Chapter 1

The Changing Role of

Managerial
Accounting in a
Dynamic Business
Environment

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Define Managerial Accounting

Managerial accounting is the process of

 Identifying
 Measuring
 Analyzing
 Interpreting
 Communicating information

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

Directing

Acquires Resources Decision

Organized
Organized setset Making
of
of activities
activities

Controlling Planning
Hires People
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How Managerial Accounting Adds Value to
the Organization
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.
Assessing
 Assessing the
the organization’s
organization’s competitive
competitive position.
position.

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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
1-5
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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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.

1-7
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

1-8
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 ofof the
the
organization’s
organization’s accounting
accounting
system.
system.

1-9
 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

1-10
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.

1-11
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. Cost
Management
System

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Cost Management Systems
Objectives
Objectives
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 Cost
improve
improve performance.
performance. Management
System

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Managerial Accounting as a Career
Professional Organizations

Institute of Management Accountants (IMA)

Develops
Develops
Publishes
Publishes Administers
Administers Standards
Standards ofof
Management
Management Certified
Certified Ethical
Ethical
Accounting
Accounting Management
Management Conduct
Conduct for
for
and
and research
research Accountant
Accountant Management
Management
studies.
studies. program
program Accountants
Accountants
1-14
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.

1-15
Professional Ethics

Competence
Confidentiality
Integrity
Credibility

1-16