Horngren’s Cost Accounting: A Managerial
Emphasis
Seventeenth Edition
Chapter 1
The Manager and
Management Accounting
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Learning Objectives (1 of 2)
1.1 Distinguish financial accounting from management
accounting
1.2 Understand how management accountants help firms
make strategic decisions
1.3 Describe the set of business functions in the value chain
and identify the dimensions of performance that customers
are expecting of companies
1.4 Explain the five-step decision-making process and its
role in management accounting
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Learning Objectives (2 of 2)
1.5 Describe three guidelines management accountants
follow in supporting managers
1.6 Understand how management accounting fits into an
organization’s structure
1.7 Understand what professional ethics mean to
management accountants
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Accounting Discipline Overview (1 of 3)
• Management accounting measures, analyzes, and
reports financial and nonfinancial information that helps
managers make decisions to fulfill organizational goals.
Management accounting need not be GAAP compliant.
• Managers use management accounting information to:
– Develop, communicate, and implement strategies
– Coordinate product design, production, and marketing
decisions and evaluate a company’s performance
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Accounting Discipline Overview (2 of 3)
• Financial accounting focuses on reporting financial
information to external parties such as investors,
governmental agencies, banks, and suppliers, based on
GAAP.
• Cost Accounting measures, analyzes, and reports
financial and nonfinancial information related to the costs
of acquiring or using resources in an organization.
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Accounting Discipline Overview (3 of 3)
• Today, most accounting professionals take the perspective
that cost information is part of the information collected to
make management decisions; therefore, the distinction
between the two is not clear-cut, and in your book and
these PowerPoint presentations, we often use the terms
interchangeably.
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Major Differences Between Management
and Financial Accounting (1 of 2)
Exhibit 1.1 Major Difference Between Management and Financial Accounting
Management Accounting Financial Accounting
Blank
Purpose of Help managers make Communicate an organization’s
information decisions to fulfill an financial position to investors,
organization’s goals banks, regulators, and other outside
parties
Primary users Managers of the organization External users such as investors,
banks, regulators, and suppliers
Focus and Future-oriented (budget for Past-oriented (reports on 2019
emphasis 2020 prepared in 2019) performance prepared in 2020)
Rules of Internal measures and reports Financial statements must be
measurement and do not have to follow GAAP prepared in accordance with GAAP
reporting but are based on cost-benefit and be certified by external,
analyses independent auditors
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Major Differences Between Management
and Financial Accounting (2 of 2)
Exhibit 1.1 [Continued]
Management Accounting Financial Accounting
Blank
Time span and Varies from hourly information Annual and quarterly financial
type of reports to 15 to 20 years, with financial reports, primarily on the company
and nonfinancial reports on as a whole
products, departments,
territories, and strategies
Behavioral Designed to influence the Primarily reports economic events
implications behavior of managers and but also influences behavior
other employees because manager’s
compensation is often based on
reported financial results
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Strategic Decisions and the
Management Accountant (1 of 2)
• Strategy specifies how an organization matches its own
capabilities with the opportunities in the marketplace.
• There are two broad strategies: cost leadership and
product differentiation.
• Strategic cost management describes cost management
that specifically focuses on strategic issues.
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Strategic Decisions and the
Management Accountant (2 of 2)
Management accounting information helps managers formulate
strategy by answering questions such as the following:
• Who are our most important customers, and what critical
capability do we have to be competitive and deliver value to our
customers?
• What is the bargaining power of our customers?
• What is the bargaining power of our suppliers?
• What substitute products exist in the marketplace, and how do
they differ from our product in terms of features, price, cost, and
quality?
• Will adequate cash be available to fund the strategy, or will
additional funds need to be raised?
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Value-Chain and Supply-Chain Analysis
and Key Success Factors (1 of 2)
• Creating value is an important part of planning and
implementing strategy.
• Value is the usefulness a customer gains from a
company’s product or service. The entire customer
experience determines the value a customer derives from
a product.
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Value-Chain and Supply-Chain Analysis
and Key Success Factors (2 of 2)
• The value chain is the sequence of business functions by
which a product is made progressively more useful to
customers. The value chain consists of the following:
– Research and Development
– Design of Products and Processes
– Production
– Marketing (including Sales)
– Distribution
– Customer Service
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The Value Chain Illustrated
Exhibit 1.2 Different Parts of the Value Chain
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Customer Relationship Management (C R M)
• CRM is a strategy that integrates people and technology in
all business functions to deepen relationships with
customers, partners, and distributors.
• CRM initiatives the use of technology to coordinate all
customer-facing activities and design and production
activities necessary to get products to customers.
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Supply-Chain Analysis
• Production and Distribution are the parts of the value chain
associated with producing and delivering a product or
service.
• These two functions together are known as the Supply
Chain.
• The supply chain describes the flow of goods, services,
and information from the initial sources of materials,
services, and information to their delivery, regardless of
whether the activities occur in one organization or in
multiple organizations.
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Supply Chain Illustrated
Exhibit 1.3 Supply Chain for a Cola Bottling Company
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Key Success Factors
• Customers want companies to use the value chain and
supply chain to deliver ever-improving levels of
performance when it comes to several (or even all) of the
following:
– Cost and Efficiency
– Quality (Total quality management TQM)
– Time ( new product development time and customer-
response time)
– Innovation
– Sustainability
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Key Success Factors—Sustainability
The interest in sustainability appears to be intensifying
among companies for several reasons:
• Many investors care about sustainability.
• Companies are finding that sustainability goals attract and
inspire employees.
• Customers prefer the products of companies with good
sustainability records and boycott companies with poor
sustainability records.
• Society and activist nongovernmental organizations
monitor the sustainability performance of firms and take
legal action against those that violate environmental laws.
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Decision-Making, Planning, and
Control: The Five-Step Decision-
Making Process
1. Identify the problem/uncertainties.
2. Obtain information.
3. Make predictions about the future.
4. Make decisions by choosing among alternatives.
5. Implement the decision, evaluate performance, and
learn.
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Planning and Control Systems (1 of 2)
Planning consists of
1. selecting an organization’s goals and strategies,
2. predicting results under various alternative ways of
achieving those goals,
3. deciding how to attain the desired goals, and
4. communicating the goals and how to achieve them to the
entire organization.
Management accountants serve as business partners in
these planning activities because they understand the key
success factors and what creates value.
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Planning and Control Systems (2 of 2)
Control comprises
1. taking actions that implement the planning decisions,
2. evaluating past performance, and
3. providing feedback and learning to help future decision
making.
The most important planning tool when implementing
strategy is a budget. A budget is the quantitative expression
of a proposed plan of action by management and is an aid to
coordinating what needs to be done to execute that plan.
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Planning and Control Systems
Illustrated
Exhibit 1.5 How Accounting Aids Decision-Making at Daily News
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Management Accounting Guidelines
Three guidelines help management accountants provide
the most value to the strategic and operational decision-
making of their companies:
1. The cost-benefit approach compares the benefits of an
action/purchase to the costs. Generally, of course, the
benefits should exceed the costs.
2. Behavioral and technical considerations recognize,
among other things, that management is primarily a
human activity that should focus on encouraging
individuals to do their jobs better.
3. Managers use alternative ways to compare costs in
different decision-making situations because there are
different costs for different purposes.
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Line and Staff Relationships
Organizations distinguish between line management
and staff management.
• Line management is directly responsible for achieving the
goals of the organization.
• Staff management provides advice, support, and
assistance to line management.
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Organizational Structure and the
Management Accountant
Exhibit 1.6 Organizational Structure and the Management Accountant
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Management Accounting Beyond the Numbers
The successful management accountant possesses several
skills and characteristics that reach well beyond basic
analytical abilities. For example, management accountants
must do the following:
1. Work well in cross-functional teams and as a business
partner
2. Promote fact-based analysis and make tough-minded,
critical judgments without being adversarial
3. Lead and motivate people to change and be innovative
4. Communicate clearly, openly, and candidly
5. Have high integrity
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Professional Ethics
The Institute of Management Accountants (IMA) has
advanced four standards of ethical conduct for management
accountants:
• Competence
• Confidentiality
• Integrity
• Credibility
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Sarbanes-Oxley Act (SOX)
The Sarbanes-Oxley legislation was passed in 2002 in
response to a series of corporate scandals. The act focuses
on improving the following:
• Internal controls
• Corporate governance
• Monitoring of managers
• Disclosure practices of public companies
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Terms to Learn (1 of 2)
Budget Design of products and processes
Chief financial officer Distribution
Control Finance director
Controller Financial accounting
Cost accounting Learning
Cost-benefit approach Line management
Cost management Management accounting
Customer relationship Marketing
management (CRM)
Planning
Customer service
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Terms to Learn (2 of 2)
Production
Research and development (R&D)
Staff management
Strategic cost management
Strategy
Supply chain
Sustainability
Total quality management (TQM)
Value chain
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