MANAGERIAL ACCOUNTING INTRODUCTION

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Managerial Accounting and the Business

Environment

Chapter

1

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Learning Objectives

1. Describe what managers do and why they need accounting information

2. Identify the major differences and similarities between financial and managerial accounting.

3. Explain the basic characteristics of just-in-time (JIT).

4. Describe the total quality management (TQM) approach to continuous improvement.

After studying this chapter, you should be able to:

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Learning Objectives

5. Explain the basic ideas underlying process reengineering.

6. Describe how the theory of constraints (TOC) can be used to focus improvement efforts.

7. Discuss the impact of international competition on businesses and on managerial accounting.

8. Describe the role the controller plays in a decentralized organization.

9. Explain the importance of ethical standards in an advanced market economy.

After studying this chapter, you should be able to:

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Managerial Accounting and Financial Accounting

Managerial accountingprovides informationfor managers of anorganization whodirect and control

its operations.

Financial accountingprovides information

to stockholders,creditors and others

who are outsidethe organization.

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Work of Management

Planning

Controlling

Directing and Motivating

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Planning and Control Cycle

DecisionMaking

Formulating Long-andShort-Term Plans

(Planning)

MeasuringPerformance (Controlling)

Implementing the Plans

(Directing and Motivating)

Comparing Actualto

Planned Performance (Controlling)

Begin

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Differences Between Financial and Managerial Accounting

Financial ManagerialAccounting Accounting

1. Users External persons who Managers who plan formake financial decisions and control an organization

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on relevance versus relevance verifiability for planning and control

4. Precision versus Emphasis on Emphasis on timeliness precision timeliness

5. Subject Primary focus is on Focuses on segments the whole organization of an organization

6. Requirements Must follow GAAP Need not follow GAAPand prescribed formats or any prescribed format

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Expanding Role of Managerial Accounting

Increasing complexity andsize of organizations

Rapid development andimplementation of technology

Regulatoryenvironment

World-widecompetition

Increasedemphasison quality

Factors thatincrease the need for

managerial accountinginformation

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The Changing Business Environment

A more competitive environment emphasizing:

Higher quality products

Lower prices and costs

Global competition

Meeting and anticipating customer needs

Business environment changes in the past

twenty years

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The Changing Business Environment

Just-In-Time

Total Quality Management

Process Reengineering

Theory of Constraints

New tools for managers!

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Complete productsjust in time to

ship customers.

Complete partsjust in time for

assembly into products.

Receive materialsjust in time for

production.

Scheduleproduction.

Just-in-Time (JIT) Systems

Receivecustomer

orders.

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Flexibleworkforce

Flexibleworkforce

Reducedsetup time

Reducedsetup time

Zero productiondefects

Zero productiondefects

Key Elements for a SuccessfulJIT System

Improvedplant layout

Improvedplant layout

JIT purchasingFewer, but more ultra-reliable suppliers.

Frequent JIT deliveries in small lots.Defect-free supplier deliveries.

JIT purchasingFewer, but more ultra-reliable suppliers.

Frequent JIT deliveries in small lots.Defect-free supplier deliveries.

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More rapidresponse to

customer orders

More rapidresponse to

customer ordersLess warehouse

space needed

Less warehousespace needed

Reducedinventory

costs

Reducedinventory

costs

Greatercustomer

satisfaction

Greatercustomer

satisfaction

Higher qualityproducts

Benefits of a JIT System

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Do we need to change the plan?

Where are we?

Where do we want to go?

How do we start?

How are we doing?

Check

Plan

Act Dois

Total Quality Management

Benchmarking

ContinuousImprovement

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Process Reengineering

The process isredesigned to include

only those steps that makeour product more valuable.

Every step inthe businessprocess mustbe justified.

A business processis diagrammed

in detail.

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Process Reengineering

Anticipated results: Process is simplified. Process is completed in less time. Costs are reduced. Opportunities for errors are reduced.

The process isredesigned to include

only those steps that makethe product more valuable.

Every step inthe businessprocess mustbe justified.

A business processis diagrammed

in detail.

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Theory of Constraints

A sequential process of identifying and removing constraints in a system.

Restrictions or barriers that impedeprogress toward an objective

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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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Corporate Organization Chart

Purcha sing Personnel V ice PresidentO pera tions

T rea surer C ontro ller

C hief F ina ncia lO fficer

President

B oa rd of D irectors

Organizational Structure

An organization is a group of peopleunited for a common purpose.

An organization is a group of peopleunited for a common purpose.

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Decentralization

Decentralizatio

n

decision–making

Decentralization

decision–making

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

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

Corporate Organization Chart

Purcha sing Personnel V ice PresidentO pera tions

T rea surer C ontro ller

C hief F ina ncia lO fficer

President

B oa rd of D irectors

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Line and Staff Relationships

Line positions are directly involved in achievement of the basic objectives of an organization.Example: Production

supervisors in a manufacturing plant.

Staff positions support and assist line positions.Example: Cost

accountants in the manufacturing plant.

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The Controller

The chief accountant in an organization with responsibility for:Financial planning and analysis.Cost control. Financial reporting.Accounting information systems.

The chief accountant in an organization with responsibility for:Financial planning and analysis.Cost control. Financial reporting.Accounting information systems.

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Importance of Ethicsin Accounting

Ethical accounting practices build trust and promote loyal, productive relationships with users of accounting information.

Many companies and professional organizations, such as the Instituteof Management Accountants (IMA),have written codes of ethics whichserve as guides for employees.

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IMA Code of Ethics for Management Accountants

Competence

Confidentiality

Integrity

Objectivity

Resolution of Ethical Conflict

Competence

Confidentiality

Integrity

Objectivity

Resolution of Ethical Conflict

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IMA Code of Ethics for Management Accountants

Follow applicable laws, regulations and

standards.

Prepare complete and clear reports after appropriate

analysis.

Maintain professional competence.

Competence

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IMA Code of Ethics for Management Accountants

Do not disclose confidential information unless legally

obligated to do so.

Ensure that subordinates do not disclose confidential

information.

Do not use confidential

information for personal

advantage.

Confidentiality

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IMA Code of Ethics for Management Accountants

Avoid conflicts of interest and advise others of potential conflicts.

Recognize and communicate personal and

professional limitations.

Do not subvert organization’s

legitimate objectives.

Integrity

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IMA Code of Ethics for Management Accountants

Integrity

Avoid activities that could affect your ability to

perform duties.

Communicate unfavorable as well as favorable information.

Refrain from activities that could

discredit the profession.

Refuse gifts or favors

that might influence behavior.

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IMA Code of Ethics for Management Accountants

Objectivity

Communicate information fairly and objectively.

Disclose all information that might be useful to

management.

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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.

IMA Code of Ethics for Management Accountants

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Resolution of Ethical ConflictClarify issues in a confidential discussion with

an objective advisor.

Consult an attorney as to legal obligations.

The last resort is to resign.

IMA Code of Ethics for Management Accountants

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End of Chapter 1