ACCT2121

INTRODUCTORY MANAGEMENT AC
COUNTING

Instructor: Fiona Yanling GUAN

 Course Information
 Instructor office: Rm1001C, CYT

Email: yanlingguan@cuhk.edu.hk

 TA: Mr. Shubo ZHANG

Email: zhangshubo@link.cuhk.edu.hk

 Course Website: Blackboard

 Textbook: Datar & Rajan, Horngren’s Cost Accounting
– A Managerial Emphasis, 16th edition
 Prerequisite: ACCT 2111

2
 Course Assessment

 Class Participation 6%
 Homework Assignments 8%

 Case Assignment 6%
 Mid-term Test
30%
 Final Exam 50% 3
 Course Administration

Class Participation
 Students are expected to attend classes regularly and participate in
discussions.
Home Assignments
 Weekly assignment to submit on Blackboard.

Suggested Questions and Solution Manual

 For practice purpose. Not collected or graded. Approach TA for check
ing answers.
Case Assignment
 Details will be provided in due course.

Mid-term Examination
 Date to mark in your diary: Oct 29, Friday, 19:00–21:00 (Chap.1-5,
&10).
 Session 1
Introduction to Management Accounting

5
Part 1.1.
Financial accounting vs. management
accounting

6
 What’s Financial Accounting?

Reporting of the financial position and performance of

a firm through financial statements issued to external
users on a periodic basis.

7
 What’s Management Accounting?

An integral part of management concerned with identifying, presenti

ng and interpreting information used for:
 Formulating strategy;
 Planning and controlling activities;
 Decision making;
 Disclosure to shareholders and others external to the entity;
 Optimizing the use of resources, etc.
-- The Chartered Institute of Management Accountants (CIMA)

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Major Differences
 Managers’ Responsibilities

Setting goals and

Planning
objectives

Decision Overseeing day-to-day

Making Directing
operations

Controlling Evaluating results

of operations
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 Planning, Directing, and Controlling

Planning Budget
Decisions

Directing Accounting Records

Variance Analysis;
Controlling
Performance Reports

11
Part 1.2.
Management accounting in practice

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Competitive Advantages
 Touch Competition and Practice

 Touch competition in the global marketplac

e
 More accurate and timely information is needed !

 Practice: tools for time-based, cost-based

and quality-based competition
 Lean production / Just-in-time (JIT) 
 Total quality management (TQM), etc.

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 Lean Production System

 Philosophy and a business strategy of manufa

cturing without waste

 Primary goal is to eliminate waste and cost

 Focus of “Just-in-Time” (JIT):

 Purchase raw materials just in time for p
roduction
 Finish goods just in time for delivery

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16
 Just-In-Time Purchasing

 Materials are purchased just prior to use

 Timely delivery of quality products is crucial
 Requires a more open relationship with suppliers and smalle
r, more frequent orders
 Suppliers are chosen carefully
 Consider the entire supply chain from cradle to grave (wom
b to tomb) and share information with all parties involved in
the system

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 Major Features of Just-in-Time

 Supply chain management

 Production activities in self-contained cells

 Short setup times and small batches produced j

ust in time
 Hiring and retaining multi-skilled workers

 Emphasis on total quality management

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 Total Quality Management
Goals:
 To provide customers with superior products and
services

 Continuous improvement
 Improve quality
 Eliminate defects and waste

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 Four Types of Quality Costs

1. Prevention costs – avoid poor quality goods or s

ervices
 Employee training
 Improved materials
 Preventive maintenance

2. Appraisal costs – detect poor quality goods or s

ervices
 Inspection throughout production
 Inspection of final product
 Product testing
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 Four Types of Quality Costs

3. Internal failure costs – avoid poor quality g

oods or services before delivery to customers
 The cost of rework
 Rejected product units

4. External failure costs –poor quality products

are delivered to customers already
 Lost profits from lost customers
 Warranty costs
 Sales returns or product recall due to quality p
roblems
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Cost of Quality Report
 Role of Management Accountants

Management accounting information helps managers formulate str

ategy by answering questions such as the following:
 What is the bargaining power of our suppliers?
 How much does it cost to make one unit of product?
 How effective is our cost control?
 Who are our most important customers? What is the bargaining
power of our customers?
 How much is the cost of quality control?
 What substitute products exist in the marketplace and how do t
hey differ from our products?
 Management Accounting Guidelines

Three guidelines help management accountants make

decisions for their companies:
1. The Cost-benefit analysis applies.
2. Managers use alternative ways to compare costs in
different decision-making situations.
3. Management is primarily a human activity that shou
ld focus on encouraging individuals to do their jo
bs better.
 Management Accounting Guidelines

More on behavioral implication:

 People react when they are being measured, and the
y react to the measurements
 They focus on the variables and behavior being meas
ured and spend less attention on those not measure
d
Two old sayings recognize these phenomena:
“What gets measured gets managed.”
“If I can’t measure it, I can’t manage it.”
 Course Structure
 Session 1: Introduction to management accounti
ng
 Session 2: cost terms
 Session 3: cost behavior
 Session 4: cost-volume-profit analysis
 Session 5: master budget
 Session 6: job costing
 Session 7: activity-based costing
 Session 8: decision making and relevant inform
ation
 Session 9-10: variance analysis 28

 Session 11: inventory costing

 Course Objectives

 Understand cost terms and the costing system

 Be able to prepare budgets and conduct varian

ce analyses

 Make simple business decisions under differen

t scenarios

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 Costing
System

Appendix 6A: Cost Cost

Basic Cost
Inventory Accumulation Flow
System
Valuation Method Assumption

Chap. 3 Chap. 3:
Variable Average
Normal Job Order

Chap. 10: Chap. 4:

Absorption LIFO
Standard Activity

Chap. 5:
FIFO
Process

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