Example: A cost
supervisor in a accountant in the
manufacturing plant
manufacturing plant
Learning Objective 1-6 – Describe the roles of an
organization’s chief financial officer (CFO) or controller,
treasurer, and internal auditor.
CFO or Controller
The chief managerial and financial accountant is
responsible for:
Supervising accounting personnel
Preparation of information and managerial and financial
reports
Analysis of accounting information
Planning and decision making
Treasurer
Responsible for raising capital and safeguarding the
organization’s assets.
Supervises relationships with financial institutions
Works with investors and potential investors
Manages investments
Establishes credit policies
Manages insurance coverage
Internal Auditor
• Responsible for reviewing accounting procedures,
records, and reports in both the controller’s and the
treasurer’s areas of responsibility
• Expresses an opinion to top management regarding
the effectiveness of the organization’s accounting
system and its system of internal controls
Learning Objective 1-7 – Understand and explain the value
chain concept.
Strategic Cost Management and the
Value Chain
Product
Design
Production
Research
and
Development Marketing
Securing raw
materials and Distribution
other resources
Customer
Start Service
Learning Objective 1-8 – Explain how investments in
capacity affect managerial decision making.
Capacity
Theoretical Practical capacity

capacity is the allows for normal
upper limit on the occurrences such
amount of goods as cash register
or services if downtime and
everything works cashier fatigue or
perfectly. illness.
Questions about Capacity
Important questions for the managerial accounting
system to address are:
(1) What is an organization’s practical capacity?
(2) What are the costs of the resources supplied to
provide that capacity?
(3) How have those resources been used in creating
value?
Managing Capacity
Cost of
resources
supplied Cost of
resources
unused (unused
capacity)
Cost of
resources
used
Learning Objective 1-9 – Understand and explain big data and
data analytics and how they interact with managerial
accounting.
Big Data, Data Analytics, and
Managerial Accounting
Big Data
Data Analytics
Data Governance
Data Science
1-26
Learning Objective 1-10 – Discuss the professional
organizations and certifications in the field of managerial
accounting.
Managerial Accounting as a Career
Professional Organizations
Institute of Management Accountants (IMA)
Publishes Administers Develops

Management Certified Standards of
Accounting Management Ethical
and research Accountant Conduct for
studies. (CMA) Management
program Accountants
Learning Objective 1-11 – Describe the ethical
responsibilities and ethical standards that apply to managerial
accounting.
Ethical Climate of Business
“Ethical behavior by managers in

general, and accountants in particular,
is not a luxury or a discretionary ‘good
thing to do.’ It is an absolute necessity
for the smooth functioning of the
economy.”
Professional Ethics
IMA Statement of Ethical
Professional Practice
I. Competence
II. Confidentiality
III. Integrity
IV. Credibility
End of Chapter 1

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Hilton MA 12e Chap001

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Chapter 1

The Crucial Role of

Managerial accounting is the process of:

Managerial Accounting Financial Accounting

• A line position is • A staff position

Theoretical Practical capacity

Institute of Management Accountants (IMA)

Publishes Administers Develops

“Ethical behavior by managers in

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