Chapter 1

Managerial Accounting &

the Business Environment
 Managerial Accounting and
Financial Accounting

Managerial accounting Financial accounting

provides information provides information
for managers inside an to stockholders,
organization who creditors and others
direct and control who are outside
its operations. the organization.

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 Work of Management

Planning
Planning
Directing
Directing and
and
Motivating
Motivating

Controlling
Controlling

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 Exh.
1-1

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)
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 Differences Between Financial
and Managerial Accounting

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 Organizational Structure
Decentralization
Decentralizationis
isthe
thedelegation
delegationof
of decision-making
decision-making
authority
authoritythroughout
throughout an
anorganization.
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 rs o 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

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 Line and Staff Relationships

Line position are directly Staff positions support and

related to achievement of assist line positions.
the basic objectives of an  Example: Cost
organization. accountants in the
 Example: Production manufacturing plant.
supervisors in a
manufacturing plant.

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 The Changing Business
Environment

Growth
Growthofof the
theinternet
internet
Just-in-Time
Just-in-Timeproduction
production
Total
TotalQuality
Quality Business environment
Management
Management changes in the past
International
International competition
competition twenty years

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 The Changing Business
Environment

New tools for

managers!

Just-In-Time
Total Quality
Management
Process Reengineering
Theory of Constraints

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 Just-in-Time (JIT) Systems

Receive
Receive
customer Complete
Completeproducts
products
customer
orders. just
just in
intime
time to
to
orders.
ship
shipcustomers.
customers.

Schedule
Schedule
production.
production.

Receive
Receivematerials
materials Complete
Completeparts
parts
just
just in
in time
time for
for just
justin
intime
time for
for
production.
production. assembly
assemblyinto
into products.
products.

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 JIT Consequences

Improved
Improved Zero
Zero production
production
plant
plant layout
layout defects
defects

Reduced
Reduced Flexible
Flexible
setup
setuptime
time workforce
workforce

JIT
JIT purchasing
purchasing
Fewer,
Fewer, but
but more
more ultrareliable
ultrareliable suppliers.
suppliers.
Frequent
Frequent JIT
JIT deliveries
deliveries in
in small
small lots.
lots.
Defect-free
Defect-free supplier
supplier deliveries.
deliveries.
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 Benefits of a JIT System

Reduced
Reduced Freed-up
Freed-up funds
funds
inventory
inventory
costs
costs
Greater
Greater
customer
customer
Higher quality satisfaction
satisfaction
products

More
More rapid
rapid
response
response toto
Increased customer
customer orders
orders
throughput

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 Total Quality Management

Where are we?

Benchmarking
Where do we want to go?
Plan

Do we need How do
to change Act Do
the plan? is we start?

Check Continuous
Improvement
How are we doing?
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 Process Reengineering

Anticipated
Anticipated results:
results:
AAbusiness
businessprocess
process Process
is Processis issimplified.
simplified.
isdiagrammed
diagrammed Process
Processis iscompleted
completed
in
in detail.
detail. in
inless
lesstime.
time.
Costs
Costsarearereduced.
reduced.
Opportunities
Opportunitiesfor for
errors
errors are
arereduced.
reduced.

Every
Everystep
stepinin The
Theprocess
processis is
the
thebusiness
business redesigned
redesigned to
to include
include
process
process must
must only
onlythose
thosesteps
stepsthat
thatmake
make
be
bejustified.
justified. our
ourproduct
product more
morevaluable.
valuable.
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 Theory of Constraints

A sequential process of identifying and removing

constraints in a system.

Restrictions
Restrictions or
or barriers
barriers that
that impede
impede
progress
progress toward
toward anan objective
objective

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 Theory of Constraints

Only actions
2.
2.Identify
Identify
that strengthen
the weakest link process
process
in the “chain” constraints
constraints
improve the
process.

1.
1.Measure
Measure 3.
3.Use
Use
process
process bottlenecks
bottlenecks
capacity
capacity effectively.
effectively.

4.
4.Coordinate
Coordinate
processes
processes
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 Theory of Constraints

Process
Process
Capacity
Capacity
AAmeasure
measureof ofaa System
System
process’s
process’sability
ability Constraint
Constraint
to
to transform
transform The
The point
point ininaa
resources
resourcesinto into system
system that
that
value
valueproducts
products limits
limitsthe
the overall
overall
and
and services.
services. output
outputofofthe
the
system.
system. Often
Often
called
calledthe
the
“bottleneck.”
“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.com

businesses failed that might have
benefited 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 professional
organizations, 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

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 IMA Code of Ethics for
Management Accountants

Four broad areas of

responsibility:
Maintain a high level of
professional competence
treat sensitive matters with
confidentiality
Maintain personal integrity
Be objective in all disclosures

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 IMA Code of Ethics for
Management Accountants
Follow
Followapplicable
applicablelaws,
laws,
regulations
regulationsand
and
standards.
standards.

Maintain
Maintain
professional
professional Competence
Competence
competence.
competence.

Prepare
Preparecomplete
completeandandclear
clear
reports
reportsafter
after appropriate
appropriate
analysis.
analysis.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
 IMA Code of Ethics for
Management Accountants
Do
Donotnot disclose
discloseconfidential
confidential
information
information unless
unlesslegally
legally
obligated
obligated to
to do
do so.
so.

Do
Donot
not use
use
confidential
confidential
information
informationfor
for Confidentiality
Confidentiality
personal
personal
advantage.
advantage.
Ensure
Ensurethat
thatsubordinates
subordinatesdo
do
not
not disclose
disclose confidential
confidential
information.
information.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
 IMA Code of Ethics for
Management Accountants
Avoid
Avoidconflicts
conflictsof
ofinterest
interest
and
andadvise
adviseothers
othersofof
potential
potentialconflicts.
conflicts.

Do
Donotnot subvert
subvert
organization’s
organization’s
legitimate
legitimate
Integrity
Integrity
objectives.
objectives.

Recognize
Recognizeand
and
communicate
communicatepersonal
personal and
and
professional
professionallimitations.
limitations.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
 IMA Code of Ethics for
Management Accountants
Avoid
Avoid activities
activitiesthat
thatcould
could
affect
affect your
yourability
abilityto
to
perform
perform duties.
duties.

Refrain
Refrainfrom
from Refuse
Refusegifts
gifts
activities
activities or
orfavors
favors
that
thatcould
could Integrity
Integrity that
thatmight
might
discredit
discredit the
the influence
influence
profession.
profession. behavior.
behavior.
Communicate
Communicate
unfavorable
unfavorableas aswell
well as
as
favorable
favorable information.
information.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
 IMA Code of Ethics for
Management Accountants
Communicate
Communicateinformation
information
fairly
fairlyand
andobjectively.
objectively.

Objectivity
Objectivity

Disclose
Disclose all
all information
information
that
thatmight
might bebeuseful
usefulto
to
management.
management.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 IMA Code of Ethics for
Management Accountants
Resolution of Ethical Conflict
Follow established policies.
 For unresolved ethical conflicts:
 Discuss the conflict with immediate
superior.
 If immediate superior is the CEO,
consider the board of directors or the
audit committee.
 Except where legally prescribed,
maintain confidentiality.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 IMA Code of Ethics for
Management Accountants
Resolution of Ethical Conflict
Clarify issues in a confidential
discussion with
an objective advisor.
Consult an attorney as to legal
obligations.
The last resort is to resign.

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 End of Chapter 1

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003