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ManagerialAccounting(brief summary)Susan V. Crosson, M.S. Accounting,C.P.ASanta Fe CollegeBelverd E. Needles, Jr., Ph.D., C.P.A.,C.M.A.DePaul University

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Chapter 1:The Changing Business

Environment:A Managers Perspective

Management is expected to ensure thatthe organization uses its resources wisely,

operates profitably, pays its debts, andabides by laws and regulations.

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If organizations are to prosper, they must identify the

factors that arecritical to their success. Key success factors include:

satisfying customer needs,

developing efficient operating processes,

fostering career paths for employees,and

being an innovative leader in marketingproducts and services.

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The role of management accounting is to provide an

information systemthat enables managers and persons throughout anorganization:

to make informed decisions,

to be more effective at their jobs, and

to improve the organizationsperformance.

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Management Accounting and

Financial Accounting:A Comparison

The primary users of managementaccounting information are people inside theorganization.

financial accounting takes the actual resultsof management decisions about operating,investing, and financing activities andprepares financial statements for parties

outside the organizationowners orstockholders, lenders, customers, andgovernmental agencies.

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Management Accountingand the Management Process

the four stages of this process are:

planning,

performing,

evaluating, and

communicating.

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Planning

A companys mission statement describes the

fundamental way in which the company will

achieve its goal of increasing stakeholdersvalue. It also expresses the companys identity

and unique character. The mission statement is

essential to the planning process, which must

consider how to add value through strategic

objectives, tactical objectives, and

operating objectives.

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Performing Planning alone does not guarantee satisfactory operating results. Management must implement the business plan in ways that make

optimal use of available resources in an ethical manner. Smooth operations

require one or more of the following: Hiring and training personnel Matching human and technical resources to the work that must be

done Purchasing or leasing facilities Maintaining an inventory of products for sale

Identifying operating activities, or tasks, that minimize waste andimprove

the quality of products or services

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Evaluating

When managers evaluate operating results,

they compare the organizations actual

performance with the performance levelsthey established in the planning stage. They

earmark any significant variations for further

analysis so that they can correct the

problems. If the problems are the result of a

change in the organizations operatingenvironment, the managers may revise the

original objectives.

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Communicating

Whether accounting reports are preparedfor internal or external use, they must

provide accurate information and clearlycommunicate this information to thereader. Inaccurate or confusing internalreports can have a negative effect on a

companys operations.

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Value Chain Analysis

This concept of how a business fulfills itsmission and objectives

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Advantages of Value ChainAnalysisAn advantage of value chain analysis is

that it allows a company to focus on its

core competencies. A core competencyis the thing that a company does best. It iswhat gives a company an advantageover its competitors.

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Primary Processes and SupportServices Research and development: developing new and better products or services.Lang plans to add value by developing a candy that has less sugar content

than similar confections.

Design: creating improved and distinctive shapes, labels, or packages for

products. For example, a package that is attractive and that describes thedesirable features of Langs new candy will add value to the product.

Supply: purchasing materials for products or services. Lang will want topurchase high-quality sugar, chocolate, and other ingredients for the candy,as well as high-quality packaging.

Production: manufacturing the product or service. To add value to the new

candy, Lang will want to implement efficient manufacturing and packaging

processes.

Marketing: communicating information about the products or services and

selling them. Attractive advertisements will facilitate sale of the new candy to

customers.

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Distribution: delivering the product or service to the customer. Courteousand efficient service for in-store customers will add value to the product. Langmay also want to accommodate Internet customers by providing shipping.

Customer service: following up with service after sales or providing warrantyservice. For example, Lang may offer free replacement of any candy that does

not satisfy the customer. She could also use questionnaires to measure customersatisfaction. The support services that provide the infrastructure for the primary processesare as follows:

Human resources: hiring and training employees to carry out all the functions ofthe business. Lang will need to hire and train personnel to make the new candy. Legal services: maintaining and monitoring all contracts, agreements, obligations,and other relationships with outside parties. For example, Lang willwant legal advice when applying for a trademark for the new candys name

and when signing contracts with suppliers. Information systems: establishing and maintaining technological means ofcontrolling and communicating within the organization. Lang will want acomputerized accounting system that keeps not only financial records butcustomer information as well.

Management accounting: provides essential information in any business.

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Management Tools for

Continuous Improvement

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Just-in-Time OperatingPhilosophy

all resourcesmaterials, personnel, andfacilitiesbe acquired and used only

when they are needed. Its objectives areto improve productivity and eliminatewaste.

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Total Quality Management

all parts of a business focus on quality.TQMs goal is the improved quality of

products or services and the workenvironment. Workers are empowered tomake operating decisions that improvequality in both areas.

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Activity-Based Management

approach to managing an organizationthat identifies all major activities or tasks

involved in making a product or service,determines the resources consumed byeach of those activities and why theresources are used, and categorizes the

activities as either adding value to aproduct or service or not adding value.

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Theory of Constraints

Limiting factors, or bottlenecks, occurduring the production of any product or

service, but once managers identify sucha constraint, they can focus theirattention and resources on it and achievesignificant improvements.

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Achieving ContinuousImprovement

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By focusing attention on continuousimprovement and fine-tuning of

operations, they contribute to the same resultsin any organization:

a reduction in product or service costsand delivery time,

an improvement in the quality of theproduct or service, and

an increase in customer satisfaction.

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The Balanced Scorecardis a framework that links the perspectives of an organizations fourstakeholder groups to the organizations mission, objectives, resources,and performance measures. The four stakeholder groups are asfollows:

Stakeholders with a financial perspective (owners, investors, andcreditors)value improvements in financial measures, such as net income andreturn oninvestment. Stakeholders with a learning and growth perspective (employees)

value highwages, job satisfaction, and opportunities to fulfill their potential. Stakeholders who focus on the businesss internal processes value

the safe and cost-effective production of high-quality products. Stakeholders with a customer perspective value high-quality

products that are low in cost.

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Benchmarking

is a technique for determining acompanys competitive advantage by

comparing its performance with that of itsclosest competitors.

Benchmarks are measures of the bestpractices in an industry.