Introduction to Managerial Accounting
Spring 1997

Instructor: Fred Sellers Office: MBH 332
Telephone: Ext. 1574 Hours: 2-3 p.m. MTWTh
or by appointment

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Text: Ray H. Garrison and Eric W. Noreen, Managerial Accounting, 8th ed

Course Objectives: To complete the survey of financial accounting begun in the first semester, to be followed by a survey of managerial and cost accounting. Topics will include the statement of cash flows, financial statement analysis, cost behavior patterns, manufacturing product costing, budgeting and profit planning.

Course Procedures: Classes will be conducted in a lecture-discussion format. Material will be
presented in lectures and problem assignments discussed in class as time permits. You
are encouraged to ask questions and make comments in class.

Reading Assignments: Each reading assignment should be completed by the date indicated on the
syllabus. You will find that the lectures are much more useful if you prepare for them.

Homework Assignments: Problems should be handed in on the class day assigned. Homework
due on the days before exams will be collected on the exam days. Late homework will not
be accepted, although a few free misses are allowed. Grappling with the homework is
vital to the learning process, and therefore it is a required part of the course. Your
homework grade will be determined by multiplying the percentage of total possible points
you complete by 50.

Grading procedures: Course grades will be determined on the following basis:

Hour Examinations (3 @ 100 points) 300
Homework   50
Final Examination (comprehensive) 150
Financial Statement Analysis Project 100
Total Possible Points 600


Letter grades for the course will be determined as follows:

582-600, A+ ; 553-581, A ; 540-552, A-
522-539, B+ ; 498-521, B ; 480-497, B-
462-479, C+ ; 438-461, C ; 420-437, C-
402-419, D+ ; 378-401, D ; 360-377, D-
0-359, F

Examination grades may be adjusted on a curve as needed. Homework grades will not be curved. Each problem or exercise will be graded on a scale of 0 to 10.

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Introduction to Managerial Accounting--Spring 1997

Text: Ray H. Garrison and Eric W. Noreen, Managerial Accounting, 8th ed

Date Topic Readings Homework
1/ 13 Orientation --- ---
1/ 15 Statement of Cash Flows Ch. 17 E17-1, 3
1/ 17 E17-2
1/ 20 --- No class --- ---
1/ 22 Financial Statement Analysis Ch. 18 Handout problem
1/ 24 E18-1, 2
1/ 27 E18-3, 4, 5
1/ 29 P18-10
1/ 31 -- FIRST EXAMINATION -- ---
2/ 3 Intro to Managerial Accounting Ch. 1 E1-1
2/ 5 P1-4, 7
2/ 7 Cost Concepts Ch. 2 P2-16
2/ 10 E2-3
2/ 12 P2-18
2/ 14 P2-21
2/ 17 Job-Order Costing Ch. 3 E3-1, 5
2/ 19 P3-18, 22
2/ 21 E3-2, 6
2/ 24 C3-28
2/ 26 -- SECOND EXAMINATION -- ---
2/ 28 JIT and Activity-Based Costing Ch. 5 E5-1
3/ 3 E5-3, 4
3/ 5 P5-11
3/ 7 Cost Behavior Analysis and Use Ch. 6 Projects due
--- SPRING BREAK ---
3/ 17 E6-1, 2
3/ 19 P6-14, 16
3/ 21 P6-13
3/ 24 Cost-Volume-Profit Analysis Ch. 7 P6-11
3/ 26 E7-1, 3, 4
3/ 28 --- No class --- ---
3/ 31 P7-10,16
4/ 2 P7-13
4/ 4 --THIRD EXAMINATION -- ---
4/ 7 Variable Costing Ch. 8 ---
4/ 9 E8-1, 2
4/ 11 P8-8
4/ 14 Profit Planning Ch. 9 P8-13
4/ 16 E9-1,2
4/ 18 Start P9-17
4/ 21 Finish P9-17
4/ 23 Standard Costing Ch. 10 C9-24
4/ 25 E10-1, 2
4/ 28 Flexible Budgeting Ch. 11 E10-9; P10-18
4/ 30 E11-2, 7
5/ 2 P11-20
5/ 8 --FINAL EXAMINATION-- 8:30 a.m.

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Accounting 36-123
Managerial Accounting I
Financial Analysis Project

Having studied the tools of financial statement analysis in chapter 18, you are now ready to begin working on your term papers comparing two companies on the basis of their annual reports.

Your papers should include (a) a section presenting the numbers derived from trend analysis, common-size statements and ratio analysis, and (b) a narrative section.

The Number Section

Trend analysis and common-size statements. Provide at a minimum a trend analysis of the income statement and common-size balance sheets. The results should be presented in complete form and typewritten, including the numbers from the financial statements along with the percentages derived from them. It is acceptable to combine major categories of numbers from the income statement and balance sheet to avoid unnecessary detail.

You will find that different companies present their financial data in different formats, and so sometime you will have to engage in some detective work. For example, depreciation expense sometimes is lumped in with other expenses. In those cases depreciation may be found in the cash flow statement or in the notes to the financial statements. POINT: The notes to the statements are an integral part of the annual report, and may provide clues to what is presented in the statements proper.

Ratio analysis. Your ratio computations should be presented on a separate page in neat, easy-to-read format. It is especially useful to present the two companies' ratios side-by-side on the same page for easy comparison. Please include numerator and denominator totals so your figures may be more easily spot-checked. List the DuPont ratios, the Return on Total Assets and the Return on Stockholders' Equity first.

There is no rigid format for presentation of your data. However it should be done professionally so as to be attractive and easy to read--what you might present to a client if you were working for a fee.

The Narrative Section

Once you have computed all your numbers you are ready for the interpretive part. Your assignment is to compare the two companies and make a recommendation as to which would be the better investment buy. This involves at least two steps: (1) Determine which is the stronger company, and (2) determine which is the better buy.

General description of the company. The annual report will contain commentary from management about the company. In addition, Value Line and other investment services can provide you with material. Describe the two companies and their markets in general. Be sure to provide references (footnotes) to identify your sources for factual material and opinions you include.

Assessing company strength. Use the numbers you have generated as the basis for this discussion. Begin with the profitability ratios (return on assets, return on equity and Du Pont). These ratios are the most important, for they measure overall profitability of the companies.

From that point forward you must use your instincts to find what distinguishes the companies from each other. It is not desirable to mention every ratio you have computed--some will be more useful than others, and some may not be useful at all. For example, if the DuPont numbers indicate a company has a low turnover, then the question becomes one of the relationship between activity level and asset level. Perhaps there has been a recent drop in sales, which would cause the numerator of the turnover ratio to decline. Perhaps the company simply has too many assets. Play detective to find the cause.

After examining the numbers, state which company is the stronger, and why.

Assessing market price. After determining the strengths and weaknesses of your companies you are not done yet. The company you like may not be a good buy because it could be overpriced. To determine this, look at the market ratios, especially the Price-Earnings ratio, but also at the dividend yield and, to a lesser extent, the payout ratio. A P-E ratio of 20 is equivalent to a rate of return of 5 percent (1 divided by 20); a P-E ratio of 10 is equivalent to a rate of return of 10 percent (1 divided by 10). A P-E of 20 is high, but is it too high? The answer depends on whether the company's earnings can be expected to grow. For a stable, non-growing company, a P-E ratio of 10 might be reasonable. For fast-growing companies investors may bid the price up to 20, 30 or even 40 times earnings. Be cautious about recommending a buy for such a company. Go ahead, though, if you really believe it has great growth potential.

Making your final recommendation. As the end of your paper, recommend which company to buy. Here you must integrate your analysis of company strength with your look at market ratios. Stick your neck out and make a clear recommendation.

In summary, here is your procedure:

1. Compute ratios and generate trend and common-size statements.
2. Provide a general description of your companies, using information from their annual
reports and from other sources such as Value Line.
3. Discuss the meaning of what you see in the numbers, especially the ratios measuring rate
of return, to determine the better company.
4. Look at the P-E ratios and other market ratios to determine which is the better buy.
Remember that this may not necessarily be the same company you liked in step 3.

Grading. Papers will be graded on the following basis:

Number section 40 points
General description of companies 20 points
Discussion/comparison/analysis 40 points
Total 100 points

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