1-1 Managerial Accounting Managerial Accounting Tenth Edition Louderback & Holmen

1-2 Task Force Clip Art included in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada.

1-3Introduction Prepared by Douglas Cloud Pepperdine University Prepared by Douglas Cloud Pepperdine University 1

1-4  Describe four management functions and their relationships to accounting.  Describe the value chain and explain how it relates to competitive strategies.  Distinguish between financial accounting and managerial accounting.  Describe some of the problems that arise in conventional manufacturing and how advanced manufacturing techniques overcome them. ObjectivesObjectives After reading this chapter, you should be able to:

1-5  Describe the activities of managerial accountants.  Describe the code of ethics that managerial accountants follow.  Describe some factors influencing the development of managerial accounting. ObjectivesObjectives

1-6 Management Functions and Accouning and Accounting Planning is setting goals and developing strategies and tactics to achieve them. Control is determining whether goals are being met, and if not, what can be done.

1-7PlanningPlanning Managerial accountants prepare budgeted financial statements, often called pro forma statements. Long-term planning, often called strategic planning, is critical to organizations. A value chain is the entire set of processes that transforms raw materials into finished products. Much of the information provided by managerial accountants is used in decision making.

1-8 Performance evaluation Control reports ControlControl

1-9 Managerial Accounting and Financial Accounting Both managerial and financial accounting deal with economic events. Both require quantifying the results of economic activity. Both are concerned with revenues and expenses, assets, liabilities, and cash flows. Both involve financial statements. Both suffer from the difficulties of capturing, in quantitative terms, the many aspects of an economic event. ContinuedContinued

1-10 Managerial Accounting and Financial Accounting Managerial accounting reports are specifically designed for a particular user or a particular decision. Financial accounting is primarily historical. Managerial accounting is concerned more with the future. Managerial accounting has no external restrictions, such as generally accepted accounting principles. Financial accounting serves persons outside the firm, while managerial accounting serves persons inside the firm.

1-11 Background of Conventional Manufacturing American companies were the unchallenged world leaders in manufacturing following World War II. American companies had strong advantages in product quality, capacity, and distribution facilities. American firms could sell nearly anything they made. Production was the critical activity and the philosophy was to “get it out the door.” ContinuedContinued

1-12 American manufacturers adopted practices that reflected a “just-in-case” philosophy which led to large amounts of inventory, along with waste, scrap, and the reworking of defective units. Lead time or cycle times extended well beyond the time needed for the manufacturing process alone. A product that could be manufactured in one or two days took one or two months. Background of Conventional Manufacturing

1-13 Just-in-Time (JIT) Just-in-time (JIT) manufacturing is a philosophy that focuses on timing, efficiency, and quality in meeting commitments. Companies that employ JIT strive for continual improvement and relentlessly search out and eliminate waste of materials, time, and space.

1-14 Just-in-Time (JIT)  Under ideal conditions, purchased materials and components arrive just in time to be used.  Partly assembled units arrive at work stations just in time for the next step in production.  Finished units emerge from production just in time to meet the shipping date requested by the customer.  Setup times are reduced by a flexible manufacturing system.

1-15 Just-in-Time (JIT) Computer-integrated manufacturing (CIM) provides that a factory is virtually all automated and controlled by computer.

1-16 Conventional Manufacturing Departments working on all products Single-skilled workers Large batches, erratic flows Some defects seen as inevitable Long production cycle Large inventories held as buffers Large deliveries at irregular intervals Achieve acceptable performance Design and manufacturing separate

1-17 JIT Manufacturing Manufacturing cells concentrating on one product Multiskilled workers Small batches, smooth flows Total quality control Short production cycle Zero or trivial inventories Daily delivery of materials/components Relentless search to improve, eliminate all waste Integrate design and manufacturing

1-18 Line Versus Staff Functions Managers of line functions are concerned with the primary operating activities of the organization-manufacturing (or buying) and selling a physical product or performing a service. A staff manager manages a department that serves other departments.

1-19 Managerial Accountants in Businesses Include: Controller’s office Budget analysts Cost analysts Financial analysts

1-20 The Specific Duties of Managerial Accountants Include: assisting in the design of the organization’s information system. ensuring that the system performs adequately. periodically reporting information to interested managers. undertaking special analyses.

1-21 Standards of Ethical Conduct for Management Accountants Maintain an appropriate level of professional competence by ongoing development of their knowledge and skills. Perform their professional duties in accordance with relevant laws, regulations, and technical standards. Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information. Management accountants have a responsibility to: COMPETENCE

1-22 Standards of Ethical Conduct for Management Accountants Management accountants have a responsibility to: CONFIDENTIALITY Refrain from disclosing confidential information acquired in the course of their work except when authorized unless legally obligated to do so. Inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that confidentiality. Continued

1-23 Standards of Ethical Conduct for Management Accountants Management accountants have a responsibility to: CONFIDENTIALITY Refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through third parties.

1-24 Management accountants have a responsibility to: INTEGRITY Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict. Refrain from engaging in any activity that would prejudice their ability to carry out their duties ethically. Refuse any gift, favor, or hospitality that would influence or would appear to influence their actions. Standards of Ethical Conduct for Management Accountants Continued

1-25 Standards of Ethical Conduct for Management Accountants Refrain from either actively or passively subverting the attainment of the organization’s legitimate and ethical objectives. Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. Management accountants have a responsibility to: INTEGRITY Continued

1-26 Standards of Ethical Conduct for Management Accountants Communicate unfavorable as well as favorable information and professional judgments or opinions. Refrain from engaging in or supporting any activity that would discredit the profession. Management accountants have a responsibility to: INTEGRITY

1-27 Standards of Ethical Conduct for Management Accountants Communicate information fairly and objectively. Disclose fully all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, comments, and recommendations presented. Management accountants have a responsibility to: OBJECTIVITY

1-28 Courses of Actions: Resolving Ethical Conflict  Discuss problems with immediate supervisor except when it appears the superior is involved.  If the immediate superior is the chief executive officer, or equivalent, the acceptable reviewing authority may be the audit committee, board of trustees, or owners.  Clarify relevant concepts by confidential discussion with an objective advisor to obtain an understanding of possible courses of action.

1-29  If the ethical conflict still exists after exhausting all levels of internal review, the management accountant may have no other recourse but resign.  Except where legally prescribed, communication of such problems with external parties is not appropriate. Resolving Ethical Conflict Courses of Actions:

1-30 International Aspects of Managerial Accounting Should capital be raised in the U.S. or elsewhere? Where should the company manufacture the products it sells to customers in and outside of the U.S.? What products should the company make and in which countries?

1-31 Should the company make some parts for its production in one country and complete the manufacturing process in others? Would it be profitable to change some products to accommodate differences among countries in tastes and culture? International Aspects of Managerial Accounting

1-32DeregulationDeregulation Deregulation is increasingly important, and is among the factors that are influencing management accounting. In some regulated environments, companies are guaranteed a stipulated rate of profit. Such companies do not need to control costs because they can pass them along to consumers.

1-33 The End Chapter 1

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