CHAPTER 1

The Manager and Management

Accounting

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CHAPTER 1 LEARNING
OBJECTIVES
1.
2.
3.

Distinguish financial accounting from

management accounting
Understand how management accountants
help firms make strategic decisions
Describe the set of business functions in
the value chain and identify the dimensions
of performance that customers are
expecting of companies

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CHAPTER 1 LEARNING
OBJECTIVES, CONCLUDED
4.

5.
6.
7.

Explain the five-step decision-making

process and its role in management
accounting
Describe three guidelines management
accountants follow in supporting managers
Understand how management accounting
fits into an organizations structure
Understand what professional ethics mean
to management accountants

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ACCOUNTING DISCIPLINE
OVERVIEW

Management accountingmeasures,
analyzes, and reports financial and
nonfinancial information to help managers
make decisions to fulfill organizational goals.
Management accounting need not be GAAP
compliant.

Financial accountingfocuses on reporting to

external users including investors, creditors,
banks, suppliers, and governmental agencies.
Financial statements must be based on GAAP.
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ACCOUNTING DISCIPLINE
OVERVIEW, CONCLUDED

Cost accounting measures, analyzes and

reports financial and nonfinancial
information related to the costs of acquiring
or using resources in an organization.

Today, most accounting professionals take

the position that cost information is part of
management accounting; therefore, the
distinction between the two is not clear-cut
and in this book, we often use the terms
interchangeably.
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MAJOR DIFFERENCES BETWEEN

MANAGEMENT AND FINANCIAL ACCOUNTING

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STRATEGY AND MANAGEMENT

ACCOUNTING
Strategy specifies how an organization matches
its own capabilities with the opportunities in the
marketplace.
There are two broad strategies: cost
leadership or product differentiation
Strategic cost managementdescribes cost
management that specifically focuses on
strategic issues.

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STRATEGY AND MANAGEMENT

ACCOUNTING, CONCLUDED
Management accounting helps answer important
questions such as:
Who

are our most important customers, and how can

we be competitive and deliver value to them?
What substitute products exist in the marketplace,
and how do they differ from our own?
What is our most critical capability?
Will adequate cash be available to fund the strategy
or will additional funds need to be raised?

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MANAGEMENT ACCOUNTING
AND VALUE

Creating value is an important part of

planning and implementing strategy.
Value is the usefulness a customer gains from
a companys product or service. The entire
customer experience determines the value a
customer derives from a product.

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MANAGEMENT ACCOUNTING
AND VALUE, CONCLUDED

The Value chain is the sequence of

business functions in which a product is
made progressively more useful to
customers.
The Value chain consists of:
1.
2.
3.
4.
5.
6.

Research & development

Design of Products and Processes
Production
Marketing
Distribution
Customer service
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THE VALUE CHAIN ILLUSTRATED

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A VALUE CHAIN
IMPLEMENTATION

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SUPPLY-CHAIN ANALYSIS

Production and Distribution are the parts of

the value chain associated with producing
and delivering a product or service.
These two functions together are known as
the Supply-Chain
The supply chain describes the flow of goods,
services and information from the initial
sources of materials, services, and
information to their delivery regardless of
whether the activities occur in one
organization or in multiple organizations.
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KEY SUCCESS FACTORS

Customers want companies to use the value

chain and supply chain to deliver everimproving levels of performance when it
comes to several (or even all) of the
following:
Cost

and efficiency
Quality
Time
Innovation
Sustainability
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A FIVE-STEP DECISION MAKING

PROCESS IN PLANNING AND
CONTROL
1.
2.
3.
4.
5.

Identify the problem and uncertainties.

Obtain information.
Make predictions about the future.
Make decisions by choosing between
alternatives.
Implement the decision, evaluate
performance, and learn.
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PLANNING AND CONTROL

SYSTEMS

Planning selects goals and strategies,

predicts results, decides how to attain goals,
and communicates this to the organization.
Budgetthe

most important planning tool-is the

quantitative expression of a plan of activity by
management and is an aid to coordinating what
needs to be done to execute that plan.

Control takes actions that implement the

planning decision, evaluates performance,
and provides feedback and learning to the
organization.
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MANAGEMENT ACCOUNTING
GUIDELINES
Three guidelines help management accountants provide
the most value to the strategic and operational decisionmaking of their companies:
Costbenefit approach: benefits of an action/purchase
generally must exceed costs as a basic decision rule.
Behavioral and technical considerations: people are
involved in decisions, not just dollars and cents.
Different Costs for Different Purposes: Managers use
alternative ways to compute costs in different
decision-making situations.
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A TYPICAL ORGANIZATIONAL STRUCTURE

AND THE MANAGEMENT ACCOUNTANT

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PROFESSIONAL ETHICS

The four standards of ethical conduct for

management accountants as advanced by the
Institute of Management Accountants are:
Competence
Confidentiality
Integrity
Objectivity

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SARBANES-OXLEY ACT (SOX)

The Sarbanes-Oxley legislation was passed in
2002 in response to a series of corporate
scandals. The act focuses on improving:
1. Internal controls
2. Corporate governance
3. Monitoring of managers
4. Disclosure practices of public companies

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TERMS TO LEARN
TERMS to LEARN

Page Number Reference

Budget

Page 11

Chief Financial Officer

Page 14

Control

Page 11

Controller

Page 14

Cost Accounting

Page 4

Cost-Benefit approach

Page 12

Cost Management

Page 4

Customer Relationship
Management (CRM)

Page 7

Customer Service

Page 6

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TERMS TO LEARN, CONTD

TERMS to LEARN

Page Number Reference

Design of products and processes

Page 6

Distribution

Page 6

Finance Director

Page 14

Financial Accounting

Page 3

Learning

Page 12

Line Management

Page 14

Management Accounting

Page 4

Marketing

Page 6

Planning

Page 11

Production

Page 6

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TERMS TO LEARN, CONCLUDED

TERMS to LEARN

Page Number Reference

Research & Development (R&D)

Page 6

Staff Management

Page 14

Strategic Cost Management

Page 5

Strategy

Page 5

Supply Chain

Page 7

Sustainability

Page 8

Total Quality Management (TQM)

Page 8

Value Chain

Page 8

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