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Managerial accounting

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Focuses on providing internal management with the information it needs to run the company efficiently and effectively.

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Managers three responsibilities

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Planning, directing, controlling

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Planning

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Setting goals and objectives for the company and determining how to achieve them. These plans are translated into budgets-the quantitative expression of a plan

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Directing

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Means overseeing the company's day-to-day operations. Use product cost reports, product sales information, and other MA reports to run daily business operations

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Controlling

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Evaluating the results of business operations against the plan and making adjustments to keep the company pressing toward its goals.

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Who are the primary users of the information?

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FA-External users, such as creditors, stockholders, and government regulators MA-Internal users such as managers

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What is the purpose of the information?

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FA-To help external users make investing and lending decisions. MA-To help managers plan, direct, and control business operations and make business decisions

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What is the primary accounting product?

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FA-Financial Statements MA-Any internal accounting report deemed worthwhile in management

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What must be included in the report, and how must it be formatted?

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FA-Generally accepting accounting principles (GAAP) determine the content and format of financial statements. MA-Management determines what it wants in a report, and how it wants it formatted. Reports are only prepared when management believes the benefit of using the report exceeds the cost of preparing it.

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What is the underlying basis of the information?

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FA-The information is based on historical transactions with external parties. MA-While some information is based on past transactions, managerial accounting focuses on the future. It provides information on both external and internal transactions.

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What information characteristic in emphasized?

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FA-The data must be reliable and objective MA-The data must be relevant

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What business "unit" is emphasized?

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FA-The company as a whole (consolidated financial statements). Limited segmented data is provided in the footnotes. MA-Segments of the business such as products, customers, geographical regions, departments and divisions.

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How often are the reports prepared?

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FA-Annually and quarterly MA-It depends on managements needs. Some reports are prepared daily, while others may be prepared only one time.

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Does anyone verify the information?

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FA-Independent certified public accountants (CPAs) audit the annual financial statements of publically traded companies and express an opinion on the fairness of the financial information they contain. MA-There are no independent audits. However, the company's internal audit function may examine the procedures used in preparing the reports.

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Is the information required by an outside group/government agency?

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FA-Yes, the Securities and Exchange Commission (SEC) require publically traded companies to issue annual audited financial statements. MA-No authoritative body requires managerial accounting reports.

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Is there any concern over how the reports will affect employee behavior?

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FA-The concern is about adequacy of disclosure; behavioral implications are secondary MA-Management carefully considers behavioral implications when designing the managerial accounting system.

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Board of directors

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elected by stockholders to oversee the company

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Chief executive officer

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hired by the board of directors to manage the company on a day-to-day basis

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Chief operating officer

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responsible for the companies operations such as research and development, production, and distribution.

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Chief financial officer

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responsible for the company's financial concerns

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Treasurer

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responsible for raising capital (through issuing stock and bonds) and investing funds

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Controller

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responsible for general financial accounting, managerial accounting, and tax reporting

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Internal audit function

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responsible to ensure that a company's internal controls and risk management policies are functioning properly

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Audit committee

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oversees the internal audit function as well as the annual audit of the financial statements by independent CPAs.

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Technology has changed the role of an accountant

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Instead of crunching numbers like the old days computers do that now. They now act like business consultants because they no longer have to crunch numbers.

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The skills required of Management Accountants

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-Solid knowledge of both financial and managerial accounting -analytical skills -knowledge of how business functions -ability to work on a team -oral and written communication skills

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What is the role of the Institute of Management Accountants (IMA)

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to provide a forum for research,practice development, education, knowledge sharing,and advocacy of highest ethical standards and best practices in management accounting and finance. They also want to educate about the role that MAs play in organizations.

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Ethics

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-Maintain their professional competence -preserve the confidentiality of the information they handle -uphold their integrity -perform their duties with credibility

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Sarbanes-Oxley Act of 2002

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A congressional act that enhances internal control and financial reporting requirements and establishes new regulatory requirements for publicly traded companies and their independent auditors

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XBRL

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a data tagging system that enables companies to release financial and business information in a format that can be quickly, efficiently, and cost-effectively accessed, sorted, and analyzed over the internet.

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ISO 9001:2008

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A quality related certification issued by ISO

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JIT

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products manufactured just in time to complete customer orders

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sustainability

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the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs.

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ERP systems

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software systems that integrate all of the company's worldwide functions, departments, and data into a single system

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Triple bottom line

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companies are not evaluated just on their profitability but also on their effect on the people and the planet

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Service companies

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in business to sell intangible services

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Merchandising companies

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resell tangible products they buy from suppliers. They include retailers and wholesalers. Ex. Wallmart and JC Penny

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Retailers

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sells directly to consumers

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Wholesalers

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"middle men" buys in bulk from manufacturers and sells to retailers at a markup

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Manufacturing companies

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use labor, plant and equipment to convert raw materials into new finished products

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Raw materials inventory

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all raw materials used in manufacturing

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Work in process inventory

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goods that are partway through the manufacturing process but not yet complete

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Finished goods inventory

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completed goods that have not yet been sold

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value chain

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the activities that add value to the company's products and services

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Business activities make up the value chain

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Research and Development-R&D of new or improved products and services and the processes for producing them Design-detailed engineering of products and services and the processes for producing them Production and Purchases-resources used to produce a product or service or to purchase finished merchandise intended for resale Marketing-promotion or advertising of products and services Distribution-delivery of products or services to customers Customer Service-support provided to the customer after the sale

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Cost object

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anything for which managers want a separate measurement cost

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direct cost

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a cost that can be traced to the cost object

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indirect cost

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a cost that that cannot be traced to it but relates

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Inventoriable product cost

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include only the costs incurred during the "production or purchases" stage of the value chain

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period costs

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costs that are expensed in the period in which they are incurred often called operating expenses

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relevant costs

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differential costs-the difference in cost of two alternatives

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irrelevant cost

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sunk cost-a cost that has already been incurred

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fixed costs

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costs that stay constant in total over a wide range of activity levels

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variable cost

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change in total in direct proportion to changes in volume

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average cost

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total cost divided by number of units

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marginal cost

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is the cost of making one unit

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job costing

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a system for assigning costs to products or services that differ in the amount of materials, labor, and overhead required. Typically used by manufacturers that make unique products

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process costing

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a system for assigning costs to a large number of identical units that typically pass through a series of uniform production steps. Costs are averaged over the units produced such that each unit bears the same unit cost

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Flow of production

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raw materials stored until needed for production(raw materials), transferred to factory floor(work in progress), transferred to Finished good storage (finished goods), products are then sold(Cost of goods sold)

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Predetermined MOH rate

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Total estimated manufacturing overhead costs/total estimated amount of the allocation base

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cost plus pricing

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cost + markup on cost

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Cost of goods sold (merchandising)

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(Beginning inventory +purchases plus freight in import duties)-ending inventory

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Cost of goods sold (manufacturing companies)

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(Beginning finished goods inventory+ cost of goods manufactured) -ending finished goods inventory

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Cost of goods manufactured

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Beginning work in process inventory + total manufacturing costs incurred during year (direct materials used + direct labor + manufacturing overhead) -ending work in progress inventory

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Direct materials used

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Beginning raw materials +purchase of direct materials, freight in and import duties-ending raw material inventory

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