Managerial Accounting

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8/28/2011

Herminia E. Babia, CPA, MBA
Professor

TOPICS:
1 – Overview of Managerial Accounting
 The role and functions of managerial
accounting
 Management Accounting
Information
 Management Accounting and
Ethical Conduct

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 Current Focus of Managerial Accounting
 Impact on Organizational Structure
 Focus on Customer
 Cross-Functional Teams
 Computer Integrated Manufacturing
 Product life cycles and Diversity
 Time Based Competition
 Global Competition
 Information and Communication Technology Management
 Just-in-Time Inventory
 TQM
 Continuous Improvement
 Cost Management System

TOPICS:


2. Financial Statement Analysis
Understanding External Financial Statements

Analysis and Interpretation of Financial
Statements


3. Cost Terms and Concepts




Nature and classification of costs
Basics of Cost Behavior
Cost Classifications on Financial Statements

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TOPICS:
4. Design of Cost and management accounting systems
- Job Order costing
- Process Costing
- Activity Base Costing
5. Managerial Accounting Techniques for Planning and
Control
 Cost Behavior and CVP Analysis

Variable Costing
 Transfer Pricing
 Standard Costs
 Application of Quantitative Techniques


6. Using Accounting Information in Decision Making, Relevant
Costs and Benefits
6.1 - The Decision Making Process
6.2 - Identifying Relevant Costs
6.3 - Approaches in Analyzing Alternatives
6.4 - Types of Decisions
- Make or Buy
- Adding or Dropping products/segment
- Sell Now or Process Further
- Special Sales Pricing
- Utilization of Scarce Resources
- Shutdown or Continue Operations
- Pricing Products or Services

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7. Budgeting
- Operational and Financial Budgeting
- Capital Budgeting/Capital Investment Decision
- Definition, Characteristics, Categories,
Elements, Process
- Net Initial Investment or Project Cost
- Net Cash Returns
- Lowest Acceptable Rate of Return/Cost of
Capital
- Screening Capital Investment Proposals
- Ranking of Investment Projects

8. Control and Performance Evaluation
- Responsibility Accounting
- Divisional Performance Measurement
- Control and Evaluation of Cost Centers
- Segment Reporting and Decentralization

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OVERVIEW OF MANAGERIAL
ACCOUNTING
Management Accounting (Managerial Accounting) - a discipline that includes
almost all manipulations of financial information for use by managers in
performing their organizational functions and in assuring the proper use and
handling of an entity’s resources; it includes the discipline of cost accounting.

The Role of Managerial Accounting:
 to provide information to help meet the needs of management inside an
organization.
Activities of Managerial Accountants:
 Assisting in the design of the organization’s information system.
 Ensuring that a system performs adequately
 Periodically reports information to interested managers.
 Undertaking special analysis

Differences between managerial
and financial accounting:
 As to:
 Users
 Organizational focus
 Information Characteristics
 Overriding criteria
 Record Keeping

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Management Functions and
Accounting:
 Managerial accounting parallels the shift in today’s business

world, focusing not just on the numbers but on the function of
management; planning, decision making, controlling and
performance evaluation.
- Planning Function
reparation of budgeted financial statements
 managerial accountants help management in setting goals and

developing strategies and tactics to achieve them.

 Long-term planning (strategic planning) focusing on value chain

and supply chain. Understanding the value-chain enables the
company to evaluate how it competes using lowest cost strategy or
differentiation strategy, and allows company to understand the
behavior of its costs.

 Decision Making
 Role of Accountant in Decision Making:
 Selection of relevant data
 Present the data to management
 Explains the analysis to managers using analytical techniques to help
managers understand the implications of the decisions.

 Control and Performance Evaluation
 Control is determining whether goals are being met, and if not, what

can be done.

 Managerial accountant use analytical tools to help managers

understand the reasons for achieving goals.

 Performance evaluation – implicit in control
 Accounting reports partially substitute for managers’ personal

supervision of activities.

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 Ethics for Management Accountant
 A. Competence:
 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
data and reliable information.


 B. Confidentiality:
 - Refrain from disclosing confidential information

acquired in the course of their work except when
authorized, unless legally obliged 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.

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 C. Integrity:

- 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.
- 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.


 D. Objectivity:

- 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.

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Current Focus of Managerial
Accounting
 The world is becoming increasingly complex…
The advent of the knowledge economy

Unprecedented access to
information

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New Trends in Organizational
Structure: (Corporate Reforms)





1.)Using teams
2.) Lean Management
3.) Open-Source Business

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USING TEAMS
 Hourglass organization = has only three layers where
the top management is responsible for formulating a
vision/mission for the organization and making sure it
becomes a reality. It is the middle management that

coordinates the diverse activities in the lower echelon
through computer networking. The people in the
middle management are more of generalist than
specialist. At the bottom of the hourglass is a broad
layer of technical specialists acting as supervisors
much of the time.

 Cluster organization = teams are the primary
structural units where multiskilled people moving

from one team to another as projects need their
services
 Network organization (virtual corporation)= has as its
main or only function administrative oversight, it does
not produce or sell. Production-related and marketing
functions are done by independent companies under
contract with the network organization. (Subcontracting)

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Hourglass Organization
Top Management

Middle level

Middle Level

Middle Level

Lower Level

Lower Level

Lower Level

Cluster organization
Team A

Team B

Team C

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Virtual Corporation

Virt. Org
Administration

Co. A
Mfg.

Co. B
Distributor

Open Source Business
 Its about networking and partnerships with those

outside and inside the organization who can help
the business provide better products and services
to customers. The Open source model
(transparency of operations, collaboration with
customers and others to manage the business and
set priorities, and giving commodities away free)
can allow leading-edge businesses to make the
transition to tomorrow’s economy effect. (ex.
Supply Chain Management- SCM)

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Open Source Business
 Its about teaming with a Virtual Assist. A Virtual Assistant

(VA), is an independent contractor providing
administrative, technical, or sometimes creative assistance
to businesses- usually to other independent entrepreneurs
and solo small business practices, such as that of a lawyer,
realtor, accountant, or business coach. Virtual assistants
work from their own office, thus making overhead nonexistent. With a virtual assistant you are able to take
administrative tasks off of your extremely full tasks, like
customer contact, marketing, accounting jobs, without
sacrificing your profits.

CUSTOMER’S SATISFACTION
Key Success Factors

Total Chain

Cost, time, quality, &
innovation

Value Analysis
TOTAL CUSTOMERS
SATISFACTION

Dual
Internal/External
Focus

Continuous
Improvement

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Customer satisfaction
 It is the first priority of any business.
 Referring to Customer Value - the difference between
what the customer receives and what he gives up.
(Hansen & Mowen)

The Product Life Cycle
The product life cycle concept suggests
that a product passes through four stages of
evolution. Introduction, growth, maturity
and decline. As a product evolves and passes
through these four stages profit is affected,
and different strategies have to be employed
to ensure that the product is a success within
its market.

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Product Life Cycle Stages

Product Life Cycle Stages

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