Managerial Accounting: Concepts PDF

Managerial Accounting and Cost Concepts Chapter 1 Managerial Accounting Eighteenth edition  1-2 Needs of Management Financial accounting is concerned wit...

Managerial Accounting and Cost Concepts Chapter 1 Managerial Accounting Eighteenth edition  1-2 Needs of Management Financial accounting is concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators. Managerial accounting is concerned with providing information to employees within an organization so that they can formulate plans, control operations, and make decisions. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-3 Purposes of Cost Classification 1. Assigning costs to cost objects 2. Accounting for costs in manufacturing companies 3. Preparing financial statements 4. Predicting cost behavior in response to changes in activity 5. Making decisions ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-4 Learning Objective 1 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-5 Assigning Costs to Cost Objects Direct costs Indirect costs Costs that can be Costs that cannot be easily easily and conveniently and conveniently traced to traced to a unit of product a unit of product or other or other cost object. cost object. Examples: direct material Example: manufacturing and direct labor overhead Common costs Indirect costs incurred to support a number of cost objects. These costs cannot be traced to any individual cost object. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-6 Learning Objective 2 Identify and give examples of each of the three basic manufacturing cost categories. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-7 Classifications of Manufacturing Costs Manufactu Direct Direct ring Materials Labor Overhead ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-8 Direct Materials Direct materials are raw materials that become an integral part of the product and that can be conveniently traced directly to it. Example: A seat installed in an aircraft ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-9 Direct Labor Direct labor costs are those labor costs that can be easily traced to individual units of product. Example: Wages paid to automobile assembly workers ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-10 Manufacturing Overhead Manufacturing overhead includes all manufacturing costs except direct material and direct labor. These costs cannot be readily traced to finished products. Includes indirect materials Includes indirect labor costs that cannot be easily or that cannot be easily or conveniently traced to conveniently traced to specific units of product. specific units of product. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-11 Manufacturing Overhead – Examples Examples of manufacturing overhead: Depreciation of manufacturing equipment Utility costs Property taxes Insurance premiums incurred to operate a manufacturing facility Only those indirect costs associated with operating the factory are included in manufacturing overhead. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-12 Prime Costs and Conversion Costs Manufacturing costs are often classified as follows: Direct Direct Manufacturing Material Labor Overhead Prime Conversion Cost Cost ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-13 Nonmanufacturing Costs Selling Administrative Costs Costs Costs necessary to All executive, secure the order and organizational, and deliver the product. clerical costs. Selling costs can be Administrative costs either direct or indirect can be either direct or costs. indirect costs. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-14 Learning Objective 3 Understand cost classifications used to prepare financial statements: product costs and period costs. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-15 Product Costs Product costs include all costs involved in acquiring or making a product. Product costs “attach” to a unit of product as it is purchased or manufactured and they remain attached to each unit of product as long as it remains in inventory awaiting sale. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-16 Manufacturing Product Costs For manufacturing companies, product costs include: Raw materials: include any materials that go into the final product. Work in process: consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer. Finished goods: consist of completed units of product that have not yet been sold to customers. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-17 Transfer of Product Costs When direct materials are used in production, their costs are transferred from Raw Materials to Work in Process. Direct labor and manufacturing overhead costs are added to Work in Process to convert direct materials into finished goods. Once units of product are completed, their costs are transferred from Work in Process to Finished Goods. When a manufacturer sells its finished goods to customers, the costs are transferred from Finished Goods to Cost of Goods Sold. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-18 Cost Classifications for Preparing Financial Statements Product costs include direct Period costs include all materials, direct labor, and selling costs and manufacturing overhead. administrative costs. Inventory Cost of Good Sold Expense Sale Balance Income Income Sheet Statement Statement ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-19 Quick Check 1 Which of the following costs would be considered a period rather than a product cost in a manufacturing company? A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-20 Quick Check 1a Which of the following costs would be considered a period rather than a product cost in a manufacturing company? A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E Sales commissions. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-21 Learning Objective 4 Understand cost classifications used to predict cost behavior: variable costs, fixed costs, and mixed costs. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-22 Cost Classifications for Predicting Cost Behavior Cost behavior refers to how a cost will react to changes in the level of activity. The most common classifications are: Variable costs. Fixed costs. Mixed costs. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-23 Variable Cost A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost per unit is constant. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-24 An Activity Base (Cost Driver) Units Machine produced hours A measure of what causes the incurrence of a variable cost Units Labor sold hours ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-25 Fixed Cost A cost that remains constant, in total, regardless of changes in the level of the activity. If expressed on a per unit basis, the average fixed cost per unit varies inversely with changes in activity. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-26 Types of Fixed Costs Committed Discretionary Long term, cannot be May be altered in the significantly reduced short term by current in the short term managerial decisions ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-27 The Linearity Assumption and the Relevant Range Economist’s A straight line closely Curvilinear Cost approximates a Function curvilinear variable cost line Relevant within the relevant range. Total Cost Range Accountant’s Straight-Line Approximation (constant unit variable cost) Activity ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-28 Fixed Costs and the Relevant Range The relevant range of activity pertains to fixed cost as well as variable costs. For example, assume office space is available at a rental rate of $30,000 per year in increments of 1,000 square feet. Fixed costs would increase in a step fashion at a rate of $30,000 for each additional 1,000 square feet. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-29 Relevant Range: Graphic 90 Rent Cost in Thousands The relevant range of Relevant activity for a fixed cost of Dollars 60 Range is the range of activity over which the graph of the cost is flat. 30 0 0 1,000 2,000 3,000 Rented Area (Square Feet) ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-30 Comparison of Cost Classifications for Predicting Cost Behavior ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-31 Quick Check 2 Which of the following costs would be variable with respect to the number of ice cream cones sold at a Baskin & Robbins shop? (There may be more than one correct answer.) A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-32 Quick Check 2a Which of the following costs would be variable with respect to the number of ice cream cones sold at a Baskin & Robbins shop? (There may be more than one correct answer.) A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-33 Mixed Costs – Part 1 A mixed cost contains both variable and fixed elements. Consider the example of utility cost. Y Total Utility Cost o s t xedc i al m Tot Variable Cost per KW X Fixed Monthly Activity (Kilowatt Hours) Utility Charge ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-34 Mixed Costs – Part 2 Y Total Utility Cost o s t xedc i al m Tot Variable Cost per KW X Fixed Monthly Activity (Kilowatt Hours) Utility Charge ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-35 Mixed Costs – An Example If your fixed monthly utility charge is $40, your variable cost is $0.03 per kilowatt hour, and your monthly activity level is 2,000 kilowatt hours, what is the amount of your utility bill? Y = a + bX Y = $40 + ($0.03 × 2,000) Y = $100 ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-36 Learning Objective 5 Understand cost classifications used in making decisions: relevant costs and irrelevant costs. ©McGraw-Hill ©McGraw-Hill Education. Education. All All rights rights reserved. reserved. Authorized Authorizedonly only for for instructor instructor useuse in the in the classroom. classroom. No No reproduction reproduction or fur distribution or furtherpermitted distribution without permitted the prior without written the consent prior written of McGraw-Hill consent of McGraw-Hill Education. Education.  1-37 Cost Classifications for Decision Making Decisions involve choosing between alternatives. The goal of making decisions is to identify those costs that are either relevant or irrelevant to the decision. To make decisions, it is essential to have a grasp on the concepts of differential costs and revenues, opportunity costs, and sunk costs. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-38 Differential Cost and Revenue Differential costs (or incremental costs) are the difference in cost between any two alternatives. A difference in revenue between two alternatives is called differential revenue. Both are always relevant to decisions. Differential costs can be either fixed or variable. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-39 Opportunity Cost The potential benefit that is given up when one alternative is selected over another. These costs are not usually found in accounting records, but must be explicitly considered in every decision. For students: What is the opportunity cost you incur by attending class? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-40 Sunk Costs Sunk costs have already been incurred and cannot be changed now or in the future. These irrelevant costs should be ignored when making decisions. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-41 Quick Check 3 Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland? A. Yes, the cost of the train ticket is relevant. B. No, the cost of the train ticket is not relevant. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-42 Quick Check 3a Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland? A. Yes, the cost of the train ticket is relevant. B. No, the cost of the train ticket is not relevant. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-43 Quick Check 4 Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision? A. Yes, the licensing cost is relevant. B. No, the licensing cost is not relevant. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-44 Quick Check 4a Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision? A. Yes, the licensing cost is relevant. B. No, the licensing cost is not relevant. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-45 Quick Check 5 Suppose that your car could be sold now for $5,000. Is this a sunk cost? A. Yes, it is a sunk cost. B. No, it is not a sunk cost. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-46 Quick Check 5a Suppose that your car could be sold now for $5,000. Is this a sunk cost? A. Yes, it is a sunk cost. B. No, it is not a sunk cost. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-47 Learning Objective 6 Prepare income statements for a merchandising company using the traditional and contribution formats. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-48 The Traditional and Contribution Formats Used primarily for Used primarily by external reporting. management. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-49 Uses of the Contribution Format The contribution income statement format is used as an internal planning and decision-making tool. We will use this approach for: 1.Cost-volume-profit analysis (Chapter 5). 2.Segmented reporting of profit data (Chapter 6). 3.Budgeting (Chapter 8). 4.Special decisions such as pricing and make-or-buy analysis (Chapter 13). ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  1-50 End of Chapter 1 ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  Managerial Accounting: An Overview PROLOGUE Managerial Accounting Eighteenth edition  P-2 Financial and Managerial Accounting: Seven Key Differences ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-3 Work of Management Plannin g Controlli ng Decision Making ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-4 Planning Establish Goals. Specify How Goals Will Be Achieved. Develop Budgets. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-5 Controlling The control function gathers feedback to ensure that plans are being followed. Feedback in the form of performance reports that compare actual results with the budget are an essential part of the control function. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-6 Decision Making Decision making involves making a selection among competing alternatives. What should we be Who selling? should we be How serving? should we execute? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-7 Planning: Marketing Majors Planning How much should we budget for TV, print, and internet advertising? How many salespeople should we plan to hire to serve a new territory? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-8 Controlling: Marketing Majors Controlli ng Is the budgeted price cut increasing unit sales as expected? Are we accumulating too much inventory during the holiday shopping season? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-9 Decision Making: Marketing Majors Decision Making Should we sell our services as one bundle or sell them separately? Should we sell directly to customers or use a distributor? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-10 Planning: Supply Chain Management Majors Planning How many units should we plan to produce next period? How much should we budget for next period’s utility expense? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-11 Controlling: Supply Chain Management Majors Controlli ng Did we spend more or less than expected for the units we actually produced? Are we achieving our goal of reducing the number of defective units produced? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-12 Decision Making: Supply Chain Management Majors Decision Making Should we transfer production of a component part to an overseas supplier? Should we redesign our manufacturing process to lower inventory levels? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-13 Planning: Human Resource Management Majors Planning How much should we plan to spend for occupational safety training? How much should we plan to spend on employee recruitment advertising? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-14 Controlling: Human Resource Management Majors Controlli ng Is our employee retention rate exceeding our goals? Are we meeting our goal of completing timely performance appraisals? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-15 Decision Making: Human Resource Management Majors Decision Making Should we hire an on-site medical staff to lower our healthcare costs? Should we hire temporary workers or full-time employees? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-16 Accounting Majors A large portion of accounting majors will engage in nonpublic accounting employment at some point throughout their careers. Employers expect accounting majors to have strong financial accounting skills, but they also expect application of the planning, controlling, and decision making skills that are the foundation of managerial accounting. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-17 Certified Management Accountant (CMA) To become a CMA requires membership in the Institute of Management Accountants, a bachelor’s degree from an accredited college, two continuous years of relevant professional experience, and passage of the CMA exam. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-18 CMA Exam Content Specifications Part 1 Financial Reporting, Planning, Performance, and Control External financial reporting decisions Planning, budgeting, and forecasting Performance management Cost management Internal controls Technology and analytics Part 2 Financial Decision Making Financial statement analysis Corporate finance Decision analysis Risk management Investment decisions Professional ethics Information about becoming a CMA and the CMA program can be accessed on the IMA’s website (www.imanet.org) or by calling 1-800-638-4427. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-19 Chartered Global Management Accountant (CGMA) The CGMA designation is co-sponsored by the American Institute of Certified Public Accountants (AICPA) and the Chartered Institute of Management Accountants (CIMA). One pathway to the CGMA requires a bachelor’s degree in accounting (accompanied by a total of 150 college credit-hours), passage of the Certified Public Accountant (CPA) exam, membership in the AICPA, three years of relevant management accounting work experience, and passage of the CGMA exam—which is a case-based exam that focuses on technical skills, business skills, leadership skills, people skills, and ethics, integrity, and professionalism. Information about becoming a CGMA is available at www.cgma.org. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-20 Managerial Accounting: Planning, Controlling, and Decision Making The primary purpose Plannin of this course is to g teach measurement skills that managers Controll use to support ing planning, controlling, and decision making Decisio activities. n Making ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-21 Managerial Accounting: Measurement Skills Measurement How should I create a financial skills help plan for next year? managers answer important How well am I performing questions. relative to my plan? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-22 Managerial Accounting: Understanding the Broader Context This book teaches measurement skills that managers use on the job every day. Managers need to apply these measurement skills in a broader business context to enable intelligent planning, control, and decision making. This context includes topics such as: 1. Big Data 2. Ethics 3. Strategic Management 4. Enterprise Risk Management 5. Environmental, Social, and Governance (ESG) Responsibility 6. Process Management 7. Leadership ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-23 Big Data Big Data refers to large collections of data that are gathered from inside or outside a company to provide opportunities for ongoing reporting and analysis. The 5 ‘Vs’: Variety refers to the data formats in which information is stored. Volume refers to the continuously expanding quantity of data that companies must gather, cleanse, organize. Velocity speaks to the rate at which data is received and acted on by organizations. Value implies that the time and money organizations expend to analyze Big Data. Veracity refers to the fact that users expect their data to be accurate and trustworthy. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-24 Data Analytics Data analytics refers to the process of analyzing data with the aid of specialized systems and software to draw conclusions about the information they contain. Managers often communicate the findings from their data analysis to others through the use of data visualization techniques, such as graphs, charts, maps, and diagrams. Data analytics can be used for descriptive, diagnostic, predictive, and prescriptive purposes. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-25 Ethics The Institute of Management Accountant’s (IMA) Statement of Ethical Professional Practice provides guidelines for ethical behavior. Recognize and communicate professional limitations that preclude responsible judgment. Maintain Follow applicable professional Compete laws, regulations, competence. nce and standards. Provide accurate, clear, concise, and timely decision support information. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-26 IMA Guidelines: Confidentiality Do not disclose confidential information unless legally obligated to do so. Do not use confidential information for Confidenti unethical or illegal ality advantage. Ensure that all relevant parties do not disclose confidential information. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-27 IMA Guidelines: Integrity Mitigate conflicts of interest and advise others of potential conflicts. Refrain from conduct that would prejudice Integrity carrying out duties ethically, and work to contribute to a Abstain from activities that positive ethical might discredit the culture. profession. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-28 IMA Guidelines: Credibility Communicate information fairly and objectively. Disclose delays or deficiencies in Credibility information timeliness, processing, or internal controls. Disclose all relevant information that could influence a user’s understanding of reports and recommendations, and communicate any professional limitations that would preclude successful performance of an activity. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-29 IMA Guidelines for Resolution of an Ethical Conflict – Part 1 Follow employer’s established policies. If this does not work, consider the following: ◦Discuss the conflict with immediate supervisor or next highest uninvolved managerial level. ◦If immediate supervisor is the CEO, consider the board of directors or the audit committee. ◦Contact with levels above the immediate supervisor should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-30 IMA Guidelines for Resolution of an Ethical Conflict – Part 2 If following employer’s established policies for conflict resolution do not work, consider these additional practices: ◦Except where legally prescribed, maintain confidentiality. ◦Clarify issues in a confidential discussion with an objective advisor. ◦Consult an attorney as to legal obligations. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-31 Why Have Ethical Standards? Ethical standards in business are essential for a smooth functioning economy. Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer. Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods and services at higher prices. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-32 Strategy A strategy is a “game plan” that enables a company to attract customers by distinguishing itself from competitors. The focal point of a company’s strategy should be its target customers. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-33 Customer Value Propositions Customer Understand and respond to Intimacy individual customer needs. Strategy Operational Deliver products and services Excellence faster, more conveniently, Strategy and at lower prices. Product Leadership Offer higher quality products. Strategy ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-34 Enterprise Risk Management A process used by a company to proactively identify and manage risk. This includes considering whether to avoid the risk, accept the risk, or reduce the risk? Once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-35 Identifying and Controlling Business Risks ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-36 Types of Internal Controls for Financial Reporting Type of Control Classification Description Authorizations Preventive Requiring management to formally approve certain types of transactions. Reconciliations Detective Relating data sets to one another to identify and resolve discrepancies. Segregation of Preventive Separating responsibilities related to authorizing duties transactions, recording transactions, and maintaining custody of the related assets. Physical Preventive Using cameras, locks, and physical barriers to protect safeguards assets. Performance Detective Comparing actual performance to various benchmarks to reviews identify unexpected results. Maintaining Detective Maintaining written and/or electronic evidence to support records transactions. Information Preventive/ Using controls such as passwords and access logs to systems security Detective ensure appropriate data restrictions. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-37 Environmental, Social, and Governance Responsibility Perspective Environmental, social, and governance responsibility (ESG) is a concept whereby organizations consider the needs of all stakeholders when making decisions. Environmental Employee Communitie & Human Customers Suppliers Investors s s Rights Advocates ESG extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-38 Examples of Environmental, Social, and Governance Responsibility Many of the examples in Exhibit P–9 were drawn from PwC’s website. You can view more examples by visiting https://www.pwc.com/sk/en/environmental-social-and-corporate-governance-esg/esg-reporting.html. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-39 A Process Management Perspective A business process is a series of steps that are followed in order to carry out some task in a business. Product Customer R&D Manufacturing Marketing Distribution Design Service Business functions making up the value chain ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-40 Lean Production Customer Create Generate places an Production component order Order requirements Goods Production delivered begins as Components when parts arrive are ordered needed Lean Production is often called Just-In-Time (JIT) production. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-41 Lean Production: Traditional Manufacturing Traditional Manufacturing Produce Make Sales goods in Store from Finished anticipation of Inventory Goods Sales Inventory ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-42 Lean Production: Benefits Because lean thinking only allows production in response to customer orders, the number of units produced tends to equal the number of units sold. The lean approach also results in fewer defects, less wasted effort, and quicker customer response times than traditional production methods. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-43 Leadership Organizational leaders unite the behavior of employees around two common themes—pursuing strategic goals and making optimal decisions. Factors that influence behavior: Intrinsic Motivation Extrinsic Incentives Cognitive Bias ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  P-44 End of Prologue ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.