managerial accounting 17th edition

managerial accounting 17th edition

The Evolution and Importance of Managerial Accounting: A Comprehensive Analysis of the 17th Edition

1. Introduction to Managerial Accounting

Before management accounting, today’s managerial accounting was a special part of the total accounting system established to support production management. The early industrial revolution caused a change to labor and resource organization that increased the need for more detailed cost accounting, which became known as factory or management accounting. Management accounting has since evolved in both scope, support technology, and enabling systems to support non-manufacturing functions. Managerial accounting is defined distinctly in this text with a similar yet broader scope that includes many of the activities of management accounting as described by the above writers. Since the purpose of this text is to support the needs of a variety of users including operations managers and employees, cost management has been added as an important activity of managerial breeding.

In 1985, Harvard Business School Professor Robert S. Kaplan and the late James Brimson first introduced the evolving role of managerial accounting in practice and suggested that little had been substantially new in management accounting over the previous 60 years except for the development of a handful of new costing methods. In 1987, Johnson and Kaplan in another Harvard Business Review article further popularized the movement to redefine management accounting and broaden the scope. In 1991, Brimson and Bisgan independently addressed the increased application of management accounting outside of the factory necessary to support the principles of just-in-time or lean manufacturing throughout the supply chain from suppliers to customers. In 1993, a new textbook was published with an expanded view of cost management and engineered cost management by introducing activity-based cost management concepts.

2. Key Concepts and Techniques in Managerial Accounting

The remainder of this chapter discusses a number of responsibilities and techniques in the new managerial accounting paradigm. We examine the roles of managing in general, comparing and contrasting leadership with the four traditional management functions: planning, organizing, directing, and controlling. The heart of the manager’s decision-making activities is spelled out, including the purpose of decision making, different types of decisions, a categorization of organizational decisions, and the decision process. We then discuss the essence of managerial accounting, describing how managers use accounting information in general, the organizational differences between financial and managerial accounting, and the characteristics of managerial accounting information. But there are a number of simple decision thumb rules that frequently will be helpful, particularly in class discussions and short-cut analyses. They are presented throughout the chapter and in an allocational decision summary and identified specifically.

Over the years, we have come to realize that different terms and concepts in the traditional managerial accounting syllabus assume a different meaning and scope than they do at a more advanced level. In this part, we will make an attempt at cataloging these concepts. This chapter reviews and provides the technical background for the book. The remainder of this book emphasizes learning how to make sensible managerial decisions and to act on them—primarily through discussion, examples, and case analyses. At the same time, we include discussions of measurement, computation, and control. These discussions are organized around the managerial decision-making framework presaged above and refined in Chapter 2—the information decision system. Our many years of both teaching managerial accounting and management decision making give us confidence that this approach and the substantial reorganization of traditional syllabuses is a meaningful and very positive development.

3. Managerial Accounting in Decision Making

Textbook authors, academic researchers, and practitioners all suggest that managerial application has become increasingly important in today’s decision-making process. Whether in profit-oriented or non-profit organizations, most responsibilities vested in managers are financial decisions to control and allocate resources. The purpose of any decision can be viewed as improving some areas of the firm’s overall business. A firm’s overall business is measured in business terms, such as revenue and costs. The link between business activities and the measures of overall business objectives is based on the accounting system which, in turn, provides managers with significant decision-making information. Therefore, when making business decisions, it is firmly argued that accounting helps managers in achieving business objectives. It is fundamental, as it is the starting and endpoint of every decision-making process. The main purpose of accounting in decision-making is to help management in solving business problems. Managerial accounting has a vital role in achieving this fundamental purpose.

Managers use accounting information in numerous decision-making situations. Regardless of the type of decision, managers are responsible for controlling the activities of the business to ensure that plans are carried out and appropriate actions are taken when required. Decision-making situations arise in numerous business activities such as determining the prices that will maximize the long-run profit of the firm, establishing levels of production that will use resources efficiently, combining resources in methods that produce the goods and services for which there is enough demand, coordinating efforts of numerous individuals in the performance of repetitive activities and setting goals that groups of subordinates will strive to achieve. In each of these activities, managers obtain relevant accounting information and then adapt this information to the specific decision requirements in a form that will accomplish the objective.

4. Strategic Cost Management and Performance Evaluation

The article states that the discovery of strategic management accounting occurred 25 years ago. (T/F) Activity-based management (ABM) is a tool used to support decisions based on information that is obtained from activity-based costing. (T/F) Concentrating costs in the value chain can result in improved strategic cost management. (T/F) Concentrating costs in the strategy chain can result in improved strategic cost management. (T/F)

Activity-Based Management (Relative Difficulty: Easy) 19. The stages of activity-based management include: (1) Identify opportunities (2) Design and implement changes (3) Assess the cost/benefit of changes (4) Identify changes. The value chain is composed of: (1) Primary and support activities (2) Raw materials and goods (3) Inputs and outputs (4) Sales and overhead costs. Organizations move through four stages in the management cycle. In one of these stages, the inputs and outputs relationships are examined for ways to optimize the use of inputs. This stage is called: (1) Value driver analysis (2) Strategic reviews (3) Financial analysis (4) Key management processes Strategy maps: (1) Help focus an organization on the key value creation activities with associated measures for assessing and driving performance (2) Are useful for visual learners to explain the balanced scorecard measures that help implement strategy (3) Are appropriate when implemented in conjunction with effective teamwork and budgets (4) Have been proven by research to be the primary driver allowing organizations to survive

Summary of Questions by Learning Objectives

Learning Objectives: Discuss the three stages of activity-based management. Explain a value chain and state its relation to cost drivers and cost management. Distinguish between the four stages of the management cycle. Discuss strategy maps as a tool for focusing attention on value creation.

5. Emerging Trends and Technologies in Managerial Accounting

Chapter highlights. Managerial accounting innovations and trends. Chapter 17 looks at managerial accounting from the viewpoint of the management process and the information that helps drive that process. The primary purpose of managerial accounting is to generate information to make decisions that help a company achieve its goal of wealth creation. The chapter consists of several sections. First, changing workplace characteristics are presented. Management information systems began in the 1980s to fulfill a support function for managerial accountants, providing more efficient methods to support traditional decision problems and to investigate emerging managerial accounting practices. Yet, little recent thought seems to have been applied to the link between practice, organizational goals, and changing environmental conditions. Many of the particular management accounting functions that had been relatively stable in the past have recently changed significantly; for example, the type of strategic management control provided by performance evaluation reports like budgeted income statements and other unit-level performance reports lacks current relevance. The future is different. Based on the trends analysis, a path for future management accounting can be viewed. To stay relevant to the managerial accounting goal of achieving company wealth, significant changes will be required, and they will either replace or significantly modify most of the current management accounting functions.

In summary, dramatic changes in managerial accounting practices have occurred. Technology is now interfacing with managerial accounting through various aspects of e-business. Companies are now placing less reliance on physical and labor inputs and more reliance on knowledge-based inputs to generate wealth. This development emphasizes the evolutionary stages of societies. Other information technologies provide support for these new wealth drivers. For example, enterprise resource planning systems continue to provide effective support for companies that acquire or produce products and services, while supply chain management systems effectively support procurement, manufacturing, and delivery. Companies need to harness the power of such technologies to link strategy, assets, resource usage, and wealth.