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Study Notes for Managerial Accounting - Non-BBA

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Wilfrid Laurier University
Orest Bozyk

Management Accounting - Retrospective and prospective - Oriented to internal decision making needs - No prescribed rules or format - Includes both financial and non-financial information Financial Accounting - Retrospective - Oriented to outside decision makers - Rules and format prescribed by the international Accounting Standards Board - Contains only financial information High Level Managers: - Rely on info provided by middle level managers to develop an overall financial summary for the organization and make broad strategic choices based on that info. Middle Level Managers: - Assess operational info and decide whether process improvements are needed and, if so, their form. - Translating operational info into projected financial results Operations Level Managers: - Rely on both financial and non-financial process info (cost, quality etc.) to manage the processes they are responsible for. Decision Support Focus - Expenditures on management accounting are discretionary - Therefore, value of management accounting info in supporting decision making must justify MA system expenditures. Strategic Levels - Corporate: What businesses should we be in? - Business: What should we propose customers in this target niche? - Operational: How should we deliver our business level strategy? PDCA Cycle - Plan o Identify objectives o Choose course of action to achieve these objectives - Do o Implement the chosen course of action - Check o Monitor the results of the implemented course of action o Evaluate the results by comparing them with results expected when the plan was developed - Act o Maintain the current direction if acceptable, or return to plan stage to develop an alternative ****** Measurement must support a company’ strategy and operations ********** Balanced Scorecard - The belief that measurement is required for effective management - Management’s assumed cause and effect relationship between what management does and performance on the organization’s objectives - Clarifies, by use of measures, the organization’s objectives and the cause and effect relationships to achieving those objectives - Communicates the organization’s objectives to decision makers inside the organization thereby aligning their decision with the organization’s objectives - Provides a means of evaluating ongoing performance and suggesting when change is needed - Can be used as an accountability tool - Problems with BSC: Costly, Not Actionable BSC Perspectives - Financial Perspective (i.e. What financial performance should we deliver for our shareholders?” o The overall objective o Expressed in financial terms for profit oriented organizations and in terms of the mission for not for profit and government organizations - Customer Perspective (i.e. To achieve our vision and financial objectives, how must we deliver value to our customers?) o Reflects what the organization promises to its target customers o Value Proposition:  Price  Quality  Time  Function  Service - Value Proposition Alternatives: o Cost effectiveness: Sell a commodity where the prices are set by the market – your key control lever is cost o Product Leadership: You compete by constantly bringing new products into the marketplace – key control lever is innovation o Customer Intimacy  You compete by meeting the unique requirements of each customer – your key control lever is understanding customer requirements - Process perspective (i.e. To meet our financial and customer objectives, at which processes must we excel?” o Reflects how the organization plans to deliver its value proposition o Useful to think in terms of process groups – all matter but with different importance depending on strategy  Operations management processes (critical for organizations that compete using a cost effectiveness strategy)  Customer management processes (critical for organizations that compete using a customer intimacy strategy)  Innovation processes (product leadership strategy)  Regulatory and social processes - Learning and Growth Perspective (i.e. How do we align and enhance our intangible assets to improve the critical processes?” o Reflects the development of intellectual capital (Organization know-how) needed to develop and improve objectives in the process perspective. Strategy Map - Picture that illustrates the causal relationships among the balanced scorecard perspectives. - Guide to action that relates the management actions needed to achieve an organization objective with the measures designed to assess performance on those actions. - The cause and effect relationships leading to the organization’s objective - The objectives for each of the four perspectives and how to measure performance on those objectives Variable cost: Cost that increases proportionally with changes in the activity of some variable - Associated with a consumable resource Fixed Cost: Cost that does not vary in the short run with a specified activity - Depends on the amount of a resource that is acquired rather than the amount that is used - Often called capacity-related costs. CVP Assumptions - Sales volume does not affect product price - Sales volume does not affect variable cost per unit - All costs are either variable or fixed - All production Is sold Contribution Margin per unit (CMU) - CMU = Price per unit – variable cost per unit o The dollar contribution each unit made and sold contributes to covering fixed costs and providing a profit. Contribution Margin Ratio (CMR) - CMR = CMU / Price - CMR is the frac
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