1. MANAGERIAL ACCOUNTING AND THE BUSINESS ENVIRONMENT Chapter 1

2. Copyright © The McGraw-Hill Companies, Inc 2011 1-2 Copyright © The McGraw-Hill Companies, Inc 2011 2

3. 1-3 Copyright © The McGraw-Hill Companies, Inc 2011 3

4. 1-4 Copyright © The McGraw-Hill Companies, Inc 2011 4 Business Strategy A strategy is a “game plan” that enables a company to attract customers by distinguishing itself from competitors. The focal point of a company’s strategy should be its target customers.

5. Copyright © The McGraw-Hill Companies, Inc 2011 1-5 Copyright © The McGraw-Hill Companies, Inc 2011 5 Strategy - Customer Value Propositions Understand and respond to individual customer needs. Customer Intimacy Strategy Operational Excellence Strategy Deliver products and services faster, more conveniently, and at lower prices. Product Leadership Strategy Offer higher quality products.

6. Copyright © The McGraw-Hill Companies, Inc 2011 1-6 Copyright © The McGraw-Hill Companies, Inc 2011 6 Implementing Strategy through 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.

7. Copyright © The McGraw-Hill Companies, Inc 2011 1-7 Copyright © The McGraw-Hill Companies, Inc 2011 7 Process Management There are three approaches to improving business processes...  Lean Production  Theory of Constraints (TOC)  Six Sigma

8. Copyright © The McGraw-Hill Companies, Inc 2011 1-8 Copyright © The McGraw-Hill Companies, Inc 2011 8 Traditional “Push” Manufacturing Company Forecast Sales Order components Produce goods in anticipation of Sales Make Sales from Finished Goods Inventory Store Inventory

9. Copyright © The McGraw-Hill Companies, Inc 2011 1-9 Copyright © The McGraw-Hill Companies, Inc 2011 9 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.

10. Copyright © The McGraw-Hill Companies, Inc 2011 1-10 Copyright © The McGraw-Hill Companies, Inc 2011 10 Lean Production 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.

11. Copyright © The McGraw-Hill Companies, Inc 2011 1-11 Copyright © The McGraw-Hill Companies, Inc 2011 11 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.

12. Copyright © The McGraw-Hill Companies, Inc 2011 1-12 Copyright © The McGraw-Hill Companies, Inc 2011 12 Lean Production Lean thinking can 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.

13. Copyright © The McGraw-Hill Companies, Inc 2011 1-13 Copyright © The McGraw-Hill Companies, Inc 2011 13 A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want. The Theory of Constraints is based on the observation that effectively managing the constraint is the key to success. The constraint in a system is determined by the step that has the smallest capacity The constraint in a system is determined by the step that has the smallest capacity. Theory of Constraints

14. Copyright © The McGraw-Hill Companies, Inc 2011 1-14 Copyright © The McGraw-Hill Companies, Inc 2011 14 4. Recognize that the weakest link is no longer so. 1. Identify the weakest link. 2. Allow the weakest link to set the tempo. 3. Focus on improving the weakest link. Only actions that strengthen the weakest link in the “chain” improve the process. Theory of Constraints

15. Copyright © The McGraw-Hill Companies, Inc 2011 1-15 Copyright © The McGraw-Hill Companies, Inc 2011 15 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.

16. Copyright © The McGraw-Hill Companies, Inc 2011 1-16 Copyright © The McGraw-Hill Companies, Inc 2011 16 Six Sigma

17. Copyright © The McGraw-Hill Companies, Inc 2011 1-17 Copyright © The McGraw-Hill Companies, Inc 2011 17 Organizational Structure Decentralization is the delegation of decision- making authority throughout an organization.

18. Copyright © The McGraw-Hill Companies, Inc 2011 1-18 Copyright © The McGraw-Hill Companies, Inc 2011 18 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.

19. Copyright © The McGraw-Hill Companies, Inc 2011 1-19 The Chief Financial Officer (CFO) 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. 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.

20. Copyright © The McGraw-Hill Companies, Inc 2011 1-20 Copyright © The McGraw-Hill Companies, Inc 2011 20 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 economy.

21. Copyright © The McGraw-Hill Companies, Inc 2011 1-21 Copyright © The McGraw-Hill Companies, Inc 2011 21 Company Codes of Conduct Employees Customers Suppliers And to the communities in which the company operates. Broad-based statements of a company’s responsibilities to:

22. Copyright © The McGraw-Hill Companies, Inc 2011 1-22 Copyright © The McGraw-Hill Companies, Inc 2011 22 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

23. Copyright © The McGraw-Hill Companies, Inc 2011 1-23 Copyright © The McGraw-Hill Companies, Inc 2011 23 The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 was intended to protect the interests of those who invest in publicly traded companies by improving the reliability and accuracy of corporate financial reports and disclosures. Six key aspects of the legislation include:  The Act requires both the CEO and CFO to certify in writing that their company’s financial statements and disclosures fairly represent the results of operations.  The Act establishes the Public Company Accounting Oversight Board to provide additional oversight of the audit profession.  The Act places the power to hire, compensate, and terminate public accounting firms in the hands of the audit committee.  The Act places restrictions on audit firms, such as prohibiting public accounting firms from providing a variety of non-audit services to an audit client.

24. Copyright © The McGraw-Hill Companies, Inc 2011 1-24 Copyright © The McGraw-Hill Companies, Inc 2011 24 The Sarbanes-Oxley Act of 2002 (continued)  The Act requires a public company’s independent auditor to issue an opinion on the effectiveness of the company’s internal control over financial reporting to accompany management’s assessment, and both are included in the company’s annual report. ‘The Act establishes severe penalties for certain behaviors, such as: Up to 20 years in prison for altering or destroying any documents that may eventually be used in an official proceeding. Up to 10 years in prison for retaliating against a “whistle blower.”

25. Copyright © The McGraw-Hill Companies, Inc 2011 1-25 Copyright © The McGraw-Hill Companies, Inc 2011 25 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?

26. Copyright © The McGraw-Hill Companies, Inc 2011 1-26 Copyright © The McGraw-Hill Companies, Inc 2011 26 Enterprise Risk Management

27. Copyright © The McGraw-Hill Companies, Inc 2011 1-27 Copyright © The McGraw-Hill Companies, Inc 2011 27 End of Chapter 1