The Manager and Management Accounting

The Manager and Management
Accounting
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2.
3.
Distinguish financial accounting from
management accounting
Understand how management accountants
help firms make strategic decisions
Describe the set of business functions in
the value chain and identify the dimensions
of performance that customers are
expecting of companies
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4.
5.
6.
7.
Explain the five-step decision-making
process and its role in management
accounting
Describe three guidelines management
accountants follow in supporting managers
Understand how management accounting
fits into an organization’s structure
Understand what professional ethics mean
to management accountants
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 Management
accounting—measures,
analyzes, and reports financial and
nonfinancial information to help managers
make decisions to fulfill organizational goals.
Management accounting need not be GAAP
compliant.
 Financial
accounting—focuses on reporting to
external users including investors, creditors,
banks, suppliers, and governmental agencies.
Financial statements must be based on GAAP.
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 Cost
accounting – measures, analyzes and
reports financial and nonfinancial
information related to the costs of acquiring
or using resources in an organization.
 Today,
most accounting professionals take
the position that cost information is part of
management accounting; therefore, the
distinction between the two is not clear-cut
and in this book, we often use the terms
interchangeably.
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 Strategy
specifies how an organization matches
its own capabilities with the opportunities in
the marketplace.
There are two broad strategies: cost
leadership or product differentiation
 Strategic cost management—describes cost
management that specifically focuses on
strategic issues.
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Management accounting helps answer important
questions such as:




Who are our most important customers, and how can
we be competitive and deliver value to them?
What substitute products exist in the marketplace,
and how do they differ from our own?
What is our most critical capability?
Will adequate cash be available to fund the strategy
or will additional funds need to be raised?
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 Creating
value is an important part of
planning and implementing strategy.
 Value is the usefulness a customer gains from
a company’s product or service. The entire
customer experience determines the value a
customer derives from a product.
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 The
Value chain is the sequence of
business functions in which a product is
made progressively more useful to
customers.
 The Value chain consists of:
1.
2.
3.
4.
5.
6.
Research & development
Design of Products and Processes
Production
Marketing
Distribution
Customer service
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 Production
and Distribution are the parts of
the value chain associated with producing
and delivering a product or service.
 These two functions together are known as
the Supply-Chain
 The supply chain describes the flow of goods,
services and information from the initial
sources of materials, services, and
information to their delivery regardless of
whether the activities occur in one
organization or in multiple organizations.
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 Customers
want companies to use the value
chain and supply chain to deliver everimproving levels of performance when it
comes to several (or even all) of the
following:





Cost and efficiency
Quality
Time
Innovation
Sustainability
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1.
2.
3.
4.
5.
Identify the problem and uncertainties.
Obtain information.
Make predictions about the future.
Make decisions by choosing between
alternatives.
Implement the decision, evaluate
performance, and learn.
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 Planning
selects goals and strategies,
predicts results, decides how to attain goals,
and communicates this to the organization.

Budget—the most important planning tool-is the
quantitative expression of a plan of activity by
management and is an aid to coordinating what
needs to be done to execute that plan.
 Control
takes actions that implement the
planning decision, evaluates performance,
and provides feedback and learning to the
organization.
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Three guidelines help management accountants provide
the most value to the strategic and operational
decision- making of their companies:
 Cost–benefit approach: benefits of an
action/purchase generally must exceed costs as a
basic decision rule.
 Behavioral and technical considerations: people are
involved in decisions, not just dollars and cents.
 Different Costs for Different Purposes: Managers use
alternative ways to compute costs in different
decision-making situations.
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 The
four standards of ethical conduct for
management accountants as advanced by the
Institute of Management Accountants are:
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

Competence
Confidentiality
Integrity
Objectivity
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The Sarbanes-Oxley legislation was passed in
2002 in response to a series of corporate
scandals. The act focuses on improving:
1. Internal controls
2. Corporate governance
3. Monitoring of managers
4. Disclosure practices of public companies
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TERMS to LEARN
Page Number Reference
Budget
Page 11
Chief Financial Officer
Page 14
Control
Page 11
Controller
Page 14
Cost Accounting
Page 4
Cost-Benefit approach
Page 12
Cost Management
Page 4
Customer Relationship
Management (CRM)
Page 7
Customer Service
Page 6
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TERMS to LEARN
Page Number Reference
Design of products and processes
Page 6
Distribution
Page 6
Finance Director
Page 14
Financial Accounting
Page 3
Learning
Page 12
Line Management
Page 14
Management Accounting
Page 4
Marketing
Page 6
Planning
Page 11
Production
Page 6
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TERMS to LEARN
Page Number Reference
Research & Development (R&D)
Page 6
Staff Management
Page 14
Strategic Cost Management
Page 5
Strategy
Page 5
Supply Chain
Page 7
Sustainability
Page 8
Total Quality Management (TQM)
Page 8
Value Chain
Page 8
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