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I'm Larry Walther and
this is principlesofaccounting.com chapter 17.
In this module, we'll consider the managerial accountant's role
in the task of planning, directing, and controlling.
It's very important to see that managing goes beyond simply dealing with
problems at hand.
Good management needs vision,
needs to provide leadership, have the ability to procure and
mobilize resources, and a tolerance for change and challenges that arise.
If you consider this graphic,
notice that it's intended to indicate that management decisions drive business value.
Management decisions relate to planning the business activity,
directing the business activity, and controlling the business.
All three of those dimensions are supported,
in fact define managerial accounting functions.
Let's first focus on the planning dimension.
Planning is simply deciding on a course of action to reach a desired outcome.
It's the blueprint, it's the roadmap.
Planning can occur at all levels.
If we look at the next graphic, we'll see three major focuses.
One is setting strategy for
the organization, another is trying to position the business to be successful,
and the third is a financial component which I've called budgets.
Let's first think about the strategy dimension.
Strategy can take many forms, but
I wanna focus on setting the core values, and then setting the mission.
First of all, I want you to think about core values and how important they are.
They involve the concept of ethics, employment and compensation,
quality, customer service, environmental awareness, and many other dimensions.
A lack of understanding of these important dimensions often leads to
short term profit centric behavior.
The results of which can be disastrous to the long term viability of the business.
The Institute of Management Accountants is a professional organization
that supports the Managerial accounting profession.
And so important is an understanding of core values that they've established
ethical principles that they expect their members to adhere to.
Another dimension to strategy is establishing an organization's mission.
That is, definition of purpose and direction for the entity.
Moving on to consideration of positioning the organization, and
how the managerial accountant might be involved in that.
Recognize that this is often a data-intensive process,
gathering an evaluating a host of information.
When one thinks about how the managerial account is involved in
positioning the organization, they'll often perform Cost/Volume/Profit Analysis
in evaluations of business scalability.
They'll often look at Global Trade and Transfer issues.
They'll often look at branding, pricing issues and sensitivity to pricing and
evaluation of competitive forces that exist.
Each of these will be examined in subsequent chapters in the book.
The third dimension to planning involves budgeting or the financial component.
Budgets can take many forms.
The operating budget reveals expected revenues and expenses.
Capital expenditures take a longer term focus, for
example, the acquisition of new plants or equipment.
The financial budget looks at expected cash needs of the organization.
All three of these types of budgets will be considered in future chapters.
Let's move on to the second major dimension of managing a business,
that is directing the operations.
Here, the accountant is heavily involved in three key dimensions.
Costing activities, production activities, and analysis.
We're going to be looking at all of this very closely throughout the course but for
the moment, let me give some definitions.
Cost accounting is the collection, assignment and
interpretation of cost, it's a component of the managerial accounting function.
The costing function is perhaps more involved than you would initially
anticipate.
First of all, there are a variety of costing methods.
Job order costing, or job costing.
Process costing, activity based costing,
all three of these will be considered further in the book.
And there are two major concepts of costing, absorbtion costing and
direct costing, both of which will be examined very closely.
Another dimension to the directing activities of a business relates to
production.
Sometimes it can be said that one is trying to run a lean business,
where costs are minimized, efficiency is maximized, and we have standardized,
high-quality output, and customer satisfaction dimensions.
To achieve these goals, production can involve inventory management issues and
responsibility accounting.
We will look in the book at just in time inventory, economic order quantities,
service department cost allocation, and other quality components.
The third component to directing a business relates to analysis,
where we provide calculations and models to support the decision making function.
Again, the managerial account is involved in tasks related to this,
you've heard of outsourcing.
We'll want to be able to examine the decision making process related to whether
we produce internally or contract with someone else to deliver some component.
We'll want to look at contribution margin analysis to determine whether a particular
segment should be continued or not and whether we accept a special order or not.
Let's move on to the third dimension, planning, directing, finally controlling.
Controlling can take on a number of dimensions, monitoring an organization.
We'll see in subsequent chapters how we use standard cost, variance analysis, and
flexible tools to monitor what's going on within an organization.
We'll also consider the accountant's role in certifying and determining or
maintaining the reliability of the recording process.
And finally we'll look at a scorecard approach where we look at
many dimensions besides financial measures that we're going to consider a balance
scorecard approach as well as opportunities for continuous improvement.
To conclude, hopefully, this module has provided some insight into the vast
range of activities that the managerial accounting function involves and
its unique characteristics relative to financial accounting,
which you studied in the previous course.
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