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The Accountant’s Role in the Organization
1
TRANSITION NOTES This chapter introduces the five-step decision process utilized by managers to make a variety of decisions. This process becomes an underlying theme of the text as it is applied to a number of types of decisions throughout the text. The five steps include (! identify the problem and uncertainties" uncertainties" (#! obtain obtain information" information" ($! make predictions predictions about the future" (%! (%! make decisions by choosing among alternatives" (&! implement the decision. 'ith the emphasis on the five-step decision process" material relating to the problem solving" scorekeeping" and attention-directing roles of the management accountant are streamlined. There is also an increased emphasis on the linkage between the set of business functions in the value chain and customer expectations as key success factors.
PROBLEM MAT M ATERIAL ERIAL CORRELATION CORRELATION CHART 1th E!ition 16 17 18 19 20 21 22 23
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1th E!ition 24 25 26 27 28 New 29 30 31 New
1"th E!ition 24 Revised 25 26 27 28 29 30 Revised
LEARNIN$ OB OB%ECTI&ES . #. $. %. &. +. .
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1"th E!ition 16 17 18 19 20 21 22 23
ist istin ingu guis ish h fina financ ncia iall acc accou ount ntin ing g from from mana manage geme ment nt acco accoun unti ting ng.. )nde )nders rsta tand nd how how man manag agem emen entt acco accoun unta tant ntss aff affec ectt str strat ateg egic ic deci decisi sion ons. s. esc escri ribe be the the set set of of busi busine ness ss func functi tion onss in in the the val value ue chai chain n and and ide ident ntif ify y the the dimensions of performance that customers are expecting of companies. *xpl *xplai ain n the the five five-s -ste tep p deci decisi sion on-m -maki aking ng pro proce cess ss and and its its rol rolee in mana manage geme ment nt accounting. esc escri ribe be thr three ee gui guide deli line ness mana manage geme ment nt acc accou ount ntan ants ts fol follo low w in supp suppor orti ting ng managers. )nde )nders rsta tand nd how how man manag agem emen entt accou account ntin ing g fits fits int into o an orga organi niza zati tion on,s ,s stru struct ctur ure. e. )nde )nders rsta tand nd what what prof profes essi sion onal al ethi ethics cs mean mean to mana managem gemen entt acco accoun unta tant nts. s.
CHAPTER S'NOPSIS
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download full file at http://testbankinstant.com hapter is an important introductory chapter. The underlying premise of this text" Cost Accounting: A Managerial Emphasis " (%thed.!" is the importance of cost accounting data in making managerial decisions. istinction is made between financial accounting and managerial accounting. Financial accounting information is reported to external users and used by investors" lenders" suppliers" and other external stakeholders to evaluate and compare companies. t follows prescribed standards and formats. n contrast" management accounting provides financial and nonfinancial information to internal users employing whatever format or costing approach that will allow managers to make the best possible business decisions in today,s competitive environment. ost accounting provides information for both financial accounting and management accounting0 in this text the terms 1cost accounting2 and 1management accounting2 are used interchangeably. 3uccessful management accounting systems capture and report information that helps managers make decisions to fulfill organizational goals in an effective and efficient manner. 4anagement accounting also provides information critical to the planning and control decisions of managers. 5 five-step decision process is introduced to guide successful decision making: identify the problem" obtain information" make predictions about outcomes" make a decision" and implement the decision. 6ey guidelines for management accountants include: cost-benefit analysis" behavioral considerations" technical considerations" and different costs for different purposes. )nderstanding of these guidelines is essential for the student to have a solid foundation for material that is presented later in the text. 5s those responsible for the integrity of the accounting information used by external and internal parties" accountants must maintain the highest of ethical standards. They must take special care to avoid the appearance of ethical improprieties7not only avoid unethical behavior" but avoid the appearance of such. The 3arbanes-8xley 5ct of #99#" passed in response to several large accounting scandals" imposes strict ethical standards on accountants. rofessional associations such as the 55 and the 45 not only impose additional standards on their members but also provide resources that help members identify ethical issues and possible courses of action when ethical dilemmas confront them.
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POINTS O( EMPHASIS .
4ake sure that the students understand the perspective of cost accounting and how it differs from that of financial accounting.
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The cost-benefit ratio is pervasive throughout the text. The students should grasp this concept early or they will not fully understand cost accounting.
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5nother recurring theme throughout the text is the five-step decision model. *mphasize this concept and be certain the students are operationally familiar with it.
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The guidelines to management accounting covered in ;earning 8b
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t is helpful and sets an ethical tone for the class if you go over the points included in the 45 ode of *thical onduct. iscuss the definitions of the terms covered in the ode" making certain that the students have a grasp of what is involved in ethical conduct.
CHAPTER O)TLINE LEARNIN$ OB%ECTI&E
Distinguish financial accounting …e!oting on !ast !efo"ance to e#tenal uses fo" "anage"ent accounting …hel!ing "anages "a$e decisions
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5ccounting systems process economic events and transactions into information helpful to managers. This data is collected" categorized" summarized" and analyzed.
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5ccounting systems provide information found in the financial statements as well as in internal performance reports.
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4anagers use this information to administer the activities of their area of responsibility.
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nformation needs may vary depending on managerial needs. %&'()*N+ ,-*N%. *t is good hee to sto! and evaluate the diffeent needs of diffeent uses within the co"!an/. ales "anages ae inteested in sales data / egion o sales !eson distiution "anages "a/ e inteested in odes / geoga!hic location o euested due dates "anufactuing "anages "a/ e inteested in uantities of !oducts odeed so !oduction scheduling can occu. 'll of these ae inteested in diffeent as!ects of the sales data.
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4anagement accounting has a different focus than financial accounting. The management accountant reports financial and nonfinancial information that helps managers make decisions that will help the company achieve its goals or implement its strategy. t is forward-looking. %&'()*N+ ,-*N%. tudents need to undestand fo" the stat the decision"a$ing focus of "anage"ent accounting.
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4anagement accounting reports information in a manner that will help managers do their
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>inancial accounting has a historical focus" as it reports the results of operations to external parties. These reports must adhere to =enerally 5ccepted 5ccounting rinciples.
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The cost accounting and financial accounting do not operate independently. ost accounting" in addition to providing information for management accounting decision-making needs" also provides data to meet financial accounting inventory-valuation needs. :&#hiit 11 su""ai=es the "a>o diffeences etween financial and "anageial accounting.;
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Cost Management describes the approaches and activities of managers to use resources to increase the value to customers and to achieve organizational goals. t is not
Refer to Quiz Question 1
LEARNIN$ OB%ECTI&E
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Andestand how "anage"ent accountants affect stategic decisions …the/ !ovide info"ation aout the souces of co"!etitive advantage
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Strategy describes how an organization will compete and the opportunities management should pursue. t involves matching its capabilities with the opportunities in the marketplace to accomplish its obo. ' tactical decision would e what class to stud/ fo tonight.
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Two broad strategies include competing on the basis of price or on the basis of product differentiation. %&'()*N+ ,-*N%. )ave the students ainsto" fo na"es of co"!anies that have !usued eithe stateg/. )ow have the/ i"!le"ented the stateg/ of !ice co"!etitionB )ow have the/ diffeentiated the !oductB
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Strategic Cost Management describes cost management specifically focused on strategic issues. This seeks answers to Auestions such as: •
'ho are our most important customers and how do we deliver value to themB
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'hat substitute products exist in the marketB Cow do they differ from oursB
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'hat is our most critical capabilityB 'hat do we do bestB
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'ill adeAuate cash be available to fund the strategy or is outside financing neededB
Refer to Quiz Question 2
LEARNIN$ OB%ECTI&E
Problem 1-25
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Descie the set of usiness functions in the value chain and identif/ the di"ensions of !efo"ance that custo"es ae e#!ecting of co"!anies … RCD design !oduction "a$eting distiution and custo"e sevice su!!oted / ad"inistation to achieve cost and efficienc/ ualit/ ti"e and innovation
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The value chain is the seAuence of business functions in which customer usefulness is added to products or services. :&#hiit 12 illustates the si# usiness functions in the value
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Research an !evelo"ment involves generating and experimenting with new ideas related to new products" services" or processes.
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The !esign function undertakes detailed planning and engineering of products" services" or processes.
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Prouction is acAuiring" coordinating" and assembling resources to produce a product or deliver a service.
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Mar#eting involves promoting and selling products or services to customers.
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!istribution is the process of delivering the products or services to customers.
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Customer Service provides after-sale support to customers. %&'()*N+ ,-*N%. 'll of these functions ae i"!otant and inteelated. %he failue of a co"!an/ to delive an/ one of these adeuatel/ will have a negative i"!act on the othes. 's$ the students aout negative e#!eiences the/ have had with a co"!an/ and which ele"ent of the value chain was involved. ,oe futhe e#!loing how this failue i"!acted the students !ece!tion of the co"!an/ in othe aeas.
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4anagement accountants are involved in the value chain as they keep track of costs incurred in each category. This information helps managers evaluate cost benefit trade-offs.
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Delated to the value chain is the supply chain. 'hereas the value chain is internal" the su""ly chain involves the flow of goods" services" and information from the initial source of materials and services to the delivery to consumers. The value chain can involve one or many different organizations. :&#hiit 13 illustates an oveview of the value chain.;
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The value chain and supply chain should be used by the company to deliver improving levels of performance for the customer. 6ey success factors in accomplishing this delivery include the following: •
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Cost an efficiency$ etermine what customers are willing to pay for a product or service and set a 1target price.2 Ey subtracting the desired profit" the company can then work to accomplish its 1target cost.2 Quality$ ustomers expect high levels of Auality. Total Fuality 4anagement (TF4! is a philosophy that seeks to improve operations throughout the company and exceed customer expectations. %&'()*N+ ,-*N%. &"!hasi=e that ualit/ does not have to e the "ost e#!ensive. ' !oduct o sevice can e a ualit/ !oduct o sevice if it confo"s to its intent. %his is ualit/ of confo"ance. Eualit/ of design elates to !oducts eing thought of as eing to!notch. ' Rolls Ro/ce auto"oile has ualit/ of design. %hee is a "oe thoough discussion of ualit/ in (ha!te 19.
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%ime$ Gew product development time and customer response time are two elements of this factor. n today,s time-conscious society" the
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download full file at http://testbankinstant.com customer wants the product or service now. 5ny delay is unacceptable. 5 company that can compete on the basis of time" whether in development or delivery is one that has an edge in today,s market. %&'()*N+ ,-*N%. Fhen ed "ith founded edeal &#!ess to delive !ac$ages ovenight "an/ thought he would not succeed. )oweve "ith eali=ed an un"et de"and fo uic$ delive/. •
&nnovation$ 5 constant flow of new products or services is the basis for ongoing company success.
Refer to Quiz Questions ' an (
LEARNIN$ OB%ECTI&E
)*ercise 1-1+
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&#!lain the fiveste! decision"a$ing !ocess and its ole in "anage"ent accounting … identif/ the !ole" and uncetainties otain info"ation "a$e !edictions aout the futue "a$e decisions / choosing a"ong altenatives and i"!le"ent the decision evaluate !efo"ance and lean to do !lanning and contol and its ole in "anage"ent accounting … !lanning and contol of o!eations and activities
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4anagers should go through a routine process in order to make effective decisions. This five-step decision process can be utilized to make a variety of decisions. •
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&entify the "roblems an uncertainties. 'hat are the choices that are being faced and where do the uncertainties lieB ,btain information =ather information before making a decision helps the manager to make a more informed decision. %&'()*N+ ,-*N%. +uad against info"ation oveload o otaining too "uch info"ation. Naow the choices so the volu"e of info"ation is "anageale. %oo "uch info"ation can lead to !aal/sis of anal/sis o the inailit/ to fo"ulate a viale solution.
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Ma#e "reictions about the future 8n the basis of the information obtained attempt to predict the outcome of each course of action. Ma#e ecisions by choosing among alternatives The information has been gathered" and pro
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download full file at http://testbankinstant.com %&'()*N+ ,-*N%. Do not sh/ awa/ fo" "a$ing a decision. o"eone once as$ed the ,esident of +eneal @otos if he had eve "ade a ad decision. )is es!onse was that to each the level of success he had achieved /ou wee doing good to at .500. Gou ae going to "a$e ad decisions lean fo" the".
ollectively" the four preceding steps are known as "lanning 7the selection of organizational goals" predicting results under alternative ways of achieving these goals" deciding how to attain these goals" and communicating the goals to the entire organization. 5 buget has been described as the Auantitative expression of a proposed plan of action. t is a planning tool. Control is the action taken to implement the planning decisions represented by the budget. •
&m"lement the ecision. evaluate "erformance. an learn 5ll the effort expended in steps through % is useless unless the decision is put into action. %&'()*N+ ,-*N%. @ost !eo!le have een associated with ogani=ations o individuals who would have geat !lans and would go though ste!s 1 though 4 of the !ocess onl/ to fail to i"!le"ent the decision. ' colleague once ca"e into wo$ one "oning announcing an intention to etun to school fo an advanced degee. ifteen /eas late that colleague is still in the sa"e co"!an/ without the degee.
8nce implemented" the decision must be monitored. This is performance evaluation. 8ne way of doing this is by comparing the budget with the actual results. This makes budgeting a control tool in addition to a planning tool. 8ften this is accomplished by the use of a performance report. %&'()*N+ ,-*N%. @onitoing also hel!s $ee! the !lan :o udget; ealistic. *f the !eson !o!osing the !o>ect $nows the esults will not e "onitoed thee is a tendenc/ to ovestate the enefits so the !o>ect will eceive a!!oval.
/earn. f the results were not as planned" find out why. )se this information to improve the decision-making process for future decisions. Refer to Quiz Question 5
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)*ercise 1-21
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Descie thee guidelines "anage"ent accountants follow in su!!oting "anages … e"!lo/ing a costenefit a!!oach ecogni=ing ehavioal as well as technical consideations and calculating diffeent costs fo diffeent !u!oses
%&'()*N+ ,-*N%. %hese guidelines ae the foundation fo the est of the te#t. tudents "ust undestand that eve/thing that is to follow "ust e filteed though the lens of costenefit ehavioal and technical consideations and diffeent costs fo diffeent !u!oses.
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Cost-benefit a""roach 5lways ask if the benefits from undertaking the activity exceed the costs of doing so.
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0ehavioral consierations onsider the motivational aspect of the decision. 'ill the managers and employees be motivated to work toward the goals of the organizationB
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%echnical consierations This provides managers with appropriate information at appropriate intervals to assist in decision making.
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!ifferent costs for ifferent "ur"oses 4uch of this book is about alternative ways to compute costs. n determining the cost" the first Auestion that should be asked is 1'hat is the purpose of this cost numberB2 erformance evaluation" external reporting" and internal decision making are three different purposes that might reAuire a different view of cost.
Refer to Quiz Question
LEARNIN$ OB%ECTI&E
Problem 1-2
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Andestand how "anage"ent accounting fits into an ogani=ations stuctue. … fo e#a"!le the es!onsiilities of the contolle
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4ost organizations distinguish between line and staff relationships. /ine management is directly responsible for attaining the goals of the organization. roduction is a line function. Staff management supports line management with advice and assistance. 5ccounting and human resources are two examples of staff management functions.
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The Chief Financial ,fficer or CF, (also called the finance director! is the executive responsible for overseeing the financial operations of an organization. ncluded among the responsibilities of the >8 are several functions: •
Controller provides financial information to managers and shareholders and oversees the overall operations of the accounting system.
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The %reasury function includes banking" financing" investments" and cash management.
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Ris# Management includes managing the financial risk of interest rate and exchange rate changes as well as derivatives management.
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%a*ation includes income taxes" sales taxes" and international tax planning.
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&nvestor Relations responds to and interacts with shareholders.
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The scope and importance of &nternal uit has increased in recent years and now includes reviewing and analyzing financial and other records to attest to the integrity of the organization,s financial reports and adherence to policies and procedures. :&#hiit 16 illustates a t/!ical ogani=ation chat fo the (-;
Refer to Quiz Questions 3 an +
LEARNIN$ OB%ECTI&E
Problem 1-23
Andestand what !ofessional ethics "eans to "anage"ent accountants … fo e#a"!le "anage"ent accountants "ust "aintain integit/ and cediilit/ in eve/ as!ect of thei >o
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5ccountants have a special obligation regarding ethics" as they are responsible for the integrity of the financial information provided to external and internal users.
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3arbanes-8xley focuses on improving internal control" corporate governance" monitoring of managers" and disclosure practices of public corporations. This legislation brought an increase in the ethical standards of managers and accountants.
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The &nstitute of Management ccountants 4&M is the largest association of management accountants in the )nited 3tates.
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The 45 offers professional certification in the form of the CM designation7 Certifie Management ccountant This certification represents a demonstration of technical competency in financial and managerial accounting and holds the 45 to high ethical standards.
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download full file at http://testbankinstant.com .&
The 45 Standards for Ethical Conduct for Practitioners of Management Accounting and Financial Management presents guidelines on issues relating to competence" confidentiality" integrity" and credibility. :&#hiit 17 is a co!/ of the *@' &thical (onduct tate"ent.;
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n addition to the Standards, the 45 has an ethics hotline to assist members in resolving their ethical dilemmas. %&'()*N+ ,-*N%. tudents so"eti"es dont eali=e the i"!otance of !o!e ethical ehavio. ' sign on a chuch once ead *ntegit/+ained ove a lifeti"e lost in an instant. &"!hasi=e that integit/ once lost is difficult to egain. 'lso it is i"!otant fo the accountant to avoid even the a!!eaance of unethical conduct.
Refer to Quiz Questions 6 an 17
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)*ercise 1-'
OTHER RESO)RCES lease visit the textbook companion 'ebsite at www.prenhall.com/horngren . To download these and other resources" visit the nstructor,s Desource enter www.pearsonglobaleditions.com/horngren or access them on the nstructor,s Desource H (D-H!. The following exhibits were mentioned in this chapter of the nstructor,s 4anual" and have been included in the Po8erPoint /ecture "resentation created specifically for this chapter. Iou may use the oweroint ;ecture presentations 1as is2" or modify them to suit your individual needs. *xhibit - summarizes the main differences between financial and managerial accounting. *xhibit -# illustrates the six business functions in the value chain. *xhibit -$ illustrates an overview of the value chain. *xhibit -+ illustrates a typical organization chart for the >8. *xhibit - is a copy of the 45 *thical onduct 3tatement. ownload pdf images of textbook illustrations and exhibits from the &mage /ibrary or access them via your D-H. Solutions to Select )n-of-Cha"ter Problems mentioned in this chapter" which have been fully worked out in Po8erPoint" are available for download and included on the DH.
CHAPTER 1 *)I+
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download full file at http://testbankinstant.com .
'hy do most companies adhere to =55 for their basic internal financial statementsB a. =55 is reAuired by law for publicly held companies. b. To use =55 and another system of reporting would be too costly for most companies. c. 5ccountants are reAuired by their code of ethics to use =55 accounting. d. 5ccrual accounting provides a uniform method to measure an organization,s financial performance.
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'hich of the following is not true about strategyB a. t involves matching its capabilities with the opportunities in the marketplace to accomplish its ob
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The value chain a. involves external companies as well as internal activities. b. is the seAuence of business functions in which customer usefulness is added to products or services. c. applies only to manufacturing companies. d. is not relevant in today,s cost accounting environment.
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'hich of the following is not a key success factor in a company,s effort to deliver increased levels of performance to the customerB a. Time b. nnovation c. Fuality d. rice reduction
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The five-step decision process a. includes planning and control activities. b. is performed exclusively by management accountants. c. is not often used" as the costs exceed the benefits. d. must be performed following =55 guidelines.
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n supporting managers" management accountants have four guidelines. These guidelines are: a. ost-benefit analysis" performance reporting" behavioral considerations" and technical considerations. b. ost-benefit analysis" behavioral considerations" technical considerations" and different costs for different purposes. c. >inancial statement preparation" technical considerations" strategic direction" and budgeting. d. >ollowing functional lines of authority" cost-benefit analysis" behavioral considerations" and use of the value chain.
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JJJJJ management exists to provide advice and assistance to those responsible for attaining the ob
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>unctional 3taff Disk
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The Treasurer a. is the executive responsible for overseeing the financial operations of an organization. b. undertakes banking" financing" investments" and cash management duties. c. provides financial information to managers and shareholders and oversees the overall operations of the accounting system. d. is a different title for the ontroller.
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'hich of the following is not one of the ethical responsibilities of a management accountantB a. ompliance b. onfidentiality c. ntegrity d. 8b
9. The nstitute of 4anagement 5ccountants issues which certificationB a. 5 b. 5 c. >* d. 45
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download full file at http://testbankinstant.com CHAPTER 1 *)I+ SOL)TIONS .
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b
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b
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a
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b
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c
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b
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a
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d
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