Chapter 1 Managerial Accounting the Business Environment Managerial

Chapter 1 Managerial Accounting & the Business Environment

Managerial Accounting and Financial Accounting Managerial accounting provides information for managers inside an organization who direct and control its operations. Mc. Graw-Hill/Irwin Financial accounting provides information to stockholders, creditors and others who are outside the organization. © The Mc. Graw-Hill Companies, Inc. , 2003

Work of Management Planning Directing and Motivating Controlling Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Planning and Control Cycle Formulating longand short-term plans (Planning) Comparing actual to planned performance (Controlling) Decision Making Exh. 1 -1 Begin Implementing plans (Directing and Motivating) Measuring performance (Controlling) Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Differences Between Financial and Managerial Accounting Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Organizational Structure Decentralization is the delegation of decision-making authority throughout an organization. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Line and Staff Relationships Line position are directly related to achievement of the basic objectives of an organization. l Example: Production supervisors in a manufacturing plant. Mc. Graw-Hill/Irwin Staff positions support and assist line positions. l Example: Cost accountants in the manufacturing plant. © The Mc. Graw-Hill Companies, Inc. , 2003

The Changing Business Environment Growth of the internet Just-in-Time production Total Quality Management International competition Mc. Graw-Hill/Irwin Business environment changes in the past twenty years © The Mc. Graw-Hill Companies, Inc. , 2003

The Changing Business Environment New tools for managers! Just-In-Time Total Quality Management Process Reengineering Theory of Constraints Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Just-in-Time (JIT) Systems Receive customer orders. Complete products just in time to ship customers. Schedule production. Receive materials just in time for production. Mc. Graw-Hill/Irwin Complete parts just in time for assembly into products. © The Mc. Graw-Hill Companies, Inc. , 2003

JIT Consequences Improved plant layout Reduced setup time Zero production defects Flexible workforce JIT purchasing Fewer, but more ultrareliable suppliers. Frequent JIT deliveries in small lots. Defect-free supplier deliveries. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Benefits of a JIT System Reduced inventory costs Freed-up funds Greater customer satisfaction Higher quality products Increased throughput Mc. Graw-Hill/Irwin More rapid response to customer orders © The Mc. Graw-Hill Companies, Inc. , 2003

Total Quality Management Where are we? Benchmarking Where do we want to go? Plan Do we need to change the plan? Act is Check How are we doing? Mc. Graw-Hill/Irwin Do How do we start? Continuous Improvement © The Mc. Graw-Hill Companies, Inc. , 2003

Process Reengineering A business process is diagrammed in detail. Every step in the business process must be justified. Mc. Graw-Hill/Irwin Anticipated results: Process is simplified. Process is completed in less time. Costs are reduced. Opportunities for errors are reduced. The process is redesigned to include only those steps that make our product more valuable. © The Mc. Graw-Hill Companies, Inc. , 2003

Theory of Constraints A sequential process of identifying and removing constraints in a system. Restrictions or barriers that impede progress toward an objective Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Theory of Constraints Only actions that strengthen the weakest link in the “chain” improve the process. 2. Identify process constraints 1. Measure process capacity 3. Use bottlenecks effectively. 4. Coordinate processes Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Theory of Constraints Process Capacity A measure of a process’s ability to transform resources into value products and services. Mc. Graw-Hill/Irwin System Constraint The point in a system that limits the overall output of the system. Often called the “bottleneck. ” © The Mc. Graw-Hill Companies, Inc. , 2003

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. Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

E-Commerce During 2001, many dot. com businesses failed that might have benefited from the application of managerial accounting tools: l cost concepts (Chap. 2) l cost estimation (Chap. 5) l cost-volume-profit (Chap. 6) l activity-based costing (Chap. 8) l budgeting (Chap. 9) l decision-making (Chap. 13) l capital budgeting (Chap. 14) Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

Importance of Ethics in Accounting Ethical accounting practices build trust and promote loyal, productive relationships with users of accounting information. Many companies and professional organizations, such as the Institute of Management Accountants (IMA), have written codes of ethics which serve as guides for employees. l Code of Conduct for Management Accountants Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003

IMA Code of Ethics for Management Accountants Four broad areas of responsibility: Maintain a high level of professional competence treat sensitive matters with confidentiality Maintain personal integrity Be objective in all disclosures Mc. Graw-Hill/Irwin © The Mc. Graw-Hill Companies, Inc. , 2003