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MANAGERIAL ACCOUNTING FOR MBA
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© McGraw-Hill Ryerson Limited., 2001
1-1
Managerial Accounting and the Business
Environment
Chapter
1
© McGraw-Hill Ryerson Limited., 2001
1-3
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:
© McGraw-Hill Ryerson Limited., 2001
1-4
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:
© McGraw-Hill Ryerson Limited., 2001
1-5
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.
© McGraw-Hill Ryerson Limited., 2001
1-6
Work of Management
Planning
Controlling
Directing and Motivating
© McGraw-Hill Ryerson Limited., 2001
1-7
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
© McGraw-Hill Ryerson Limited., 2001
1-8
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
© McGraw-Hill Ryerson Limited., 2001
1-9
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
© McGraw-Hill Ryerson Limited., 2001
1-10
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
© McGraw-Hill Ryerson Limited., 2001
1-11
The Changing Business Environment
Just-In-Time
Total Quality Management
Process Reengineering
Theory of Constraints
New tools for managers!
© McGraw-Hill Ryerson Limited., 2001
1-12
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.
© McGraw-Hill Ryerson Limited., 2001
1-13
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.
© McGraw-Hill Ryerson Limited., 2001
1-14
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
© McGraw-Hill Ryerson Limited., 2001
1-15
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
© McGraw-Hill Ryerson Limited., 2001
1-16
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.
© McGraw-Hill Ryerson Limited., 2001
1-17
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.
© McGraw-Hill Ryerson Limited., 2001
1-18
Theory of Constraints
A sequential process of identifying and removing constraints in a system.
Restrictions or barriers that impedeprogress toward an objective
© McGraw-Hill Ryerson Limited., 2001
1-19
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.
© McGraw-Hill Ryerson Limited., 2001
1-20
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.
© McGraw-Hill Ryerson Limited., 2001
1-21
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
© McGraw-Hill Ryerson Limited., 2001
1-22
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.
© McGraw-Hill Ryerson Limited., 2001
1-23
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.
© McGraw-Hill Ryerson Limited., 2001
1-24
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.
© McGraw-Hill Ryerson Limited., 2001
1-25
IMA Code of Ethics for Management Accountants
Competence
Confidentiality
Integrity
Objectivity
Resolution of Ethical Conflict
Competence
Confidentiality
Integrity
Objectivity
Resolution of Ethical Conflict
© McGraw-Hill Ryerson Limited., 2001
1-26
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
© McGraw-Hill Ryerson Limited., 2001
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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
© McGraw-Hill Ryerson Limited., 2001
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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
© McGraw-Hill Ryerson Limited., 2001
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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.
© McGraw-Hill Ryerson Limited., 2001
1-30
IMA Code of Ethics for Management Accountants
Objectivity
Communicate information fairly and objectively.
Disclose all information that might be useful to
management.
© McGraw-Hill Ryerson Limited., 2001
1-31
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
© McGraw-Hill Ryerson Limited., 2001
1-32
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
© McGraw-Hill Ryerson Limited., 2001
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End of Chapter 1