1

Chapter One
The Changing Role of
Managerial Accounting
in a Dynamic Business
Environment

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Managing Resources, Activities,

and People

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An organization . . .
Directing

Acquires Resources

Hires People
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Organized
Organized set
set
of
of activities
activities

Controlling

Decision
Making

Planning

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Work of Management
Planning
Planning

Directing
Directing and
and
Motivating
Motivating
Controlling
Controlling

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Planning
Identify
Identify
alternatives.
alternatives.
Select
Select alternative
alternative that
that does
does
the
the best
best job
job of
of furthering
furthering
organizations
organizations objectives.
objectives.
Develop
Develop budgets
budgets to
to guide
guide
progress
progress toward
toward the
the
selected
selected alternative.
alternative.
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Directing and Motivating

Directing and motivating involves managing
day-to-day activities to keep the
organization running smoothly.

Employee work assignments.

Routine problem solving.
Conflict resolution.
Effective communications.

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Controlling
The
The control
control function
function ensures
ensures
that
that plans
plans are
are being
being followed.
followed.
Feedback
Feedback in
in the
the form
form of
of performance
performance reports
reports
that
that compare
compare actual
actual results
results with
with the
the budget
budget
are
are an
an essential
essential part
part of
of the
the control
control function.
function.

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Planning and Control Cycle

Formulating
Formulatinglonglongand
andshort-term
short-term
plans
plans(Planning)
(Planning)
Comparing
Comparing
actual
actual
to
toplanned
planned
performance
performance
(Controlling)
(Controlling)

Decision
Making

Measuring
Measuring
performance
performance
(Controlling)
(Controlling)
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Begin

Implementing
Implementing
plans
plans(Directing
(Directing
and
andMotivating)
Motivating)

How Managerial Accounting Adds

Value to the Organization

Providing
Providing information
information for
for decision
decision making
making and
and
planning.
planning.

Assisting
Assisting managers
managers in
in directing
directing and
and
controlling
controlling activities.
activities.

Motivating
Motivating managers
managers and
and other
other employees
employees
towards
towards organizations
organizations goals.
goals.

Measuring
Measuring performance
performance of
of activities,
activities,
managers,
managers, and
and other
other employees.
employees.

Assessing
Assessing the
the organizations
organizations competitive
competitive
position.
position.
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Managerial versus Financial

Accounting

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Accounting
Accounting System
System
(accumulates
(accumulates financial
financial and
and
managerial
managerial accounting
accounting data)
data)
Managerial
Managerial Accounting
Accounting
Information
Information for
for decision
decision
making,
making, and
and control
control
of
of an
an organizations
organizations
operations.
operations.
Internal
Users
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Financial
Financial Accounting
Accounting
Published
Published financial
financial
statements
statements and
and other
other
financial
financial reports.
reports.
External
Users

Comparison of Financial and

Managerial Accounting

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Line and Staff Positions

A
A line
line position
position is
is
directly
directly involved
involved in
in
achieving
achieving the
the basic
basic
objectives
objectives of
of an
an
organization.
organization.

Example:
Example: AA production
production
supervisor
supervisor in
in aa
manufacturing
manufacturing plant
plant..

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A
A staff
staff position
position
supports
supports and
and assists
assists
line
line positions.
positions.

Example:
Example: AA cost
cost
accountant
accountant in
in the
the
manufacturing
manufacturing plant.
plant.

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Controller
The
The chief
chief managerial
managerial and
and financial
financial
accountant
accountant responsibility
responsibility for:
for:

Financial
Financial planning
planning and
and analysis.
analysis.

Cost
Cost control.
control.

Financial
Financial reporting.
reporting.

Accounting
Accounting information
information systems.
systems.

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Treasurer
Responsible
Responsible for
for raising
raising capital
capital and
and
safeguarding
safeguarding the
the organizations
organizations assets.
assets.
Supervises
Supervises relationships
relationships with
with financial
financial
institutions.
institutions.

Work
Work with
with investors
investors and
and potential
potential
investors.
investors.

Manages
Manages investments.
investments.

Establishes
Establishes credit
credit policies.
policies.

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Internal Auditor
Responsible
Responsible for
for reviewing
reviewing accounting
accounting procedures,
procedures,
records,
records, and
and reports
reports in
in both
both the
the controllers
controllers and
and
the
the treasurers
treasurers area
area of
of responsibility.
responsibility.

Expresses
Expresses an
an opinion
opinion to
to top
top
management
management regarding
regarding the
the
effectiveness
effectiveness of
of the
the
organizations
organizations accounting
accounting
system.
system.

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Role of Managerial Accountant

O r g a n iz a t io n C h a r t
S t o c k h o ld e r s
B o a r d o f D ir e c t o r s
P r e s id e n t
C o n t r o lle r

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T re a s u re r

V ic e P r e s id e n t
P r o d u c t io n

V ic e P r e s id e n t
S a le s

Major Themes in Managerial

Accounting
Behavioral
Behavioral
Issues
Issues
Information
Information
and
and Incentives
Incentives

Costs
Costs and
and
Benefits
Benefits

Managerial
Accounting
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Evolution and Adaptation in

Managerial Accounting
Service Vs. Manufacturing
Firms
Emergence of New
Industries
Global Competition

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Computer-Integrated
Manufacturing

Change

Information and
Communication
Technology
Product Life Cycles

Cross-Functional Teams

Total Quality
Management
Time-Based Competition

Continuous Improvement

Just-in-Time Inventory

Focus on the Customer

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Cost Management Systems

Objectives
Objectives

Measure
Measure the
the cost
cost of
of
resources
resources
consumed.
consumed.

Identify
Identify and
and
eliminate
eliminate non-valuenon-valueadded
added costs.
costs.

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Cost
Management
System

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Cost Management Systems

Objectives
Objectives

Determine efficiency

Measure
Measure the
the cost
cost of
of
and
effectiveness
of
resources
resources
major activities.
consumed.
consumed.
Identify and

Identify
Identify and
and
evaluate new
eliminate
eliminate non-valuenon-valueactivities that can
added
added costs.
costs.
improve
performance.

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Strategic Cost Management and

the Value Chain
Product
Product
Design
Design
Research
Research
and
and
Development
Development
Securing
Securing raw
raw
materials
materials and
and
other
other resources
resources

Start
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Production
Production
Marketing
Marketing
Distribution
Distribution
Customer
Customer
Service
Service

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Manufacturing Costs
Direct
Direct
Materials
Materials

Direct
Direct
Labor
Labor

The Product

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Manufacturing
Manufacturing
Overhead
Overhead

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Direct Materials
Raw materials that become an integral
part of the product and that can be
conveniently traced directly to it.

Example:
Example: A
A radio
radio installed
installed in
in an
an automobile
automobile

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Direct Labor
Those labor costs that can be easily
traced to individual units of product.

Example:
Example: Wages
Wages paid
paid to
to automobile
automobile assembly
assembly
workers
workers
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Manufacturing Overhead
Manufacturing costs that cannot be traced
directly to specific units produced.
Examples:
Examples: Indirect
Indirect materials
materials and
and indirect
indirect labor
labor

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Nonmanufacturing Costs
Administrativ
e Costs

All executive,
organizational, and
clerical costs.

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Product Costs Versus Period

Costs
Product costs include
direct materials, direct
labor, and
manufacturing
overhead.
Inventory

Cost of Good Sold

Period costs include all

selling costs and
administrative costs.

Expense

Sale

Balance
Sheet
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Income
Statement

Income
Statement

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1-29

Quick Check
Which of the following costs would be
considered a period rather than a product
cost in a manufacturing company?
A. Manufacturing equipment depreciation.
B. Property taxes on corporate headquarters.
C. Direct materials costs.
D. Electrical costs to light the production
facility.
E. Sales commissions.
McGraw-Hill/Irwin

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Quick Check
Which of the following costs would be
considered a period rather than a product
cost in a manufacturing company?
A. Manufacturing equipment depreciation.
B. Property taxes on corporate headquarters.
C. Direct materials costs.
D. Electrical costs to light the production
facility.
E. Sales commissions.
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Classifications of Costs
Manufacturing costs are often
classified as follows:
Direct
Material
Material

Direct
Direct
Labor
Labor

Prime
Cost
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Manufacturin
g
Overhead

Conversion
Cost

Comparing Merchandising and

Manufacturing Companies
Manufacturers . . .
Merchandisers . . .

Buy finished
goods.
Sell finished
goods.
MegaLoMart

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McGraw-Hill/Irwin

Buy raw
materials.
Produce and sell
finished goods.

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Balance Sheet
Merchandiser
Current assets
Cash
Receivables
Merchandise

Inventory

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Manufacturer

Current Assets
Cash

Receivables

Inventories
Raw Materials
Work in Process
Finished Goods

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Balance Sheet
Merchandiser

Current assets
Cash

Receivables

Merchandise

Inventory

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Manufacturer

Current Assets
Cash

Receivables

Inventories
Raw Materials
Work in Process
Finished Goods

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End of Chapter 1

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