Managerial Accounting and the Business Environment Chapter1 Managerial Accounting and the Business Environment
Learning Objectives After studying this chapter, you should be able to: 1. Identify the major differences and similarities between financial and managerial accounting. 2. Understand the role of management accountants in an organization. 3. Understand the basic concepts underlying just-in-time (JIT), total quality management (TQM), process reengineering, and the theory of constraints (TOC).
Learning Objectives After studying this chapter, you should be able to: 4. Discuss the impact of international competition on businesses and on managerial accounting. 5. Explain the importance of upholding ethical standards.
Managerial Accounting and Financial Accounting Managerial accounting provides information to managers of an organization who direct and control its operations. Financial accounting provides information to stockholders, creditors, and others who are outside the organization.
Directing and Motivating Work of Management Planning Directing and Motivating Controlling
Planning and Control Cycle Formulating long- and short-term plans (Planning) Begin Comparing actual to planned performance (Controlling) Implementing plans (Directing and Motivating) Decision Making Measuring performance (Controlling)
Comparison of Financial and Managerial Accounting
Expanding Role of Managerial Accounting Increasing complexity and size of organizations Regulatory environment Factors that increase the need for managerial accounting information Increased emphasis on quality World-wide competition Rapid development and implementation of technology
Organizational Structure An organization is a group of people united for a common purpose.
Decentralization Decentralization is the delegation of decision-making authority throughout an organization. Decentralization decision–making Decentralization decision–making
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.
The Controller The chief accountant in an organization with responsibility for: Financial planning and analysis. Cost control. Financial reporting. Accounting information systems.
The Professional Management Accountant Three types of professional accountants work as management accountants in Canada: CGA. CA. CMA.
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
The Changing Business Environment New tools for managers! Just-In-Time Total Quality Management Process Reengineering Theory of Constraints
Just-in-Time (JIT) Systems Receive customer orders. Complete products just in time to ship to customers. Schedule production. Receive materials just in time for production. Complete parts just in time for assembly into products.
Key Elements for a Successful JIT System Zero production defects Improved plant layout Reduced setup time Flexible workforce JIT purchasing Fewer, but more ultra-reliable suppliers. Frequent JIT deliveries in small lots. Defect-free supplier deliveries.
Benefits of a JIT System Reduced inventory costs Greater customer satisfaction Higher quality products More rapid response to customer orders Less warehouse space needed
Total Quality Management Benchmarking Where are we? Where do we want to go? Check Plan Act Do is Do we need to change the plan? How do we start? Continuous Improvement How are we doing?
Process Reengineering A business process is diagrammed in detail. Every step in the business process must be justified. The process is redesigned to include only those steps that add value to the product.
Process Reengineering A business process is diagrammed in detail. Anticipated results: Process is simplified. Process is completed in less time. Costs are reduced. Opportunities for errors are reduced. Every step in the business process must be justified. The process is redesigned to include only those steps that make the product more valuable.
Restrictions or barriers that impede progress toward an objective 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.
Professional 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 International Federation of Accountants (IFAC), have written codes of ethics that serve as guides.
IFAC Code of Ethics for Professional Accountants Competence Confidentiality Integrity Objectivity
End of Chapter 1