Managerial Accounting and the Business Environment PDF

Managerial Accounting and the Business Environment Chapter One McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Work of Management Planni ng Direc...

Managerial Accounting and the Business Environment Chapter One McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Work of Management Planni ng Directing and Motivating Controll ing McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Planning Identify alternatives. Select alternative that does the best job of furthering organization’s objectives. Develop budgets to guide progress toward the selected alternative. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Directing and Motivating Directing and motivating involves managing day- to-day activities to keep the organization running smoothly. 🞂 Employee work assignments. 🞂 Routine problem solving. 🞂 Conflict resolution. 🞂 Effective communications. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Controlling The control function ensures that plans are being followed. Feedback in the form of performance reports that compare actual results with the budget are an essential part of the control function. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Exh. 1-1 Planning and Control Cycle Formulating long- Begin and short-term plans (Planning) Comparing actual Implementing to planned Decision plans (Directing performance Making and Motivating) (Controlling) Measuring performance (Controlling) McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Exh. Comparison of Financial and 1-2 Managerial Accounting McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Organizational Structure Decentralization is the delegation of decision- making authority throughout an organization. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Line and Staff Relationships Line positions are Staff positions support directly related to and assist line achievement of the positions. basic objectives of an 🞂 Example: Cost organization. accountants in the 🞂 Example: Production manufacturing plant. supervisors in a manufacturing plant. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  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. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  The Changing Business Environment 🞂 Just-in-time production 🞂 Total quality management Business environment 🞂 Process reengineering changes in the past twenty years 🞂 Theory of constraints 🞂 International McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Just-in-Time (JIT) Systems Receive customer Complete products orders. just in time to ship customers. Schedule production. Receive materials Complete parts just in time for just in time for production. assembly into products. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  JIT Consequences Improved Zero production plant layout defects Reduced Flexible setup time workforce JIT purchasing Fewer, but more ultrareliable suppliers. Frequent JIT deliveries in small lots. Defect-free supplier deliveries. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Benefits of a JIT System Reduced Freed-up funds inventory costs Greater customer Higher quality satisfaction products More rapid response to Increased customer orders throughput McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Total Quality Management (TQM) TQM improves productivity by encouraging the use of fact and analysis for decision making and if properly implemented, avoids counter-productive organizational infighting. Continuous Improvement Systematic problem solving using tools such is as benchmarking McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Process Reengineering Anticipated results: A business process Process is simplified. is diagrammed Process is completed in detail. in less time. Costs are reduced. Opportunities for errors are reduced. Every step in The process is redesigned the business to eliminate all process must non-value-added activities be justified. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Process Reengineering versus TQM Process Reengineering Total Quality 🞂 Radically overhauls Management existing processes. 🞂 Tweaks existing 🞂 Likely to be imposed processes to realize from above and to gradual use outside improvements. consultants. 🞂 Uses a team approach involving people who work directly in the process. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Theory of Constraints A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want. The constraint in a system is determined by the step that has the smallest capacity. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Theory of Constraints Only actions 2. Allow the that strengthen weakest link to the weakest link set the tempo. in the “chain” improve the process. 3. Focus on 1. Identify the improving weakest link. the weakest link. 4. Recognize that the weakest link is no longer so. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  International Competition Increasing sophistication in international markets. Fewer tariffs, Improvements Competition has quotas, and in global other barriers become worldwide transportation to free trade. in most industries. systems. An excellent management accounting system is needed to succeed in today’s competitive global marketplace. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  E-Commerce In recent years, many dot.com businesses failed that might have benefited from the application of managerial accounting tools: 🞂 Cost concepts (Chapter 2) 🞂 Cost estimation (Chapter 5) 🞂 Cost-volume-profit (Chapter 6) 🞂 Activity-based costing (Chapter 8) 🞂 Budgeting (Chapter 9) 🞂 Decision-making (Chapter 13) 🞂 Capital budgeting (Chapter 14) McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Code of Conduct for Management Accountants The Institute of Management Accountant’s (IMA) Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management have two major parts offering guidelines for: ❶ Ethical behavior. ❷ Resolution for an ethical conflict. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  IMA Guidelines for Ethical Behavior Follow applicable laws, regulations and standards. Maintain professional Competen competence. ce Prepare complete and clear reports after appropriate analysis. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  IMA Guidelines for Ethical Behavior Do not disclose confidential information unless legally obligated to do so. Do not use confidential information for Confidenti personal ality advantage. Ensure that subordinates do not disclose confidential information. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  IMA Guidelines for Ethical Behavior Avoid conflicts of interest and advise others of potential conflicts. Do not subvert organization’s legitimate Integrity objectives. Recognize and communicate personal and professional limitations. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  IMA Guidelines for Ethical Behavior Avoid activities that could affect your ability to perform duties. Refrain from Refuse gifts activities that or favors that could Integrity might discredit the influence profession. behavior. Communicate unfavorable as well as favorable information. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  IMA Guidelines for Ethical Behavior Communicate information fairly and objectively. Objectivity Disclose all information that might be useful to management. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  IMA Guidelines for Resolution of an Ethical Conflict 🞂 Follow established policies. 🞂 For unresolved ethical conflicts: 🞂 Discuss the conflict with immediate superior or next highest uninvolved manager. 🞂 Make reference to the Sarbanes-Oxley Act passed by Congress in 2002 in part to give legal protection to those reporting corporate misconduct. 🞂 If immediate superior is the CEO, consider the board of directors or the audit committee. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  IMA Guidelines for Resolution of an Ethical Conflict 🞂 Follow established policies. 🞂 For unresolved ethical conflicts: 🞂 Except where legally prescribed, maintain confidentiality. 🞂 Clarify issues in a confidential discussion with an objective advisor. 🞂 Consult an attorney as to legal obligations. 🞂 The last resort is to resign. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Why Have Ethical Standards? Ethical standards in business are essential for a smooth functioning advanced market economy. Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer. Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods and services at higher prices. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc.  Codes of Conduct on the International Level The Guidelines on Ethics for Professional Accountants, issued by the International Federation of Accountants (IFAC), govern the activities of professional accountants worldwide. In addition to competence, objectivity, independence, and confidentiality, the IFAC’s code deals with the accountant’s ethical responsibilities in: Taxes Fees and commissions Advertising and solicitation Handling of monies Cross-border activities. McGraw-Hill/ Copyright © 2006, The McGraw-Hill Companies, Inc. Certified Management Accountant A management accountant who has the necessary qualifications and who passes a rigorous professional exam earns the right to be known as a Certified Management Accountant (CMA). Information about becoming a CMA and the CMA program can be accessed on the IMA’s website at www.imanet.org or by calling 1-800-638-4427. 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