Cost Accounting-Chap 1

CHAPTER 1

THE MANAGER AND MANAGEMENT ACCOUNTING

See the front matter of this Solutions Manual for suggestions regarding your choices of

assignment material for each chapter.

1-1

Management accounting measures, analyzes, and reports financial and nonfinancial

information that helps managers make decisions to fulfill the goals of an organization. It focuses

on internal reporting and is not restricted by generally accepted accounting principles (GAAP).

Financial accounting focuses on reporting to external parties such as investors,

government agencies, and banks. It measures and records business transactions and provides

financial statements that are based on generally accepted accounting principles (GAAP).

Other differences include (1) management accounting emphasizes the future (not the

past), and (2) management accounting influences the behavior of managers and other employees

(rather than primarily reporting economic events).

1-2

Financial accounting is constrained by generally accepted accounting principles.

Management accounting is not restricted to these principles. The result is that

• management accounting allows managers to charge interest on owners’ capital to help

judge a division’s performance, even though such a charge is not allowed under

GAAP,

• management accounting can include assets or liabilities (such as “brand names”

developed internally) not recognized under GAAP, and

• management accounting can use asset or liability measurement rules (such as present

values or resale prices) not permitted under GAAP.

1-3

Management accountants can help to formulate strategy by providing information about

the sources of competitive advantage—for example, the cost, productivity, or efficiency

advantage of their company relative to competitors or the premium prices a company can charge

relative to the costs of adding features that make its products or services distinctive.

1-4

The business functions in the value chain are

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