Weeks

# 1
Managerial Accounting
and the Business
Environment
Managerial Accounting and
Financial Accounting

Managerial accounting Financial accounting

provides information provides information
for managers of an to stockholders,
organization who creditors and others
direct and control who are outside
its operations. the organization.
Work of Management

Planning
Directing and
Motivating

Controlling
Planning and Control Cycle
Formulating Long-and Begin
Short-Term Plans
(Planning)

Comparing Actual Implementing

to Decision the Plans
Planned Performance Making (Directing and
(Controlling) Motivating)

Measuring
Performance
(Controlling)
 Differences Between Financial and
Managerial Accounting
Financial Managerial
Accounting Accounting
1. Users External persons who Managers who plan for
make 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 GAAP
and prescribed formats or any prescribed format
 Expanding Role of Managerial
Accounting
Increasing complexity and
size of organizations
Regulatory
environment
Factors that
Increased
increase the need for
emphasis
managerial accounting
on quality
information
World-wide
competition
Rapid development and
implementation of technology
The Changing Business
Environment

A more competitive
environment emphasizing:
 Higher quality products
 Lower prices and costs
 Global competition Business environment
changes in the past
 Meeting and anticipating twenty years
customer needs
The Changing Business
Environment

New tools for

managers!

Just-In-Time (JIT)
Total Quality Management
(TQM)
Process Reengineering
Theory of Constraints
 Just-in-Time (JIT) Systems
Receive
customer Complete products
orders. just in time to
ship customers.

Schedule
production.

Receive materials Complete parts

just in time for just in time for
production. assembly into products.
Key Elements for a Successful
JIT System
Zero
Zero production
production
Improved
Improved defects
defects
plant
plant layout
layout

Reduced
Reduced Flexible
Flexible
setup
setuptime
time 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.
 Benefits of a JIT System

Reduced
Reduced
inventory
inventory Greater
Greater
costs
costs customer
customer
satisfaction
satisfaction

Higher quality
products
More
More rapid
rapid
response
response toto
Less
Less warehouse
warehouse customer
customer orders
orders
space
space needed
needed
Total Quality Management (TQM)
Where are we?
Benchmarking
Where do we want to go?
Plan

Do we need How do
to change Act Do
the plan? is we start?

Check Continuous
Improvement
How are we doing?
 Process Reengineering
A business process
is diagrammed
in detail.

Every step in The process is

the business redesigned to include
process must only those steps that make
be justified. our product more valuable.
 Process Reengineering
A business process Anticipated results:
is diagrammed  Process is simplified.
in detail.  Process is completed
in less time.
 Costs are reduced.
 Opportunities for
errors are reduced.

Every step in The process is

the business redesigned to include
process must only those steps that make
be justified. our product more valuable.
 Theory of Constraints

A sequential process of identifying and removing

constraints in a system.

Restrictions or barriers that impede

progress toward an objective
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.
Organizational Structure
An
An organization
organization is is aa group
group of
of people
people
united
united for
for aa common
common purpose.
purpose.
C o r p o ra te O rg a n iz a tio n C h a rt
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 rs o n n e l V ic e P r e s id e n t C h ie f F in a n c ia l
O p e r a t io n s O f f ic e r

T re a s u re r C o n t r o lle r
Decentralization
Decentralization
Decentralization is
is the
the delegation
delegation of
of decision-
decision-
making
making authority
authority throughout
throughout anan organization.
organization.

C o r p o ra te O rg a n iz a tio n C h a rt
De
t ion ce
liza ng B o a r d o f D ir e c t o r s de
cis
n tr
ali
tr a ki za
e n a ion
c – m –m tion
De sion P r e s id e n t ak
ci ing
de
P u r c h a s in g P e rs o n n e l V ic e P r e s id e n t C h ie f F in a n c ia l
O p e r a t io n s O f f ic e r

T re a s u re r C o n t r o lle r
 Line and Staff Relationships

Line positions are Staff positions support

directly related to and assist line
achievement of the positions.
basic objectives of an  Example: Cost
organization. accountants in the
 Example: Production manufacturing plant.
supervisors in a
manufacturing plant.
The Controller

The
The chief
chief accountant
accountant in in an
an organization
organization
with
with responsibility
responsibility for:
for:
Financial
 Financial planning
planning and
and analysis.
analysis.
Cost
 Cost control.
control.
Financial
 Financial reporting.
reporting.
Accounting
 Accounting information
information systems.
systems.
 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.
IMA Code of Ethics for
Management Accountants

Competence
Competence
Confidentiality
Confidentiality
Integrity
Integrity
Objectivity
Objectivity
Resolution
Resolutionof
ofEthical
EthicalConflict
Conflict
The Role of Cost Management
Finding Opportunity &
Leading Change
The Past
Cost Accounting

Focused On
Recording Data

Measured
And
Reported Costs
 The Future
Cost Management
Will Provide Information for Decisions Related To:

? ?
?
 The Future
Cost Management
Will Provide Information for Decisions
Related To:
Improving
Improving
Products,
Products,

?
Services,
Services,
and Use
and Use of
of
Resources
Resources

?
 The Future
Cost Management
Will Provide Information for Decisions
Related To:

? ?
Supporting
Supporting
Strategies
Strategies
 The Future
Cost Management
Will Provide Information for Decisions
Related To:

? Systematically
Systematically
Reducing
Reducing
Costs
Costs

?
Who Are Cost Managers?
They serve as
communicators of
company values to
employees.
They have diverse
educational
backgrounds.
They need broad
knowledge of the Competence is a
organization. given!
Who Are Cost Managers?

CREATIVITY AWARENESS

They
exhibit
attributes
of
DILIGENCE HONESTY

OPENNESS
 Simultaneous Decisions
Cost Management Information Is Used Daily To:
1.
1. Motivate
Motivateand
andevaluate
evaluateperformance
performanceofof individuals
individualsand
and
subunits
subunits
Develop
Developincentive
incentiveprograms
programsandandmeasure
measureimprovement,
improvement,
productivity,
productivity, quality,
quality,cycle
cycletime,
time,and
andcustomer
customersatisfaction
satisfaction

2.
2. Communicate
Communicate plans
plans and
and results
results to
to constituents
constituents
Provide
Provide frequent
frequent and
and timely
timely communications
communications to to
match
match decision
decision making
making
 Simultaneous Decisions
Cost Management Information Is Used Daily To

3.
3. Evaluate
Evaluate success
success ofof decision
decision making
making and
and
making
making improvements
improvements
Explain
Explain and
and interpret
interpret differences
differences between
between
actual
actual outcomes
outcomes and
and plans
plans
Efficient Companies . . .
. . . Provide
Products and
Services that
Customers
Want By . . .
Efficient Companies . . .
. . . Provide
Products and . . . Using the
minimum amount of
Services that the organization’s
Customers scarce resources . . .
Want By . . .

. . .While continuously
seeking to improve value
and costs.
 The Value Chain
Define
Define scale
scale and
and scope
scope of
of operation
operation

Physical
Physical Human
Human
resources
resources resources
resources

Support
Supportservices
services
••Accounting
Accounting
••Human
Humanresources
resources
••Legal services
Legal services
••Information
Informationsystems
systems
••Telecommunications
Telecommunications

Value of
Research
and Distri- Customer products
Design Supply Production Marketing
Develop- bution service and
ment
services

Primary processes
Analyzing Alternative Value Chain
Configurations
This is a technique for identifying opportunities for
improvement and measuring the effects of
proposed improvement by comparing both the
cost and benefits of a proposal.

Cost
Cost benefit
benefit
analysis
analysis
QUANTITATIVE QUALITATIVE
INFORMATION INFORMATION
 Quantitative Information

Quantitative Information
can be measured relatively
easily and is usually
expressed in dollars or
other quantities relating to
size, frequency, etc.
Qualitative Information
Qualitative Information
is descriptive and is
based on
characteristics or
perceptions, such as
relative desirability,
rather than quantities.
End of Chapter