BU247 Chapter Notes - Chapter 1: Pdca, Neutral Nation, Management Accounting

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25 Jan 2013
BU247 Chapter 1 How Management Accounting Information Supports Decision Making Week 1
What is Management Accounting?
-The process of supplying the managers and employees in an organization with relevant information,
both financial and nonfinancial, for making decisions, allocating resources, and monitoring, evaluating,
and rewarding performance
-The reported expense of an operating department, such as the assembly department of an automobile
plant or an electronics company, is one example of management accounting information
Management Accounting and Financial Accounting
-Management account has the following attributes:
-It is both retrospective, providing feedback about past operations, and also prospective,
incorporating forecasts and estimates about future events. For both retrospective reporting and
prospective planning, management accounting uses both financial and nonfinancial measures
-It is oriented to meeting the decision-making needs of employees and managers inside the
organization. Ideally, a good management accounting system can become a source of
competitive advantage for a company
-It has no prescribed forms or rules about its content, how the content is to be developed, and
how the content is to be presented. All of these get determined by managers’ judgments and
decisions about what best meets their needs for actionable information and is defined entirely
by the needs of managers using the information. No standard setter or regulator specifically
influences the design of management accounting information and systems
-Strategy is about an organization making choices about what it will do and, equally important, about
what it will not do
-Selecting a strategy forces managers to make choices about what markets the organization should
target and how the organization will compete in those markets
-Once a strategy has been selected, the organization needs management accounting information to help
implement the strategy, allocate resources for the strategy, communicate the strategy, and link
employees and operational processes to achieve the strategy
-As the strategy gets executed, management accounting information provides feedback about where it
is working and where it is not, and guides actions to improve the performance from the strategy
The Plan-Do-Check-Act (PDCA) Cycle
-Identify objectives
-Choose a course of action to achieve the desired objectives
-Implement the chosen course of action
-Monitor (measure) the results of the implemented course of action
-Evaluate the results by comparing them with results expected when the plan was developed
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