Summary Management Accounting IBA 2

Management Accounting
(1) Chapter 1
Management accounting measures and reports financial and non-financial information that helps
managers in making decisions to fulfil the goals of an organization.
Cost accounting measures and reports financial and non-financial data that relates to the cost of
acquiring or consuming resources by an organization.
- Cost management: short- and long-term planning & control of costs, aiming at cost
reduction.
o Part of company’s strategies.

History of management accounting:
- Around 1850: Industrial companies grew fast (a.o. railroad managers implemented large and
complex costing systems; Textile mill owners kept detailed records of costs to direct
efficiency improvement activities and to provide a basis for product pricing).
- KAPLAN (1984): change in complexity  need for management accounting information

How the role of strategy and competition came to be:
- Competition pressure
- Complex business environment
- Complex information environment
- Complex markets
- Quickly changing markets
- Limited resources
- Riskier strategies
- Necessity to make quick decisions
- Shorten response time
- Exposure to “too much” information
- Focus on growth above expectation  Stock price
 You need processable timely information: Management Accounting

Management accounting:
- How do we evaluate our people so that they keep focused to our customers?
- What is the best price to introduce the new Yaris?
- How do we control business units so that they act in the interest of the firm and create
value?
- Costing: do we operate the Menza or do we use a third party (Albron) to do it for us?

How does Management Accounting differ from Financial Accounting?
Financial Management
Accounting Accounting
Audience External Internal decision
stakeholders maker
Purpose Public (general) Internal information
figures & reports
Legal Standards (IFRS), None
requirements GAAP
Content Aggregated Very Detailed
Time period Historical data Historical + Future
oriented

, Type of info Financial Financial and non-financial
Recording/disclosures Decision making; control &
planning

How does the purpose of Management Accounting differ from that of Financial Accounting?




How does the focus of Management Accounting differ from that of Financial Accounting?
Management accounting




Management accounting

, EVA = Operating profit – Cost of capital * Capital employed




GE: “Yank-and-rank”: Continuous training & coaching.
Cargill: Lack motivation & decrease performance is taken care of by “Everyday Performance
Management” & on-the-job conversation.
Adobe: Highest voluntary employee turnover; regular feedback and check-ins make sense.
Accenture: Annual review in order to chart the ongoing performance.
Google: Individual goal-setting & objectives-key results (OKR).
 “Traditional” MA may have its drawbacks, so there is need for more inclusive approach: SMA
o Might look up these cases (on Google), very interesting!

What are the deficiencies of MA?
(Traditional) Management Accounting:
- Past-oriented: Focus on analyzing past performance.
- Internally focused: Focus on cost reduction vs. customer satisfaction; cost control at the
expense of growth.
- Planning & control at operational level: Weak link with strategies.
Strategic Management Accounting (SMA):
- Future-oriented
- External environment
- Non-financial information
- Long-term horizon
 Tools of SMA
o Competitor analysis
o Strategic cost management

, o Strategic investment appraisal
o Integrating SMA & Marketing, SMA & Innovation
 How does your role change?




o Multifunctioning
o Managers and customers




Emerging themes in SMA:
- Big data
- Environmental MA (e.g. Green Chip Stocks)
- Knowledge management

(2) Chapter 2
Cost: Resource sacrificed to achieve a given objective, usually expressed in monetary terms.
- Relevance of cost information to decision making & planning (pricing, profit, organizational
efficiency, etc.)  Different product costs for different purposes.
 Cost object: Item for which cost information is needed (this could be ANYTHING).
o Activity/process; product (outcome of process)/cost of various product lines;
departments/strategic business units/supporting units; customer profitability;
others.