The Accountant's Role in The Organization

The Accountants Role
in the Organization
Chapter 1
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1-1
Learning Objective 1
Describe how cost

accounting supports
management accounting
and financial accounting.
Management Accounting
It measures and reports financial and

nonfinancial information that helps
managers make decisions to fulfill the
goals of an organization.
Financial Accounting
Its focus is on reporting to external parties.

It measures and records business transactions.
It provides financial statements based on
generally accepted accounting principles.
Cost Accounting
It provides information for both management

accounting and financial accounting.
It measures and reports financial
and nonfinancial data.
Cost Management
It describes the activities of managers in

planning and control of costs.
It includes the continuous reduction of costs.
It is a key part of general management
strategies and their implementation.
Understand how management

accountants affect
strategic decisions.
Strategic Cost Management
Developing strategy
Building resources and capabilities
Implementing strategy
Strategic Cost Management
Building resources and capabilities
Long-Term
Current Intangible
Productive
Assets Assets
Assets
Distinguish between the

planning and control
decisions of managers.
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 10

Planning and Controlling
Management Decision Management Accounting System
Planning Budgets
Feedback
Accounting
Control System
Performance Performance
Evaluation Reports

What is planning?
Setting Predicting Deciding how

goals results to attain goals

What is control?
Deciding Deciding on
and performance
taking evaluation
actions and feedback

What are budgets?
They are They aid in the

quantitative coordination
expressions and
of a proposed implementation
plan of action. of the plan.
What are performance reports?
These are reports that

compare actual results
with budgeted amounts.

Performance Report Example
Boone Shop, July 2003
Budget Actual Variance
Revenues $59,000 $60,000 $1,000 F
Cost of goods sold 42,000 43,400 1,400 U
Wages 6,700 7,000 300 U
General 1,300 900 400 F
Fixed costs 5,000 5,000 0
Operating income $ 4,000 $ 3,700 $ 300 U
Performance Report Example
Actual cost of goods sold were

72% of revenues instead of the budgeted 71%.
Budget % Actual %
Revenues $59,000 100 $60,000 100
Cost of goods sold 42,000 71 43,400 72
Gross margin $17,000 29 $16,600 28

Feedback
This involves managers examining past performance

and systematically exploring alternative ways to
make better informed decisions in the future.

Distinguish among the problem-

solving, scorekeeping, and
attention-directing roles of
management accountants.

Problem Solving
This involves comparative analysis

for decision making.
This role asks: Of the several alternatives
available, which is the best?

Scorekeeping
This involves accumulating data and

reporting reliable results to
all levels of management.
This role asks: How is the business doing?

Attention Directing
This involves helping managers

properly focus their attention.
This role asks: Which opportunities and
problems should be emphasized first.
Attention directing should focus on all
opportunities to add value to an organization,
not just cost-reduction opportunities.
Identify four themes managers

need to consider for
attaining success.

Key Themes in Management
Decision Making
Customer Focus
Value Chain Key Success Factors: Continuous

and Cost and Efficiency, Improvement
Supply Chain Time, Quality, and
Analysis Innovation Benchmarking

Customer Focus
The challenge facing managers is to continue

investing sufficient (but not excessive)
resources in customer satisfaction
such that profitable customers
are attracted and retained.

Value Chain and
Supply Chain Analysis
This theme has two related aspects:
1. Treat each of the business functions in the value

chain as an essential and valued contributor.
2. Integrate and coordinate the efforts of all business

functions in addition to developing the capabilities
of each individual business function.
Value Chain and
Supply Chain Analysis
Supply chain describes the flow of goods,

services, and information from cradle to grave,
regardless of whether those activities occur in
the same organization or other organizations.

Key Success Factors
These are operational factors that directly affect

the economic viability of the organization.
Cost organizations Quality customers

are under continuous are expecting higher
pressure to reduce costs. levels of quality.

Key Success Factors
Time organizations are under pressure to

complete activities faster and to meet
promised delivery dates more reliably.
Innovation there is now heightened recognition

that a continuing flow of innovative products
or services is a prerequisite to the ongoing
success of most organizations.
Continuous Improvement
and Benchmarking
Continuous improvement by competitors creates

a never-ending search for higher levels of
performance within many organizations.

Describe the set of business

functions in the value chain.

Value Chain
The term value chain refers to the sequence of

business functions in which usefulness is added
to the products or services of an organization.
The term value is used because as the usefulness
of the product or service is increased, so is its value
to the customer.

Value Chain
Management accountants provide

decision support for managers in the
following six business functions:

Value Chain
R&D Design Production
Management Accounting
Marketing Distribution Service

Value Chain Functions
Research and Development

It is the process that is conducted to generate
and experiment with ideas related to new
products, services, or processes.

Design
It is the detailed planning and engineering
of products, services, or processes.

Production
It is the acquisition, coordination, and
assembly of resources to produce
a product or deliver a service.

Marketing
It is the manner by which companies
promote and sell their products
or services to customers
or prospective customers.

Distribution
It is the delivery of products or
services to the customer.

Service
It is the after-sale support activities
provided to customers.

Describe three ways

management accountants
support managers.

Key Guidelines
1. Cost-benefit approach
2. Full recognition of behavioral as well as
technical considerations
3. Using different costs for different purposes

Cost-Benefit Approach
A cost-benefit approach should be used in order

to spend resources if they promote decision
making that better attains organization goals
in relation to the costs of those resources.

Behavioral and Technical
Considerations
A management accounting system should have two

simultaneous missions for providing information:
1. To help managers make wise economic decisions
2. To help managers and other employees to aim and
strive for goals of the organization

Different Costs for
Different Purposes
A cost concept used for the external reporting

purpose need not be the appropriate concept
for the purpose of internal routine reporting
to managers.

Understand how cost management

accounting fits into an
organizations structure.

Line and Staff Relationships
Line management is directly responsible for

attaining the objectives of the organization.
Staff management exists to provide advice
and assistance to line management.

Board of Directors
Chairman
Chief Executive Officer (CEO)
President
Chief Operating Officer (COO)
Chief Financial Officer (CFO)
Controller Audit Tax Treasury Risk Investor

Management Relations

Controller
Examples of Functions:
* Global Financial Planning/Budgeting * Royalties

* Operations Administration * General Ledger
* Profitability Reporting * Accounts Payable and Receivable
* Inventory * Subsidiary and Liaison Accounting

Understand what
professional ethics mean
to management accountants.

Professional Ethics
Competence Integrity
Confidentiality Objectivity

Ethical Guidelines
The Institute of Management Accountants (IMA)

is the largest association of management
accountants in the United States.
The IMA has issued a Standards of Ethical
Conduct for Management Accountant.

End of Chapter 1

The Accountant's Role in The Organization

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The Accountants Role

Describe how cost

It measures and reports financial and

Its focus is on reporting to external parties.

It provides information for both management

It describes the activities of managers in

Understand how management

Building resources and capabilities

Distinguish between the

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 10

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 11

Setting Predicting Deciding how

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 12

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 13

What are budgets?

They are They aid in the

What are performance reports?

These are reports that

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 15

Actual cost of goods sold were

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 17

This involves managers examining past performance

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 18

Distinguish among the problem-

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 19

This involves comparative analysis

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 20

This involves accumulating data and

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 21

This involves helping managers

Identify four themes managers

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 23

Value Chain Key Success Factors: Continuous

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 24

The challenge facing managers is to continue

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 25

1. Treat each of the business functions in the value

2. Integrate and coordinate the efforts of all business

Supply chain describes the flow of goods,

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 27

These are operational factors that directly affect

Cost organizations Quality customers

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 28

Time organizations are under pressure to

Innovation there is now heightened recognition

Continuous improvement by competitors creates

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 30

Describe the set of business

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 31

The term value chain refers to the sequence of

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 32

Management accountants provide

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 33

R&D Design Production

Marketing Distribution Service

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 1 - 34

Research and Development

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