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Chapter 1

112 Chapter 1.docx

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COMM 112
Teri Shearer

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1 WHAT IS MANAGERIAL ACCOUNTING  The provision of accounting information for a company’s internal users  Designed to support the information needs of mangers  There are no GAAPS or IFRS  Three broad objectives: o To provide info for planning the organizations actions o To provide info for controlling the organisations actions o To provide info for making effective decisions  Mangers need up to date info for the following activities: o Planning – the detailed formulation of action to achieve a particular end  Requires set objectives  Ex: a form may set objectives of increasing short term and long term profitability by improving overall quality of its products  Management needs to development plans that implement change and positive results  They should be clearly specified and detailed o Controlling – monitoring a plan’s implementation and taking corrective actions as needed  The implementation of the plan created before  Usually achieved by comparing actual performance with expected performance  This can be used to evaluate or correct the steps being taken  Based on feedback, manager can decide to let the plan continue as is or change it  The accounting for the planning and controlling can be financial or nonfinancial o Decision making – process of choosing amount competing alternatives  It is intertwined with planning and control  You can't plan and control without making decisions regarding competing alternatives  Supply information that triggers decision making MANGERIAL VS FINANCIAL CURRENT FOCUS OF MANAGERIAL ACCOUNTING  Changed to match technology advancements  Provides info that improves company’s planning, control and decision making  Evaluating the business from a cross-functional perspective  Providing info useful in improving total quality  New methods of estimating product cost and profitability 2 o Before because products were so similar, only the cost of material and labour would have differed  Figuring out the cost was relatively easy o Now with the increase of technology and automatic, there are more decisions involved o Traditional cost accounting in manufacturing does not record the cost of nonproducing such as the cost of faulty quality or of a machine being out of order  There are unrecorded and uncontrolled costs – and they run really high  Managerial accounting accounts for these costs ^ o Activity-Based Costs (ABCs) is a detailed approach to determine the cost of goods o ABC improves costing accuracy by emphasizing the cost of the many activities that must be done to product a product o Process-value analysis focuses on the way in which companies create value for customers  They objective is to find ways to perform necessary activities more efficiently and to eliminate those that do not create customer value Customer Orientation:  Customer value is a key focus because firms can establish a competitive advantage by creating better customer value for the same or lower cost or quality as competitors  Customer value = benefit received – cost associated with product  Benefits: product features, service, quality, instructions of use, reputation, brand name  Costs: money, time, effort, maintenance costs, disposal costs, etc. 1. Strategic positioning: o Cost info can help company identify strategies that increase customer value o Help create a sustainable competitive advantage o Firms chose from 2 strategies: (1) cost leadership and (2) superior products through differentiation AKA highest performance, quality, product features, best service, etc.  Ex: Best Buy’s Geek Squad – give you a 24/7 technical support 2. Product life cycles o Product life cycle: conception, introduction, growth, maturity, decline, withdrawal from market o It is associated with different marketing strategies and product mixes that require different planning and control decisions o Product life cycles range from months for trendy goods to many years for appliances and cars o Each stage of the cycle varies in length as well  Ex: technology usually have a longer development stage o Key element for planning and control purposes – identify and track revenues and costs over the product’s entire life cycle 3. The value chain o Refers to the set of business functions that add value to products o To succeed – all stages of various functions (like R&D, product design, production, marketing, distribution and customer service) need to add value to the final product o Systematic approach to examine the development of the firm’s competitive advantage o Created by M.E Porter o When value in built into each stage of a product, this increases the total value delivered o Not all functions are equally as important  BUT, no matter what the product, the company needs to create value 3 o Value chain PRIMAR
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