Managerial Accounting & the Business Environment

2/02/04

Chapter 1

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

Managerial Accounting and Financial Accounting

ManagerialManagerial accountingprovides information

for managers insideinside anorganization whodirect and control

its operations.

FinancialFinancial accountingprovides information

to stockholders,creditors and others

who are outsideoutsidethe organization.

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

Differences Between Financial and Managerial Accounting

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

Corporate Organization Chart

Purcha sing Personnel V ice PresidentO pera tions

T rea surer C ontroller

C hief F ina ncia lO fficer

President

B oa rd of D irectors

Organizational Structure

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

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

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

Line and Staff Relationships

Line positions are directly related to achievement of basic product 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.

Marketing, sales, admin. Executive management

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

Management Accountants

Help management pursue the firm’s goals

Internal consultants or business analysts

Time spent interpreting data vs creating it

Physically positioned in operating department

Work on cross-functional teams

Extensive face-to-face communications

Actively involved in decision making

Trusted advisors

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

Growth of the internet

Accelerated pace in innovation of products and services

International competition

Growth of the internet

Accelerated pace in innovation of products and services

International competition

Business environment changes in the past

twenty years

The Changing Business Environment

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

The Changing Business Environment

Just-In-Time

Total Quality Management

Process Reengineering

Theory of Constraints

New tools for managers!

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

Complete productsjust in time to

ship customers.

Complete productsjust in time to

ship customers.

Complete partsjust in time for

assembly into products.

Complete partsjust in time for

assembly into products.

Scheduleproduction, pull system.

Scheduleproduction, pull system.

Receive materialsjust in time for

production.

Receive materialsjust in time for

production.

Receivecustomer

orders.

Receivecustomer

orders.

Just-in-Time (JIT) Concept

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

Flexibleworkforce

Flexibleworkforce

Reducedsetup time

Reducedsetup time

Zero productiondefects

Zero productiondefects

JIT Requirements

Focusedfactory layout

Focusedfactory 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.

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

More rapidresponse to

customer orders

More rapidresponse to

customer orders

Freed-up fundsFreed-up space

Freed-up fundsFreed-up space

Reducedinventory

costs

Reducedinventory

costs

Greatercustomer

satisfaction

Greatercustomer

satisfactionHigher quality

products

Benefits of a JIT System

Increased throughput

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

Do we need to change the plan?

Where are we?

Where do we want to go?

How do we start?Collect data

How are we doing? Evaluate data.

Check

Plan

Act Dois

Total Quality Management“Do it right the first time”

Benchmarking

ContinuousImprovement

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

Process Reengineering

The process isredesigned to include

only those steps that makeour product more valuable.Eliminate non-value added

steps. Examples?

The process isredesigned to include

only those steps that makeour product more valuable.Eliminate non-value added

steps. Examples?

Every step inthe businessprocess mustbe justified.

Every step inthe businessprocess mustbe justified.

A business processis diagrammed

in detail.

A business processis diagrammed

in detail.

Anticipated results:Anticipated results: Process is simplified. Process is completed

in less time. Costs are reduced. Opportunities for

errors are reduced.

Anticipated results:Anticipated results: Process is simplified. Process is completed

in less time. Costs are reduced. Opportunities for

errors are reduced.

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

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

Restrictions or barriers that impedeprogress toward an objective

Restrictions or barriers that impedeprogress toward an objective

Theory of Constraints

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

4. Coordinate processes

See Exh 1-5, Pg 22

4. Coordinate processes

See Exh 1-5, Pg 22

1. Measure process capacity

1. Measure process capacity

2. Identify process

constraints

2. Identify process

constraints

3. Eliminate bottlenecks

3. Eliminate bottlenecks

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

Theory of Constraints

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

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. Code of Conduct for Management

Accountants

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

IMA Code of Ethics for Management Accountants

Four broad areas of responsibility:Maintain a high level of professional competenceTreat sensitive matters with confidentialityMaintain personal integrityBe objective in all disclosures

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

CompetenceCompetence

IMA Code of Ethics for Management Accountants

Follow applicable laws, regulations and

standards.

Follow applicable laws, regulations and

standards.

Maintain professional competence.

Maintain professional competence.

Prepare complete and clear reports after appropriate

analysis.

Prepare complete and clear reports after appropriate

analysis.

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

ConfidentialityConfidentiality

IMA Code of Ethics for Management Accountants

Do not disclose confidential information unless legally

obligated to do so.

Do not disclose confidential information unless legally

obligated to do so.

Ensure that subordinates do not disclose confidential

information.

Ensure that subordinates do not disclose confidential

information.

Do not use confidential

information for personal

advantage.

Do not use confidential

information for personal

advantage.

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

IMA Code of Ethics for Management Accountants

Avoid conflicts of interest and advise others of potential conflicts.

Avoid conflicts of interest and advise others of potential conflicts.

Recognize and communicate personal and

professional limitations.

Recognize and communicate personal and

professional limitations.

Do not subvert organization’s

legitimate objectives.

Do not subvert organization’s

legitimate objectives.

IntegrityIntegrity

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

IMA Code of Ethics for Management Accountants

IntegrityIntegrity

Avoid activities that could affect your ability to

perform duties.

Avoid activities that could affect your ability to

perform duties.

Communicate unfavorable as well as favorable information.

Communicate unfavorable as well as favorable information.

Refrain from activities that could

discredit the profession.

Refrain from activities that could

discredit the profession.

Refuse gifts or favors

that might influence behavior.

Refuse gifts or favors

that might influence behavior.

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

IMA Code of Ethics for Management Accountants

Communicate information fairly and objectively.

Communicate information fairly and objectively.

Disclose all information that might be useful to

management.

Disclose all information that might be useful to

management.

ObjectivityObjectivity

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

Resolution of Ethical Conflict

Follow established policies.

For unresolved ethical conflicts: Discuss the conflict with immediate

superior.

If supervisor involved, go up chain

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

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

Resolution of Ethical Conflict

Clarify issues in a confidential discussion withan objective advisor.

Consult an attorney as to legal obligations.

The last resort is to resign.

IMA Code of Ethics for Management Accountants

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

End of Chapter 1