Chapter 2

Management
Accounting and the
Business Environment
EXPANDING ROLE OF MANAGEMENT
ACCOUNTING

❑ As business operations become more

complex, companies saw a tremendous need
for management oriented data.
❑ Adapting management accounting system to
better meet management’s need for
information is crucial to an organization’s
survival.
CONTEMPORARY MANAGEMENT TECHNIQUES

Just-In-Time Theory of Constraints

Total Quality Management Life Cycle Costing
Process Reengineering Target Costing
Benchmarking Computer-Aided Design
Mass Customization Automation
Balanced Scorecard E-commerce
Activity-Based Costing Value Chain
JUST-IN-TIME

❑ JIT 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 actual customer
demand.
JUST-IN-TIME
❑ Main Benefits of JIT :
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 users.

4. Lesser waste and more customer

satisfaction are achieved because of reduction
in defect rates.
TOTAL QUALITY MANAGEMENT

❑ TQM is a technique in which

management develops policies
and practices to ensure that the
firm’s products and services
exceeds customer’s expectations.
PROCESS REENGINEERING

❑ Is an approach where a business

process is diagrammed in detail,
questioned and then completely
redesigned in order to eliminate
unnecessary steps, to reduce
opportunities for errors and to
reduce costs.

❑ Value Added activities vs. Nonvalue

Added
BENCHMARKING

❑ Studies the best practices of other

firms and then implements
improvements in the firm’s
processes to match or beat the
performance of its competitors.
MASS CUSTOMIZATION

❑ Is a management technique in
which marketing and
production processes are
designed to handle increased
variety that results from
delivering customized products
and services to customers.
BALANCED SCORECARD

❑ The concept of balance

scorecard 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.
ACTIVITY-BASED COSTING

❑ ABC is used to improve the

accuracy of cost analysis by
improving the tracing of costs
to products or to individual
customers.
THEORY OF CONSTRAINTS

❑ TOC is a sequential process of

identifying and removing
constraints in a system.
LIFE CYCLE COSTING

❑ Is a management technique to
identify and monitor the cost of
a product throughout its life
cycle.
TARGET COSTING

❑ Involves the determination of

the desired cost for a product so
that it will earn a desired profit.
COMPUTER-AIDED DESIGN

❑ CAD is the use of computers in

product development, analysis,
and design modification to
improve the quality and
performance of the product.
AUTOMATION

❑ To improve efficiency and

effectiveness continuously,
firms must integrate people and
equipment into the operating
teams that have become a vital
part of manufacturing strategy.
E-COMMERCE

❑ is the buying and selling of

good or services via the internet
VALUE CHAIN

❑ Is an analysis tool that firms use

to identify the specific steps
required to provide a product or
service to the customer
EXERCISES
Determine the Value-Added (VA) and Nonvalue-Added (NVA)
activities for an automotive manufacturer.

VA 1. Painting automobiles
NVA 2. Moving auto parts from the warehouse to the plant
VA 3. Inspection of final product
VA 4. Assembling the engines
NVA 5. Costs to store finished goods
VA 6. Production of bumpers
1. In process reengineering, two objectives are to
simplify and to eliminate
a. Constraint
b. Nonvalue added activities
c. Nonconstraint
d. Losses
2. A production system in which units are produced
and materials are purchased only as needed to meet
actual customer demand is called
a. Total quality management
b. Just-in-time
c. Process reengineering
d. Benchmarking
3. __________ is when a firm compares itself with the best
practice of competitors or other comparable organizations.
a. Value Chain
b. Supply Chain
c. Key success factors
d. Benchmarking
4. The sequence of activities that creates a good service is:
A. An organization
B. A value chain
C. A customer chain
D. An information system
THANK YOU !
PRELIM EXAM
Coverage : Chapter 1 – 2
February 19 (Fri 2:00pm-5:00pm)