Type:
Instructor Manual
Resource:
Introduction to Management Accounting
Edition:
16th Edition
Author(s):
Charles T. Horngren Gary L. Sundem William O. Stratton Dave Burgstahler Jeff O. Schatzberg
Chapter 1 Managerial Accounting, the Business Organization, and Professional Ethics LEARNING OBJECTIVES: When your students have finished studying this chapter, they should be able to:
1.
Explain why accounting is essential for decision makers and managers.
2.
Describe the major users and uses of accounting information.
3.
Explain the role of budgets and performance reports in planning and control.
4.
Describe the cost-benefit and behavioral issues involved in designing an accounting system.
5.
Discuss the role accountants play in the company’s value-chain functions.
6.
Identify current trends in management accounting.
7.
Explain why ethics and standards of ethical conduct are important to accountants.
.
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CHAPTER 1:
ASSIGNMENTS
CRITICAL THINKING EXERCISES 28. 29. 30. 31.
Finance and Management Accounting Accounting’s Position in the Organization: Controller and Treasurer Marketing and Management Accounting Production and Management Accounting
EXERCISES 32. 33. 34. 35. 36. 37. 38.
Management Accounting and Financial Accounting Planning and Control, Management by Exception Line Versus Staff and Value Chain Responsibility Microsoft’s Value Chain Objectives of Management Accounting Cost-Benefit of the Ethical Environment Early Warning Signs of Ethical Conduct
PROBLEMS 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49.
Management and Financial Accounting Use of Accounting Information in Hospitals Costs and Benefits Importance of Accounting Changes in Accounting Systems Value Chain Role of Controller The Accountant’s Role in an Organization Ethics and Accounting Personnel Ethical Issues Hundred Best Corporate Citizens
CASES 50. 51. 52.
Line and Staff Authority Professional Ethics and Toxic Waste Information in Nike’s 10k Report
EXCEL APPLICATON EXERCISE 53.
.
Budgets and Performance Evaluation
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COLLABORATIVE LEARNING EXERCISE 54.
The Future Management Accountant
INTERNET EXERCISE 55.
.
Institute of Management Accountants (http://www.imanet.org)
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CHAPTER 1: I.
OUTLINE
Accounting and Decision Making A.
{L. O. 1}
Users of Accounting Information In general, users of accounting information fall into two general categories. 1. Internal managers who use information for day-to-day operating decisions and for long-range strategic decisions, and 2. External parties, such as investors and government authorities, who use the information for making decisions about the company. The internal managers make use of Management Accounting information whereas the external parties make use of Financial Accounting information. See EXHIBIT 1-1 for the major distinctions between these two types of accounting information. Accounting System—a formal mechanism for gathering, organizing, and communicating information about an organization’s activities. A good accounting system helps an organization achieve its goals and objectives by helping to answer three types of questions. 1. 2. 3.
B.
Scorecard Questions (Am I doing well or poorly?)—accumulation and classification of data, Attention-Directing Questions (Which problems should I look into?)— focuses on operating problems and opportunities, and Problem-Solving Questions (Of the several ways of doing the job, which one is best?)—quantifies the likely results of possible courses of action for long-range planning.
Influences on Accounting Systems An accounting system is a formal mechanism for gathering, organizing, and communicating information about an organization’s activities. Reports for external users are bound by generally accepted accounting principles (GAAP) and legal requirements. In the European Union and more than 100 countries worldwide, companies must comply with International Financial Reporting Standards (IFRS). Internal accounting reports are not restricted by GAAP. Costs of developing and operating a system dictate an internal accounting system‘s design. Many
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organizations have an accounting system designed to meet external reporting requirements. Managers can create whatever kind of internal accounting system they want—provided they are willing to pay for it. Because government agencies have legal power to order into evidence any internal document that they deem necessary, internal accounting systems may be affected by government regulation. An example is the manner in which universities and defense contractors must allocate their costs to government contracts. Foreign Corrupt Practices Act—requires that accounting records be maintained in reasonable detail and accuracy, and that an appropriate system of internal accounting controls be maintained. The internal accounting controls must be documented by management rather than external auditors. Management Audit—a review performed by internal auditors of profit-seeking organizations and governmental agencies (through the General Accounting Office) to determine whether the policies and procedures specified by top management have been implemented. Sarbanes-Oxley Act—passed in 2002 requiring more top-management oversight of a company’s accounting policies and procedures, which was driven by corporate bankruptcies (e.g., Enron, WorldCom, and Adelphia) blamed in part on accounting lapses.
II.
Cost-Benefit and Behavioral Considerations
{L. O. 2}
Cost-Benefit Balance—weighing estimated costs against probable benefits. This is the primary consideration in choosing among accounting systems and methods. The value of a system must be seen as exceeding its cost. Behavioral Implications—the accounting system’s effects on the behavior (decisions) of managers. A system that managers believe in and trust will be used more in making decisions than one they distrust.
III.
The Management Process and Accounting A.
{L. O. 3}
The Nature of Planning and Controlling The management process is a series of activities in a cycle of planning and control with Decision Making—the purposeful choice from among a set of alternative courses of action designed to achieve some objective, as the core.
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Planning—the setting of objectives and outlining how they will be attained. Controlling—the implementation of plans and using feedback to attain objectives. Planning determines action, action generates feedback, and feedback influences further planning and possible corrective actions. See EXHIBIT 1-2 for illustrations of these relationships utilizing a Starbucks store. B.
Management by Exception A budget is a quantitative expression of a plan of action. Budgets are the chief devices for compelling and disciplining management planning. Performance Reports—provide feedback by comparing results with plans and by highlighting Variances (i.e., deviations from plans). The accounting system records, measures, and classifies actions in order to produce performance reports. See EXHIBIT 1-3 for an example of a performance report for a hypothetical store, the Mayfair Starbucks. Management by Exception—concentrating on areas that need attention and ignoring areas that appear to be running smoothly. Managers use performance reports to investigate exceptions (i.e., items for which actual amounts differ significantly from budgeted amounts). Operations are then brought into conformity with plans, or the plans are revised.
IV.
Planning and Control for Product Life Cycles and the Value Chain
{L. O. 4}
Product Life Cycle—the various stages through which a product passes: from conception and development; introduction into the market; maturation; and, finally, withdrawal from the market. In the planning process, managers must determine revenues and costs over the entire life cycle. Accounting also needs to track actual costs and revenues throughout the life cycle. Periodic comparisons between planned costs and revenues and actual costs and revenues allow managers to assess the current profitability of a product, determine its current life-cycle stage, and make any needed changes in strategy. See EXHIBIT 1-4 for a typical product life cycle. The Value Chain—set of business functions that add value to the products or services of an organization. These functions, not of equal importance, include research and development, design of products or services, production, marketing, distribution, and customer service. See EXHIBIT 1-5 for a depiction of business functions’ value chain.
V.
Accounting’s Position in the Organization A.
.
Line and Staff Authority 6