Module 1: Management Accounting Flashcards
Why Do We Need Management Accounting?
Acceptance / decline of nonrecurring special orders
Calculation / pricing
Setting minimum level of prices
Insourcing / outsourcing
Level of stockkeeping
Product mix and product mix policy
Expansion / reduction of client base
Replacement investments
Management Accounting : Purpose of information
Help managers make decisions to fulfill an organization’s goal
Financial Accounting: Purpose of information
Communicate an organization’s financial position to investors, banks, regulators, and other outside parties
Management Accounting: Primary users
Managers of the organization
Financial Accounting: Primary users
External users such as investors, banks, regulators, and suppliers
Management Accounting: Focus and emphasis
Future-oriented (budget for 2021 prepared in 2020)
Financial Accounting: Focus and emphasis
Past-oriented (reports on 2020, performance prepared in 2021)
Management Accounting: Rules of measurement and reporting
Internal measures and reports do not have to follow IFRS/GAAP but are based on cost-benefit analysis
Financial Accounting: Rules of measurement and reporting
Financial statements must be prepared in accordance with IFRS/GAAP and be certified by external, independent auditors
Management Accounting: time span and
type of reports
Varies from hourly information to 15 to 20 years, with financial and nonfinancial reports on products, departments, territories, and strategies
Financial Accounting: time span and
type of reports
Annual and quarterly financial reports, primarily on the company as a whole
Management Accounting: Behavioral implications
Designed to influence the behavior of
managers and other employees
Financial Accounting: Behaviral implications
Primarily reports economic events but also influences behavior because manager‘s compensation is often based on reported financial results
Strategic Decisions and Management Accounting – Key Success Factors (management accounting)
- Cost and Efficiency
-Quality
-Time - Innovation
-Sustainability
–> page 7
How Does the Management Accounting Process Work? (PDCA)
Plan, do, check, act
P: Define & Analyze Problem and identify Root Cause
D: Devise Solution, Develop Detailed Action Plan, Implement Plan
C: Confirm Outcomes against Plan, Identify Deviations / Issues
A: Standardize Solution, Review & Define Next Issues
Decision Planning
Choosing goals
Predicting results under various ways of achieving those goals
Deciding how to attain the desired goals
Decision Control
Action that implements the planning decision
Performance evaluation of the personnel and operations
Key Management Accounting Guidelines
- Cost-benefit approach
- Full recognition to behavioral as well as technical considerations
- Use different costs for different purposes
Cost-benefit approach
A cost-benefit approach should be used in order to spend resources if they promote decision making that better attains organization goals in relation to the costs of those resources
Full recognition to behavioral as well as technical considerations
A management accounting system should have two simultaneous missions for providing information:
To help managers make wise economic decisions
To help managers and other employees to aim and strive for goals of the organization
Use different costs for different purpose
A cost concept used for the external reporting purpose need not be the appropriate concept for the purpose of internal routine reporting to managers
Incorporation of Management Accounting into the Organizational Structure
Line management is directly responsible for attaining the objectives of the organization
Staff management exists to provide advice and assistance to line management
The Chief Financial Officer (CFO) is overseeing the financial operations of an organization
The controller, also called the chief accounting officer (CAO), is the financial executive primarily responsible for both management accounting and financial accounting
Organizational Structure and the Management Accountant
page 15
Management Accounting and Ethical Principles
- Competence
-Confidentiality - Integrity
-Credibility - Resolution of Ethical Conflict
Cost accounting: defintion
is a category of managerial accounting that aims to capture a company’s total cost of value creation
Costs: definition
resources sacrificed to achieve a specific objective
–> measured as a monetary amount that is spent to acquire factors of production or resources that are used to produce a particular output.
Total costs is composed of :
direct and indirect cost and variable and Fixe costs
Direct cost
are all costs that are directly related to a cost object and can be traced in an economically feasible way
Indirect cost
are all costs that are common to several cost objects but cannot be traced (in an economically feasible way) to a single one
Variable Costs
change in total in proportion to changes in the related level of total activity or volume of output
Fixed Cost
remain unchanged in total for a given time period, despite wide changes in the related level of total activity or volume of output
Fixed cost are always …costs
indirect costs
Direct cost are.. in most of the case
variable costs
Inventorial cost: defintion
all costs of a product recorded as an asset on the balance sheet, only expensed as cost of goods sold in the income statement when a product is sold
Period cost: defintion
all costs in the income statement other than costs of goods sold
other costs such as design-, marketing- or distribution-costs
expect these costs to increase revenues in a specific period
Gross margin calculation
Revenues - Cost of goods sold
What does the flow of revenues and costs look like for a merchandising company?
the flow of revenues and costs in the income statement are the same.
Inventoriable costs are only expensed as the cost of goods sold when a product is sold, and period cost exists as well.
What are the difference for merchandising company in the balance sheet ?
- merchandising companies do not produce goods or services –> no positions such as direct material or work-in-progress inventory.
= inventoriable costs are recorded in the balance sheet position “Merchandise Inventory”.
The need for Uniform Terms
- Uniform defintiomn (direct and indirect costs)
- Different product cost for different purpose
- R&D costs
-Design costs
-Production Costs
-Marketing Costs
-Distribution Costs
Product cost : for financial Statements
Inventorial costs
Acceptance/Decline of Nonrecurring Special Orders (why management accounting is use)
Helps in evaluating whether a special order will contribute to profitability
Calculation/Pricing (why management accounting is use)
Assists in setting prices by analyzing costs such as direct materials, labor, and overhead. This ensures that prices are competitive while also covering costs and achieving profit margins.
Setting Minimum Level of Prices (why management accounting is use)
Helps determine the minimum price at which a company can sell its products or services without incurring a loss.
Insourcing/Outsourcing (why management accounting is use)
informs the decision to insource or outsource by comparing the costs and benefits of each option.
–> pratique qui consiste à intégrer dans son entreprise les ressources d’un prestataire externe.
Level of Stockkeeping (why management accounting is use)
Assists in managing inventory levels by analyzing costs of holding stock (e.g., storage, insurance) versus potential stockout costs
Product Mix and Product Mix Policy (why management accounting is use)
Helps in deciding which products to focus on by analyzing profitability, contribution margin, and the demand for each product
Expansion/Reduction of Client Base (why management accounting is use)
Evaluates the costs and benefits of expanding or reducing the client base
Replacement Investments (why management accounting is use)
Provides analysis on the financial impact of replacing old equipment or assets
Cost and Efficiency: definition
Management accounting information helps managers calculate a target cost for its products.
Quality : definition
Management accounting information helps to evaluate the costs and revenue benefits of continuously improving the quality of products and processes
Time: definition
Management accounting information helps to quantify the costs and benefits of reducing delivery times and meeting promised delivery dates.
Innovation: definition
Managers rely on management accounting information to evaluate alternative R&D and investment decisions and the costs and benefits of implementing innovative business models, services, and marketing plans.
Sustainability: definition
Companies are increasingly applying the key success factors of cost and efficiency, quality, time, and innovation to promote sustainability.
competence (management accounting)
- Maintain professional competence
-Follow applicable laws, regulations and standards
-Prepare complete and clear reports after appropriate analysis
Confidentiality (management accounting)
- Do not disclose confidential information unless legally obliged to do so
- Ensure that subordinates do not disclose confidential information
- Do not use confidential information for personal advantage
Integrity (management accounting)
- Avoid conflicts of interest and advise others of potential conflicts
- Recognize and communicate personal and professional limitations
- Refuse gifts or favors that might influence behavior
- Do not subvert organization’s legitimate objectives
Credibility (management accounting)
- Communicate information fairly and objectively
- Disclose all information that could influence user’s understanding
- Disclose delays or deficiencies
Reduce version of management accounting process
- Planning
- Control
