C1: SCM AND MANAGEMENT ACCOUNTING

Management

is the process of achieving organizational objectives

Management

This involves planning, organizing, leading, and controlling

Planning

is setting goals and developing strategies and tactics to achieve them

Controlling

is determining whether the goals are being met, and if not, what can be done

Decision making

is selecting one alternative from a set of choices

Performance evaluation

is a must in controlling

Accountants

They develop and communicate much of the economic information used by managers of businesses and other economic organizations as external users

Management Accounting Information

Information provided to internal users

Management Accountants

They are the one who did the information provided to internal users

Management Accounting

is an indispensable part of the system that provides information to managers

Managers

the people whose decisions and actions determines the success or failure of the organization

Strategic Cost Management

is the application of cost management techniques which aims to reduce costs while strengthening the strategic position of a business

Strategic Cost Management

Its methods can be applied in service, manufacturing, and not-for-profit organizations

Ways to Institute Cost Management Techniques

1. Develop systems that would streamline the transactions between corporate support departments and the operating units

2. Establish transfer pricing systems to coordinate the buyer-supplier interactions between decentralized organizational operating units

3. Utilize pseudo profit centers to create profit maximizing behavior in what were formerly cost centers

Management Accounting

focuses on the information needs of an organizational’s internal managers that are related to their planning, controlling, and decision-making functions

Management Accounting

It is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting, and communicating information that helps managers fulfill organizational objects

Management Accounting

few restrictions are imposed by regulatory bodies and not governed by GAAP

Management accountants should recognize

• What are the information needed by managers?

• Why these information are needed?

• How these information be presented in the best feasible form that will enhance the understandability character of these reports to the users?

• How the information be given to the user in the earliest time possible to be more useful to decision making?

Objectives of Management Accounting

• Providing managers with information for decision making and planning

• Assisting managers in directing and controlling operations

• Motivating managers toward achieving organization’s goals

• Measuring performance of managers and sub-units within the organization

Different Functions of Accounting Information

1. To provide information to external parties such as stockholders, creditors, and various regulatory bodies for investment and credit purposes;

2. To estimate the cost of products produced or services rendered; and

3. To provide information useful for making decisions and controlling operations

Financial Accounting

is the field of accounting that develops information for external decision-makers such as stockholders, suppliers, banks, and government regulatory agencies

Cost Accounting

is the field of accounting that creates an overlap between financial accounting and management accounting

Cost Accounting

It integrates with:

• Financial Accounting: by providing product costing information for financial statements, and

• Management Accounting: by providing some of the quantitative, cost-based information managers need to perform their functions

Cost Accounting

focuses primarily on the determination of the cost of making products or performing services

Cost Accounting

determines the cost of products or services by direct measurement, arbitrary assignment, and systematic or rational allocation of such costs

Cost Accounting

is an integral part of the broader field of management accounting and its overlap causes the financial and management accounting systems to be more integrated to form a complete information network

Management Accounting

• is more concerned with individual segments of the business rather than the organization as a whole

• addresses specific concerns rather than the “big picture”

Management Accountants

They must provide the basis for appropriate cost estimations that are needed for the financial statement presentations

Managers

They must see to it that in the provision of information, the cost-benefit analysis is being applied

Cost-benefit analysis

is the analytical process of comparing the relative costs and benefits that result from a specific course of action

Management Accounting

• As to Users of Information: Internal Users

• As to Regulations to Follow: Not required and unregulated, since it is intended only for management

Management Accounting

• As to Sources of Data: The organization’s basic accounting system plus various other sources, such as external information

• As to Nature of Reports and Procedures:

  • Reports often focus on sub-units within the organization.

  • Reports are based on a combination of historical data, estimates and projections of future events

Financial Accounting

• As to Users of Information: External users

• As to Regulations to Follow: Required and must conform to GAAP

Financial Accounting

• As to Sources of Data: Data are drawn almost exclusively from the organization’s basic accounting system, which accumulates the financial information

• As to Nature of Reports and Procedures:

  • Reports focus on the company in its entirety

  • Reports are based almost exclusively on historical transactions or data

Management Accounting

• Has no constraints, may be other than costs, as to benefits of improved management decisions

• Behavioral implication is evident, as it concerns how measurements and reports will influence managers’ daily behavior

Management Accounting

• Is called to be “Time Focus”. The users of its reports always compare the past and its relationship to the future

• Its reports could vary in period coverage. It could be as long as 5-10 years or as short as daily

Management Accounting

• Its reports could be as detailed it could be. Sales could be presented in total or as detailed as to by products line, by territory, by department or as low as by agent

• Covers so many fields of discipline. Usually managers heavily use the field of economics, decision sciences, behavioral sciences or sometime even political science

Information

is processed in a systematic way through the use of an information system

Accounting system

is a formal mechanism for gathering, organizing, and communicating information about an organization’s activities

Manager need information to make decisions about:

• Acquiring and financing production capacity

• Determining which products to produce and market

• Pricing products, jobs or services

• Determining the best method of distributing goods and services to the target market

• Locating the best property for production facilities

• Financing the costs of production and opertaions

Management Accountants

should provide both quantitative and qualitative information to assist managers in decision making

Quantitative information

allows managers to know the number impact of every alternative choice

Qualitative information

furnished the facts that help eliminate some of the inherent uncertainties related to such alternative choices

Management functions or process

• Planning

• Controlling

• Performance evaluation

• Decision making

Planning

is the process of translating the goals and objectives of an organization and developing a startegy for achieving those goals in a systematic manner

Planning

• Managers depend heavily on management accountants when this is being prepared

• Goals are abstract achievements while, objectives are desired quantifiable achievements for a period of time.

• These objectives must be logically desired results based on goals

Controlling

• is the process of setting performance standards, measuring performance, periodically comparing actual performance with standards, and taking corrective measures or actions when operations do not conform with what is expected

• Managers must exert their best efforts to achieve what was planned

Performance Evaluation

• is the process of determining the degree of success in accomplishing the plan

• is done to determine if the actual results materially differ with what was set by the firm

Performance Evaluation

• It tries to equate both effectiveness and effeciency

• As the performance has been measured by the control process, managers must evaluate the effectiveness and efficiency of that performance

Effectiveness

• is a measure of how well an organization’s goals and objectives are achieved

• It compares actual output results to desired results and determines the successful accomplishment of an objective

Efficiency

• is a measure of the degree to which tasks were performed to produce the best yield at the lowest cost from the resource available

• This means that it measures the degree to which a satisfactory relationship occurs when comparing output to inputs

Decision making

• is the process of choosing among the possible solutions available to a given problem situation

• The manager’s ability to chooose the best solutions or the most acceptable alternative course of action depends on the manager’s ability to make good decisions

Organizational Structure

refers to how authority as well as responsibility for making decisions is distributed in the organization

Segments

need to be organized according to their missions in order to effectively define segments, manage resources, and implement strategies

Most Common Officers Involve in Financial information

• Chief Executive Officer (CEO)

• Chief Financial Officer (CFO)

• The Treasurer

• The Comptroller or Controller

• The Chief Accountant

Chief Financial Officer

• normally reports to the President or to the CEO

• Its key subordinates are the treasurer and the controller, or the chief accountant

Treasurer

• Has direct responsibility for managing the firm’s cash and marketable securities

• For planning its capital structure

• For selling stocks and bonds to raise capital

• For overseeing the corporate pension fund

• Handles the credit and collection, inventory management and capital budgeting

Controller

• is responsible for the activities of the accounting and tax departments

• is a CPA by profession

Good Financial Management

This will provide:

• better products or services to its customers

• pay higher wages and salaries to tis workers and employees, and even managers

• greater returns to the investors who put up capital needed to form the company and then operate the firm

Changes Made by Management Accountants

• A shift towards addressing the needs of service companies and improving practices to better serve and meet the needs of managers

• Improved practices which include a focus on managing the value chain through techniques such as JIT system and ERP

• The use of balance scorecard in order to attain a more comprehensive view of the company’s operations

Financial Manager

Its primary task is to plan for the acquisition and use of funds so as to maximizze the value of the firm, that is, he/she makes decisions about alternative sources and uses of funds

Activities Done by a Financial Manager

• Forecasting and planning

• Capital investment and financing decisions

• Controlling and coordinating

Forecasting and planning

The financial manager must coordinate or interact with other executives as they jointly look ahead and formulate plans, which will shape the firm’s future position

Capital investment and financing decisions

• The financial manager must raise the capital needed to support growth

• The financial officer must help determine the optimal rate of sales growth, and decide on the specific investments to be made as well as on the types of funds to be used to finance these investments

Controlling and coordinating

• The financial manager must interact with other executives i.e., (CEO, COO) so that the firm could operate as efficiently as possible

• All business decisions have financial implications and all managers whether financial, operation or marketing, need to take this into account

Basic Duties of Controller

• Planning, controlling, deisgning, installing, and maintaining the cost accounting system

• Predicting future costs

• Coordinating the development of the budget

• Accumulating and analyzing actual costs

• Preparing and analyzing performance reports

• Preparing reports for external users

• Providing information for special decisions

• Consulting with management as to cost information

• Internal auditing

• Tax administration

• Protection of assets

• Economic appraisal

Basic Duties of Treasurer

• Financial planning or fund management

• Obtaining funds to fiannce the acquisition of fixed assets

• Evaluating the acquisition of fixed assets

• Short-term finance sourcing or managing working capital needed

• Banking and custody

• Managing the pension fund

• Managing foreign exchange transactions

• Credits and collection

• Distribution of corporate earnings to owners

Corporate Governance

is a system of organizational control that is used to define and establish lines of responsibility and accountability among major participants in the corporation

Institute of Management Accountants

believes ethics is a cornerstone of its organization and recognizes the importance of providing ethical guidelines

Ethical Conduct

1. Competence

2. Confidentiality

3. Integrity

4. Objectivity

Competence

• Maintain an appropriate level of professional competence by ongoing development of their knowledge and skills

• Perform their professional duties in accordance with laws, regulations, and technical standards

• Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information

Confidentiality

• Refrain disclosing confidential information acquired in the course of their work, except when authorized, unless legally obligated to do so

• Inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that confidentiality

• Refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through third parties

Integrity

• Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict

• Refrain from engaging in any acitivity that would prejudice their ability to carry out their duties ethically

• Refuse any gift, favor, or hospitality that would influence or would appear to influence their actions

• Refrain from either actively or passively subverting the attainment of the organization’s legitimate and ethical objectives

• Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or succesful performance of an acitivity

• Communicate unfavorable as well as favorable information and professional judgments or opinions

• Refrain from engaging in or supporting any activity that would discredit the profession

Objectivity

• Communicate information fairly and objectively

• Disclose fully all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, comments, and recommendations presented

Resolution of Ethical Conflict

Discuss such problems with the immediate superior except when it appears that the superior is involved, in which case the problem should be presented initially to the next higher management

Next higher managerial level

If satisfactory resolution cannot be achieved when the problem is initially presented, submit the issues to the ___________

Chief Executive Officer

• If the immediate superior is the ________, or equivalent, the acceptable reviewing authority may be a group such as the audit committee, board of directors, board of trustees, or owners

• Contact with levels above the immediate superior should be initiated only with the superior’s knowledge, assuming the superior is not involved

Objective Advisor

Clarify relevant concepts by confidential discussions with an __________ to obtain an understanding pf possible courses of action

Resign; Informative Memorandum

If the ethical conflict still exists after exhausting all levels of internal review, the management accountant may have no other recourse on significant matters than to ______ and to submit an __________ to an appropriate representative of the organizaion

Administrative management

is an approach that focuses on principles that can be used by managers to coordinate the internal activities of organizations

Functional authority

the authority of staff departments over others in the organization in matters related directly to their respective functions

Functional managers

are managers who have responsibility for a specific specialized area of the organization and supervise mainly individuals with expertise and training in that area

Functional structure

is a structure in which positions are grouped according to their main functional or specialized area

Functional-level strategy

is a type of strategu that focuses on action plans for managing particular functional area within a business in a way that supports the business-level strategy

Goal commitment

is one’s attachment to, or determination to reach

Operating plans

contain the details necessary to implement and maintain an organization’s strategies

Strategic goal

is broadly defined targets or future end results by top management

Strategic management

is a process through which managers formulate and implement strategies geared toward optimizing strategic goal achievement, with given available environmental and internal conditions

Grand strategy

is a master strategy that provides the basic strategic direction at the corporate level

Strategy formulation

is the process of identifying the mission and strategic goals, conducting competitive analysis, and developing strategies. It is the foundation level of organizational planning

Strategy implementation

is the process of carrying out strategic plans and maintaining control over how those plans are carried out

Total Quality Management

is a management system that is an integral part of an organization’s strategy amd os aimed at continually improving product and service quality so as to achieve high levels of customer satisfaction and build strong customer loyalty

Management Information System

is a business system that provides past, present, and projected information about a company and its environment

Management Information System

is a formal method of making available to management the accurate and tinmely information necessary to facilitate the decision-making process and enable the organization’s planning, control, and operational functions to be carried out effectively

Elements of Management Accounting System

1. Motivational elements

2. Informational elements

3. Reporting elements

Motivational elements

includes performance measures, reward strcuture, support organizational mission and competitive strategy

Informational elements

includes all necessary information related to budgeting, cost control, value added and non-value added activities, and assessment of core competencies and analysis of make-or-outsource decisions

Reporting elements

includes the preparation of financial statements for both financial and management accounting purpose (provision for the details of responsibility accounting system)

Management Control System

guides the organizations in designing and implementing strategies such that the organizational goals and objectives

Primary Components of Management Control System

1. A detector or sensor

2. An assessor

3. An effector

4. A communications network