Managerial Accounting in The Information Age
Managerial Accounting in The Information Age
Managerial Accounting in The Information Age
CMA
Presentation Outline
I. Goal of Managerial Accounting
II. Comparison of Managerial and Financial
Accounting
III. Variable vs. Fixed Costs
IV. Other Cost Terminology
V. Key Issues in Managerial Accounting
VI. Other Topics
A. Planning
Plan
Action taken to
Implement plan
B. Control
Plan
Action taken to
Implement plan
Results
Comparison of
planned and actual
results
Evaluation
C. Decision Making
Plan
Decisions to
change operations
or revise plans
Action taken to
Implement plan
Decisions to
reward or punish
managers
Comparison of
planned and actual
results
Results
Evaluation
The distinction between evaluating managers and evaluating the
operations they control is important. For example, an evaluation of
an operation can be negative even when the manager evaluation is
positive.
Financial Accounting
Primarily aimed at
external users such as
investors, creditors,
and government
agencies.
Financial Accounting
Publicly traded
companies and many
private companies use
generally accepted
accounting principles
for financial
accounting.
GAAP only
Financial Accounting
External users of
information are often
satisfied with more
summarized
information.
D. The Emphasis on
Nonmonetary Information
Managerial Accounting
Monetary information is
supplemented with
additional detail such as
quantity of materials used,
number of labor hours, etc.
Financial Accounting
Primarily includes
information regarding
assets, liabilities,
equity, revenues,
expenses, and cash
flows.
Financial Accounting
Primarily presents the
results of past
transactions.
Variable cost
per unit
Level of Activity
Level of Activity
Fixed cost
per unit
Level of Activity
Total fixed
cost
Level of Activity
A. Sunk Cost
Costs that have been incurred in the past are
irrelevant. They are known as sunk costs
and make no difference in future decisions
because they do not differ between
alternative courses of action.
I have got to make
this work out or I
will look bad!
B. Opportunity Cost
Opportunity costs are the benefits forgone when one
decision alternative is selected over another. For
example, extra floor space could be rented out or
used to add production capacity. The decision
must consider the lost rental income if the floor
space is used for production.
A. Incremental Analysis
Incremental analysis is the appropriate way to
approach the solution to all business problems. It
involves the difference between the difference in
revenue versus the difference in cost between
decision alternatives. Only differences are relevant
to a decision (See illustrations on pages 10 and 11)
Does the above statement means that fixed costs are
always irrelevant and variable costs are always
relevant?
A. Ethical Behavior
Ethical dilemmas are often complex and the situations
managers face are often gray rather than black and
white.
Codes of conduct are not always good guides to ethical
behavior since they often simply specify what cannot
be done rather than what should be done. Many also
focus strictly on staying just within the law.
Two important questions:
1. Am I comfortable with my decision?
2. Would I be comfortable in telling others about the
decision?
Summary
Planning, Control, and Decision Making
Financial vs. Managerial Accounting (User,
GAAP, Detail, Nonmonetary, Time Frame)
Variable vs. Fixed Costs
Sunk, Opportunity, Direct, Noncontrollable
Costs
Incremental Analysis and Getting What You
Measure
Ethical Conduct, Company Officers, CMA