CIA2009: Management Accounting

Lecture 1: 13 September 2017

Dr. ELAINE Y.N. OON

Course Briefing &
Introduction to Management Accounting and the
Business Environment
Overview of Course
1) Cost Terms, Concepts, Classification
Manufacturing vs. non-manufacturing costs, direct vs indirect costs, product vs
period costs
Cost classifications in financial statements; Product cost flows
Cost classifications for decision making: differential cost and revenue,
opportunity costs
Cost Behaviour: Analysis and use
Determine fixed and variable costs

2) Cost Behaviour: Analysis and usage

Types of cost behavior: variable, fixed, mixed costs
Relevant range
Analyze mixed cost: high-low method and scatter-graph plot
Overview of Course
3) Job Costing
Overview: Job costing and process costing
Measure direct materials and direct labour costs
Application of manufacturing overhead
Predetermined overhead rate; choice of allocation base
Compute unit cost
Underapplied and overapplied overhead
Job costing sheet; the flow of costs

4) Variable costing
Overview: Absorption and variable costing
Income comparison of absorption and variable costing
Advantages of variable costing and the contribution approach
Overview of Course
5) Cost-Volume-Profit (CVP) relationships
The Equation Method; Contribution Margin Method; Graphical Method
Break-even analysis/point: in units and dollars
The margin of safety
The concept of sales mix
Assumptions of CVP analysis

6) Relevant Cost for Decision Making

Cost concepts for decision making
Adding & dropping product lines, make or buy decision, pricing decision,
accept or reject a special order
Qualitative factors in decision making; opportunity cost
Overview of Course
7) Budgeting
Purposes of budgeting systems
Types of Budgets
Preparing the master budget: operating and financial budgets
Human factors and behavioural implications in budgeting
Concept of Flexible Budget and variances

8) Variance Analysis
The need for standard costs; setting standard costs
Using standard costs to calculate variances
Direct material, direct labour, variable and fixed overhead variances
Analyze variances
Journal entries to record variances
Overview of Course
9) Flexible budgets
Static vs flexible budgets
Characteristics of a flexible budget
Developing the flexible budget
CHAPTER 1

The Changing Role of

Managerial Accounting
in a Dynamic Business
Environment
 Learning Objective 1

Define managerial accounting and describe

its role in the management process.

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Define Managerial Accounting

Managerial accounting is the process of:

Identifying
Measuring
Analyzing
Interpreting
Communicating information

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 Learning Objective 2

Explain four fundamental management

processes that help organizations attain
their goals.

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Managing Resources, Activities, and
People
An organization . . .

Directing

Acquires Resources Decision

Organized set Making
of activities

Controlling Planning
Hires People
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 Learning Objective 3

Define managerial accounting and describe its

role in the management process.

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How Managerial Accounting Adds Value to
the Organization
Providing information for decision making and planning.
Assisting managers in directing and controlling activities.
Motivating managers and other employees towards
organizations goals.
Measuring performance of subunits, activities, managers, and
other employees.
Assessing the organizations competitive position.

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The Balanced Scorecard
How do we Financial Perspective
look to Goals Measures
In which
owners? activities
must we
excel?
Customer Perspective Operations Perspective
Goals Measures Goals Measures
How do
customers
see us?
How can we
Innovation Perspective continue to
Goals Measures improve?
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Strategy and Management Accounting
Management accounting helps answer important questions
such as:

Who are our most important customers, and how do we deliver

value to them?
What substitute products exist in the marketplace, and how do
they differ from our own?
What is our critical capability?
Will we have enough cash to support our strategy or will we
need to seek additional sources?
 Learning Objective 4

Explain the major differences between

managerial and financial accounting.

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Managerial versus Financial Accounting
Accounting System
(accumulates financial and
managerial accounting data in the
cost accounting system)

Managerial Accounting Financial Accounting

Information for decision Published financial
making, planning, and statements and other
controlling an financial reports.
organizations
operations.
Internal External
Users Users
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Managerial versus Financial Accounting
Managerial Accounting Financial Accounting
Users of Interested parties, outside the
Information Managers, within the organization. organization.
Regulation Not required and unregulated, since it Required and must conform to
is intended only for management. generally accepted accounting
principles. Regulated by the Financial
Accounting Standards Board, and, to
a lesser degree, the Securities and
Exchange Commission.
Source of The organization's basic accounting Almost exclusively drawn from the
Data system, plus various other sources, organization's basic accounting
such as rates of effective products system, which accumulates financial
manufactured, physical quantities of
information.
material and labor used in production,
occupancy rates in hotels and
hospitals, and average take-off delays
Nature of Reports often focus on subunits within Reports focus on the enterprise in its
Reports and the organization, such as departments, entirety. Based almost exclusively on
Procedures divisions, geographical regions, or historical transaction data.
product lines. Based on a combination
of historical data, estimates, and
projections of future events.
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 Learning Objective 5

Describe the accounting and finance

structure in an organization.

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Line and Staff Positions
A line position is directly A staff position supports and
involved in achieving the basic assists line positions.
objectives of an organization. Example: A cost accountant in
Example: A production the manufacturing plant.
supervisor in a manufacturing
plant.

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Learning Objective 6

Describing the roles of

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Controller
The chief managerial and financial accountant is responsible for:
Supervising accounting personnel.
Preparation of information and reports, managerial and
financial.
Analysis of accounting information.
Planning and decision making.

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Treasurer
Responsible for raising capital and safeguarding the organizations
assets.
Supervises relationships with financial institutions.
Work with investors and potential
investors.
Manages investments.
Establishes credit policies.
Manages insurance coverage.

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Internal Auditor
Responsible for reviewing accounting procedures, records, and reports
in both the controllers and the treasurers area of responsibility.
Expresses an opinion to top
management regarding the
effectiveness of the
organizations accounting
system.

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Learning Objective 7

Value chain concept

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Strategic Cost Management and the Value
Chain

Product
Design
Production
Research
and
Development Marketing

Securing raw
materials and Distribution
other resources

Customer
Start Service

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 Learning Objective 8

How investments in capacity affect

managerial decision making.

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Capacity
Theoretical Capacity is the upper limit on the amount of
goods or services if everything works perfectly.

Practical capacity allows for normal occurrences such as

cash register downtime and cashier fatigue or illness.

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Cost Management Systems
Objectives
Measure the cost of
resources consumed.
Identify and eliminate
non-value-added costs.
Cost
Management
System

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Cost Management Systems
Objectives
Determine efficiency and
effectiveness of major
activities.
Identify and evaluate new
activities that can improve Cost
performance. Management
System

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 Learning Objective 9

Professional organizations and certifications in

the field of managerial accounting

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Managerial Accounting as a Career
Professional Organizations

Institute of Management Accountants (IMA)

Develops
Publishes Administers
Standards of
Management Certified
Ethical
Accounting Management
Conduct for
and research Accountant
Management
studies. program
Accountants
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 Learning Objective 10

Describe the ethical responsibilities and ethical

standards that apply to managerial accounting.

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Ethical Climate of Business
The corporate scandals experienced over the last few years
have shown us that unethical behavior in business is wrong in a
moral sense and can be disastrous in the economy. In addition
to Sarbanes-Oxley, there will likely be more reforms in
corporate governance and accounting.

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IMA Codes of Professional Ethics

Competence
Confidentiality
Integrity
Credibility (being
objective)

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to gain credibility
End of Chapter 1

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