ACTG2P12-Introduction to Management Accounting

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ACTG2P12-Introduction to Management Accounting
Todays experience will focus on ensuring that
you have a clear understanding of goals and
objectives of this course

• Who are we and why are we here?
• What are your expectations of this course?
• What is Management Accounting?
• What do we hope to cover in the next 14 weeks?

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Definition of Management Accounting

• The Institute of Management Accountants (IMA)
• The process of identification, measurement,
  accumulation, analysis, preparation,
  interpretation, and communication of financial
  (and non financial) information used by
  management to plan, evaluate, and control within
  the organization and to assure appropriate use
  and accountability for its resources.

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Comparison of Management and Financial Accounting
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Comparison of Management and Financial Accounting
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The Functions of Management
Acting (Executing)
Controlling (Reviewing)
Planning
Feedback (Reporting)
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The Management Cycle

• Traditionally, management operates in four
  stages
• Planning
• Long and short term.
• To support decision-making and set expectations.
• Executing
• Hiring, scheduling, acquiring assets (including
  inventory), reducing waster, generating revenues.
  
• Reviewing
• Controlling operations.
• Comparing actual performance to plan.
• Reporting
• To stockholders, creditors, other managers, other
  interested parties.

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The Management Cycle
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Meeting Demands of Global Competition

• Identify major trends in the business
  environment, and use cost-benefit analysis to
  make business decisions.

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Shift to a Service Economy
In Canada, 57 of the workforce is employed in
service companies.
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Competing in the Global Marketplace
Foreign operations account for over 30 of GEs
revenues, but generate two-thirds of the profit.
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E-commerce

• Conducting everyday business practices such as
  budgeting, planning, purchasing, and selling
  using the Internet.
• Business-to-business E-commerce.
• Important means of supply chain management.

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New Management Philosophies

• Three significant new management philosophies are
  as follows
• Just-in-time (JIT) operating environment.
• Total quality management (TQM).
• Activity-based management (ABM).

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Just-in-Time

• JIT philosophy means that the company schedules
  production just in time to satisfy needs.
• Speeding up of the production process reduces
  throughput time.
• Throughput time is the time between buying raw
  materials and selling the finished products.

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Total Quality Management

• The goal of total quality management (TQM) is to
  attract customers by providing them with superior
  products and services.
• TQM emphasizes educating, training, and
  cross-training employees.
• Quality improvement programs cost money today.
• The benefits usually do not occur until later.

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Theory of Constraints

• Identify performance or production bottlenecks
  (limiting factors).
• Overcome limitation.
• Identify next bottleneck.

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The Continuous Improvement Environment
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The Goal Continuous Improvement

• Avoid complacency.
• Constantly seek a better method.
• Reduce defects or poor quality.
• Reduce or eliminate non value-adding activities.
• Results Product/service costs and delivery
  times reduced. Quality and customer satisfaction
  increases.

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Examples of Performance Measures

• Financial performance measures
• Return on investment.
• Net income as a percentage of sales.
• Costs of poor quality as a percentage of sales.
• Non-financial performance measures
• Number of customer complaints.
• Hours of inspection.
• Time to fill an order.

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Performance Measures

• Performance measures are useful in reducing waste
  in operating activities.
• Management uses performance measures in all
  stages of the management cycle.
• In planning to motivate.
• In executing to guide, and assign costs.
• In reviewing to improve future performance.
• In reporting to communicate results.

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The Balanced Scorecard

• A framework that links the perspective of stake
  holder groups
• Financial Perspective (investors)
• Learning and Growth Perspective (employees)
• Internal Business Perspective (managers/employees)
  
• Customer Perspective (customers)
• with the organizations mission, vision, plans,
  and resources.
• Provides clear, measurable performance targets.

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Analysis of Non-financial Data Bank
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Analysis of Non-financial Data Bank
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The Four Ws

• Report preparation depends on
• Why?
• Why are we preparing the report?
• What?
• What information is needed?
• Who?
• Who is the audience for the report?
• When?
• When is the report due?

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Service, Merchandising, and Manufacturing
Organizations
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Service Organizations
provides intangible services, rather than
tangible products

• Sells services, not products
• No inventory accounts in the balance sheet
• Use cost of services sold instead of cost of
  goods sold

Cost of Sales Net Cost of Services Sold
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Merchandising Organizations
resells products previously purchased from
suppliers

• Purchases products that are ready for sale
• Maintains one inventory account on balance sheet
• Include cost of purchases in cost of goods sold

Cost of Goods Sold Beginning merchandise
inventory Net cost of purchases - Ending
merchandise inventory
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Manufacturing Organizations
uses labour and factory assets to shape raw
materials into finished products

• Designs and manufactures products for sale
• Maintains three inventory accounts
• (1) Material inventory
• (2) Work in process inventory
• (3) Finished goods inventory
• Include cost of goods manufactured in cost of
  goods sold

Cost of Goods Sold Beginning finished goods
inventory Cost of goods manufactured -
Ending finished goods inventory
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Income Statement Format
Sales Revenue
deduct
Cost of Goods Sold or Cost of sales
when sales occur
equals Gross Margin deduct
Operating Expenses
Period Costs
equals Operating Income Or Net Income
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Financial Statements forService Organizations

• There is no inventory and thus no inventoriable
  costs.
• The income statement does not include cost of
  goods sold.

Revenues Expenses Operating income
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Financial Statements for Merchandising Companies
INCOME STATEMENT
BALANCE SHEET
Sales Revenue
Inventoriable Costs
deduct
when sales occur
Purchases of Inventory plus Freight-In
Inventory
Cost of Goods Sold
equals Gross Margin deduct
Operating Expenses
Period Costs
equals Operating Income
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Financial Statements for ManufacturingCompanies
INCOME STATEMENT
BALANCE SHEET
Inventoriable Costs
Sales Revenue
Materials Inventory
deduct
when sales occur
Finished Goods Inventory
Cost of Goods Sold
equals Gross Margin deduct
Work in Process Inventory
Operating Expenses
Period Costs
equals Operating Income
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Comparison of Financial Statements for Service,
Merchandising, and Manufacturing Organizations
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Ethics

• Use reasonable standards to
• make ethical judgments.

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Professional Ethics for Management Accountants

• In many situations the ethical path is not so
  clear.
• The Society of Management Accountants of Canada
  (CMA Canada) has developed standards to help
  management accountants deal with these situations.

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Standards of Ethical Conduct for Management
Accountants
Integrity
Competence
Confidentiality
Objectivity
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Competence Standards

• Develop knowledge and skills on an ongoing basis.
• Perform duties in accordance with relevant laws
  and technical standards.
• Prepare complete and clear reports after
  appropriate analysis of information.

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Confidentiality Standards

• Refrain from disclosing confidential information.
• Make sure that subordinates refrain from
  disclosing confidential information.
• Refrain from using confidential information for
  unethical or illegal advantage.

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Integrity Standards

• Avoid actual or apparent conflicts of interest.
• Avoid activities that would prejudice ones
  ability to carry out duties ethically.
• Refuse any gift or favor that might influence
  ones actions.
• Avoid activities that could discredit the
  profession.

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Integrity Standards

• Avoid activities that could threaten the
  organizations legitimate and ethical objectives.
• Acknowledge any professional limitations relative
  to the performance of ones job.
• Communicate both favorable and unfavorable
  information and opinions.

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Objectivity Standards

• Communicate information fairly and objectively.
• Disclose fully all relevant information to users.

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Resolution of Ethical Conflict

• Follow organizational policies.
• If these do not resolve the conflict
• Discuss with the immediate superior, or next
  higher level authority involved. (Do not
  communicate with external parties.)
• Clarify issues with an objective advisor.
• Consult your own attorney about legal obligations
  and rights.
• If ethical issues cannot be resolved, consider
  resignation.