1. © 2009 McGraw-Hill Ryerson Limited 1-1 Prepared by: Robert G. Ducharme, MAcc, CA University of Waterloo, School of Accounting and Finance MANAGERIAL ACCOUNTING Eighth Canadian Edition GARRISON, CHESLEY, CARROLL, WEBB

2. © 2009 McGraw-Hill Ryerson Limited 1-2 Managerial Accounting and the Business Environment Chapter One

3. © 2009 McGraw-Hill Ryerson Limited 1-3 Learning Objective 1 List the functions of managers.

4. © 2009 McGraw-Hill Ryerson Limited 1-4 Work of Management Planning Controlling Directing and Motivating

5. © 2009 McGraw-Hill Ryerson Limited 1-5 Planning Identify alternatives. Select alternative that does the best job of furthering organization’s objectives. Develop budgets to guide progress toward the selected alternative.

6. © 2009 McGraw-Hill Ryerson Limited 1-6 Directing and Motivating Directing and motivating involves managing day- to-day activities to keep the organization running smoothly.  Employee work assignments.  Routine problem solving.  Conflict resolution.  Effective communications.

7. © 2009 McGraw-Hill Ryerson Limited 1-7 Controlling The control function ensures that plans are being followed. Feedback in the form of performance reports that compare actual results with the budget are an essential part of the control function.

8. © 2009 McGraw-Hill Ryerson Limited 1-8 Planning and Control Cycle Decision Making Formulating long- and short-term plans (Planning) Measuring performance (Controlling) Implementing plans (Directing and Motivating) Comparing actual to planned performance (Controlling) Begin

9. © 2009 McGraw-Hill Ryerson Limited 1-9 Business Plans A business plan consists of information about the company’s basic product or service and about the steps to be taken to reach its potential market. The plan includes information about:  production methods  competition  management team, and  details on how the business will be financed. The business plan is a key document for:  the organization’s internal management, and  external use in attracting creditors and investors. New businesses typically formalize their strategic planning in the form of a business plan.

10. © 2009 McGraw-Hill Ryerson Limited 1-10 Learning Objective 2 Identify the major differences and similarities between financial and managerial accounting.

11. © 2009 McGraw-Hill Ryerson Limited 1-11 Comparison of Financial and Managerial Accounting

12. © 2009 McGraw-Hill Ryerson Limited 1-12 Learning Objective 3 Describe the role of management accountants in an organization.

13. © 2009 McGraw-Hill Ryerson Limited 1-13 Organizational Structure Decentralization is the delegation of decision- making authority throughout an organization.

14. © 2009 McGraw-Hill Ryerson Limited 1-14 Line and Staff Relationships Line positions are directly related to 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.

15. © 2009 McGraw-Hill Ryerson Limited 1-15 The Controller A member of the top management team responsible for:  Providing timely and relevant data to support planning and control activities.  Preparing financial statements for external users.

16. © 2009 McGraw-Hill Ryerson Limited 1-16 The Professional Management Accountant Three types of professional accountants work as management accountants in Canada:  CGA  CA  CMA

17. © 2009 McGraw-Hill Ryerson Limited 1-17 Learning Objective 4 Explain the nature and importance of ethics for accountants.

18. © 2009 McGraw-Hill Ryerson Limited 1-18 Professional Ethics for Management Accountants The U.S. Institute of Management Accountant’s (IMA) Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management have two major parts offering guidelines for:  Ethical behaviour.  Resolution for an ethical conflict.

19. © 2009 McGraw-Hill Ryerson Limited 1-19 Competence Follow applicable laws, regulations and standards. Maintain professional competence. Provide accurate, clear, concise, and timely decision support information. IMA Guidelines for Ethical Behavior Recognize and communicate professional limitations that preclude responsible judgment.

20. © 2009 McGraw-Hill Ryerson Limited 1-20 Confidentiality Do not disclose confidential information unless legally obligated to do so. Ensure that subordinates do not disclose confidential information. Do not use confidential information for unethical or illegal advantage. IMA Guidelines for Ethical Behavior

21. © 2009 McGraw-Hill Ryerson Limited 1-21 Mitigate conflicts of interest and advise others of potential conflicts. Abstain from activities that might discredit the profession. Refrain from conduct that would prejudice carrying out duties ethically. Integrity IMA Guidelines for Ethical Behavior

22. © 2009 McGraw-Hill Ryerson Limited 1-22 Communicate information fairly and objectively. Disclose all relevant information that could influence a user’s understanding of reports and recommendations. Credibility IMA Guidelines for Ethical Behavior Disclose delays or deficiencies in information timeliness, processing, or internal controls.

23. © 2009 McGraw-Hill Ryerson Limited 1-23 Follow employer’s established policies. For unresolved ethical conflicts:  Discuss the conflict with immediate supervisor or next highest uninvolved manager.  If immediate supervisor is the CEO, consider the board of directors or the audit committee.  Contact with levels above the immediate supervisor should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved. IMA Guidelines for Resolution of an Ethical Conflict

24. © 2009 McGraw-Hill Ryerson Limited 1-24 Follow employer’s established policies. For unresolved ethical conflicts:  Except where legally prescribed, maintain confidentiality.  Clarify issues in a confidential discussion with an objective advisor.  Consult an attorney as to legal obligations.  The last resort is to resign. IMA Guidelines for Resolution of an Ethical Conflict

25. © 2009 McGraw-Hill Ryerson Limited 1-25 Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods and services at higher prices Why Have Ethical Standards? Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer Ethical standards in business are essential for a smooth functioning advanced market economy

26. © 2009 McGraw-Hill Ryerson Limited 1-26 Corporate Governance The system by which a company is directed and controlled. Board of Directors Top Management Stockholders To pursue objectives of Incentives and monitoring for

27. © 2009 McGraw-Hill Ryerson Limited 1-27 Corporate Governance And the communities in which the company operates. An effective corporate governance system should also protect the interests of the company’s other stakeholders. Employees Customers Suppliers Creditors

28. © 2009 McGraw-Hill Ryerson Limited 1-28 Learning Objective 5 Explain the basic concepts of lean production, six sigma, computer technology and risk management.

29. © 2009 McGraw-Hill Ryerson Limited 1-29 Process Management Business functions making up the value chain Product Customer R&D Design Manufacturing Marketing Distribution Service A business process is a series of steps that are followed in order to carry out some task in a business.

30. © 2009 McGraw-Hill Ryerson Limited 1-30 Process Management There are four approaches to improving business processes...  Lean Production  Six Sigma  Computer Technology  Risk Management

31. © 2009 McGraw-Hill Ryerson Limited 1-31 Traditional “Push” Manufacturing Company Forecast Sales Order components Produce goods in Anticipation of Sales Make Sales from Finished Goods Inventory Store Inventory

32. © 2009 McGraw-Hill Ryerson Limited 1-32 Traditional “push” manufacturing Traditional “Push” Manufacturing Company Large inventories Finished goods Raw materials Work in process Materials waiting to be processed. Completed products awaiting sale. Partially completed products requiring more work before they are ready for sale.

33. © 2009 McGraw-Hill Ryerson Limited 1-33 Lean Production Exhibit 1-6 The lean thinking model is a five step approach.  Identify value in specific products/services.  Identify the business process that delivers value.  Organize work arrangements around the flow of the business process.  Create a pull system that responds to customer orders.  Continuously pursue perfection in the business process.

34. © 2009 McGraw-Hill Ryerson Limited 1-34 Customer Places an Order Create Production Order Generate Component Requirements Production Begins as Parts Arrive Goods Delivered when needed Components are Ordered Lean Production The five step process results in a “pull” manufacturing system that reduces inventories, decreases defects, reduces wasted effort, and shortens customer response times.

35. © 2009 McGraw-Hill Ryerson Limited 1-35 Lean Production Lean thinking may be used to improve business processes that link companies together. The term supply chain management refers to the coordination of business processes across companies to better serve end consumers.

36. © 2009 McGraw-Hill Ryerson Limited 1-36 Six Sigma A process improvement method relying on customer feedback and fact-based data gathering and analysis techniques to drive process improvement. Refers to a process that generates no more than 3.4 defects per million opportunities. Sometimes associated with the term zero defects.

37. © 2009 McGraw-Hill Ryerson Limited 1-37 E-Commerce E-commerce refers to business conducted using the Internet. In addition to dot.com companies, traditional businesses, such as banks and retailers, continue to expand their Internet presence. The growth in e-commerce is occurring because the Internet has important advantages over more conventional marketplaces for many kinds of transactions.

38. © 2009 McGraw-Hill Ryerson Limited 1-38 Enterprise Systems A single software system that integrates data across an organization, thereby enabling all employees to have simultaneous access to a common set of data. All data are recorded only once in the company’s centralized database. The unique data elements contained within a database can be linked together.

39. © 2009 McGraw-Hill Ryerson Limited 1-39 Enterprise Risk Management A process used by a company to proactively identify and manage risk. Once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls. Should I try to avoid the risk, share the risk, accept the risk, or reduce the risk?

40. © 2009 McGraw-Hill Ryerson Limited 1-40 Enterprise Risk Management

41. © 2009 McGraw-Hill Ryerson Limited 1-41 End of Chapter 1