BU247 Chapter Notes - Chapter 1: Pdca, Financial Modeling, Balanced Scorecard

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Chapter 1: How Management Accounting Information Supports Decision Making
What is Management Accounting?
-Management Accounting: 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
-Management accounting information includes:
Reported expense of operating department, cost of producing product, etc.
-Nonfinancial management accounting info:
Measures related to customer satisfaction and loyalty, process qualities, innovation,
employee motivation
Management Accounting and Financial Accounting
-Financial Accounting:
Retrospective, reporting, and summarizing in financial terms the results of past
decisions and transactions
Oriented to external stakeholders (investors, creditors, regulators, tax authorities)
Consistent with rules by standard setters – specifies contents of reports, rules for how
content gets developed, and how content will be presented
-Management Accounting:
Both retrospective, providing feedback about past operations, and prospective,
incorporating forecasts and estimates future events; uses both financial and
nonfinancial measures
Oriented to meet decision-making needs of employees and managers inside
organization; good management accounting
No prescribed form or rules about its content, how the content is developed, and how
content is to be presented – no standard setter or regulator specifically influences
design of management accounting information and systems
A Brief History of Management Accounting
-Early 19th century: management accounting consisted of systems to measure the cost of
producing individual products (piece of clothing, weapon)
-Middle 19th century: railroad managers implemented large, complex costing systems to
compute costs of carrying different freights – supported efficiency improvements and pricing
decisions
-Late 19th century: Carnegie developed detailed systems to record cost of materials and labour
used in mills – his costing systems gave him competitive advantage
-Organizations sought to improve efficiency and profitability by internalizing previously open
market transactions and eliminating costs of transacting with external agents
-1970s: American and Europeans developed new management accounting tools, including
systems that reported quality, service, and customer/employee performance
-Major advances also made in measuring cost of products and services to reflect increasing
importance of indirect and support costs required to design and produce a product
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Document Summary

Chapter 1: how management accounting information supports decision making. Management accounting: 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. Reported expense of operating department, cost of producing product, etc. Measures related to customer satisfaction and loyalty, process qualities, innovation, employee motivation. Retrospective, reporting, and summarizing in financial terms the results of past decisions and transactions. Oriented to external stakeholders (investors, creditors, regulators, tax authorities) Consistent with rules by standard setters specifies contents of reports, rules for how content gets developed, and how content will be presented. Both retrospective, providing feedback about past operations, and prospective, incorporating forecasts and estimates future events; uses both financial and nonfinancial measures. Oriented to meet decision-making needs of employees and managers inside organization; good management accounting.

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