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Manager's 3 responsabilities

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Planning Directing Controlling

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Managerial Accounting

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Information is primarily used within a company.

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Financial Accounting

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is intended for use by parties external to a company, as well as within the company.

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How is Managerial accounting different from Financial Accounting

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Type of information produced What type of people/ organizations use the information How the information is used

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Role of Managerial accountants in a company

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No longer "Bean Counters" Analyze and interpret accounting information (not just prepare) Assists management

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Sarbanes-Oxley Act (SOX)

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more responsibility for accuracy of financial statements. Enhances internal control and financial reporting requirements and establishes new regulatory requirements for publicly traded companies and their independent auditors.

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International Financial Reporting Standards (IFRS)

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The SEC has recently moved to adopt IFRS for all publicly traded companies within the next few years. In many instances, IFRS vary from GAAP.

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Extensible Business Reporting Language (XBRL)

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Enables companies to release financial and business information in a format that can be quickly, efficiently, and cost-efficiently accessed, sorted, and analyzed over the internet. it uses a coding system to "tag" each piece of reported financial and business data so it can be read by computer programs.

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Business trends that affect management accounting

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Sustainability, Shifting Economy, Global Marketplace, Lean Operations, TQM.

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Sustainability

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thinking beyond today for people, planet and profits

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Economy Shift

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less manufacturing, more service businesses

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Global Marketplace

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Foreign companies competing with domestic firms.

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Lean Operations

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Philosophy and a business strategy of operating without waste. Primary goal of lean production is to eliminate the waste of time and money that accompanies large inventories.

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Total Quality Management (TQM)

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key to succeed in the Global Economy. Goal is to delight customers by providing them with superior products and services.

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Sustainability

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Ability to meet the needs of the present without compromising the ability of future generations to meet their own needs. We live in a connected world. Environmental choices impacts us all. Profit, People, Planet. ( The triple bottom line)

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Triple Bottom Line

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Concept that views a company's performance not only in terms of its ability to generate economic profits for its owners, and has traditionally been the case, but also in terms its impact on people and the planet. A company will only be viable in the long run if all these 3 factors (Planet, People,Profit) are considered when making business.

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Adopt Sustainability

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Potential cost reduction Comply with government regulations Pressure for Stakeholders (Shareholders, employees, customers, suppliers, community, etc) Competitive strategy to achieve market share Generate Positive publicity Avoid negative publicity

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Sustainability and Marketing

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Not paying attention to sustainability can generate negative publicity and hurt sales. Poor treatments of workers Polluting water or air supplies Talking natural resources in a locality without regard for consequence

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Reporting Sustainability

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Activities for companies is an emerging discipline. Various organizations are working to develop standardized sustainability reporting standards. No single set of standards exists. No requirement for third party verification exists. Some companies have data audited voluntarily. Organizations involved in initiatives to develop reporting frameworks. The AICPA and Institute of Management Accountants address sustainability accounting on their websites and journals. Large accounting firms are offering sustainability services.

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Global Reporting Initiative (GRI)

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A nonprofit organization whose mission is to make sustainability reporting standard practice by providing guidance and support to organizations. The developer of the G4 guidelines. Labor Practices and decent work Human rights Society Product responsibility

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6 Performance factors under GRI

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Economic Environmental Labor Practices Human Rights Product Responsibility Society

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Life Cycle Assessment

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Study of environmental and societal impacts of each product or service. Raw materials • Internal Value chain activities • Use of product by customer • Ultimate disposal of product by customer.

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Greenwashing

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when a company or organization spends more time and money claiming to be "green" through advertising and marketing than actually implementing business practices that minimize environmental impact.

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Carbon footprint

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a measure of total emissions of carbon dioxide and other greenhouse gases, often expressed for simplicity as tons of equivalent carbon dioxide.

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Water footprint

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the total volume of water use associated with the processes and products of a business.

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Trends in Sustainability Reporting

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Large companies are increasingly including major sustainability content on investor websites. Specific goals are common Reporting is challenge Many corporate reports address third party verification of reported sustainability data Trend "Corporate Sustainability Officer"

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Issues Sustainability Reports

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To show corporate commitment to environmental and social issues Articulate sustainability goals Inform stakeholders of activities and progress against goals Enhance corporate stature by appearing green Appeal to customers who respond favorably to green initiatives To grow shareholder and brand value.

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EMA system

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Communication issues, hidden costs, aggregated accounting information, the historical orientation of accounting, and the newness of environmental management accounting are potentially challenging areas.

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2 Types of information collected on EMA system

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physical information on the use, flows and destinies of energy, water and materials (including wastes) and monetary information on environment related costs, earnings and savings.

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Service companies

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sell a service to their customers. Do not have a physical product

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Merchandising companies

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Purchase the product or products they sell to their customers

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Manufacturing companies

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make the product or products they sell to their customers

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Inventory accounts of a manufacturer

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Raw materials inventory Work in process inventory Finished goods inventory

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Raw materials inventory

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All raw materials used in manufacturing.

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Work in process

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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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The value chain

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

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Business activities that make up the value chain

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Toyota, General Mills, and Dell

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Cost object

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Any item that management wants a separate measurement of cost.

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Direct cost

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Any cost that can be conveniently traced to the cost object.

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Indirect costs

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Any cost that is part of the cost object that is not conveniently traceable.

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total costs

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cost of all resources used throughout the value chain.

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Inventoriable costs

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only the costs incurred during the "Production or Purchases" stage of the value chain

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Product costs

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Costs related to goods either purchased for resale (merchandising) or made for resale (manufacturing)

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Period costs

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All costs not product costs. Examples: selling, marketing, and administrative costs

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Prime costs

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refer to the combination of direct materials and direct labor.

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Conversion costs

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refer to the combination of direct labor and manufacturing overhead.

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Fringe benefit costs

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are employee associated costs such as health plan expenses, pension plan expenses and workman's compensation expenses, among others.

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controllable costs

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meaning management is able to influence or change them

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uncontrollable costs

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companies are often "locked in" to certain costs arising from previous decisions

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irrelevant costs

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An irrelevant cost is a cost that will not change as the result of a management decision.

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relevant costs

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are costs that are affected by a managerial decision in a particular business situation

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Fixed costs

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Remain the same in total but changes per unit, as activities changes

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Variable costs

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remain the same per unit but changes in total, as activity changes

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Average costs

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Total costs/ # of units

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Merchandising companies

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Purchase the product or products they sell to their customers

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Manufacturing companies

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make the product(s) they sell to their customers

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3 costs that make up product costs in a manufacturer

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Direct materials, direct labor, manufacturing overhead

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Direct materials (direct cost)

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materials that are physically and conveniently traced to the product being made

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Direct Labor (direct cost)

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labors costs of employees that are physically and conveniently traced to the product being made

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Manufacturing overhead (indirect costs)

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all other costs of the product not physically and conveniently traced to the product

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Examples of Manufacturing overhead costs

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Indirect materials, indirect labor, other indirect manufacturing costs.

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Indirect materials

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materials that are part of a product, but the costs are not easily or conveniently traced to the product

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Indirect labor

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labor costs of a product that are not easily or conveniently traced to the product

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Other production costs

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such as utilities, depreciation, insurance...

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Income statement of service company

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the firm has no inventory and no inventoriable product cost.

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Manufacturing cost flows

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Raw materials -> WIP -> FG -> CGS

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Process costing

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Assigns costs to production processes Works well for products which are homogeneous and produced on continuous basis Unit costs calculated using an average cost approach

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Job costing

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Assigns cost for each individual job or product Works well for products or jobs which are different or manufactured in low volume. Service industries such as hospitals & law firms use job-order costing.

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manufacturers determine a job cost

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manufacturers use job costing if they produce unique products or relatively small batches of different products

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Material requisition

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it's used each time materials are needed

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Labor time record

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simply records the time spent by each employee on each job he worked on throughout the day.

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Allocation

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it will be splitting up or dividing the total manufacturing overhead costs among the jobs we produced during the year.

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cost flow under job costing

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Raw materials inventory - WIP - FG - CGS

ACG 2071 – Managerial Accounting – Flashcards

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