1 A. Guided by a company’s vision, mission, and strategy managers carry out
three major activities: planning, implementation and control.
1. Planning involves selecting a course of action and specifying how
the action will be implemented. The first step is identifying alternatives, then selecting one that is best in line with the organization’s objectives.
2. Implementation (or execution) involves motivating and mobilizing
people to carry out plans in day-to-day activities including making short and long-term decisions.
3. Control (or monitoring) involves instituting procedures and using
feedback to ensure that all parts of the organization are following the plans. Internal management reports (e.g. performance report) provided on a frequent basis act as feedback which signal whether operations are on track.
B. Financial and managerial accounting differ in several ways (see Exhibit 1-
2). In contrast to financial accounting, managerial accounting:
1. Focuses on providing data for internal users versus external users.
2. Places more emphasis on the future.
3. Places more emphasis on the relevance and flexibility of information
rather than on verifiability.
4. Emphasizes timeliness more so than precision.
5. Places more emphasis on the segments of an organization, rather
than just looking at the organization as a whole.
6. Is not governed by prescribed standards or prescribed formats.
7. Is not mandatory.
C. Changes in the business environment (such as globalization) have led to
worldwide competition, making it necessary for organizations to find new ways of becoming more competitive, while continuing to conduct their affairs in a responsible manner. The text discusses four major approaches to improving performance under the umbrella known as the Lean Business Model: Just-In-Time (JIT), Total Quality Management (TQM), Process Re- engineering, and the Theory of Constraints (TOC). The objective underlying this model is to eliminate waste. In addition, companies have refined their managerial accounting systems b adopting activity-based costing (ABC) and multi-dimensional performance measurement systems.
D. The Just-In-Time (JIT) approach is based on the theory that reducing
inventories, especially work-in-process inventories, can improve overall operations. Companies maintain inventory to protect against disruptions in the production process. A successful JIT system focuses on purchasing materials and producing units only as needed to meet actual customer demand. This can create several major operational improvements.
1. Utilization of a few ultra-reliable suppliers to ensure timely supply of
defect-free goods.
2. Reorganization of the plant layout into manufacturing cells where all
machines needed to produce a product are brought together in one location
3. Reduction of the time needed to set-up equipment for production
runs or batches.
4. Commitment to a goal of zero defects for all products (which few
companies have reached).
5. Development of a multi-skilled and flexible work force capable of
operating many different machines and of performing routine maintenance.
E. Many benefits arise from a JIT system. The most important include:
1. Funds that were tied up in inventories can be used elsewhere.
2. Usable space is increased. Areas previously used to store
inventories are now available for more productive uses.
3. The time required to produce a product (throughput time) is reduced
resulting in greater potential output and quicker response to customer needs.
4. Defect rates are reduced, resulting in less waste and greater
customer satisfaction.
F. While reserved to more advanced courses, some problems associated with
large work in process inventories include:
1. Work in process inventories tie up funds and take up space.
2. Work in process inventories increase the throughput time, which is
the amount of time required to make a product. Long throughput time makes it difficult to respond quickly to customers and can be a major competitive disadvantage.
3. Defects may not be noticed in a timely manner and it may become
difficult to track down the source of the problem. 4. Large work in process inventories may encourage inefficient and sloppy work.
G. Total Quality Management (TQM) is an approach to continuous
improvement that focuses on the customer and uses systematic problem- solving with teams of front-line workers. A variety of tools are available to help the decision makers including benchmarking. Benchmarking involves studying 'world-class' organizations to learn how they handle a particular business process. The plan-do-check –act (PDCA) cycle is perhaps one of the most important problem-solving tools to continuous improvement (refer to Exhibit 1-3).
H. Process Re-engineering is a more extreme approach than TQM. It involves
completely redesigning business processes to remove unnecessary steps (non-value added activities), reduce opportunities for errors and reduce costs. It is often implemented by outside consultants. One consequence of process reengineering is layoffs.
I. The Theory of Constraints (TOC) is based on the idea that every
organization has at least one constraint (i.e. hurdle or obstacle) that prevents it from accomplishing one or more of its objectives. For example, a machine that is slower than other machines on an assembly line will prevent the company from increasing its rate of output. Effectively managing constraints will improve operational efficiency.
J. Ethics play a vital role in an advanced market economy.
1. Many organizations have developed codes of ethical conduct that
provide useful and practical guidance for their members. For example, there is a code of conduct for Chartered Professional Accountants (CPA) which is administered by CPA Canada’s provincial bodies.
2. Corporate governance is the system by which the organization is
directed and controlled. A well-designed and implemented corporate governance system is the mechanism by which a company translates its policies, codes of conduct, and corporate/professional responsibilities into action.