Nature of Management Accounting New

8/8/2019 Nature of Management Accounting New

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Nature of ManagementAccounting

A managerial perspective


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Learning Objectives

Distinguish among the differentaccounting systems.

Identify four themes managers needto consider for attaining success.

Describe the set of business functionsin the value chain.


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Management Accounting Management accounting measures and reports financial and

non-financial information that helps managers make decisionsto fulfill the goals of an organization

Managers use management accounting information to

choose, communicate and implement strategy

coordinate product design, production and marketingdecisions

Management accounting focuses on

internal reporting

Management accounting is futureoriented

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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.


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Scorekeeping:Scorekeeping:

EvaluateEvaluate

OrganizationalOrganizationalPerformancePerformance

Attention Directing:Attention Directing:

Compare Actual ResultsCompare Actual Results

to Expectedto Expected

Problem Solving:Problem Solving:

Assess PossibleAssess PossibleCourses of ActionCourses of Action

Functions of Management AccountingFunctions of Management Accounting


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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.


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Financial Accounting Financial accounting measures and records

business transactions and provides financialstatements that are based on generally accepted

accounting principles (GAAP) Managers are responsible for the financial

statements issued to investors, governmentregulators, and other parties outside the

organization Financial accounting focuses on external parties

Financial accounting reports on what happened inthe past

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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 andfinancial accounting

Cost management describes the approaches and activities ofmanagers in short-run and long-run planning and controldecisions

These decisions increase value of customers and lower costs

of products and services Cost management is an integral part of a companys

strategy

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Users of AccountingUsers of AccountingInformationInformation

Internal managersInternal managers

Creditors:Creditors:

SuppliersSuppliers

BankersBankers

DayDay--toto--day operating decisionsday operating decisions

LongLong--range strategic decisionsrange strategic decisions

Management AccountingManagement Accounting Financial AccountingFinancial Accounting

External UsersExternal Users

Investors: StockholdersInvestors: Stockholders

Government AuthoritiesGovernment Authorities


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Management Accounting & Financial

Accounting A close relationship but certain distinctions:

Object

Nature

Subject-matter

Compulsion

Precision

Reporting

Description

Quickness Accounting Principles

Period

Publication & Audit


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Management Accounting &Cost Accounting

Some overlapping between costaccounting and managementaccounting:

Object

Scope

Nature

Data used

Development

Principle followed


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CostCost--Benefit and Behavioral ConsiderationsBenefit and Behavioral Considerations

CostCost--benefitbenefit

balancebalance

BehavioralBehavioral

implicationsimplications

Weigh estimatedWeigh estimatedcosts againstcosts against

probable benefits.probable benefits.

The system must provideThe system must provideaccurate, timely budgets andaccurate, timely budgets and

performance reports in a formperformance reports in a form

useful to managers.useful to managers.

Managers must use accountingManagers must use accounting

reports, or the reportsreports, or the reports

create no benefits.create no benefits.


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Decision MakingDecision Making

Decision making: the purposeful choiceDecision making: the purposeful choice

from among a set of alternative coursesfrom among a set of alternative courses

of action designed to achieve some objective.of action designed to achieve some objective.

Planning: Setting objectivesPlanning: Setting objectives

and outlining how theand outlining how the

objectives will be obtained.objectives will be obtained.

Control: ImplementingControl: Implementing

plans and using feedbackplans and using feedbackto evaluate the attainmentto evaluate the attainment

of objectives.of objectives.


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Key Management Accounting Guidelines

Cost-Benefit Approach

spend resources if they promote decision making thatbetter attains the organizations goals in relation to the costof 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

definecost depending on the situation underconsideration


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Performance ReportsPerformance Reports

Actual Actual BudgetedBudgeted Difference Difference (%)Difference Difference (%)

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

Average Rate /Page Average Rate /Page 5080 5200 120 (UF) 2.3%UF5080 5200 120 (UF) 2.3%UF

Advertising revenue 3860800 4160000 299200(UF) Advertising revenue 3860800 4160000 299200(UF)7.2%UF7.2%UF

Performance Report on Advertising RevenuePerformance Report on Advertising Revenue


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Product Life CycleProduct Life Cycle

Product life cycle refers to the variousProduct life cycle refers to the various

stages through which a product passes.stages through which a product passes.

No SalesNo Sales

ProductProduct

DevelopmentDevelopment

Sales GrowthSales Growth

Introduction to MarketIntroduction to Market

Stable Sales LevelStable Sales Level

Mature MarketMature Market

Low salesLow salespp No salesNo sales

PhasePhase--outout

ProductProduct


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Four Themes of Value Enhancement

3. Key success factors (KSFs)

keep attention focused on critical factors relative to ourcompetitors

4. Continuous improvement and benchmarking never-ending search for higher levels of performance

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2. Value-chain and supply-chain analysis manage these critical functions

1. Customer Focus attract and retain profitable customers


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The Value ChainThe Value Chain

CustomerCustomer

FocusFocus

ResearchResearch

andand

DevelopmentDevelopment

ProductProduct

AndAnd

ServiceService

ProcessProcess

DesignDesign

ProductionProduction

MarketingMarketing

DistributionDistribution

ServiceService


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The Value Chain

Sequence of business functions in which utility(usefulness) is added to the products or servicesof an organization

Management accounting helps managers toadminister each of these business functions

Research

and

Development

Product,

Service

Process

Design

Production Marketing DistributionCustomer

Service

Management Accounting

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E-Business Value Matrix

BusinessCriticality

(Importance of the

applicationto the

success of

thebusiness)

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High

Low

Operational

Excellence

Rational

Experimentation

New

Fundamentals

Breakthrough

Strategies

Low High

Practice Innovation

(Creating new markets ornew ways of doing

business)


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Starbucks coffee company Is theleading roaster and retailer of

specialty coffee in North America withannual sales revenue of more than1.5 billion .For each of the followingactivities, indicate the value chain

function that is being performed


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CONTD.

Process engineers investigate methods toreduce the time to roast coffee beans andto better preserve their flavor.

A direct to your home mail order system isestablished to sell custom coffees.

Arabica coffee beans are purchased andtransported to company processing plants.

Focus groups investigate the feasibility of anew line of Frappuccino drinks.


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A hot line is established for mail-order customers to call with

comments on the equity and speed ofdelivery.

Each company owned retail storeprovides information to customers

about the processes used to make itscoffee products.

Nature of Management Accounting New

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