Managerial Accounting

In the
Information Age

Slide 1-1
 Managerial Accounting

▪ Managerial accounting is designed for

internal users

▪ The goal of Managerial Accounting is to

provide the information managers need for
- Planning
- Control
- Decision making

Slide 1-2 Learning objective 1: State the primary goal of

managerial accounting
 Planning
Budgets for planning
▪ Profit budget
- Indicates planned income
▪ Cash flow budget
- Indicates planned cash inflows and
outflows
▪ Production budget
- Indicates the planned quantity of
production and expected costs

Slide 1-3 Learning objective 2: Describe how budgets

are used in planning
 Planning

Slide 1-4 Learning objective 2: Describe how budgets

are used in planning
 Control
Organizations achieve control by:
▪ Evaluating managers to determine how
their performance should be rewarded or
punished
▪ Evaluating operations to provide
information as to whether they should be
changed or not

Slide 1-5 Learning objective 3: Describe how performance reports are

used in the control process
 Planning and Control Process

Learning objective 3: Describe how performance reports are

used in the control process
Slide 1-6
 Sample Performance Report

Slide 1-7 Learning objective 3: Describe how performance reports are

used in the control process
 Managerial vs Financial
Accounting
Unlike Financial Accounting, Managerial
Accounting:
▪ Is directed at internal users
▪ May deviate from GAAP
▪ Presents more detailed information
▪ May present more nonmonetary
information
▪ Places more emphasis on the future

Slide 1-8 Learning objective 4: Distinguish between financial

and managerial accounting
 Cost Terminology
Variable Costs
- Change in proportion to changes in volume or activity

Slide 1-9 Learning objective 5: Define cost terms used in

planning, control, and decision making
 Cost Terminology
Fixed Costs
- Do not change in response to changes in volume or
activity

Slide 1-10 Learning objective 5: Define cost terms used in

planning, control, and decision making
 Which of the following is most likely to be a
variable cost?
a. Depreciation
b. Cost of materials
c. Rent
d. Advertising

Answer:
b. Cost of materials

Slide 1-11 Learning objective 5: Define cost terms used in

planning, control, and decision
 Which of the following is most likely to be a
fixed cost?
a. Cost of materials
b. Rent
c. Assembly labor cost
d. Commissions

Answer:
b. Rent

Slide 1-12 Learning objective 5: Define cost terms used in planning,

control, and decision making
 Cost Terminology
Sunk Costs
- Costs incurred in the past
- Not relevant to present decisions

Opportunity Costs
- Values of benefits foregone when
selecting one alternative over another

Slide 1-13 Learning objective 5: Define cost terms used in planning,

control, and decision making
 Costs incurred in the past are:
a. Opportunity costs
b. Direct costs
c. Sunk costs
d. Variable costs

Answer:
c. Sunk costs

Slide 1-14 Learning objective 5: Define cost terms used in

planning, control, and decision making
 Cost Terminology
▪ Direct and indirect costs
- Direct costs are directly traceable to a
product, activity, or department, indirect
costs are not traceable
▪ Controllable & noncontrollable costs
- A manager can influence controllable
costs but cannot influence non-
controllable costs

Slide 1-15 Learning objective 5: Define cost terms used in

planning, control, and decision making
 Direct and Indirect Cost

Slide 1-16 Learning objective 5: Define cost terms used in

planning, control, and decision making
In the past year, Williams Mold & Machine had
sales of $8,000,000 and total production costs of
$6,000,000. In the coming year, the company
believes that production can be increased by
30%, but this will require adding a second shift
to work from 4:00 pm to 1:00 am.
1. Indicate three production costs that are likely
to increase because of adding a second
production shift.

Material costs, workers’ salaries, and

benefits are all likely to increase

Slide 1-17 Learning objective 5: Define cost terms used in

planning, control, and decision making
In the past year, Williams Mold & Machine had
sales of $8,000,000 and total production costs of
$6,000,000. In the coming year, the company
believes that production can be increased by
30%, but this will require adding a second shift
to work from 4:00 pm to 1:00 am.

2. What production cost most likely will not

increase when the second shift is added?
Depreciation of the building will not
increase

Slide 1-18 Learning objective 5: Define cost terms used in

planning, control, and decision making
 Two Key Ideas in Managerial
Accounting

Slide 1-19 Learning objective 6: Explain the two key

ideas in managerial accounting
 Incremental Analysis
Incremental analysis:
▪ Differences in revenues and costs between
alternatives are incremental
▪ Incremental revenue minus incremental cost
equals incremental profit

Slide 1-20 Learning objective 6: Explain the two key

ideas in managerial accounting
 You Get What you Measure
Performance measures greatly influence the
behavior of managers

Slide 1-21 Learning objective 6: Explain the two key

ideas in managerial accounting
 You Get What you Measure

Slide 1-22 Learning objective 6: Explain the two key

ideas in managerial accounting
 Information Age and Managerial
Accounting
Advances in information technology have:
▪ increased competition and also created
opportunities and cost savings for firms
that use information for strategic
advantage
▪ impacted information flows up and down
the value chain (i.e. fundamental activities
that a firm engages in to create value)

Slide 1-23 Learning objective 7: Discuss the impact of information technology on competition, business processes and
the interactions companies have with suppliers and customers
 The Value Chain

Slide 1-24 Learning objective 7: Discuss the impact of information technology on competition, business processes and
the interactions companies have with suppliers and customers
 Impact of Software Systems
on the Value Chain

▪ Enterprise Resource Planning (ERP)

- Computerize inventory control and production
planning

▪ Supply Chain Management (SCM)

- Organization of activities between a company and
its suppliers

▪ Customer Relationship Management (CRM)

- Manages a variety of customer interactions

Slide 1-25 Learning objective 7: Discuss the impact of information technology on competition, business processes and
the interactions companies have with suppliers and customers
 Customer Relationship
Management

Slide 1-26 Learning objective 7: Discuss the impact of information technology on competition, business processes
and the interactions companies have with suppliers and customers
 Ethical and Unethical Behavior

Examples of unethical behavior

▪ Enron managers mislead investors by hiding
debt, i.e. Kenneth Lay, CEO, found guilty of fraud
▪ WorldCom overstated profits, i.e. Bernard Ebbers,
CEO, received a 25 year prison sentence
▪ Dennis Kozlowski, head of Tyco, was charged
with avoiding taxes
▪ Sam Waksal, cofounder of IMClone, was charged
with insider trading

Slide 1-27 Learning objective 8: Describe a framework

for ethical decision making
 Ethical Decision Making

Slide 1-28 Learning objective 8: Describe a framework

for ethical decision making
 Institute of Management
Accountants (IMA)
Professional organization which focuses on
management accounting:
▪ Developed Statement of Ethical
Professional Practice
▪ Maintains ethics helpline
▪ Publishes Strategic Finance and
Management Accounting Quarterly
▪ Conducts comprehensive examination
to test knowledge of management
accountants

Slide 1-29 Learning objective 8: Describe a framework

for ethical decision making
 Duties of Officers
Controller
- Prepares reports to plan and evaluate
company activities
- Provides information needed to make
management decisions
- Files all financial accounting reports and
tax filings with IRS and other tax agencies
- Coordinates activities of external auditors

Slide 1-30 Learning objective 9: Discuss the duties of the controller, the treasurer, the chief
information officer, and the chief financial officer
 Duties of Officers
Treasurer
▪ Manages cash and marketable securities
▪ Prepare cash forecasts
▪ Obtains financing from banks and other
lenders
▪ Maintain relationships with investors,
banks, and other creditors

Slide 1-31 Learning objective 9: Discuss the duties of the controller, the treasurer, the chief
information officer, and the chief financial officer
 Duties of Officers

Chief Information Officer (CIO)

▪ responsible for information technology
and computer systems

Chief Financial Officer (CFO)

▪ responsible for accounting and finance
operations

Slide 1-32 Learning objective 9: Discuss the duties of the controller, the treasurer, the chief
information officer, and the chief financial officer
 Organizational Chart for the
Controller’s Office

Slide 1-33 Learning objective 9: Discuss the duties of the controller, the treasurer, the chief
information officer, and the chief financial officer
 Decision Making

Slide 1-34