11th Edition

Chapter 1

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Managerial Accounting and
the Business Environment

Chapter One

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Comparison of Financial and Exh.
1-2

Managerial Accounting

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Work of Management

Planning
Planning
Directing
Directing and
and
Motivating
Motivating

Controlling
Controlling

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 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.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 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.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 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.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Exh.

Planning and Control Cycle

1-1

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)
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Organizational Structure

Decentralization
Decentralization is
is the
the delegation
delegation of
of decision-
decision-
making
making authority
authority throughout
throughout anan organization.
organization.

Corporate O rganization Chart

B oa rd of D irectors

P resident

P urcha sing P ersonnel V ice P resident C hief Fina ncia l

O pera tions O fficer

T rea surer C ontroller

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Line and Staff Relationships

Line positions are directly Staff positions support

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

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 The Chief Financial Officer (CFO)

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.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 The Changing Business Environment

•• Just-in-time
Just-in-time production
production
•• Total
Total quality
quality management
management
•• Process
Process reengineering
reengineering Business environment
•• Theory
Theory of
of constraints
constraints changes in the past
•• International
International competition
competition twenty years
•• E-commerce
E-commerce
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Just-in-Time (JIT) Systems

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

Schedule
Schedule
production.
production.

Receive
Receive materials
materials Complete
Complete partsparts
just
just in
in time
time for
for just
just in
in time
time for
for
production.
production. assembly
assembly into
into products.
products.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 JIT Consequences

Improved
Improved Zero
Zeroproduction
production
plant
plantlayout
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.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 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

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Total Quality Management (TQM)

TQM improves productivity by encouraging the use of fact

and analysis for decision making and if properly implemented,
avoids counter-productive organizational infighting.

Continuous
Improvement
Systematic
problem solving
using tools such is
as benchmarking

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Process Reengineering

Anticipated
Anticipatedresults:
results:
AAbusiness
businessprocess
process Process
is Processis issimplified.
simplified.
isdiagrammed
diagrammed Process
Processis iscompleted
completed
in
indetail.
detail. in
inless
lesstime.
time.
Costs
Costsare
arereduced.
reduced.
Opportunities
Opportunitiesforfor
errors
errorsare
arereduced.
reduced.

Every
Everystep
stepinin The
Theprocess
processisisredesigned
redesigned
the
thebusiness
business to
toeliminate
eliminateall
all
process
processmust
must non-value-added
non-value-addedactivities
activities
be
bejustified.
justified.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Process Reengineering versus TQM

Process Reengineering Total Quality Management

• Radically overhauls • Tweaks existing
existing processes. processes to realize
• Likely to be imposed gradual improvements.
from above and to use • Uses a team approach
outside consultants. involving people who
work directly in the
process.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Theory of Constraints

A constraint (also called a bottleneck) is anything that

prevents you from getting more of what you want.

The
The constraint
constraint inin aa system
system is
is determined
determined
by
by the
the step
step that
that has
has the
the smallest
smallest capacity.
capacity.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Theory of Constraints

Only actions 2.
2. Allow
Allow the
the
that strengthen weakest
weakestlink
linkto
to
the weakest link set
in the “chain” setthe
thetempo.
tempo.
improve the
process.
3.
3. Focus
Focuson on
1.
1. Identify
Identifythe
the improving
improving
weakest
weakestlink.
link. the
theweakest
weakest
link.
link.

4.
4. Recognize
Recognizethat
that
the
theweakest
weakestlink
link
is
isno
nolonger
longerso.
so.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 International Competition

Increasing
Increasing sophistication
sophistication
in
in international
international markets.
markets.

Fewer
Fewer tariffs,
tariffs, Improvements
Improvements
Competition has
quotas,
quotas, and
and in
in global
global
other
other barriers
barriers
become worldwide transportation
transportation
to
to free
free trade.
trade. in most industries. systems.
systems.

An
An excellent
excellent management
management accounting
accounting system
system is
is needed
needed
to
to succeed
succeed inin today’s
today’s competitive
competitive global
global marketplace.
marketplace.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 E-Commerce

In recent years, many dot.com

businesses failed that might have
benefited from the application of
managerial accounting tools:
 Cost concepts (Chapter 2)
 Cost estimation (Chapter 5)
 Cost-volume-profit (Chapter 6)
 Activity-based costing (Chapter 8)
 Budgeting (Chapter 9)
 Decision-making (Chapter 13)
 Capital budgeting (Chapter 14)

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Code of Conduct for
Management Accountants

The Institute of Management Accountant’s (IMA)

Standards of Ethical Conduct for Practitioners
of Management Accounting and Financial
Management have two major parts offering
guidelines for:
 Ethical behavior.
 Resolution for an ethical conflict.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 IMA Guidelines for Ethical Behavior

Follow
Follow applicable
applicablelaws,
laws,
regulations
regulationsand
and
standards.
standards.

Maintain
Maintain
professional
professional Competence
Competence
competence.
competence.

Prepare
Preparecomplete
completeandandclear
clear
reports
reportsafter
afterappropriate
appropriate
analysis.
analysis.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 IMA Guidelines for Ethical Behavior

Do
Donotnotdisclose
discloseconfidential
confidential
information
informationunless
unlesslegally
legally
obligated
obligatedto
todo
doso.
so.

Do
Donot
notuse
use
confidential
confidential
information
informationfor
for Confidentiality
Confidentiality
personal
personal
advantage.
advantage.
Ensure
Ensurethat
thatsubordinates
subordinatesdo
do
not
notdisclose
discloseconfidential
confidential
information.
information.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 IMA Guidelines for Ethical Behavior

Avoid
Avoidconflicts
conflictsof
ofinterest
interest
and
andadvise
adviseothers
othersofof
potential
potential conflicts.
conflicts.

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

Recognize
Recognizeandand
communicate
communicatepersonal
personal and
and
professional
professional limitations.
limitations.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 IMA Guidelines for Ethical Behavior

Avoid
Avoidactivities
activitiesthat
thatcould
could
affect
affectyour
yourability
abilityto
to
perform
performduties.
duties.

Refrain
Refrainfrom
from Refuse
Refusegifts
gifts
activities
activities or
orfavors
favors
that
thatcould
could Integrity
Integrity that
thatmight
might
discredit
discreditthethe influence
influence
profession.
profession. behavior.
behavior.
Communicate
Communicate
unfavorable
unfavorableasaswell
well as
as
favorable
favorableinformation.
information.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 IMA Guidelines for Ethical Behavior

Communicate
Communicateinformation
information
fairly
fairlyand
andobjectively.
objectively.

Objectivity
Objectivity

Disclose
Discloseall
all information
information
that
thatmight
mightbebeuseful
useful to
to
management.
management.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 IMA Guidelines for Resolution
of an Ethical Conflict
• Follow established policies.
• For unresolved ethical conflicts:
 Discuss the conflict with immediate superior or
next highest uninvolved manager.
 Make reference to the Sarbanes-Oxley Act
passed by Congress in 2002 in part to give
legal protection to those reporting corporate
misconduct.
 If immediate superior is the CEO,
consider the board of directors or
the audit committee.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 IMA Guidelines for Resolution
of an Ethical Conflict
• Follow established policies.
• For unresolved ethical conflicts:
 Except where legally prescribed, maintain
confidentiality.
 Clarify issues in a confidential discussion
with an objective advisor.
 Consult an attorney as to legal obligations.
 The last resort is to resign.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Why Have Ethical Standards?

Ethical
Ethical standards
standards in
in 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
desireable goods and services at higher prices.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Codes of Conduct on
the International Level

The
The Guidelines
Guidelines onon Ethics
Ethics for
for Professional
Professional
Accountants,
Accountants, issued
issued by
by the
the International
International
Federation
Federation of of Accountants
Accountants (IFAC),
(IFAC), govern
govern the
the
activities
activities of
of professional
professional accountants
accountants worldwide.
worldwide.

In
In addition
addition to
to competence,
competence, objectivity,
objectivity, independence,
independence,
and
and confidentiality,
confidentiality, the
the IFAC’s
IFAC’s code
code deals
deals with
with
the
the accountant’s
accountant’s ethical
ethical responsibilities
responsibilities in:in:
Taxes
Taxes
Fees
Fees and
and commissions
commissions
Advertising
Advertising and
and solicitation
solicitation
Handling
Handling of of monies
monies
Cross-border
Cross-border activities.
activities.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Certified Management Accountant

AA management
management accountant
accountant
who
who has
has the
the necessary
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 as
as aa Certified
Certified
Management
Management Accountant
Accountant (CMA).
(CMA).

Information
Information about
about becoming
becoming aa CMACMA and
and the
the CMA
CMA
program
program can
can be
be accessed
accessed onon the
the IMA’s
IMA’s website
website at
at
www.imanet.org
www.imanet.org oror by
by calling
calling 1-800-638-4427.
1-800-638-4427.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 End of Chapter 1

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.