Table 1: Comparison of Management and Financial Accounting

Figure 1: Overview of the Planning Framework

Figure 2: The Supply Chain

Figure 3: The Value Chain

Exhibit 2: Value Chain Analysis

Value Chain Analysis The value chain conceives of each step in the manufacture of a product or the delivery of a service as a link in a chain that adds value to the product or service.

Value Chain Analysis The primary processes that add value to a product or service include research and development, design, supply, production, marketing, distribution, and customer service.

Value Chain Analysis The value chain also includes support services (such as human resources, legal services, information services, and management accounting); these services are necessary for promoting the effectiveness and efficiency of the primary processes, but they do not add value to the product or service.

Value Chain Analysis Value chain analysis enables a company to focus on its core competencies. Value chain analysis often results in a decision to outsource a product or service.

Figure 4: The Continuous Improvement Environment

Continuous Improvement The concept of continuous improvement, which evolved in response to an increase in global competition, has given rise to several important management tools, all of which rely on management accounting information: –Just-in-time (JIT) operating philosophy –Total quality management (TQM) Costs of quality

Continuous Improvement The concept of continuous improvement, which evolved in response to an increase in global competition, has given rise to several important management tools, all of which rely on management accounting information: (cont.) –Activity-based management (ABM) Value-adding activities Nonvalue-adding activities Activity-based costing (ABC)

Continuous Improvement The concept of continuous improvement, which evolved in response to an increase in global competition, has given rise to several important management tools, all of which rely on management accounting information: (cont.) –Theory of constraints (TOC)

Continuous Improvement All these tools are designed to –Reduce production or service costs and delivery time –Improve product or service quality –Increase customer satisfaction

Figure 5: The Balanced Scorecard for Good Foods Store

Performance Measures: A Key to Achieving Organizational Objectives Performance measures –Quantitative tools that gauge an organization’s performance in relation to a specific process, activity, or task –May be financial or nonfinancial

Performance Measures: A Key to Achieving Organizational Objectives Performance measures (cont.) –Financial performance measures include Return on investment Net income as a percentage of sales Costs of poor quality as a percentage of sales

Performance Measures: A Key to Achieving Organizational Objectives Performance measures (cont.) –Nonfinancial performance measures include Number of customer complaints Number of orders shipped the same day Hours of inspection Time to fill an order

Performance Measures: A Key to Achieving Organizational Objectives Performance measures (cont.) –Performance measures are useful in reducing waste and inefficiencies in operating activities.

Performance Measures: A Key to Achieving Organizational Objectives Performance measures are used in all stages of the management process. –Planning stage: Managers establish performance measures that will motivate employees to fulfill the company’s mission and achieve its objectives. –Performing stage: Performance measures guide and motivate actual performance and assist in assigning costs.

Performance Measures: A Key to Achieving Organizational Objectives Performance measures are used in all stages of the management process. (cont.) –Evaluating stage: Managers use performance measures to analyze significant differences between actual and planned performance. –Communicating stage: Performance measurement information is used in communicating performance evaluations and developing new budgets.

Performance Measures: A Key to Achieving Organizational Objectives Balanced scorecard –Approach to performance measurement that links the perspectives of an organization’s four stakeholder groups to the organization’s mission, objectives, resources and performance measures.

Performance Measures: A Key to Achieving Organizational Objectives Balanced scorecard (cont.) –Stakeholders have one of four perspectives: Financial perspective Learning and growth perspective The business’s internal procedures A customer perspective

Performance Measures: A Key to Achieving Organizational Objectives Balanced scorecard (cont.) –The balanced scorecard enables a company to determine whether it is making continuous improvement in its operations.

Performance Measures: A Key to Achieving Organizational Objectives Benchmarking is a technique for determining a company’s competitive advantage by comparing its performance with that of its closest competitors in the same industry. –Benchmarks are measures of the best practices in an industry.

Standards of Ethical Conduct OBJECTIVE 5: Identify the standards of ethical conduct for management accountants.

Exhibit 3: Statement of Ethical Professional Practice

Standards of Ethical Conduct Management accountants must adhere to standards of ethical conduct.

Standards of Ethical Conduct Standards of ethical conduct for management accountants emphasize competence, confidentiality, integrity, and credibility. –Competence standards require management accountants to Develop their knowledge and skills on an ongoing basis. Perform duties in accordance with relevant laws and technical standards.

Standards of Ethical Conduct Standards of ethical conduct for management accountants emphasize competence, confidentiality, integrity, and credibility. –Competence standards require management accountants to (cont.) Provide decision support and recommendations that are accurate, clear, concise, and timely. Recognize and communicate professional limitations or other constraints that would preclude performance of responsibilities.

Standards of Ethical Conduct Standards of ethical conduct for management accountants emphasize competence, confidentiality, integrity, and credibility. (cont.) –Confidentiality standards require them to Refrain from disclosing confidential information except when authorized or legally required to disclose it. Inform all relevant parties regarding appropriate use of confidential information. Make sure that subordinates refrain from disclosing confidential information.

Standards of Ethical Conduct Standards of ethical conduct for management accountants emphasize competence, confidentiality, integrity, and credibility. (cont.) –Confidentiality standards require them to Refrain from using or appearing to use confidential information for unethical or illegal advantage.

Standards of Ethical Conduct Standards of ethical conduct for management accountants emphasize competence, confidentiality, integrity, and credibility. (cont.) –Integrity standards require them to Avoid conflicts of interest and mitigate any actual conflicts of interest. Refrain from activities that would prejudice their ability to carry out their duties ethically. Refrain from activities that would discredit the profession.

Standards of Ethical Conduct Standards of ethical conduct for management accountants emphasize competence, confidentiality, integrity, and credibility. (cont.) –Credibility standards require them to Communicate information fairly and objectively. Fully disclose all relevant information that could influence a user’s understanding of the material. Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law.