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Management Accounting summary
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Summary of chapter 1, 2 and part of chapter 3 from the book 'Introduction to Management Accounting'. The summary includes slides from classes as well.
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Management Accounting summaryChapter 1 Managerial Accounting, the Business Organization, and
Professional Ethics.
Management accounting = process of identifying, measuring, accumulating,
analysing, preparing, interpreting and communicating information, that helps
managers fulfil organizational objectives.
Roles of management accounting:
1. It helps making decisions.
2. Help you plan and control the organization’s operations.
3 ways of making managerial decisions:
1. Scorekeeping: accumulating, classification, reporting data that help users
understand and evaluate performance.
2. Attention-directing: reporting and interpreting information that helps managers
to focus on operating problems, imperfections, inefficiencies and
opportunities.
3. Problem-solving: analysis of possible courses of action, and identification of
the best course to follow.
Planning = setting objectives for an organization and determining how to attain them.
Control = implementing plans and using feedback to evaluate the attainment of
objectives.
Performance reports compare actual results to budgets, and thereby motivating
managers to achieve the objectives.
Examples of government regulations that influence accounting systems:
- Sarbanes-Oxley Act
- Foreign Corrupt Practices Act
Important ideas when designing accounting systems:
- Cost-benefit balance: weighing estimated costs against probable benefits
- Behavioural implications: the system’s effect on employees’ decisions and
behavior.
The product life cycle and value chain are important as well in accounting systems.
Line manager = directly involved with making and selling the organization’s products.
Staff manager = advisory role, support line managers by providing information and
advice.
Treasurer = the executive who is concerned mainly with the company’s financial
matters, like raising and managing cash.
Controller/comptroller = the accounting officer who deals mainly with operating
matters, like aiding management decision making.
, 4 business trends that influence management accounting:
1. Shift to a service-based economy in the US. A service organization is a
company that only provides (intangible) services. Characteristics:
a. Labour is a major component of costs (salaries are a big cost)
b. Output is difficult to measure
c. They cannot store their major inputs and outputs (airline cannot save an
empty airline seat)
2. Global competition. Lower international barriers to trade.
3. Advances in technology. Electronic commerce with B2B and B2C grows fast.
ERP = Enterprise resource planning systems are companies with integrated
information systems that support all functional areas of a company (like
Microsoft, SAP).
4. Changes in business process management. Help of computers, robots,
machines.
Lean manufacturing = applying continuous process improvements to eliminate
waste from the entire enterprise.
Ethics = what is morally good or bad, right or wrong. It includes VALUES like
honesty, fairness, responsibility, respect, compassion.
Code of conduct = a document specifying the ethical standards of an organization.
Ethical dilemmas is an action unethical? Would it be unethical not taking an
action? If both answers are yes: ethical.
4 causes/temptations of ethical standards:
1. Emphasis on short-term results: do whatever is necessary to get those
numbers.
2. Ignoring the small stuff: most ethical compromises start out small. Toleration
can lead to big problems.
3. Economic cycles.
4. Accounting rules: accountants need to seek full and fair disclosure.
Chapter 2: introduction to cost behavior and cost-volume-profit
relationships
Variable cost =
changes in
direct proportion
to changes in
the cost-driver
level
Fixed cost =
cost that is not
affected by
changes in the
cost-driver level
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