Managerial Accounting

by James Jiambalvo
Chapter 1:
Introduction to Managerial
Accounting

Slides Prepared by:

Scott Peterson
Northern State University
Chapter 1: Introduction to
Managerial Accounting
Chapter Themes: Learning Objectives:
State the primary goal of
 It’s all about using
1.
managerial accounting.
information to plan, 2. Describe how budgets are used in
control and make planning
decisions. 3. Describe how performance
reports are used in the control
 Accountants produce process.
information and managers 4. Distinguish between financial and
managerial accounting.
use information.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Primary Goal of Managerial
Accounting
Effective managers must be
adept at planning, controlling
and decision making.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Planning
Planning has to do with
budgeting in a managerial
context. It is in this way that a
company’s goals are
communicated to all
employees.
Budgets include profit
budgets, cash-flow budgets,
production budgets and
many others.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used
in planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Controlling
The notion of managerial control
has to do with measuring and
evaluating the performance of
both the manager and the
operation(s) for which the
manager is responsible.
There is an important distinction
to be made here. A manager is
evaluated, at least in part, based
on her overall performance. Each
operation for which she is
responsible is evaluated in order
to optimize future goals and
objectives.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Decision Making
An integral part of the
planning and controlling
process, decision making
includes both rewarding or
punishing managers for their
performance AND dropping,
adding or otherwise changing
some aspect of operations
going forward.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used
in planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
A Comparison of Managerial
and Financial Accounting
Managerial accounting:
1. Is meant primarily for
internal users while
financial accounting is
meant for external users.
2. Is not driven by GAAP.
3. May be much more
detailed than financial
(external) accounting
reports.
4. May include much
nonfinancial data.
5. Is forward looking rather
than retrospective.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial
and managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Similarities Between Financial
and Managerial Accounting
Although managerial
accounting is meant for
internal users (management)
and financial accounting is
meant for external users,
managers DO make use of
financial accounting
information.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial
and managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Cost Terms
The term “cost” appears in
many contexts and carries a
number of meanings.
Different categories of cost
terms are merely different
ways to look at costs or to
slice and dice cost
information. They are not
necessarily complementary
to or mutually exclusive of
other cost categories.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Variable and Fixed Costs
Variable costs: costs Related Learning Objectives:
that increase or 1.
decrease (in total) 2.
relative to increases or
decreases in the level of 3.
business activity.
4.
Fixed costs: costs that 5.
do not change (in total)
relative to changes in 6.
business activity.
7.
State the primary goal of
managerial accounting.
Describe how budgets are used in
planning.
Describe how performance
reports are used in the control
process.
Distinguish between financial and
managerial accounting.
Define cost terms used in
planning, control and decision
making.
Explain the two key ideas in
managerial accounting.
Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Sunk Costs
Sometimes called “past
costs.” These costs are NOT
relevant to the decision
making process.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Opportunity Costs
These are the values of
potential benefits foregone
when a decision is made.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Direct and Indirect Costs
Direct costs: costs that are
directly traceable to some
object such as a product,
activity or department.
Indirect costs: costs that are
NOT directly traceable to a
product, activity or
department.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Controllable and
Noncontrollable Costs
Yet another way to slice and dice
costs. This time it has to do with
the degree of influence a
manager has over the cost. If a
management decision can
impact the cost in the short term,
it is considered controllable.
Conversely, if a manager cannot
influence (control) the cost in the
short term, then it is
noncontrollable. A manager’s
performance should NOT include
an assessment of
noncontrollable costs.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Two Key Ideas in Managerial
Accounting
They are: Related Learning Objectives:
1. State the primary goal of
managerial accounting.
1. Decision making relies 2. Describe how budgets are used in
on incremental planning.
3. Describe how performance
analysis—an analysis of reports are used in the control
revenues and costs that process.
increase or decrease if a 4. Distinguish between financial and
managerial accounting.
particular decision
5. Define cost terms used in
alternative is selected. planning, control and decision
2. You get what you making.
6. Explain the two key ideas in
measure! managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
Decision Making Relies on
Incremental Analysis
Incremental means
“difference.” Here decision
making looks at the
difference between revenues
and expenses if selection (a)
is made as opposed to
selection (b).
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
You Get What You Measure
Performance measurement Related Learning Objectives:
impacts management 1. State the primary goal of
managerial accounting.
behavior.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
The Controller As the Top
Management Accountant
Controller: The top management
accountant responsible for
preparing information for
planning, controlling and
decision making.
Treasurer: The treasury function
is custodial in nature; custody of
assets.
Chief Financial Officer (CFO):
The senior executive to whom
both the controller and CFO
report.
Related Learning Objectives:
1. State the primary goal of
managerial accounting.
2. Describe how budgets are used in
planning.
3. Describe how performance
reports are used in the control
process.
4. Distinguish between financial and
managerial accounting.
5. Define cost terms used in
planning, control and decision
making.
6. Explain the two key ideas in
managerial accounting.
7. Discuss the duties of the
controller, the treasurer and the
chief financial officer (CFO).
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