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Chapter 1

ACC 406 - Chapter 1.doc

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Ryerson University
ACC 406
Vincent Cappelli

ACC 406 - Chapter 1 Introduction to Managerial Accounting What Is Managerial Accounting? • Managerial accounting – provision of accounting information for a company’s internal users; it is the firm’s internal accounting system & is designed to support the info needs of managers • 3 broad objectives 1) Provide info for planning the organization’s actions 2) Provide info for controlling the organization’s actions 3) Provide info for making effective decisions • Info given only to internal users; corporate sustainability reports, social responsibility reports, citizenship report; these reports (CSR reports) often occurs b/c firms want to manage their reputation by preparing & realising such info themselves. Information Needs for Planning, Control, & Decision Making • Planning –detailed formulation of action to achieve a particular end is the management activity; requires setting objectives & identifying methods to achieve those objectives • Once planning is done, it must be implemented; monitored by managers & workers to ensure that it is being carried out as intended. Controlling – monitoring a plan’s implementation & taking corrective action as needed; achieved by comparing actual performance w. expected performance • Decision making – process of choosing among competing alternative Comparison of Managerial & Financial Accounting • Financial accounting (external accounting) – concerned with producing info (FS) for external users (investors, creditors, suppliers, etc.) Useful for investment decisions, stewardship evaluation, monitoring activity & regulatory measures; there are rules (Ontario securities commission) (IFRS) which pertain to issues such as recognition of revenues; timing of expenses; recording assets & liabilities & shareholders’ equity. • Managerial accounting (internal accounting) – produces info for internal users (managers, execs. workers); identify, collect, measure, classify & report financial & nonfinancial info that is useful to internal users in planning, controlling & decision making. • Some differences are ; EXHBIT 1-2 1) targeted users (internal & external) 2) restrictions on inputs & processes (GAAP; certain kinds of economic events qualify as inputs & processes must follow general accepted methods) (Managerial no specific format) (Financial is historical; rear- view mirror & managerial is forward looking) 3) type of information financial accounting; objective & verifiable financial info; managerial info may be financial/nonfinancial & may be more subjective 4) time orientation financial historical; managerial is historical & future 5) degree of aggregation managerial provides measures & internal reports used to evaluate performance of entities, product lines, departments & managers; financial focuses on overall firm performance (more aggregated (collective) viewpoint) 6) breadth – managerial is broader; managerial economics, industrial engineering, management science and many more Current Focus of Managerial Accounting New Methods of Costing Products & Services – need accurate info on the cost of products/services they produce; quite diff due to increase in tech & automation ; activity based costing (ABC) – detailed approach to determining the cost of goods/services; improves cost accuracy by emphasizing the cost of many activities/tasks that must be done to produce a product/offer a service; process value analysis focuses on the way in which companies create value for customers; objective is to find way to perform necessary activities more efficiently & to eliminate those that do not create customer value. Customer Orientation - important b/c firms can establish a competitive ad by creating better customer value for the same/lower cost than competitor/creating equivalent value for lower cost than that of competitors; customer value – is the diff btwn what a customer receives & what the customer gives up when buying a product/service; complete intangible & tangible benefits a customer receives 1) Strategic Positioning – cost leadership (lower cost than competitors) & superior products through differentiation (provide something to customers not provided by competitors (geek squad) 2) Product Life Cycles –conception, intro to market, growth, maturity, decline, withdrawal from market 3) The Value Chain – to the set of business functions that add value to an organization’s products/services. According to M.E. Porter value chain primary activities include the following: o Inbound logistics – raw materials & goods are received from the company’s suppliers o Operations- goods are manufactured/assembled; invidiv operations (room service) o Outbound logistics- sending finished goods to wholesalers, retailers/ final consumer o Marketing & sales – developing a marketing communications & promotions mix to meet the needs of targeted customers o Service - providing customers with installation, after-sales service, complaint handling Support Activities o Procurement – securing the lowest prices for inputs of the highest quality, & deciding which components/operations will be outsourced o Technology development – innovating to reduce costs; this includes sustaining competitive advantage through lean manufacturing, customer relationsh
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