Managerial Accounting & the Business Environment 2/02/04 Chapter 1

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Managerial Accounting and Financial Accounting Managerial inside Managerial accounting provides information for managers inside an organization who direct and control its operations. Financial outside Financial accounting provides information to stockholders, creditors and others who are outside the organization.

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Differences Between Financial and Managerial Accounting

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Organizational Structure Decentralization is the delegation of decision-making authority throughout an organization.

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Line and Staff Relationships Line positions are directly related to achievement of basic product 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. Marketing, sales, admin. Executive management

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Management Accountants Help management pursue the firm’s goals Internal consultants or business analysts Time spent interpreting data vs creating it Physically positioned in operating department Work on cross-functional teams Extensive face-to-face communications Actively involved in decision making Trusted advisors

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Growth of the internet Accelerated pace in innovation of products and services International competition Growth of the internet Accelerated pace in innovation of products and services International competition Business environment changes in the past twenty years The Changing Business Environment

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin The Changing Business Environment Just-In-Time Total Quality Management Process Reengineering Theory of Constraints New tools for managers!

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Complete products just in time to ship customers. Complete parts just in time for assembly into products. Schedule production, pull system. Schedule production, pull system. Receive materials just in time for production. Receive customer orders. Just-in-Time (JIT) Concept

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Flexible workforce Reduced setup time Zero production defects JIT Requirements Focused factory layout JIT purchasing Fewer, but more ultra-reliable suppliers. Frequent JIT deliveries in small lots. Defect-free supplier deliveries. JIT purchasing Fewer, but more ultra-reliable suppliers. Frequent JIT deliveries in small lots. Defect-free supplier deliveries.

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin More rapid response to customer orders Freed-up funds Freed-up space Freed-up funds Freed-up space Reduced inventory costs Greater customer satisfaction Higher quality products Benefits of a JIT System Increased throughput

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Do we need to change the plan? Where are we? Where do we want to go? How do we start? Collect data How are we doing? Evaluate data. Check Plan ActDo is Total Quality Management “Do it right the first time” Benchmarking Continuous Improvement

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Process Reengineering The process is redesigned to include only those steps that make our product more valuable. Eliminate non-value added steps. Examples? The process is redesigned to include only those steps that make our product more valuable. Eliminate non-value added steps. Examples? Every step in the business process must be justified. A business process is diagrammed in detail. Anticipated results: Process is simplified. Process is completed in less time. Costs are reduced. Opportunities for errors are reduced. Anticipated results: Process is simplified. Process is completed in less time. Costs are reduced. Opportunities for errors are reduced.

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin A sequential process of identifying and removing constraints in a system. Restrictions or barriers that impede progress toward an objective Theory of Constraints

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin 4. Coordinate processes See Exh 1-5, Pg Coordinate processes See Exh 1-5, Pg Measure process capacity 2. Identify process constraints 3. Eliminate bottlenecks Only actions that strengthen the weakest link in the “chain” improve the process. Theory of Constraints

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin 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

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin 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

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Competence IMA Code of Ethics for Management Accountants Follow applicable laws, regulations and standards. Maintain professional competence. Prepare complete and clear reports after appropriate analysis.

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Confidentiality IMA Code of Ethics for Management Accountants 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 personal advantage.

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin IMA Code of Ethics for Management Accountants Avoid conflicts of interest and advise others of potential conflicts. Recognize and communicate personal and professional limitations. Do not subvert organization’s legitimate objectives. Integrity

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin IMA Code of Ethics for Management Accountants Integrity 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.

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin IMA Code of Ethics for Management Accountants Communicate information fairly and objectively. Disclose all information that might be useful to management. Objectivity

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Resolution of Ethical Conflict Follow established policies. For unresolved ethical conflicts: Discuss the conflict with immediate superior. If supervisor involved, go up chain 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

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin 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. IMA Code of Ethics for Management Accountants

© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin End of Chapter 1