Decision Points

The following question-and-answer format summarizes the chapter’s learning objectives. Each decision presents a key question related to a learning objective. The guidelines are the answer to that question.

Decision

Guidelines

  1. How is financial accounting different from management accounting?

Financial accounting is used to develop reports for external users on past financial performance using GAAP. Management accounting is used to provide future-oriented information to help managers (internal users) make decisions and achieve an organization’s goals.

  1. How do management accountants support strategic decisions?

Management accountants contribute to strategic decisions by providing information about the sources of competitive advantage.

  1. How do companies add value, and what are the dimensions of performance that customers are expecting of companies?

Companies add value through R&D, design of products and processes, production, marketing, distribution, and customer service. Customers want companies to deliver performance through cost and efficiency, quality, timeliness, and innovation.

  1. How do managers make decisions to implement strategy?

Managers use a five-step decision-making process to implement strategy: (1) identify the problem and uncertainties; (2) obtain information; (3) make predictions about the future; (4) make decisions by choosing among alternatives; and (5) implement the decision, evaluate performance, and learn. The first four steps are planning decisions. They include deciding on an organization’s goals, predicting results under various alternative ways of achieving those goals, and deciding how to attain the desired goals. Step 5 is the control decision, which includes taking actions to implement the planning decisions, evaluating past performance, and providing feedback that will help future decision making.

  1. What guidelines do management accountants use?

Three guidelines that help management accountants increase their value to managers are (1) employing a cost–benefit approach, (2) recognizing behavioral as well as technical considerations, and (3) identifying different costs for different purposes.

  1. Where does the management accounting function fit into an organization’s structure?

Management accounting is an integral part of the controller’s function. In most organizations, the controller reports to the chief financial officer, who is a key member of the top management team.

  1. What are the ethical responsibilities of management accountants?

Management accountants have ethical responsibilities that relate to competence, confidentiality, integrity, and credibility.