1-1 Managerial Accounting Managerial Accounting Tenth Edition Louderback & Holmen.

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Managerial Managerial AccountingAccountingTenth EditionTenth Edition

Louderback & HolmenLouderback & Holmen

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Task Force Clip Art Task Force Clip Art included in this electronic included in this electronic presentation is used with presentation is used with

the permission of New the permission of New Vision Technology of Vision Technology of

Nepean Ontario, Canada.Nepean Ontario, Canada.

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IntroductionIntroduction

Prepared by Douglas Cloud

Pepperdine University

Prepared by Douglas Cloud

Pepperdine University 11

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Describe four management functions and their relationships to accounting.

Describe the value chain and explain how it relates to competitive strategies.

Distinguish between financial accounting and managerial accounting.

Describe some of the problems that arise in conventional manufacturing and how advanced manufacturing techniques overcome them.

ObjectivesObjectivesObjectivesObjectives

After reading this After reading this chapter, you should chapter, you should

be able to:be able to:

After reading this After reading this chapter, you should chapter, you should

be able to:be able to:

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Describe the activities of managerial accountants.

Describe the code of ethics that managerial accountants follow.

Describe some factors influencing the development of managerial accounting.

ObjectivesObjectivesObjectivesObjectives

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Management Functions Management Functions and Accounand Accountinging

Planning is setting goals and developing strategies and tactics to achieve them.

Control is determining whether goals are being met, and if not, what can be done.

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PlanningPlanningPlanningPlanning

Managerial accountants prepare budgeted financial

statements, often called pro forma statements.

Managerial accountants prepare budgeted financial

statements, often called pro forma statements.Long-term planning,

often called strategic planning, is critical to

organizations.

Long-term planning, often called strategic planning, is critical to

organizations.

A value chain is the entire set of processes

that transforms raw materials into finished

products.

A value chain is the entire set of processes

that transforms raw materials into finished

products.

Much of the information provided

by managerial accountants is used in

decision making.

Much of the information provided

by managerial accountants is used in

decision making.

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Performance evaluation

Control reports

ControlControlControlControl

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Managerial Accounting andFinancial Accounting

• Both managerial and financial accounting deal with economic events.

• Both require quantifying the results of economic activity.

• Both are concerned with revenues and expenses, assets, liabilities, and cash flows.

• Both involve financial statements.• Both suffer from the difficulties of capturing, in

quantitative terms, the many aspects of an economic event.

ContinuedContinuedContinuedContinued

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Managerial Accounting andFinancial Accounting

• Managerial accounting reports are specifically designed for a particular user or a particular decision.

• Financial accounting is primarily historical.• Managerial accounting is concerned more with the

future.• Managerial accounting has no external restrictions,

such as generally accepted accounting principles.• Financial accounting serves persons outside the

firm, while managerial accounting serves persons inside the firm.

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Background of Conventional Background of Conventional ManufacturingManufacturing


• American companies were the unchallenged world leaders in manufacturing following World War II.

• American companies had strong advantages in product quality, capacity, and distribution facilities.

• American firms could sell nearly anything they made.

• Production was the critical activity and the philosophy was to “get it out the door.”

ContinuedContinuedContinuedContinued

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• American manufacturers adopted practices that reflected a “just-in-case” philosophy which led to large amounts of inventory, along with waste, scrap, and the reworking of defective units.

• Lead time or cycle times extended well beyond the time needed for the manufacturing process alone. A product that could be manufactured in one or two days took one or two months.



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Just-in-Time (JIT)Just-in-Time (JIT)Just-in-Time (JIT)Just-in-Time (JIT)

Just-in-time (JIT) manufacturing is a philosophy that focuses on timing, efficiency, and quality in meeting commitments.Companies that employ JIT strive for continual

improvement and relentlessly search out and eliminate waste of materials, time, and space.

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Under ideal conditions, purchased materials and components arrive just in time to be used.

Partly assembled units arrive at work stations just in time for the next step in production.

Finished units emerge from production just in time to meet the shipping date requested by the customer.

Setup times are reduced by a flexible manufacturing system.

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Computer-integrated manufacturing (CIM)

provides that a factory is virtually all automated

and controlled by computer.

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Conventional ManufacturingConventional ManufacturingConventional ManufacturingConventional Manufacturing

• Departments working on all products• Single-skilled workers• Large batches, erratic flows• Some defects seen as inevitable• Long production cycle• Large inventories held as buffers• Large deliveries at irregular intervals• Achieve acceptable performance• Design and manufacturing separate

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JIT ManufacturingJIT ManufacturingJIT ManufacturingJIT Manufacturing• Manufacturing cells concentrating on one

product• Multiskilled workers• Small batches, smooth flows• Total quality control• Short production cycle• Zero or trivial inventories• Daily delivery of materials/components• Relentless search to improve, eliminate all waste• Integrate design and manufacturing

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Line Versus Staff FunctionsLine Versus Staff Functions

Managers of line functions are concerned with the primary operating activities of the organization-manufacturing (or buying) and selling a physical product or performing a service.

A staff manager manages a department that serves other departments.

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Managerial Accountants inManagerial Accountants inBusinesses Include:Businesses Include:

Managerial Accountants inManagerial Accountants inBusinesses Include:Businesses Include:

• Controller’s office

• Budget analysts• Cost analysts• Financial

analysts

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The Specific Duties of Managerial Accountants Include:

The Specific Duties of Managerial Accountants Include:

assisting in the design of the organization’s information system.

ensuring that the system performs adequately.

periodically reporting information to interested managers.

undertaking special analyses.

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Standards of Ethical Conduct for Management Accountants


Maintain an appropriate level of professional competence by ongoing development of their knowledge and skills.

Perform their professional duties in accordance with relevant laws, regulations, and technical standards.

Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information.

Management accountants have a responsibility to:COMPETENCE

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Management accountants have a responsibility to:CONFIDENTIALITY

Refrain from disclosing confidential information acquired in the course of their work except when authorized unless legally obligated to do so.

Inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that confidentiality.

ContinuedContinued

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Management accountants have a responsibility to:CONFIDENTIALITY

Refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through third parties.

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Management accountants have a responsibility to:INTEGRITY

Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict.

Refrain from engaging in any activity that would prejudice their ability to carry out their duties ethically.

Refuse any gift, favor, or hospitality that would influence or would appear to influence their actions.



ContinuedContinued

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Refrain from either actively or passively subverting the attainment of the organization’s legitimate and ethical objectives.

Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.


ContinuedContinued

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Communicate unfavorable as well as favorable information and professional judgments or opinions.

Refrain from engaging in or supporting any activity that would discredit the profession.


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Communicate information fairly and objectively.Disclose fully all relevant information that could

reasonably be expected to influence an intended user’s understanding of the reports, comments, and recommendations presented.

Management accountants have a responsibility to:OBJECTIVITY

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Courses of Actions:Courses of Actions:

Resolving Ethical Conflict

Discuss problems with immediate supervisor except when it appears the superior is involved.

If the immediate superior is the chief executive officer, or equivalent, the acceptable reviewing authority may be the audit committee, board of trustees, or owners.

Clarify relevant concepts by confidential discussion with an objective advisor to obtain an understanding of possible courses of action.

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If the ethical conflict still exists after exhausting all levels of internal review, the management accountant may have no other recourse but resign.

Except where legally prescribed, communication of such problems with external parties is not appropriate.

Resolving Ethical Conflict

Courses of Actions:Courses of Actions:

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International Aspects of International Aspects of Managerial AccountingManagerial AccountingInternational Aspects of International Aspects of Managerial AccountingManagerial Accounting

• Should capital be raised in the U.S. or elsewhere?

• Where should the company manufacture the products it sells to customers in and outside of the U.S.?

• What products should the company make and in which countries?

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• Should the company make some parts for its production in one country and complete the manufacturing process in others?

• Would it be profitable to change some products to accommodate differences among countries in tastes and culture?

International Aspects of International Aspects of Managerial AccountingManagerial AccountingInternational Aspects of International Aspects of Managerial AccountingManagerial Accounting

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DeregulationDeregulationDeregulationDeregulation

Deregulation is increasingly important, and is among the factors that are influencing

management accounting. In some regulated environments, companies are guaranteed a

stipulated rate of profit. Such companies do not need to

control costs because they can pass them along to consumers.

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The EndThe End

Chapter 1Chapter 1

1-1 Managerial Accounting Managerial Accounting Tenth Edition Louderback & Holmen.

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