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Chapter 1 Managerial Accounting & the Business Environment 2/02/04


Managerial Accounting and Financial Accounting Managerial accounting provides information for managers inside an organization who direct and control its operations.

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Financial accounting provides information to stockholders, creditors and others who are outside the organization.

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Differences Between Financial and Managerial Accounting

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Organizational Structure Decentralization Decentralization is is the thedelegation delegation of of decision-making decision-making authority authoritythroughout throughout an anorganization. organization.

C o r p o ra te O rg a n iz a tio n C h a r t B o a r d o f D ir e c t o r s P r e s id e n t P u r c h a s in g

P e rso n n e l

V ic e P r e s id e n t O p e r a t io n s

C h ie f F in a n c ia l O f f ic e r

T re a su re r McGraw-Hill/Irwin

C o n t r o lle r

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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.

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Staff positions support and assist line positions. 

Example: Cost accountants in the manufacturing plant.

Marketing, sales, admin.

Executive management

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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 McGraw-Hill/Irwin

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The Changing Business Environment

Growth Growthof ofthe theinternet internet Accelerated Acceleratedpace pacein in innovation innovation of of products products and andservices services International Internationalcompetition competition McGraw-Hill/Irwin

Business environment changes in the past twenty years

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The Changing Business Environment

New tools for managers! Just-In-Time Total Quality Management Process Reengineering Theory of Constraints McGraw-Hill/Irwin

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Just-in-Time (JIT) Concept Receive Receive customer customer orders. orders.

Complete Completeproducts products just just in intime time to to ship ship customers. customers.

Schedule Schedule production, production, pull pullsystem. system. Receive Receivematerials materials just just in intime time for for production. production. McGraw-Hill/Irwin

Complete Completeparts parts just just in in time time for for assembly assemblyinto intoproducts. products. Š The McGraw-Hill Companies, Inc., 2003


JIT Requirements Focused Focused factory factorylayout layout Reduced Reduced setup setuptime time

Zero Zero production production defects defects Flexible Flexible workforce workforce

JIT JIT purchasing purchasing Fewer, Fewer, but but more more ultra-reliable ultra-reliable 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

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Benefits of a JIT System Reduced Reduced inventory inventory costs costs

Freed-up Freed-up funds funds Freed-up Freed-up space space Greater Greater customer customer satisfaction satisfaction

Higher quality products

Increased throughput McGraw-Hill/Irwin

More More rapid rapid response response to to customer customer orders orders Š The McGraw-Hill Companies, Inc., 2003


Total Quality Management “Do it right the first time” Where are we?

Benchmarking

Where do we want to go? Plan Do we need to change the plan?

Act

is Check

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How are we doing? Evaluate data.

How do Do we start? Collect data Continuous Improvement © The McGraw-Hill Companies, Inc., 2003


Process Reengineering AAbusiness businessprocess process is isdiagrammed diagrammed in indetail. detail.

Every Everystep step in in the thebusiness business process processmust must be bejustified. justified. McGraw-Hill/Irwin

Anticipated Anticipated results: results: Process Processis issimplified. simplified. Process Processis iscompleted completed in inless lesstime. time. Costs Costsare arereduced. reduced. Opportunities Opportunitiesfor for errors errors are arereduced. reduced. The Theprocess processis is redesigned redesignedto toinclude include only onlythose thosesteps stepsthat that make make our ourproduct productmore morevaluable. valuable. Eliminate Eliminatenon-value non-valueadded added The McGraw-Hill Companies, Inc., 2003 steps. steps. ŠExamples? Examples?


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

Restrictions Restrictions or or barriers barriers that that impede impede progress progress toward toward an an objective objective

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

2. 2. Identify Identify process process constraints constraints

1. 1.Measure Measure process process capacity capacity

3. 3. Eliminate Eliminate bottlenecks bottlenecks

4. 4.Coordinate Coordinate processes processes McGraw-Hill/Irwin

See SeeExh Exh1-5, 1-5, Pg Pg© 22 22 The McGraw-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. ď Ź Code of Conduct for Management Accountants McGraw-Hill/Irwin

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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

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IMA Code of Ethics for Management Accountants Follow Follow applicable applicablelaws, laws, regulations regulationsand and standards. standards. Maintain Maintain professional professional competence. competence.

Competence Competence Prepare Preparecomplete completeand andclear clear reports reports after after appropriate appropriate analysis. analysis.

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IMA Code of Ethics for Management Accountants Do Donot not disclose discloseconfidential confidential information information unless unless legally legally obligated obligated to to do do so. so. Do Donot not use use confidential confidential information informationfor for personal personal advantage. advantage.

Confidentiality Confidentiality Ensure Ensure that thatsubordinates subordinatesdo do not not disclose disclose confidential confidential information. information.

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IMA Code of Ethics for Management Accountants Avoid Avoidconflicts conflictsof of interest interest and and advise adviseothers othersof of potential potentialconflicts. conflicts. Do Donot not subvert subvert organization’s organization’s legitimate legitimate objectives. objectives.

Integrity Integrity Recognize Recognizeand and communicate communicatepersonal personal and and professional professional limitations. limitations.

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IMA Code of Ethics for Management Accountants Avoid Avoid activities activitiesthat that could could affect affect your yourability abilityto to perform performduties. duties. Refrain Refrainfrom from activities activities that thatcould could discredit discredit the the profession. profession.

Refuse Refuse gifts gifts or or favors favors that thatmight might influence influence behavior. behavior.

Integrity Integrity Communicate Communicate unfavorable unfavorableas aswell wellas as favorable favorable information. information.

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IMA Code of Ethics for Management Accountants Communicate Communicate information information fairly fairlyand andobjectively. objectively.

Objectivity Objectivity Disclose Disclose all all information information that thatmight might be beuseful usefulto to management. management. McGraw-Hill/Irwin

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IMA Code of Ethics for Management Accountants 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.

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IMA Code of Ethics for Management Accountants Resolution of Ethical Conflict Clarify issues in a confidential discussion with an objective advisor. Consult an attorney as to legal obligations. The last resort is to resign.

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End of Chapter 1

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