Information for Decision Making

1

• Information for Decision Making

Chapter 1
2
Learning Objectives
3
Value Chain
Production
Marketing
RD
Distribution
Design
4
Activities
Production
Marketing
RD
Distribution
Design
Value Added Activity Customers perceive as
adding value.
Non Value-Added Activity Customers perceive no
value.
Does this add value?
Hmmmm?
Can we eliminate the activity?
Can we improve the activity?
5
Value Chain
?
or
6
Value Chain
?
or
7
Value Chain
?
or
8
Value Chain
?
or
9
Value Chain
?
or
10
Value Chain
?
or
11
Managerial Decisions
Key Question
12
Carmens Cookies
13
Cost Benefit Analysis
14
Cost Driver
drive
Some may be realized
Some may not be realized
15
Cost Driver
Number of storefronts
Rent
Insurance
Labor
Number of cookies
Ingredients
16
Differential Costs
differ
actions
17
Differential Revenues
differ
actions
18
Differential Costs, Revenues Profits
CARMENS COOKIES
Projected Income Statement For One Week
(1) (2) (3)
Status Quo Alternative
Original Shop Wholesale Retail
Sales Only Distribution Difference
a 35 percent higher than status quo
Sales revenue ... 6,300 8,505a 2,205
Costs
Food 1,800 2,700b 900
Labor .. 1,000 1,500b 500
b 50 percent higher than status quo
Utilities . 400 600b 200
Rent . 1,250 1,250 -----
Other .. 1,000 1,200c 200
c 20 percent higher than status quo
Total costs . 5,450 7,250 1,800
Operating profits . 850 1,255 405
19
Budget
CARMENS COOKIES
Budgeted Costs
For the Month Ending April 30
Number of cookies 32,000
Food
Labor
Flour 2,200
Manager 3,000
Eggs 4,700
Other 1,500
Chocolate 1,900
Total Labor 4,500
Nuts 1,900
Utilities 1,800
Other 2,200
Rent 5,000
Total Food 12,900
Total cookie costs 24,200
20
Actual to Budget Comparison
CARMENS COOKIES
Actual vs Budgeted Costs
For the Month Ending April 30
Difference
Actual Budget (Variance)
Number of cookies sold 32,000 32,000 0
Costs
Food
Flour 2,100 2,200 (100)
Eggs 5,200 4,700 500
Chocolate 2,000 1,900 100
Nuts 2,000 1,900 100
Total Food 13,500 12,900 600
21
Actual to Budget Continued
Difference
Actual Budget (Variance)
Labor
Manager 3,000 3,000 0
Total Labor 4,500 4,500 0
Utilities 1,800 1,800 0
Total cookie costs 24,800 24,200 600
22
Accounting Systems
Accounting systems are designed to provide
information to decision-makers.
Provides information to decision-makers internal
to the firm.
Provides information to decision-makers external
to the firm.
23
Accounting Systems Continued
24
Customers of Cost Accounting
I love this customer.
I love this customer.
I love this customer!
We love customers.
We love happy customers.
We love loyal customers.
25
Customers of Cost Accounting
Cost Accounting
WHO ARE THE CUSTOMERS?
Managers
Owners
26
Trends in Cost Accounting
High-Tech Production Settings
Just-in-Time Method
Lean Production
Emphasis on Quality
Benchmarking
Activity-Based Costing
Enterprise Resource Planning
Six Sigma
Performance Measurement
27
High-Tech Production Settings
More technology
Less Labor
28
Just-in-Time Method
29
Lean Production
Minimum inventory
Quality
Efficiency
Flexibility
Worker training
30
Emphasis on Quality
Total Quality Management (TQM)
Quality
31
Benchmarking
32
Activity-Based Costing (ABC)
ABC assigns costs of activities needed to make a
product then sums the cost of those activities to
compute a products cost.
33
Enterprise Resource Planning (ERP)
34
Six Sigma
A statistical specification
35
Performance Measurements
Balanced Scorecard
A performance measurement relying on multiple
financial and nonfinancial measures of
performance.
36
Financial Players in the Organization
37
Financial Players in the Organization
Manages the entire accounting and finance
function.
Chief Financial Officer (CFO)
Treasurer
Manages liquid assets
Plans and designs information and incentive
systems.
Controller
Ensures compliance with laws, regulations, and
company policies and procedures.
Internal Auditor
Records, measures, estimates and analyzes costs.
Cost Accountant
38
Ethical Issues For Accountants
39
You Discover Unethical Conduct
Now What?
Follow the organizations established policies
Discuss problems with the immediate superior,
unless superior is involved.
Submit the issue to the next higher managerial
level.
Submit the issue to an acceptable reviewing
authority.
Consider calling the confidential hotline.
The final recourse if ethical misconduct still
exists is to resign from the organization and to
submit an informative memorandum to an
appropriate representative of the organization.
40
Sarbanes-Oxley Act of 2002
Address problems of corporate governance
Accounting Firms
Corporations
Corporate Responsibility
41
Corporate Responsibility
CFO
CEO
Chief Financial Officer
Chief Executive Officer
Manages the entire accounting and finance
function.
Manages the entire corporation.
Sign financial reports and stipulate that
financial statements do not omit material
information.
Disclose evaluation of the companys internal
controls.
Disclose notification of any fraud involving
management to Auditors, Audit Committee and Board
of Directors.
42
Appendix
IMA Code of Ethics
Competence
Confidentiality
Integrity
Objectivity
43
Competence
Members have a responsibility to
Maintain an appropriate level of professional
competence by ongoing development of their
knowledge and skills.
Perform their professional duties in accordance
with relevant laws, regulations, and technical
standards.
Prepare complete and clear reports and
recommendations after appropriate analyses of
relevant and reliable information.
44
Confidentiality
Members have a responsibility to
Refrain from disclosing confidential information
acquired in the course of their work except when
authorized, unless legally obligated to do so.
Inform subordinates as appropriate regarding the
confidentiality of information acquired in the
course of their work and monitor their activities
to assure the maintenance of that confidentiality.
Refrain from using or appearing to use
confidential information acquired in the course
of their work for unethical or illegal advantage
either personally or through third parties.
45
Integrity
Members have a responsibility to
Avoid actual or apparent conflicts of interest
and advise all appropriate parties of any
potential conflict.
Refrain from engaging in any activity that would
prejudice their ability to carry out their duties
ethically.
Refuse any gift, favor, or hospitality that would
influence or would appear to influence their
actions.
Refrain from either actively or passively
subverting the attainment of the organizations
legitimate and ethical objectives.
Recognize and communicate professional
limitations or other constraints that would
preclude responsible judgment or successful
performance of an activity.
Communicate unfavorable as well as favorable
information and professional judgments or
opinions.
Refrain from engaging in or supporting any
activity that would discredit the profession.
46
Objectivity
Members have a responsibility to
Communicate information fairly and objectively.
Disclose fully all relevant information that
could reasonably be expected to influence an
intended users understanding of the reports,
comments, and recommendations presented.
47
Chapter 1
Should I expand or not?
The End