Scribd Logo
Upload

Welcome to Scribd!

  • MAS Chapter 2

    Uploaded by

    Jeciel Mae M. Caluba
    10 views19 pages

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    10 views19 pages

    MAS Chapter 2

    Uploaded by

    Jeciel Mae M. Caluba

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 19
    CHAPTER MANAGEMENT ACCOUNTING AND THE BUSINESS ENVIRONMENT -- _EXPECTE! bo (D LEARNING OUTCOMES, Cu After studying this chapter, you should be able to... Understand the expanding rolé of management accounting. 4. 2. Be familiar with the major contemporary management techniques such as & may Just-in-time ~ a. Just-in-time Total Quality Management Process Reengineering Benchmarking Mass Customization Balanced Scorecard Activity-based Costing and Management Theory of Constraints Life Cycle Costing Target Costing Computer-aided Design and Manufacturing Automation |. E-commerce . The Value Chain 3. Understand the changing world of the management accountant. 4. Identify the current focus of management accounting. BRr-AT OTe >ea0TD 4 SOOSO CHAPTER 2 ? AND MANAGEMENT ACCOUNTING THE BUSINESS ENVIRONMENT Expanding Role of Management Accounting The business environment in recent years has been characterized by increasing competition and relentless drive for continuous improvement. = (1) an increase in global competition; (2) advances in manufactui technologies; (3) advances in information technologies, the Internet, and e- commerce; (4) a greater focus on the customer; (5) new forms of management organization; and (6)-changes in the social, political, and cultural environment of business. As businesses turned global and. product lines expanded, operations have become more complex, forward-looking companies saw a tremendous need for management oriented data that was separate from fea Sega. Corporate executives are now using cost data to chart successful futures for their companies. Adapting management accounting system. to better meet management’s needs for information is crucial to an organization’s survival when competing in global markets. Global competitors now have relatively free access to markets around the world. As a result, domestic markets on virtually every country face greater challenges from foreign competition, With increased reliance on global markets, companies need not only respond quickly to changing market. conditions but also tailor products to different consumer tastes and demands and this has to be done at a level that assures profit and gives satisfactory returns to shareholders. , : \ In today’s automated environment management accountants use _ their Larosa control systems to support and reinforce manufacturing and other perating strategies. It is in this light that one learns to appreciate the role of @ management accountant which is i ji F informing role. more of an influencing role rather than just an The change in the business environmer organization have to transform thems profound effect in the importance are the chat nt in at least the last two decades where n elves to become more competitive, have Fiactice of Management accounting. Of particular ‘ges in business, especially the increase in global ___Management Accounting and the Business Environment 61 competition and the changes in management techniques, that have created the néed for a new, strategic approach to management and to cost management. * While many of the major improvement tools used by managers overlap, they can be classified into major programs or approaches also referred to as Contemporary Management Techniques which includes: a. Just-In-Time (JIT) Just-in-Time (JIT) is the philosophy that activities.are.undertaken.only jdemanded. IIT is a production system also known as pull- it-through approach, in which materials are purchased and units are produced only as needed to meet aciual customer demand. In a JIT system, inventories are reduced to the minimum and in some cases, zero. The four characteristics of JIT are Elimination of all activities that do not add value to the product or service Commitment to a high level of quality Commitment to continuous improvement in the efficiency of an activity 4. Emphasis on simplifications and increased visibility to identify activities that do not add value v w The main benefits of JIT are as follows: 1. Working capital position is improved by recovery of funds that were tied up in inventories. 2. Throughput time is reduced, resulting in greater potential production and quicker response to customers. 3. Areas previously used to store inventories are released and are made available for other more productive uses, © 4, Lesser waste and more customer satisfaction are achieved because of reduction in defect rates. A more detailed discussion of the JIT system is found in Chapter 26. b. Total Quality Management To survive in an increasingly competitive environment, firms realize that they must produce high-quality products. As a result, ~ number of companies have instituted soral quality manage to ensure that their products are of the highest quality and processes are efficient. an inereasing ment programs that production 62 Chapter 2 Total quality management (TQM) is a technique in which management Currently, there is no generally agreed upon “perfect” way to institute a TQM program. But most companies with TQM develop a company that stresses listening to the needs of customers, making products right the first time, reducing defective products that must be reworked, and encouraging workers to continuously improve their production process, That is why some TQM programs are referred to as continuous quality improvement programs. TQM affects product costing by reducing the need to track the cost of scrap and rework related to each job. If TQM is able to reduce these costs to a very low level, the benefit of tracking the costs is unlikely to exceed the cost to the accounting system. Total Quality Management (TQM) is a formal effort to improve quality throughout an organization’s value chain. The two major characteristics of TQM are (1) a focus on serving customers, and “ (2). systematic problem-solving using teams made up of front-line workers. This approach is discussed in more detail in Chapter 26. ¢. Process Reengineering Reengineering is a process for creating. competitive advantage in which a firm reorganizes its operating and management functions, often with the result that jobs are modified, combined, or eliminated. It has been defined as the “fundamental rethinking and radical redesign of business Processes to achieve dramatic improvements in critical. contemporary measures of performance, such as Cost, quality, service, aid speed. Process i i TOM. ufcensincering, a more radical approach to improvement than questioned. and then com; unnecessary steps, pletely redesigned in order to eliminate to reduce opportunities for errors and to reduce costs. Management Accounting and the Business Environment __ 63 A business process is any series of steps that are followed-in-order.t0, carry out some task in a business, ~ * The [fii] OBJSSHNE of this approach is the simplification and elimination of wasted effort and the central idea is that all activities that do not a value to product or service should be eliminated. In its most simplified version, the steps used in process reengineering are if 2a 3. A business process is diagrammed in detail. Every step in the business process must be analyzed and justified. The process is redesigned to include only: those steps that make the product or service more valuable. . This process can yield the following anticipated results: 2. 3. 4. Process is simplified Process is completed in less time Costs are reduced, and Opportunities for errors are reduced. eres Sie gi fear loss of jobs which may lead to lost morale and {aiuto mora. he, bottom line (i.¢., profits). For the process to prosper and succeed, employees must be convinced that the end result of the improvement will be more secure, rather than less secure jobs. They can be made to understand that improving the processes, the company can generate more business, produce a better product at lower cost and. will have the competitive strength to prosper. j j j Process reengineering has, one ic_recurrent problem, ‘that is - | ere As with other Improvement payee projects, employees d. Benchmarking Benchmarking is a process.by.which.a.fism, determines jts critical suecess factors dies tl i (or oth i ithi st he, best. practices of other : firms er units within a firm) for achieving these critical Success factors, and then implements improvements in the firm’: t S processes to or beat the performance of those competitors, : maton e Chapter 2. Today benchmarking efforts are facilitated by cooperative networks of noncompeting firms that exchange benchmarking information. ow ee and Many manufacturing and service firms increasingly find that Customers expect products and services to be developed for each customer’s unique needs. And many firms have been successful with a strategy that targets customer's unique needs. Mass Customization Mass customization is a management technique in which ‘oducti S i to handle the increased variety that results from delivering customized products and services to customers. The growth of mass customization is in effect another indication of the increased attention given to satisfying the customer. Balanced Scorecard The balanced scorecard is an agcountingeteport, that includes. thesfirmis. critical. success factors.in.four areas ve (a) financial performance, Muekie é 4 (b) customer satisfaction, (c) internal business process, and guans - (d) innovation and learning. The concept of balance captions the intent of broad coverage, financial and nonfinancial of all the factors that contribute to the success of the firm in achieving its strategic goals. The use of the balanced scorecard is thus a critical ingredient of the overall approach that firms take to become and remain competitive, This is discussed in more detail in Chapters, Oe scans ose Management Accounting and the Business Environment__5 g. Activity-based Costing and Management Activity analysis is iit i ~ Many firms have foun at they can improve planning, product costing, operational control, and management control by using activity analysis to develop a detailed description of the specific activities performed in the firm’s operations. The activity analysis provides the basis for ,activity-based costing and activity-based management. Activity-based costing (ABC) is i is by improving the tracing of costs to products or to individual customers. Activity-based management (ABM) ivi fete ‘ |. ABC and ABM are key strategic tools for many firms, especially those with complex operations, or great diversity of products. h. Theory of Constraints (TOC) The Theory of Constraints is a sequential process of identifying and removing constraints in a system. The Theory of Constraints emphasizes.the.importance.of.managing the toward anobjective. Since the constraint is whatever is holding back the organization, improvement efforts usually must be ,focused. on the -constraint to be really effective. The basic sequential steps followed in applying TOC are 1. Analyze all the factors of production (materials, labor, facilities, methods, etc.) required in the production chain. 2. Identify the weakest link, which is the constraint, 3. Focus improvement efforts on strengthening the weakest link. 4. If improvement efforts are successful, eventually the weakest tink will improve to the point where it is no longer the weakest ink. : "At this point, a new weakest link (new i ye ti fs constraint identified and improvement efforts must be shifted oy tha ine 66 Chapter2 The Theory of Constraints approach is a perfect complement to Total Quality Management and Process Reengineering - it" focuses ° improvement efforts where they are likely to. be most effective. ~ ala “—e ~ i, Life Cycle Costing \ Life-cycle costing is a management technique to ‘identifi and-monitor the costs.of.a.product throughout its lifecycle. It consists of all steps from _. product design and purchase of raw material to delivery of and service of the finished product. The steps include é (1) research and development » --“(2) product design, including prototyping, target costing and testing (3) manufacturing, inspecting, packaging and warehousing (4) marketing, promotion and distribution (5) sales and service. Cost management traditionally has focused only on costs incurred up to the third step manufacturing. Management accountants now strategically manage the product’s full life cycle of costs, including upstream and downstream costs as well as manufacturing costs. » j. Target Costing sini Target costing involves the determination of the. sesitad COSt fOFmda, ‘product.or the basis of a given competitive price so that the product will earn a desired profit. The basic relationship that is observed in this approach is Target cost = Market determined price — Desired profit The entity using target costing must often adopt strict cost-reduction measures to meet the market price and remain profitable. This is common strategic approach used by intensely competitive industries where even small price differences attract consumers to the lower-priced product. k, Computer-Aided Design and Manufacturing More companies are using computer-aided design (CAD) and computer- aided manufacturing (CAM) to respond to changing consumer tastes more quickly. These innovations allow companies to significantly somputers, computer psogrammlng-=machinesn Aid. SoMa, firms add automation gradually, one process at a time. To improve Management Accounting and the Business Environment _ 67 reduce the time necessary to bring their products from the design process to the distribution stage. * Computer-aided design (CAD) is the wse_of computers in prod development, analysis, and design modification to improve the qual and performance of the product. Computer-aided manufacturing (CAM) is the use of computers to_plan, implement, and_control production. — Automation Automation involyes_and_requires_a_relaively--large--investment-ine i Mai ny efficiency and effectiveness continuously, firms must integrate people and equipment into the smoothly operating teams that have become a vital part of manufacturing strategy. Flexible manufacturing: systems (FMS) and computer-integrated manufacturing (CIM) are two integration approaches. . : A flexible manufacturing system (FMS) is a computerized network.of .. automated_.

    You might also like