W1 Managerial Accounting and The Business Environment Week1

1-1
MANAGERIAL
ACCOUNTING
Ninth Canadian Edition
GARRISON, CHESLEY, CARROLL, WEBB, LIBBY
Managerial Accounting and

the Business Environment
Chapter 1
PowerPoint Author:
Robert G. Ducharme, MAcc, CA
University of Waterloo, School of Accounting and Finance
Copyright © 2012 McGraw-Hill Ryerson Limited
1-2
Strategic Management Skills
A strategy
is a “game plan”
that enables a company
to attract customers
by distinguishing itself
from competitors.
The
The focal point
point of a
company’s
company’s strategy should
be its
its target
target customers.
customers.
LO 1
1-3
Customer Value Propositions
Customer
Understand and respond to
Intimacy
individual customer needs.
Strategy
Operational Deliver products and services

Excellence faster, more conveniently,
Strategy and at lower prices.
Product
Leadership Offer higher quality products.
Strategy
LO 1
1-4
Work of Management
Planning
Planning Directing
Directing and
and
Motivating
Motivating
Controlling
Controlling
LO 1
1-5
Planning
Identify
Identify
alternatives.
alternatives.
Select
Select alternative
alternative that
that does
does
the
the best
best job
job of
of furthering
furthering
organization’s
organization’s objectives.
objectives.
Develop
Develop budgets
budgets to
to guide
guide
progress
progress toward
toward the
the
selected
selected alternative.
alternative.
LO 1
1-6
Directing and Motivating
Directing and motivating involves managing day-to-day

activities to keep the organization running smoothly.
 Employee work assignments.
 Routine problem solving.
 Conflict resolution.
 Effective communications.
LO 1
1-7
Controlling
The
The control
control function
function ensures
ensures
that
that plans
plans are
are being
being followed.
followed.
Feedback
Feedback inin the
the form
form ofof performance
performance reports
reports
that
that compare
compare actual
actual results
results with
with the
the budget
budget
are
are an
an essential
essential part
part of
of the
the control
control function.
function.
LO 1
1-8
Planning and Control Cycle
Formulating
Formulatinglong-
long- Begin
and
andshort-term
short-termplans
plans
(Planning)
(Planning)
Comparing
Comparingactual
actual Implementing
Implementing
to
toplanned
planned Decision plans
performance Making plans(Directing
(Directing
performance and
(Controlling) andMotivating)
Motivating)
(Controlling)
Measuring
Measuring
performance
performance
(Controlling)
(Controlling)
LO 1
1-9
Business Plans
New
New businesses
businesses typically
typically formalize
formalize their
their strategic
strategic
planning
planning in
in the
the form
form of
of aa business
business plan.
plan.
A business plan consists of information about the
company’s basic product or service and about the steps
to be taken to reach its potential market. The plan
includes information about:
 production methods
 competition
 management team, and
 details on how the business will be financed.
The business plan is a key document for:
 the organization’s internal management, and
 external use in attracting creditors and investors.
LO 1
1-10
Comparison of Financial and Managerial

Accounting: Seven Key Differences
LO 2
1-11
Organizational Structure
Decentralization
Decentralization is
is the
the delegation
delegation of
of decision-
decision-
making
making authority
authority throughout
throughout anan organization.
organization.
C o r p o r a te O r g a n iz a tio n C h a r t
B o a r d o f D ir e c t o r s
P r e s id e n t
P u r c h a s in g P e rso n n e l V ic e P r e s id e n t C h ie f F in a n c ia l
O p e r a t io n s O f f ic e r
T re a su re r C o n t r o lle r
LO 3
1-12
Line and Staff Relationships
Line positions are directly Staff positions support and

related to achievement of assist line positions.
the basic objectives of an
organization.  Example: Cost
accountants in the
 Example: Production
supervisors in a manufacturing plant.
manufacturing plant.
LO 3
1-13
The Controller
A member of the top management team

responsible for:
 Providing timely and relevant data to support
planning and control activities.
 Preparing financial statements for external
users.
LO 3
1-14
The Professional Management Accountant
 Three types of professional accountants

work as management accountants in
Canada:
 CGA
 CA
 CMA
LO 3
1-15
Certified Management Accountant
A
A management
management accountant
accountant
who has the necessary qualifications
qualifications
and
and who
who passes
passes aa rigorous
rigorous professional
professional
exam
exam earns
earns the
the right
right to
to be
be known
known asas aa
Certified
Certified Management
Management Accountant
Accountant
(CMA).
(CMA).
LO 3
1-16
Professional Ethics for

Management Accountants
CMA Ontario provides clear guidance concerning what
professional ethical standards to follow, including:
 Accountants must maintain a level of competence
appropriate to their designation.
 Confidentiality is essential because of the importance of the
information they analyze.
 Integrity is maintained by avoiding conflicts of interest with
their employers or clients, by communicating the limits of
professional competence, and by not accepting favours that
would compromise their judgment.
 Objectivity must be present in communications, so that
recipients can receive both favourable and unfavourable
information. LO 4
1-17
CMA Guidelines for Ethical Behavior
Recognize
Recognize andand
communicate
communicate professional
professional
limitations
limitations that
that preclude
preclude
responsible
responsible judgment.
judgment.
Maintain
Maintain Follow
Follow applicable
applicable
professional
professional Competence
Competence laws,
laws, regulations
regulations
competence.
competence. and
and standards.
standards.
Provide
Provide accurate,
accurate, clear,
clear,
concise,
concise, and
and timely
timely decision
decision
support
support information.
information.
LO 4
1-18
Do
Do not
not disclose
disclose confidential
confidential
information
information unless
unless legally
legally
obligated
obligated to
to do
do so.
so.
Do
Do not
not use
use
confidential
confidential
information
information forfor Confidentiality
Confidentiality
unethical
unethical or
or illegal
illegal
advantage.
advantage.
Ensure
Ensure that
that subordinates
subordinates do
do
not
not disclose
disclose confidential
confidential
information.
information.
LO 4
1-19
Mitigate
Mitigate conflicts
conflicts of
of
interest
interest and
and advise
advise others
others
of
of potential
potential conflicts.
conflicts.
Refrain
Refrain from
from
conduct
conduct that
that
would
would prejudice
prejudice Integrity
Integrity
carrying
carrying out
out
duties
duties ethically.
ethically.
Abstain
Abstain from
from activities
activities that
that
might
might discredit
discredit the
the
profession.
profession.
LO 4
1-20
Communicate
Communicate information
information
fairly
fairlyand
andobjectively.
objectively.
Disclose
Disclosedelays
delaysor
or
deficiencies
deficienciesin ininformation
information
Credibility
Credibility timeliness,
timeliness, processing,
processing,or or
internal
internal controls.
controls.
Disclose
Discloseall
allrelevant
relevant
information
informationthat
thatcould
could
influence
influenceaauser’s
user’s
understanding
understandingof of reports
reports
and
andrecommendations.
recommendations.
LO 4
1-21
Why Have Ethical Standards?
Ethical
Ethical standards
standards inin business
business are
are essential
essential for
for aa
smooth
smooth functioning
functioning advanced
advanced market
market economy
economy
Without ethical standards in business, the

economy, and all of us who depend on it for
jobs, goods, and services, would suffer
Abandoning ethical standards in business would

lead to a lower quality of life with less
desirable goods and services at higher prices
LO 4
1-22
Corporate Governance
The
The system
system byby
which
which aa company
company is
is directed
directed
and
and controlled.
controlled.
Board
Board of
of Incentives and
Directors
Directors monitoring for
Top
Top To pursue
Management objectives of
Management
Shareholders
Shareholders
LO 4
1-23
Corporate Governance
An
An effective
effective corporate
corporate governance
governance system
system
should
should also
also protect
protect the
the interests
interests of
of the
the
company’s
company’s other
other stakeholders.
stakeholders.
Employees
Employees Customers
Customers Creditors
Creditors Suppliers
Suppliers
And
And the
the communities
communities in
in
which
which the
the company
company operates.
operates.
LO 4
1-24
Corporate Social Responsibility
Corporate social responsibility (CSR) is a concept

whereby organizations consider the needs
of all stakeholders when making decisions.
Environmental
Customers Employees Suppliers Communities Shareholders & Human Rights
Advocates
CSR extends beyond legal compliance

to include voluntary actions that satisfy
stakeholder expectations.
LO 4
1-25
Process Management
A business
process is a series of
steps that are followed in order to
carry out some task in
a business.
Product Customer
R&D Design Manufacturing Marketing Distribution Service
Business functions making up the value chain

LO 5
1-26
Process Management
There are four approaches to

improving business processes . . .
 Six  Enterprise
Sigma Systems
 Lean  Risk
Production Management
LO 5
1-27
Traditional “Push” Manufacturing Company
Forecast Sales Order components Store Inventory
Make Sales from

Finished Goods Store Produce goods in
Inventory Inventory Anticipation of Sales
LO 5
1-28
Traditional “Push” Manufacturing Company
Traditional “push” Large

manufacturing inventories
Raw Work in Finished

materials process goods
Materials
Materials waiting
waiting Completed
Completed products
products
to
to be
be processed.
processed. awaiting
awaiting sale.
sale.
Partially
Partially completed
completed products
products
requiring
requiring more
more work
work before
before
they
they are
are ready
ready for
for sale.
sale. LO 5
Exhibit
1-29
1-6
Lean Production
 Identify
 Identify value
value  Identify
Identify the
the
in
in specific
specific business
business process
process
products/services.
products/services. that
that delivers
delivers value.
value.
The
The lean
lean thinking
thinking  Organize
Organize work
work
arrangements
arrangements around
around
model
model is
is aa five
five the
the flow
flow of
of the
the
step
step approach.
approach. business
business process.
process.
 Continuously
 Continuously pursue
pursue  Create
Create aa pull
pull
perfection
perfection in
in the
the system
system that
that responds
responds
business
business process.
process. to
to customer
customer orders.
orders. LO 5
1-30
Lean Production
The five step process results in a “pull” manufacturing system
that reduces inventories, decreases defects, reduces wasted
effort, and shortens customer response times.
Customer places Create Production Generate component

an order Order requirements
Goods delivered Production begins Components

when needed as parts arrive are ordered
Lean Production is often called Just-In-Time (JIT) production.
LO 5
1-31
Lean Production
Lean thinking may be used to improve business

processes that link companies together.
The term supply chain management refers to

the coordination of business processes across
companies to better serve end consumers.
LO 5
1-32
Six Sigma
AA process
process improvement
improvement method
method relying
relying on
on customer
customer
feedback
feedback and
and fact-based
fact-based data
data gathering
gathering and
and analysis
analysis
techniques
techniques to
to drive
drive process
process improvement.
improvement.
Refers
Refers to
to aa process
process that
that generates
generates no
no more
more
than
than 3.4
3.4 defects
defects per
per million
million opportunities.
opportunities.
Sometimes
Sometimes associated
associated
with
with the
the term
term zero
zero defects.
defects.
LO 5
Exhibit 1-33
1-9
Six Sigma
The Six Sigma DMAIC Framework
Stage Goals
Define ● Establish the scope and purpose of the project.
● Diagram the flow of the current process.
● Establish the customer's requirements for the
process.
Measure ● Gather baseline performance data related to
the existing process.
● Narrow the scope of the project to the most
important problems.
Analyze ● Identify the root cause(s) of the problems
identified in the Measure stage.
Improve ● Develop, evaluate, and implement solutions
to the problems.
Control ● Ensure that problems remain fixed.
● Seek to improve the new methods over time. LO 5
1-34
Enterprise Systems
A single software system that

integrates data across an organization,
thereby enabling all employees to
have simultaneous access to a
common set of data.
All
All data
data are
are recorded
recorded only
only
once
once inin the
the company’s
company’s
centralized
centralized database.
database.
The
The unique
unique data
data elements
elements
contained
contained within
within aa database
database
can
can be
be linked
linked together.
together.
LO 5
1-35
Enterprise Risk Management
Should I try to avoid the

risk, accept the risk, or
A process used reduce the risk?
by a company to
proactively identify
and manage risk.
Once
Once aa company
company identifies
identifies its
its risks,
risks, perhaps
perhaps the
the
most
most common
common riskrisk management
management tactictactic is
is to
to reduce
reduce
risks
risks by
by implementing specific
specific controls.
controls.
LO 5
1-36
Enterprise Risk Management

Examples of Controls to
Examples of Business Risks Reduce Business Risks
● Products harming customers ● Develop a formal and rigorous
new product testing program
● Losing market share due to the ● Develop an approach for legally
unforeseen actions of competitors gathering information about
competitors' plans and practices
● Poor weather conditions shutting ● Develop contingency plans for
down operations overcoming weather-related
disruptions
● Website malfunction ● Thoroughly test the website
before going "live" on the Internet
● A supplier strike halting the flow ● Establish a relationship with two
of raw materials companies capable of providing
raw materials
● Financial statements unfairly ● Count the physical inventory on
reporting the value of inventory hand to make sure that it agrees
with the accounting records
● An employee accessing ● Create passwords barriers that
unauthorized information prohibit employees from obtaining
information not needed to do their
jobs LO 5
1-37
Measurement Skills
A good manager
compliments an
understanding of
strategy, risks, and
business processes with
data-driven analysis.
The key to effective analysis is to understand that

the question you are addressing defines what you
measure and how you analyze the data.
LO 5
1-38
Measurement Skills
The primary purpose Planning

Planning
of this course is to
teach measurement
skills that managers Directing
Directing and
and
use to support Motivating
Motivating
planning, directing
and motivating, and
controlling activities. Controlling
Controlling
LO 5
1-39
End of Chapter 1

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1-1

Managerial Accounting and

Strategic Management Skills

Customer Value Propositions

Operational Deliver products and services

Directing and Motivating

Directing and motivating involves managing day-to-day

Planning and Control Cycle

Comparison of Financial and Managerial

Line and Staff Relationships

Line positions are directly Staff positions support and

A member of the top management team

The Professional Management Accountant

 Three types of professional accountants

Certified Management Accountant

Professional Ethics for

CMA Guidelines for Ethical Behavior

CMA Guidelines for Ethical Behavior

CMA Guidelines for Ethical Behavior

CMA Guidelines for Ethical Behavior

Why Have Ethical Standards?

Without ethical standards in business, the

Abandoning ethical standards in business would

Corporate Social Responsibility

Corporate social responsibility (CSR) is a concept

CSR extends beyond legal compliance

Business functions making up the value chain

There are four approaches to

Traditional “Push” Manufacturing Company

Forecast Sales Order components Store Inventory

Make Sales from

Traditional “Push” Manufacturing Company

Traditional “push” Large

Raw Work in Finished

Customer places Create Production Generate component

Goods delivered Production begins Components

Lean thinking may be used to improve business

The term supply chain management refers to

A single software system that

Enterprise Risk Management

Should I try to avoid the

Enterprise Risk Management

The key to effective analysis is to understand that

The primary purpose Planning

Copyright © 2012 McGraw-Hill Ryerson Limited

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