 Your company ( a fruit juice manufacturing firm) is looking to

launch a new product line ( a new flavor). You are asked to

design the promotion plan for the new product. What factors
would influence your decision?
 You company (an IT service provider) is bidding for a new
project with client based in US. As the business development
head, you are negotiating the deal. What factors will
influence your negotiations?
 As an operations manager with an telecom firm, you need to
decide on the installation of switches in your organization.
Assume three different makes are available, what factors
would you consider to decide the switch?
 As an HR manager, you need to decide the medium of hiring
people for finance function. You have option to look for a B-
school during placements season, or to place an ad in
newspaper or hire a consultant. What factors would
influence your decision?
Managerial
Accounting
Course Contents
 Measuring Cost
 Cost terminologies and cost classification
 Cost Allocation
 Activity Based Costing
 Using Cost and accounting data for decision
making
 Cost behavior
 Cost Volume profit analysis
 Decision-making in the short term
 Budgeting
 Variance Analysis
Evaluation

 Class Participation 15%

 Group Assignment 10%
 Quizzes
15%
 Mid Term 20%
 End Term 40%
Introduction
 Your company ( a fruit juice manufacturing firm) is looking to
launch a new product line ( a new flavor). You are asked to
design the promotion plan for the new product. What factors
would influence your decision?
 You company (an IT service provider) is bidding for a new
project with client based in US. As the business development
head, you are negotiating the deal. What factors will
influence your negotiations?
 As an operations manager with an telecom firm, you need to
decide on the installation of switches in your organization.
Assume three different makes are available, what factors
would you consider to decide the switch?
 As an HR manager, you need to decide the medium of hiring
people for finance function. You have option to look for a B-
school during placements season, or to place an ad in
newspaper or hire a consultant. What factors would
influence your decision?
What are General Purpose Financial
Statements?

Who are the users of General Purpose

Financial Statements?

What is an Accounting System?

How can an accounting system help

managers in decision-making?
External Decision Makers
 Types of decisions
 Whether to invest in firm, lend money, calculate taxes
owed
 Information needs
 Differ across users
 Not cost effective to produce specific information
 Comparability issues
 Solution
 Comprehensive reports (financial statements)
 Defined rules (GAAP/AS) with guidelines by
organizations such as Institute of Chartered Accountant
of India (ICAI), Ministry of Corporate Affairs (MCA), SEBI
etc.
 Statements issued at Regular intervals
Internal Decision Makers
 Types of decisions
 Whether to run promotion, who to hire, which
customers to serve, large batch or small batch
production etc.
 Information needs
 Differ across users
 Need specific data for the “smaller” decisions
 Might need both financial and non-financial data
 Possible to provide decision specific information
 Users subject to policies and procedures
 Solution
 Decision specific data produced
 No pre-set rules for how to process
 Produced as needed
Financial Vs. Management Accounting
 Cost and Management
Accounting
 Cost accounting refers to the process of determining and
accumulating the cost of some particular product or activity.
 As a tool of management, provides management with detailed
records of the costs relating to products, operations or
functions.
 The costs so determined and accumulated is used for planning
and control purposes.
 Management accounting deals with providing information
including financial accounting information to managers for
their use in planning, decision-making, performance
evaluation, control, management of costs and cost
determination for financial reporting.
 However, both these accounting systems are closely linked
as they use common basic data and reports to a significant
degree
A Conceptual View of Accounting
Suppliers Customers

Acquire Process Deliver

Resources resources Product

GAAP Financial & non-

financial data Plan Control
Auditors

Financial Estimate,
Statement validate, Management
s predict Accounting
Decision Managers
Financial useful
Accounting Information

Shareholders, Lenders, Government Accounting

Information
System
Accounting Information
System
 Process of gathering, organizing, and
communicating financial information (many a
times coupled with non-financial information)
 Factors that influence AIS:
 GAAPs/ AS
 Regulatory issues such as Companies Act, SEBI
requirements, Income Tax Act etc.
 Internal control
 Cost benefit and Behavioral considerations
 Decisions in Organizations
 What is an organization?
 Collection of individuals

 Goals vary across organizations

 For-profit firms
 Not-for-profit organizations
 Governments
Conflict in Goals
 Divergence between organizational and
individual goals
 People make decisions
 What is best for employee is not necessarily
best for organization

 Need to align incentives to create goal

congruence
Reducing Loss due to Conflict
 Three broad methods
 Policies & procedures
 Monitoring
 Incentive schemes and performance evaluation

 Decision makers consider costs and benefits of

each control mechanism when choosing the
best mix
Planning and Control
 Planning Decisions
 What products & services to offer
 How best to make and deliver them?
 What resources do we need? How to source them?

 Control Decisions
 Evaluate past planning decisions
 Aim to improve future plans
 Include setting performance targets
Decision Making is Dynamic
Planning and Control

Planning Budget

Accounting Non-
Information Financial
Control System Informa-
tion

Performance
Reports
Budgets and
Performance Reports
 Budget: Quantitative expression of plan of
action.
 Performance reports:
 Compare actual results with the budgeted
amounts
 Provide feedback
 Highlight variances
Four-step Framework for Decisions
Step 1 Specify the decision problem,
including the decision maker’s goals

Step 2 Identify options

Step 3 Measure benefits (advantages) and

costs (disadvantages) to determine
the value (benefits reaped less costs
incurred) of each option

Step 4 Make the decision, choosing the

option with the highest value
Ethics and Decision Making
 Ethics
influence every step of the
framework

 Step 1 - How we define goals

 Step 2 - What options to consider

 Step 3 - Unethical choices have high costs

 Step 4 - Quit before making an unethical

decision
Unethical Behavior
Temptations
 Emphasis on short term results: Pressure to meet expected
profit numbers
 Ignoring the small stuff: Large misdeeds often result from
many small ones
 Economic cycles: A downturn may reveal what an upturn
may hide
 Accounting rules :Avoid creative accounting