Chapter 1

Management Accounting and

The Business Organization

Course: Management Accounting

Instructor: Nguyen Tan Binh

 Objectives
1. Describe the major users of accounting information
2. Explain the cost-benefit and behavioral issues
involved in designing an accounting system
3. Explain the role of budgets and performance
reports in planning and control
4. Discuss the role accountants play in the company’s
value chain functions
5. Contrast the functions of controllers and treasurers
6. Identify current trends in management accounting
7. Understand how management accounting is used in
companies

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 Users of Accounting Information

Internal managers
Use information for
• short-term planning and controlling
routine operations
• making non-routine decisions and
formulating overall policies and
long-range plans

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 Users of Accounting Information

External parties
(investors, bankers, government
authorities,…) use information for
making decisions about the company

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 Management Accounting
& Financial Accounting
Management Accounting Financial Accounting
• It is the process of • It refers to accounting
identifying, measuring, information developed for
accumulating, analyzing, the use of external
preparing, interpreting, parties such as
and communicating stockholders, suppliers,
information that banks, and government
managers use to regulatory agencies.
complete organizational
objectives.

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 Uses of Accounting Information

Scorekeeping is the accumulation and

classification of data.

Attention directing involves reporting

and interpreting information.

Problem solving quantifies the

results of possible courses of action.

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 Accounting Systems

An accounting system is a formal

mechanism for collecting, organizing,
and communicating information about
an organization’s activities.

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 Accounting Systems

Generally accepted accounting principles

(GAAP) include broad guidelines and detailed
rules and procedures that make up accepted
accounting practices at a given time.

Internal accounting reports need not be

restricted by GAAP.

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 Service Organizations

Labor is intensive.

Output is usually difficult to define.

Major inputs and outputs cannot be stored.

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 Accounting System Costs and Benefits

Benefits Costs

Obtain
Benefits > Costs system

Seek
Benefits < Costs alternatives

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 Accounting System Costs and Benefits

• The accounting system’s effect on the

behavior (decisions) of managers should
be considered.
• If the system fails to provide information
that is timely or in a useful format, there
will be a lack of acceptance by users.

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 Planning and Controlling

What is decision making?

It is the purposeful choice from among
a set of alternative way of action
designed to achieve some objective.
This is the core of the management process.

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 Planning and Controlling

The Management Process Internal Accounting System

Planning Budgets, Customer

Special Reports surveys
Increase
Corrections and Revisions
of Plans and Actions

productivity Competitor
analysis
Financial
Accounting Advertising
System impact

Controlling New items

•Actions report
Performance
•Evaluations Reports
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 Role of Budgets

• A budget is a quantitative
expression of a plan of action and
is an aid to coordinating and
implementing the plan.
• Budgets are the chief devices for
disciplining management planning.

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 Role of Performance Reports

Performance reports formalize controls and

provide feedback by comparing results with
plans and by highlighting variances.

Variances are deviations from the plan.

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 Performance Report

Budgeted Actual Variance

Evaluation
Amount Amount Amount

Sales 20,000 16,000 4,000 Unfavorable

Expenses 15,000 12,000 3,000 Favorable

Income 5,000 4,000 1,000 Unfavorable

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 Product Life Cycle

Product Introduction
Development to market

Mature Product
Market Phase-out

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 Value chain

Research and
Design Production
Development

Customer
Marketing Distribution
Service

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 Value chain/Where are you?

The concept was first proposed around 1992 by Stan

Shih, the founder of Acer Inc., an IT company
headquartered in Taiwan.
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 Value chain/Where are you?

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 Value Chain Functions

Research and development (R&D)…

is the generation of, and experimentation
with, ideas related to new products,
services, or processes.

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 Value Chain Functions

Design…
is the detail and engineering of products

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 Value Chain Functions

Production…
is the coordination and assembly of resources to
produce a product or deliver a service.

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 Value Chain Functions

Marketing…
is the manner by which individuals or groups
learn about the value and features
of products or services.

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 Value Chain Functions

Distribution…
is the mechanism by which products or
services are delivered to the customer

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 Value Chain Functions

Customer service…
is the support activities provided to the customer

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 Authority and Responsibility

Line authority is granted to managers

who supervise subordinates and are
accountable for assets and operations.

Staff authority is the authority to advise

and support management personnel.

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 Organization Chart

Controller

General Internal
Taxes
Accounting Audit

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 Functions of the Controller

1. Planning for control

2. Reporting and interpreting
3. Evaluating and consulting
4. Tax administration
5. Government reporting
6. Protection of assets
7. Economic appraisal

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 Functions of the Treasurer

1. Supply of capital
2. Investor relations
3. Short-term financing
4. Banking and custody
5. Credits and collections
6. Investments
7. Risk management (insurance)

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 Current Management Accounting Trends

Factors causing changes in

management accounting:

Shift from a manufacturing-based

to a service-based economy

Increased global competition

Advances in technology

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 Just-in-Time (JIT)

What is the just-in-time philosophy?

Eliminate waste by reducing the time
products spend in the production process.

Eliminate the time products spend in

activities that do not add value.

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 Vital Role of Accounting Information
• Management accounting plays a
vital role in the achievement of
company goals and objectives.
• Management accounting information
is used across the entire value chain
of activities as well as throughout
the life cycle of products and
services.
Reference: Horngren/ Introduction to Management Accounting

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