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Managerial Accounting &the Business Environment

Chapter 1

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Managerial Accounting and

Financial Accounting

ManagerialManagerialaccounting

provides information

for managers insideinside an

organization whodirect and control

its operations.

FinancialFinancialaccounting

provides information

to stockholders,

creditors and otherswho are outsideoutside

the organization.

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Work of Management

Planning

Planning

Controlling

Controlling

Directing and

Motivating

Directing and

Motivating

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Planning and Control Cycle

Decision

Making

Formulating long-

and short-term plans

(Planning)

Formulating long-

and short-term plans

(Planning)

Measuring

performance

(Controlling)

Measuring

performance

(Controlling)

Implementing

plans (Directing

and Motivating)

Implementing

plans (Directing

and Motivating)

Comparing actual

to planned

performance

(Controlling)

Comparing actual

to planned

performance

(Controlling)

Begin

Exh.

1-1

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Differences Between Financial

and Managerial Accounting

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C o r p o r a t e O r g a n i z

P u r c h a

P e r s o

V i c e P r

O p e r a

T r e a

C o n t

C h i e f F

O f f i c e

P r e s i d

B o a r d o f

Organizational Structure

Decentralization is the delegation of decision-making

authority throughout an organization.

Decentralization is the delegation of decision-makingauthority throughout an organization.

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Line and Staff Relationships

Line position are directlyrelated to achievement ofthe basic objectives of anorganization.

Example: Productionsupervisors in amanufacturing plant.

Staff positions support andassist line positions.

Example: Costaccountants in the

manufacturing plant.

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Growth of the internet

Just-in-Time production

Total Quality

Management

International competition

Growth of the internet

Just-in-Time production

Total QualityManagement

International competition

Business environmentchanges in the past

twenty years

The Changing Business

Environment

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The Changing Business

Environment

Just-In-Time

Total QualityManagement

Process Reengineering

Theory of Constraints

New tools for

managers!

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Complete products

just in time to

ship customers.

Complete products

just in time to

ship customers.

Complete parts

just in time for

assembly into products.

Complete parts

just in time for

assembly into products.

Schedule

production.

Schedule

production.

Receive materials

just in time for

production.

Receive materials

just in time for

production.

Receive

customer

orders.

Receive

customer

orders.

Just-in-Time (JIT) Systems

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FlexibleworkforceFlexible

workforceReduced

setup timeReduced

setup time

Zero production

defects

Zero production

defects

JIT Consequences

Improved

plant layout

Improved

plant layout

JIT purchasing

Fewer, but more ultra reliable suppliers.

Frequent JIT deliveries in small lots.

Defect-free supplier deliveries.

JIT purchasingFewer, but more ultra reliable suppliers.

Frequent JIT deliveries in small lots.

Defect-free supplier deliveries.

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More rapid

response to

customer orders

More rapidresponse to

customer orders

Freed-up fundsFreed-up fundsReduced

inventory

costs

Reduced

inventory

costs

Greatercustomer

satisfaction

Greatercustomer

satisfactionHigher quality

products

Benefits of a JIT System

Increased

throughput

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Do we needto changethe plan?

Where are we?

Where do we want to go?

How dowe start?

How are we doing?

Check

Plan

Act Dois

Total Quality Management

Benchmarking

Continuous

Improvement

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Process Reengineering

The process is

redesigned to include

only those steps that make

our product more valuable.

The process isredesigned to include

only those steps that make

our product more valuable.

Every step in

the business

process must

be justified.

Every step inthe business

process must

be justified.

A business process

is diagrammed

in detail.

A business process

is diagrammed

in detail.

Anticipated results:Anticipated results:

Process is simplified.

Process is completedin less time.

Costs are reduced.

Opportunities forerrors are reduced.

Anticipated results:Anticipated results:

Process is simplified.

Process is completedin less time.

Costs are reduced.

Opportunities forerrors are reduced.

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A sequential process ofidentifying and removing constraintsin a system.

Restrictions or barriers that impede

progress toward an objective

Restrictions or barriers that impede

progress toward an objective

Theory of Constraints

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4. Coordinate

processes

4. Coordinate

processes

1. Measure

process

capacity

1. Measure

process

capacity

2. Identify

process

constraints

2. Identify

process

constraints

3. Use

bottlenecks

effectively.

3. Use

bottlenecks

effectively.

Only actions

that strengthen

the weakest link

in the chain

improve the

process.

Theory of Constraints

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Theory of Constraints

Process

Capacity

Process

Capacity

A measure of a

processs ability

to transform

resources into

value products

and services.

A measure of a

processs abilityto transform

resources into

value products

and services.

System

Constraint

System

Constraint

The point in a

system that

limits the overall

output of the

system. Often

called the

bottleneck.

The point in a

system that

limits the overall

output of thesystem. Often

called the

bottleneck.

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International Competition

Meeting world-class competition demands a

world-class management accounting system.

Managers must make decisions to plan,direct, and control a world-class organization.

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E-Commerce

During 2001, many dot.combusinesses failed that might havebenefited from the application of

managerial accounting tools:

cost concepts (Chap. 2) cost estimation (Chap. 5) cost-volume-profit (Chap. 6) activity-based costing (Chap. 8)

budgeting (Chap. 9) decision-making (Chap. 13) capital budgeting (Chap. 14)

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Importance of Ethics

in Accounting

Ethical accounting practices build trust and

promote loyal, productive relationships with

users of accounting information.

Many companies and professionalorganizations, such as the Institute

of Management Accountants (IMA),

have written codes of ethics which

serve as guides for employees.Code of Conduct for Management

Accountants

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IMA Code of Ethics for

Management Accountants

Four broad areas ofresponsibility:Maintain a high level ofprofessional competence

treat sensitive matters withconfidentiality

Maintain personal integrity

Be objective in alldisclosures

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CompetenceCompetence

IMA Code of Ethics for

Management Accountants

Follow applicable laws,

regulations and

standards.

Follow applicable laws,

regulations and

standards.

Maintain

professional

competence.

Maintain

professional

competence.

Prepare complete and clear

reports after appropriate

analysis.

Prepare complete and clear

reports after appropriate

analysis.

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ConfidentialityConfidentiality

IMA Code of Ethics for

Management Accountants

Do not disclose confidential

information unless legally

obligated to do so.

Do not disclose confidential

information unless legally

obligated to do so.

Ensure that subordinates do

not disclose confidential

information.

Ensure that subordinates do

not disclose confidential

information.

Do not use

confidential

information for

personal

advantage.

Do not useconfidential

information for

personal

advantage.

IMA C d f E hi f

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IMA Code of Ethics for

Management Accountants

Avoid conflicts of interest

and advise others of

potential conflicts.

Avoid conflicts of interest

and advise others of

potential conflicts.

Recognize and

communicate personal and

professional limitations.

Recognize and

communicate personal and

professional limitations.

Do not subvert

organizations

legitimate

objectives.

Do not subvert

organizations

legitimate

objectives.

IntegrityIntegrity

IMA C d f Ethi f

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IMA Code of Ethics for

Management Accountants

IntegrityIntegrity

Avoid activities that could

affect your ability to

perform duties.

Avoid activities that could

affect your ability to

perform duties.

Communicate

unfavorable as well as

favorable information.

Communicate

unfavorable as well as

favorable information.

Refrain from

activities

that could

discredit the

profession.

Refrain fromactivities

that could

discredit the

profession.

Refuse gifts

or favors

that might

influence

behavior.

Refuse giftsor favors

that might

influence

behavior.

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IMA C d f Ethi f

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Resolution of Ethical Conflict

Follow established policies.

For unresolved ethical conflicts:

Discuss the conflict with immediatesuperior.

If immediate superior is the CEO, considerthe board of directors or the auditcommittee.

Except where legally prescribed, maintainconfidentiality.

IMA Code of Ethics for

Management Accountants

IMA C d f Ethi f

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Resolution of Ethical Conflict

Clarify issues in a confidentialdiscussion with

an objective advisor.Consult an attorney as to legalobligations.

The last resort is to resign.

IMA Code of Ethics for

Management Accountants

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End of Chapter 1