Chap 001
Chap 001
Chap 001
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
1-3
Management accounting is a profession
that involves partnering in management
decision making, devising planning and
performance management systems, and
providing expertise in financial reporting and
control to assist management in the
formulation and implementation of an
organization’s strategy.
1-4
Introduction to Strategy
Success comes from developing and
implementing an effective strategy aided by
management accounting methods
Clear mission statement
Strategy is a roadmap to achieve a company’s
mission
Management accountants can help a company
be successful
Key to success is having decision-relevant
information
1-5
Cost Management Information
Serves all management functions
1-6
Typical Organization Chart
Chief Executive Officer (CEO)
Cost Management
Financial Reporting
Financial Information Systems
Other Reporting Obligations (e.g., tax)
1-7
Cost Management vs.
Financial Reporting
Financial reporting
External users
Emphasis on accuracy and compliance
Cost management
Internal users
Emphasis on usefulness and timeliness, key
characteristics of decision-relevant information
Challenge for controller to reconcile these
potentially conflicting roles
1-8
Four Functions of Management
1-9
Management Functions
Strategic management
Most important management function
Involves identifying and implementing goals and
action plans to maintain a competitive advantage
Monitoring of Critical Success Factors (CSFs) is
necessary
Critical to a firm’s success due to global competition
and rapidly changing markets
1-10
Management Functions (continued)
Planning and decision-making
Information is needed to support recurring decisions
such as scheduling production and pricing
Information is needed for short-run planning
(budgeting) and profit planning (Cost-Volume-Profit
analysis)
Management and operational control
Information is needed to identify inefficient operations
and reward effective management practices
Preparation of financial statements
Information is needed to guarantee compliance with
regulatory reporting requirements
1-11
Types of Organizations
Service
Service Government
Governmentand
and
Manufacturers
Manufacturers Merchandisers
Merchandisers firms
firms Not-for-profit
Not-for-profit
Wholesalers
Wholesalers Retailers
Retailers
1-12
Changes in the Contemporary Business
Environment
1. Shift to a global business environment
Economic interdependence and increased
competition
2. Lean Manufacturing
Just-in-time (JIT) inventory methods, inventory
reduction and quality control
Emphasis on speed-to-market (i.e., time-based
competition)
Flexible manufacturing systems
1-13
Changes in the Contemporary Business
Environment (continued)
3. Importance of information technology
Increased use of the internet has reduced
processing time and facilitated information
exchange
4. Focus on the customer
Consumers expect functionality, quality and
customization
Shorter product life-cycles have intensified
competition
1-14
Changes in the Contemporary Business
Environment (continued)
5. Shifts in management organization
The focus has shifted from financial measures and
hierarchal command-and-control organizations to
nonfinancial measures and flexible organizational
structures
6. Social, political, and cultural considerations
Changes include a more diverse workforce, a
renewed sense of ethical responsibility, and
increased deregulation of business
1-15
The Strategic Focus of Cost Management: Kaplan’s
Phases for Developing Cost Management Systems
Stage One Cost-management systems are basic
transaction reporting systems
Stage Two Cost-management systems focus on
external reporting–decision-usefulness
of cost-management data is limited
Stage Three Cost-management systems track key
operating data and relevant cost
information for decision-making
Stage Four Strategically relevant cost-
management information is an integral
part of the system 1-16
How do the Changes in The Contemporary
Business Environment Affect Cost Management?
The management accountant’s role:
Provide strategically relevant cost management
information to help the organization keep up
with the ever-changing environment
Thirteen Contemporary Management
Techniques developed and employed by the
management accountant
1-17
1. The Balanced Scorecard and Strategy Map
2. The Value Chain
3. Activity Based Costing and Management
4. Business Intelligence
5. Target Costing
6. Life Cycle Costing
7. Benchmarking
8. Business Process Improvement
9. Total Quality Management
10. Lean Accounting
11. The Theory of Constraints
12. Enterprise Sustainability
13. Enterprise Risk Management
1-18
Contemporary Management
Techniques (continued)
1. The Balanced Scorecard and the Strategy Map
The Balanced Scorecard (BSC)
An accounting report that addresses a firm’s
performance in four areas: financial, customer,
internal business processes, and innovation and
learning
The Strategy Map
The strategy map is a method, based on the balanced
scorecard, which links the four perspectives in a cause-
and-effect diagram.
1-19
Contemporary Management
Techniques (continued)
2. The Value Chain
An analysis tool used to identify the specific
steps required to provide a competitive product
Helps identify steps that can be eliminated or
outsourced
3. Activity-Based Costing and Management
Activity-Based Costing (ABC) improves the
tracing of costs to individual products and
customers
Activity-Based Management (ABM) improves
operational and management control
1-20
Contemporary Management
Techniques (continued)
4. Business Intelligence
an approach to strategy implementation in which the
management accountant uses data to understand and
analyze business performance.
5. Target Costing
Target Cost = Market-determined price – Desired
Profit
A method that has resulted from intensely
competitive markets
1-21
Contemporary Management
Techniques (continued)
6. Life-Cycle Costing
Costs should be monitored throughout a
product’s life cycle – from research and
development to sales and service
7. Benchmarking
Process by which a firm identifies its CSFs,
studies the best practices of other firms in
achieving these CSFs, and institutes change
based on the assessment results
1-22
Contemporary Management
Techniques (continued)
8. Business Process Improvement
This technique involves managers and workers
committing to a program of continuous
improvement in quality and other CSFs
1-24
Contemporary Management
Techniques (continued)
1-25
Competitive Strategies
A firm succeeds by implementing a set of policies,
procedures, and approaches to business called
strategy
1-26
Cost Leadership—outperform competitors by
producing at the lowest cost, consistent with quality
demanded by the consumer
Differentiation—creating value for the customer
through product innovation, product features,
customer service, etc. that the customer is willing to
pay for
1-27
Competitive Strategies (continued)
Aspect Cost Leadership Differentiation
Strategic Broad cross section Focused cross
Target of the market section of the market
Basis of Lowest cost in the Unique product or
competitive industry service
advantage
Product line Limited selection Wide variety
Production Lowest possible cost Innovation in
emphasis and essential differentiating
features products
Marketing Low price Premium price and
emphasis innovative features 1-28
The Five Steps of
Strategic Decision Making
1. Determine the Strategic Issues Surrounding the
Problem
2. Identify the Alternative Actions
3. Obtain Information and Conduct Analyses of
the Alternatives
4. Based on Strategy and Analysis, Choose and
Implement the Desired Alternative
5. Provide an On-going Evaluation of the
Effectiveness of implementation in Step 4.
1-29
Professional Organizations
Organizations that provide guidelines and
regulations:
Internal Revenue Service (IRS), Federal Trade
Commission (FTC), Securities and Exchange
Commission (SEC), etc.
Organizations that promote professionalism
and expertise:
Institute of Management Accountants (IMA),
Financial Executives Institute (FEI), and Institute of
Internal Auditors (IIA)
1-30
Professional Certifications
1-31
IMA Statement of Ethical
Professional Practice
• Commitment to competence, integrity,
confidentiality, and credibility is necessary for the
management accountant to provide a useful service to
management
• When presented with an ethical issue that cannot be
resolved through the organization’s established
policies, the IMA suggests a three step process:
Discuss the situation with a superior not involved in the issue
Clarify the issue through discussion with an IMA Ethics
Counselor or impartial advisor
Consult your own attorney as to your legal obligations and rights
1-32
Chapter Summary
Cost management information is used in all four
of the management functions and is important in
the pursuit of a firm’s mission and goals
1-34