Week 1 Chapter 1 - How Management Accounting Supports Decision Making
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What is the IMA's definition of Management Accounting?
"MA is a profession that involves partnering in management decision making, devising planning and performance-management system, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization's strategy."
What is Dr. Stout's definition of Management Accounting?
...is the process of producing financial and non-financial information regarding the economic conditions of subunits of the organization... the process should be driven by the information needs of managers (i.e., users) and should guide their planning, organizing, and performance-evaluation (control) decisions.
Management accounting information helps managers make decisions regarding what?
The best use of the resources of the organization.
Making decisions regarding the best use of the resources of the organization can lead to what?
- lower-cost supplier relationships
- more profitable products and customers
- more efficient/responsive activities (e.g., manufacturing and customer service)
Where do Financial Accounting and Management Accounting overlap? (Think of the Venn Diagram)
What can be said about the overlap between Financial Accounting and Managerial Accounting?
They are more different than they are similar.
How do Financial and Managerial Accounting differ regarding reporting focus?
- Financial accounting - external reporting focus
- Managerial accounting - internal reporting focus
How do Financial and Managerial accounting differ regarding user groups?
- Financial - Diverse user group
- Managerial - Narrow user group
How to Financial and Managerial accounting differ regarding financial statements?
- Financial - General purpose financial statements
- Managerial - Special purpose reports
How do Financial and Managerial accounting differ regarding information?
- Financial - Objective, verifiable, and free-from-bias
- Managerial - Relevant for decision-making, planning, and control
How do Financial and Managerial accounting differ regarding time orientation?
- Financial - past oriented
- Managerial - future oriented
How do Financial and Managerial accounting differ regarding reporting units?
- Financial - Reporting unit = $
- Managerial - Reporting unit = $, non-financial, and subjective
How do Financial and Managerial accounting differ regarding necessity?
- Financial - Required
- Managerial - Optional
What is Cost Information?
Measures of resource demands/resource consumption
What are the two types of Cost Information?
- Product Costing
- Customer Costing
What is Product Costing?
- Focus on the cost of the activities performed to design and product products and services
- i.e. use activity-based costing (ABC)
What does managerial Product Costing contrast with in financial accounting?
Inventory valuation (income-tax reporting)
What is Customer Costing?
Assigning selling, marketing, and administrative costs to customers and to customer classes.
What are the two kinds of Decision-Making?
- Short-term (operational) decisions
- Strategic decisions
What are Short-term (Operational) Decisions?
- Sourcing decisions
- non-routine pricing decisions (e.g., special sales orders)
- short-run product-mix decisions
- make-or-buy decisions
What are Strategic Decisions?
- capacity expansion/contraction
- "normal" pricing
- managing customer relationships
- choice of distribution channels
- plant location
- long-term product-mix decisions
- controlling life-cycle costs
What is Control?
Planning followed by performance assessment/feedback
What are the three types of Control?
What is Operational Control?
- Feedback to employees
- e.g. are activities being performed efficiently?
What is Management Control?
Feedback regarding the performance of managers and operating units (segments)
What is Strategic Control?
Feedback regarding the competitive position of the organization (both financial and non-financial metrics)
What is the different Information needs that drive Form and Content of Management Accounting Reports?
- Content - (i.e., what gets reported - the mix of financial and non-financial performance indicators)
- Frequency of reporting (timeliness issue)
- Level of aggregation (degree of detail)
What is Strategy?
An organization makes choices about what it will do and, equally important, about what it will not do.
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