Accounting, 6e Will - (Download link at the end of this File) Chapter 1

Management Accounting, 6e Will Seal, Carsten Rohde, Ray Garrison, Eric Noreen (Solutions Manual All Chapters)

(Download link at the end of this File) 1 / 4

Chapter 1 Management Accounting and the Business Environment 1-1 Management accounting is concerned with providing information to managers for their use internally in the organisation. Financial accounting is concerned with providing information to stockholders, creditors, and others outside of the organisation.1-2 Essentially, the manager carries out three major activities in an organisation: planning, directing and motivating, and controlling. All three activities involve decision making.1-3 The Planning and Control Cycle involves the following steps: formulating plans, implementing plans, measuring performance, and evaluating differences between planned and actual performance.1-4 The manager relies on feedback to assure that activities are under control; that is, to assure that things are going according to plan.1-5 A line position is one that is directly related to the achievement of the basic objectives of the organisation. A staff position is not directly related to the achievement of those objectives; rather, it is supportive in nature, providing services and assistance to other parts of the organisation.1-6 In contrast to financial accounting, management accounting: (1) focuses on the needs of the manager; (2) places more emphasis on the future; (3) emphasises relevance and flexibility, rather than precision; (4) emphasises the segments of an organisation; (5) is not governed by UK GAAP; and (6) is not mandatory.

1-7 Companies use budgets to translate plans into formal quantitative terms. Budgets are used for various purposes, such as forcing managers to plan ahead, allocating resources across departments, coordinating activities across departments, establishing goals that motivate people, and evaluating and rewarding employees. These various purposes often conflict with one another, which makes budgeting one of management’s most challenging activities.1-8 The introduction of new technology, globalisation and deregulation has a huge impact on management accounting practices. In response to these changes, new management accounting techniques like, JIT, TQM and process re-engineering etc. can enhance quality, reduce cost, increase output, eliminate delays in responding to customers and ultimately increase profits.1-9 In comparison with traditional manufacturing, where the product is easy to see and touch, products in service industries are less tangible. Services cannot be stored in inventory so that managers in service industries may be less interested in product cost but, rather, which customers are profitable and which customers are not.

Managers of service companies require accurate and timely information from management accounting systems. They need this for improving the quality, timeliness, and efficiency of the activities they perform and to make decisions about their individual products, services, and customers. 2 / 4

1-10 First, there is a compliance motive – companies may find that they are forced through regulation and green taxes to manage environmental resources more carefully. Second, eco- efficiency not only may save the planet but reduce the business costs. Finally, there may be strategic reasons – companies may have customers who demand green business policies and who are increasingly suspicious of ‘environmental window dressing’ through environmental reporting.1-11 If ethical standards were not generally adhered to, there would be undesirable consequences for everyone. Essentially, abandoning ethical standards would lead to a lower standard of living with lower quality goods and services, less to choose from, and higher prices.In short, following ethical rules is not just a matter of being ‘nice’; it is absolutely essential for the smooth functioning of an advanced market economy.

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Exercise 1-1 (10 minutes)

• Line
• Directing and motivating
• Budgets
• Planning
• Staff
• Decentralisation
• Precision; Nonmonetary data
• Management accounting; Financial accounting
• Feedback
• Chief Accountant
• Performance report
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