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CHAPTER 1: THE MANAGER AND MANAGEMENT ACCOUNTING

Document Type

: Book Summary

Source

: Cost Accounting: A Managerial Emphasis 15th Edition by Charles T
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Datar, and Madhav V
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Purpose of Information:
 Management accounting helps managers making decisions to fulfill the
organization goals; while
 Financial accounting communicates the organization’s financial position to
external parties
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Primary Users:
 Management accounting report is primarily used by managers of the organization;
while
 Financial accounting report is primarily used by external parties
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Focus and Emphasis:
 Management accounting is future-oriented; while
 Financial accounting is past-oriented
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Rules of Measurement and Reporting:
 Management accounting reporting follows internal measures and rules, and is
based on cost-benefit analysis; while
 Financial accounting reporting is based on standard rules and certified by external
auditors
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Time Span and Type of Reports:
 Management accounting reporting has various time span, from hourly to 15 to 20
years information, with various types of information (i
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financial and nonfinancial information on products, departments, territories, and strategies), while
 Financial accounting reporting has time span of annual and quarterly, with
information primarily focusing on the company as a whole
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Behavioral Implications:
 Management accounting influences managers’ and other employees’ behavior;
while
 Financial accounting primarily reports economic events, but also influences
behavior because manager’s compensation is often based on reported financial
results
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Learning Objective 3

: Describe the Set of Business Functions in the Value Chain
and Identify the Dimensions of Performance that Customers
are Expecting of Companies

There are 6 primary business functions in the value chain, as follows:
 Research and development - generating and experimenting with ideas related to new
products, services, or processes;
 Design of products and processes - detailed planning, engineering, and testing of
products and processes;
 Production - procuring, transporting, and storing (“inbound logistics”) and
coordinating and assembling (“operations”) resources to produce a product or deliver
a service;
 Marketing (including sales) - promoting and selling products or services to
(prospective) customers;
 Distribution - processing orders and shipping products or services to customers
(“outbound logistics”); and
 Customer service - providing after-sales service to customers
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Learning Objective 4

: Explain the Five-Step Decision Making Process and its Role
in Management Accounting

The five-step decision making process is as follows:
1
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Obtain information - gathering information before making a decision helps managers
gain a better understanding of uncertainties;

3
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Make decisions by choosing among alternatives, with company strategy as the vital
guidepost in the decision making process; and
5
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Steps 1 through 4 are collectively referred to as planning
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While, in step 5, management accountants aid by recording transactions and

classifying them in accounting records (during the decision implementation process),
and preparing performance reports (during the performance evaluation and learning
process), which allow managers to evaluate past performance (by comparing actual and
planned performance), and to provide feedback and learn to help future decision making
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Employing a cost-benefit approach when making resource-allocation decisions
(choose decisions whose expected benefits exceed the expected costs);

2
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Use different costs for different purposes
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Learning Objective 7

: Understand What Professional Ethics Mean to Management
Accountants

Management accountants have special ethical obligations, given that they are
responsible for the integrity of the financial information provided to internal parties

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