Managerial accounting 5th jiambalvo ch01

Cost Terminology Variable Costs  Change in proportion to changes in volume or activity Slide 1-11 Learning objective 5: Define cost terms used in planning, control, and decision makin

Prepared by

Debby Bloom-Hill CMA, CFM

CHAPTER 1

Managerial Accounting

In the Information Age

Slide 1-2

Managerial Accounting

 Managerial accounting is designed for internal users

 The goal of Managerial

Accounting is to provide the

information managers need for

 Aids coordination of various

functions such as sales and

production

 Specifies the resources needed to achieve company goals

Slide 1-4

 Budgets for planning

 Profit budget

 Indicates planned income

 Cash flow budget

 Indicates planned cash inflows and outflows

 Production budget

 Indicates the planned quantity of production and expected costs

Slide 1-5 Learning objective 2: Describe how budgets

are used in planning

Slide 1-6 Learning objective 2: Describe how budgets

are used in planning

 Organizations achieve control by:

 Evaluating managers to determine

how their performance should be

rewarded or punished

 Evaluating operations to provide

information as to whether they

should be changed or not

Slide 1-7 Learning objective 3: Describe how performance reports are

used in the control process

Planning and Control

Process

Planning and Control

Process

Slide 1-8

Learning objective 3: Describe how performance reports are

used in the control process

Sample Performance Report

Slide 1-9 Learning objective 3: Describe how performance reports are

used in the control process

 Is directed at internal users

 May deviate from GAAP

 Presents more detailed information

 May present more nonmonetary

information

 Places more emphasis on the future

Slide 1-10 Learning objective 4: Distinguish between financial

and managerial accounting

Cost Terminology

 Variable Costs

 Change in proportion to changes in volume or activity

Slide 1-11 Learning objective 5: Define cost terms used in

planning, control, and decision making

Cost Terminology

 Fixed Costs

 Do not change in response to

changes in volume or activity

Slide 1-12 Learning objective 5: Define cost terms used in

planning, control, and decision making

Which of the following is most likely to

Slide 1-13 Learning objective 5: Define cost terms used in

planning, control, and decision

Test Your Knowledge 1

Which of the following is most likely to

Slide 1-14 Learning objective 5: Define cost terms used in planning,

control, and decision making

Test Your Knowledge 2

Cost Terminology

 Sunk Costs

 Costs incurred in the past

 Not relevant to present decisions

 Opportunity Costs

 Values of benefits foregone when

selecting one alternative over another

Slide 1-15 Learning objective 5: Define cost terms used in planning,

control, and decision making

Costs incurred in the past are:

Slide 1-16 Learning objective 5: Define cost terms used in

planning, control, and decision making

Test Your Knowledge 3

Cost Terminology

 Direct and indirect costs

 Direct costs are directly traceable to

a product, activity, or department, indirect costs are not traceable

 Controllable and non-controllable costs

 A manager can influence

controllable costs but cannot influence non- controllable costs

Slide 1-17 Learning objective 5: Define cost terms used in

planning, control, and decision making

Direct and Indirect Cost

Slide 1-18 Learning objective 5: Define cost terms used in

planning, control, and decision making

In the past year, Williams Mold & Machine had sales of $8,000,000 and total production costs of $6,000,000 In the coming year, the company believes that production can be

increased by 30%, but this will require

adding a second shift to work from 4:00 pm

to 1:00 am.

Slide 1-19

Test Your Knowledge 4

1 Indicate three production costs that

are likely to increase because of

adding a second production shift.

Material costs, workers’ salaries, and benefits are all likely to increase

Learning objective 5: Define cost terms used in

planning, control, and decision making

In the past year, Williams Mold & Machine had sales of $8,000,000 and total production costs of $6,000,000 In the coming year, the company believes that production can be

increased by 30%, but this will require

adding a second shift to work from 4:00 pm

to 1:00 am.

Slide 1-20

Test Your Knowledge 5

2 What production cost most likely will

not increase when the second shift is added?

Depreciation of the building will not increase

Learning objective 5: Define cost terms used in

planning, control, and decision making

Two Key Ideas in Managerial

Accounting

Two Key Ideas in Managerial

Accounting

Slide 1-21 Learning objective 6: Explain the two key

ideas in managerial accounting

Incremental Analysis

Slide 1-22 Learning objective 6: Explain the two key

ideas in managerial accounting

• Incremental analysis:

 Differences in revenues and costs

between alternatives are incremental

 Incremental revenue minus

incremental cost equals incremental profit

You Get What you Measure

Performance measures greatly

influence the behavior of managers

Slide 1-23 Learning objective 6: Explain the two key

ideas in managerial accounting

You Get What you Measure

Slide 1-24 Learning objective 6: Explain the two key

ideas in managerial accounting

Information Age and Managerial Accounting

Information Age and Managerial Accounting

 Advances in information

technology have:

 Increased competition and also

created opportunities and cost savings for firms that use

information for strategic advantage

 Impacted information flows up and

down the value chain (i.e

fundamental activities that a firm engages in to create value)

Slide 1-25 Learning objective 7: Discuss the impact of information technology on competition, business processes and

the interactions companies have with suppliers and customers

The Value Chain

Slide 1-26 Learning objective 7: Discuss the impact of information technology on competition, business processes and

the interactions companies have with suppliers and customers

Impact of Software Systems

on the Value Chain

Impact of Software Systems

on the Value Chain

 Enterprise Resource Planning (ERP)

 Computerize inventory control and

production planning

 Supply Chain Management (SCM)

 Organization of activities between a

company and its suppliers

 Customer Relationship Management (CRM)

 Manages a variety of customer

interactions

Slide 1-27 Learning objective 7: Discuss the impact of information technology on competition, business processes and

the interactions companies have with suppliers and customers

Ethical and Unethical Behavior

 Examples of unethical behavior

 Enron managers mislead investors

by hiding debt, i.e Kenneth Lay, CEO, found guilty of fraud

 WorldCom overstated profits

 Bernard Ebbers, CEO, received a 25 year prison sentence

 Dennis Kozlowski, head of Tyco, was charged with avoiding taxes

 Sam Waksal, cofounder of IMClone, was charged with insider trading

Slide 1-28 Learning objective 8: Describe a framework

for ethical decision making

Sarbanes-Oxley Act

Slide 1-29 Learning objective 8: Describe a framework

for ethical decision making

 Enacted by Congress in July 2002

 Requires CEO and CFO to certify

that the financial statements do not contain any untrue statements or

omissions

 Bans certain types of work by the

company’s auditors to ensure their

independence

Sarbanes-Oxley Act

Slide 1-30 Learning objective 8: Describe a framework

for ethical decision making

 Provides for longer jail sentences

and larger fines for executives (i.e

fines up to $5 million and jail terms

up to 20 years)

 Requires companies to report on

the existence and reliability of

internal controls

Framework for Ethical

Decision Making

Framework for Ethical

Decision Making

 When evaluating a decision, ask:

1 What decision alternatives are

available?

2 What individuals or organizations

have a stake in the outcome of my decision?

3 Will an individual or an organization

be harmed by any of the alternatives?

4 Which alternative will do the most

good with the least harm?

5 Would someone I respect find any of

the alternatives objectionable?

Slide 1-31 Learning objective 8: Describe a framework

for ethical decision making

Framework for Ethical

Decision Making

Framework for Ethical

Decision Making

 After deciding on a course of

action, but before taking action,

ask:

6 At a gut level, am I comfortable

with the decision I am about to make?

7 Will I be comfortable telling my

friends and family about this decision?

Slide 1-32 Learning objective 8: Describe a framework

for ethical decision making

Institute of Management

Accountants (IMA)

Institute of Management

Accountants (IMA)

Slide 1-33 Learning objective 8: Describe a framework

for ethical decision making

• Professional organization which

focuses on management

accounting:

 Developed Statement of Ethical

Professional Practice

 Maintains ethics helpline

 Publishes Strategic Finance and

Management Accounting Quarterly

 Conducts comprehensive

examination to test knowledge of management accountants

Duties of Officers

Slide 1-34

• Controller

• Prepares reports to plan and

evaluate company activities

• Provides information needed to

make management decisions

• Files all financial accounting

reports and tax filings with IRS and other tax agencies

• Coordinates activities of external

auditors

Learning objective 9: Discuss the duties of the controller, the treasurer, the chief

information officer, and the chief financial officer

 Prepare cash forecasts

 Obtains financing from banks and

other lenders

 Maintain relationships with

investors, banks, and other creditors

Learning objective 9: Discuss the duties of the controller, the treasurer, the chief

information officer, and the chief financial officer

Duties of Officers

Slide 1-36

• Chief Information Officer (CIO)

 Responsible for information

technology and computer systems

• Chief Financial Officer (CFO)

• Responsible for accounting and

finance operations

Learning objective 9: Discuss the duties of the controller, the treasurer, the chief

information officer, and the chief financial officer

Organizational Chart for the

Controller’s Office

Organizational Chart for the

Controller’s Office

Slide 1-37 Learning objective 9: Discuss the duties of the controller, the treasurer, the chief

information officer, and the chief financial officer

Decision Making

Slide 1-38

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