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Chapter 1. Managerial Accounting & the Business Environment. Managerial Accounting and Financial Accounting. Managerial accounting provides information for managers inside an organization who direct and control its operations.
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Chapter 1 Managerial Accounting & the Business Environment
Managerial Accounting and Financial Accounting Managerial accountingprovides informationfor managers inside anorganization whodirect and controlits operations. Financialaccountingprovides informationto stockholders,creditors and otherswho are outsidethe organization.
Work of Management Planning Directing and Motivating Controlling
Exh. 1-1 Planning and Control Cycle Formulating long-and short-term plans (Planning) Begin Comparing actualto planned performance (Controlling) Implementing plans (Directing and Motivating) DecisionMaking Measuringperformance (Controlling)
Organizational Structure Decentralization is the delegation of decision-making authority throughout an organization.
Line position 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. Line and Staff Relationships
The Changing Business Environment • Growth of the internet • Just-in-Time production • Total Quality Management • International competition Business environment changes in the past twenty years
New tools for managers! The Changing Business Environment • Just-In-Time • Total Quality Management • Process Reengineering • Theory of Constraints
Just-in-Time (JIT) Systems Receivecustomerorders. Complete productsjust in time toship customers. Scheduleproduction. Complete partsjust in time forassembly into products. Receive materialsjust in time forproduction.
JIT Consequences Zero productiondefects Improvedplant layout Reducedsetup time Flexibleworkforce JIT purchasing Fewer, but more ultra reliable suppliers. Frequent JIT deliveries in small lots. Defect-free supplier deliveries.
Higher qualityproducts Increased throughput Benefits of a JIT System Reducedinventorycosts Freed-up funds Greatercustomersatisfaction More rapidresponse tocustomer orders
Benchmarking ContinuousImprovement Total Quality Management Where are we? Where do we want to go? Plan Do we need to change the plan? How do we start? Act Do is Check How are we doing?
Process Reengineering Anticipated results: Process is simplified. Process is completed in less time. Costs are reduced. Opportunities for errors are reduced. A business processis diagrammedin detail. Every step inthe businessprocess mustbe justified. The process isredesigned to includeonly those steps that makeour product more valuable.
A sequential process of identifying and removing constraintsin a system. Theory of Constraints Restrictions or barriers that impedeprogress toward an objective
Theory of Constraints Only actions that strengthen the weakest link in the “chain” improve the process. 2. Identify process constraints 1. Measure process capacity 3. Use bottlenecks effectively. 4. Coordinate processes
Process Capacity A measure of a process’s ability to transform resources into value products and services. Theory of Constraints System Constraint The point in a system that limits the overall output of the system. Often called the “bottleneck.”
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.
E-Commerce During 2001, many dot.com businesses failed that might have benefited from the application of managerial accounting tools: • cost concepts (Chap. 2) • cost estimation (Chap. 5) • cost-volume-profit (Chap. 6) • activity-based costing (Chap. 8) • budgeting (Chap. 9) • decision-making (Chap. 13) • capital budgeting (Chap. 14)
Importance of Ethicsin Accounting • Ethical accounting practices build trust and promote loyal, productive relationships with users of accounting information. • Many companies and professional organizations, such as the Instituteof Management Accountants (IMA),have written codes of ethics whichserve as guides for employees. • Code of Conduct for Management Accountants
IMA Code of Ethics for Management Accountants Four broad areas of responsibility: • Maintain a high level of professional competence • treat sensitive matters with confidentiality • Maintain personal integrity • Be objective in all disclosures
IMA Code of Ethics for Management Accountants Follow applicable laws, regulations and standards. Maintain professional competence. Competence Prepare complete and clear reports after appropriate analysis.
IMA Code of Ethics for Management Accountants Do not disclose confidential information unless legally obligated to do so. Do not use confidential information for personal advantage. Confidentiality Ensure that subordinates do not disclose confidential information.
IMA Code of Ethics for Management Accountants Avoid conflicts of interest and advise others of potential conflicts. Do not subvert organization’s legitimate objectives. Integrity Recognize and communicate personal and professional limitations.
Avoid activities that could affect your ability to perform duties. Refrain from activities that could discredit the profession. Refuse gifts or favors that might influence behavior. Communicate unfavorable as well as favorable information. IMA Code of Ethics for Management Accountants Integrity
IMA Code of Ethics for Management Accountants Communicate information fairly and objectively. Objectivity Disclose all information that might be useful to management.
IMA Code of Ethics for Management Accountants Resolution of Ethical Conflict • Follow established policies. • For unresolved ethical conflicts: • Discuss the conflict with immediate superior. • If immediate superior is the CEO, consider the board of directors or the audit committee. • Except where legally prescribed, maintain confidentiality.
IMA Code of Ethics for Management Accountants Resolution of Ethical Conflict • Clarify issues in a confidential discussion withan objective advisor. • Consult an attorney as to legal obligations. • The last resort is to resign.
