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Ch 1 How Mgmt. Accounting Supports Decisions.docx

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Susan Lade

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BU247 Lecture 1 Chapter 1 – How Mgmt. Accounting Info Supports Decision Making  Management accounting as defined by the institute of Management Accountants: a profession that involves: 1) partnering in management decision making 2) devising planning and performance systems 3) providing expertise in financial reporting and control to assist management in the formulation and implementation of strategy  Nonfinancial management accounting info includes measures related to customer satisfaction and loyalty, process quality and timeliness, innovation, and employee motivation  Provides relevant info to managers and employees o Both finical and nonfinancial information o Useful for making decisions, allocating resources, and monitoring, evaluating, and rewarding performance  should motivate people to achieve the goal of congruence o customized to serve multiple purposes Management vs. Financial Accounting Financial Accounting Management Accounting  retrospective; reporting and summarizing in  both retrospective and prospective’ financial terms the results of past decisions incorporates forecasts and estimates about  primarily orientated to external stakeholders, future events, as well as feedback about past such as investors, creditors, regulations, and  primarily orientated to needs of employees tax authorities and managers inside the organization  stresses the form in which it is communicated  no prescribed form or rules about its content;  rules for how the content gets developed that gets determined by manager judgments and how the content will be presented about what best meets their needs for actionable info  a good management accounting system can become a source of competitive advantage Brief History of Mgmt. Accounting – Changing focus  early 19th century – systems to measure the cost of producing individual products  as enterprises grew in scale and scope, the demands for accurate costing info increased  middle of the 19 century – railroads first to develop and use financial statistics to assess and monitor performance  this info supported efficiency improvements and pricing decisions  Andrew Carnegie developed detailed cost systems that gave him a competitive advantage allowed him to lower his prices that competitors could not match  Early 20 century – DuPont and General Motors expanded the focus beyond cost accounting to management planning and control  replace market mechanisms with internal resource allocation to multiple lines of business  used mgmt. accounting info to empower and inform the visible hand of mgmt. to replace Adam Smith’s invisible hand of market forces.  Organizations sought efficiency & profitability by internalizing open market transactions and eliminating the costs of transacting with external agents  1970s – Japanese manufactures developed new tools to report on quality, service, customer, and employee performance (rather than simple financial summaries of organizational unit performance). Also, major advances were made in measuring the cost of products/services to reflect the increasing importance of indirect and support costs required to design and produce a product/ service 1 BU247 Lecture 1  Summary – history of mgmt. accounting shows that innovations in practices are driven by the info needs of new strategies as companies became more complex, technologies changed, and new competitors appeared. - when controlling/reducing costs were important, innovations in costing systems occurred - when organizations gained advantage from scale and diversification, innovative execs developed new mgmt. control systems to monitor and manage their complex enterprises - when competitive advantage shifted to how well a company deployed and managed its intangible assets, new systems for cost and performance mgmt. emerged Strategy  Management accounting is a discipline that helps an enterprise to develop/implement its strategy  Strategy is a
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