Study: What are managers and what information do managers use to make business decisions?
|
Study the (8m:20s) video for this topic provided below:
|
Alternative Topic Formats: Audio File MP3 Download MP3 Transcript Files Transcript MS Word
Download Transcript MS Word, Transcript PDF
Download Transcript PDF |
Take the topic quiz, by clicking here or clicking the "Next" button at the bottom right of this page.
Score at least 4 out of 5 on the quiz before moving on. If you do not score at least 4 out of 5 on the quiz, restudy the material and try again.
I will keep your highest score.
The videos, images and transcripts below provide the same content as provided in Step #1 above. It has simply been broken down into smaller, bite-sized pieces for easier access and review.
Slide 1 (:11s)
Links to an external site.
Welcome to Introduction to Accounting Preparing for a User’s Perspective
What are managers and what information do managers use to make business decisions?
Slide 2 (:15s)
Links to an external site. What are managers?
Very simply put a manager is someone who leads and guides others to achieve an organization’s objectives. Naturally, different managers will use different management styles.
Slide 3 (:10s)
Links to an external site.Mothers and fathers could be seen as being managers of their homes and families in trying to achieve their families’ objectives.
Slide 4 (:11s)
Links to an external site. A McDonald’s shift supervisor could be classified as a manager because s/he manages the shift workers in providing food services to customers.
Slide 5 (:30s)
Links to an external site. A Chief Executive Officer
Links to an external site. (CEO) of a large corporation
Links to an external site.could be classified as a manager because he/she is responsible for managing all employees and resources of the corporation in achieving the corporation’s objectives. Naturally, a CEO will delegate many managerial duties to other managers within the organization, so the CEO really acts like the top manager of many other managers.
Slide 6 (:18s)
Links to an external site.What type of information do managers use to make business decisions?
For this course, I have defined the term “manager” very broadly to ensure that you realize that the information needs of managers are also very broad.
Slide 7 (:18s)
Links to an external site.Accountants and other members of an organization play a key role in identifying, capturing, analyzing, summarizing, and providing reports to support managerial decisions.
Slide 8 (:15s)
Links to an external site. When accountants and others prepare and provide reports and related information to managers to help them make managerial decisions for the company, such information is called “managerial accounting”.
Slide 9 (:38s)
Links to an external site.Managerial accounting is not the same as financial accounting.
Managerial accounting
Links to an external site. focuses on preparing internal reports to help internal decision makers (i.e. managers) make decisions for the company. On the other hand, financial accounting
Links to an external site. requires management to oversee the preparing and providing of external reports to be used by external decision makers, such as creditors and investors, to make financing decisions about the company.
Slide 10 (:25s)
Links to an external site.Although it is true that managers can and do use the general-purpose financial statements
Links to an external site. to help them understand a company's profitability, resources, sources of financing those resources and their cash flows, general-purpose financial statements provide insufficient detail to help management make the necessary decisions to actually run the business.
Slide 11 (:15s)
Links to an external site. Therefore, when management really needs to understand a company and make specific recommendations for its improvement, it will request and utilize more detailed managerial accounting reports.
Slide 12 (:35s)
Links to an external site.The basic rule-of-thumb is that if the benefit of developing a given managerial accounting report exceeds its cost, management will seriously consider developing and using it. However, because management often has many reports and projects whose benefits exceed their costs and only has limited resources to develop them, management will employ additional analytical tools and computations, such as the internal rate of return
Links to an external site., to decide which of the many reports will be approved for development and use.
Slide 13 (:42s)
Links to an external site.For example, let’s assume that the managers of a toy car manufacturer wanted to know whether it was paying more or less than expected to produce a given toy car. Management may have planned to spend $4 per unit for direct materials (such as wood and nails), $2 per unit for direct labor (such as paying the jigsaw operator who cuts out the car), and maybe $1 for manufacturing overhead
Links to an external site.costs (such as depreciation
Links to an external site.on the factory and a small dab of oil for the car’s axle). In total, management plans to produce each toy car at a standard cost of $7 per unit.
Slide 14 (:43s)
Links to an external site. After a production run, management could then request a cost variance analysis broken out by direct materials, direct labor and manufacturing overhead to determine how much it ACTUALLY spent to produce the cars, If on the cost variance report management discovered that it spent $4 for direct materials, $5 for direct labor and $1 for manufacturing overhead, it would show a $3 unfavorable direct labor variance because it spent $3 more per unit for direct labor than it had planned.
Slide 15 (1m:57s)
Links to an external site.In order to be more helpful to management, this unfavorable direct labor variance of $3 would be broken down into further detail to see whether the unfavorable variance
Links to an external site.was caused by overpaying the workers on an hourly basis (rate variance), or by the workers using too much time to produce each unit (efficiency variance), or a combination of unfavorable and favorable variances that simply net to ($3) as in the example provided. Once management determines what type of variance(s) occurred, it will then dig deeper to determine the causes of both the unfavorable and the favorable variances, and if the cause needs to be fixed, they will develop a plan to fix it. Some likely causes of an unfavorable rate variance could be 1) a tight labor market which drove up hourly rates 2) poor hiring procedures resulting in the hiring and paying for overqualified workers 3) incorrect data entry of the workers’ hourly rates, etc. Some likely causes of favorable efficiency variances could be 1) quick workers 2) or workers who skip steps in the production process, etc. Watch out, if the company has favorable efficiency variances because production steps were skipped, there will likely be unfavorable materials variances due to improperly finished products needing to be thrown away or reworked. At any rate, management uses cost variance analysis reports to help it improve a company’s operations and thereby assist it in achieving the company’s objectives. Please don’t worry if you don’t know how to create and analyze a variance analysis report at this time, I simply used this report as one example of the many managerial accounting reports that exist.
Slide 16 (:21s)
Links to an external site.Over the years, certain managerial accounting reports, such as cost-variance reports, cost volume profit analysis and make or buy analysis, have gained a large following within the business world simply because managers have found them to be useful in managing businesses.
Slide 17 (:26s)
Links to an external site. Although many different businesses around the world use managerial accounting reports that look similar to each other, no official standard-setter, such as the Financial Accounting Standards Board
Links to an external site. (FASB), and no official regulator, such as the Securities And Exchange Commission
Links to an external site.(SEC), requires that they be used and certainly do not specify their format.
Slide 18 (:11s)
Links to an external site.If a company’s managers determine that a report no longer justifies its cost, it should stop preparing and using it.
Slide 19 (:31s)
Links to an external site.Based on the needs of management, as well as the creativity and assistance of accountants
Links to an external site., new managerial accounting reports are being created all the time. Therefore, for this course, we will only be able to study a few of the more commonly-used managerial accounting reports. They are included in this course to give you a taste of what managerial accounting is, and to show you how managers use them to make necessary business decisions for the company.