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Managerial Accounting & the Business Environment

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1 Managerial Accounting & the Business Environment
Chapter 1 Managerial Accounting & the Business Environment

2 Managerial Accounting and Financial Accounting
Managerial accounting provides information for managers inside an organization who direct and control its operations. Financial accounting provides information to stockholders, creditors and others who are outside the organization.

3 Directing and Motivating
Work of Management Planning Directing and Motivating Controlling

4 Planning and Control Cycle
Exh. 1-1 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)

5 Differences Between Financial and Managerial Accounting

6 Organizational Structure
Decentralization is the delegation of decision-making authority throughout an organization.

7 Line and Staff Relationships
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.

8 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

9 The Changing Business Environment
New tools for managers! Just-In-Time Total Quality Management Process Reengineering Theory of Constraints

10 Just-in-Time (JIT) Systems
Receive customer orders. Complete products just in time to ship customers. Schedule production. Receive materials just in time for production. Complete parts just in time for assembly into products.

11 JIT Consequences JIT purchasing
Zero production defects Improved plant layout Reduced setup time Flexible workforce JIT purchasing Fewer, but more ultrareliable suppliers. Frequent JIT deliveries in small lots. Defect-free supplier deliveries.

12 Benefits of a JIT System
Reduced inventory costs Freed-up funds Greater customer satisfaction Higher quality products More rapid response to customer orders Increased throughput

13 Total Quality Management
Benchmarking Where are we? Where do we want to go? Plan Do we need to change the plan? How do we start? Act Do is Continuous Improvement Check How are we doing?

14 Process Reengineering
Anticipated results: Process is simplified. Process is completed in less time. Costs are reduced. Opportunities for errors are reduced. 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 make our product more valuable.

15 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

16 Theory of Constraints 2. Identify process 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

17 Theory of Constraints Process Capacity
A measure of a process’s ability to transform resources into value products and services. System Constraint The point in a system that limits the overall output of the system. Often called the “bottleneck.”

18 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.

19 E-Commerce During 2001, many 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)

20 Importance of 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 Institute of Management Accountants (IMA), have written codes of ethics which serve as guides for employees. Code of Conduct for Management Accountants

21 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

22 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.

23 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.

24 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.

25 IMA Code of Ethics for Management Accountants
Avoid activities that could affect your ability to perform duties. Communicate unfavorable as well as favorable information. Refrain from activities that could discredit the profession. Refuse gifts or favors that might influence behavior. Integrity

26 IMA Code of Ethics for Management Accountants
Communicate information fairly and objectively. Objectivity Disclose all information that might be useful to management.

27 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.

28 IMA Code of Ethics for Management Accountants
Resolution of Ethical Conflict Clarify issues in a confidential discussion with an objective advisor. Consult an attorney as to legal obligations. The last resort is to resign.

29 End of Chapter 1

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