Managerial accounting garrison norren 11th ed chap001

11th Edition
Chapter 1

McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


Managerial Accounting and
the Business Environment
Chapter One

McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


Work of Management

Planning
Planning

Directing
Directing and
and
Motivating
Motivating

Controlling
Controlling

McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


Planning

Identify
Identify
alternatives.
alternatives.
Select
Select alternative
alternative that
that does
does
the
the best
best job
job of
of furthering
furthering
organization’s
organization’s objectives.
objectives.
Develop
Develop budgets
budgets to
to guide
guide

progress
progress toward
toward the
the
selected
selected alternative.
alternative.
McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


Directing and Motivating

Directing and motivating involves managing day-today activities to keep the organization running
smoothly.
 Employee work assignments.
 Routine problem solving.
 Conflict resolution.
 Effective communications.

McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


Controlling
The
The control
control function

function ensures
ensures
that
that plans
plans are
are being
being followed.
followed.
Feedback
Feedback in
in the
the form
form of
of performance
performance reports
reports
that
that compare
compare actual
actual results
results with
with the
the budget
budget
are
are an
an essential
essential part
part of
of the

the control
control function.
function.

McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


Planning and Control Cycle
Formulating
Formulatinglonglongand
andshort-term
short-termplans
plans
(Planning)
(Planning)
Comparing
Comparingactual
actual
to
toplanned
planned
performance
performance
(Controlling)
(Controlling)

Decision
Making

Exh.
1-1

Begin

Implementing
Implementing
plans
plans(Directing
(Directing
and
andMotivating)
Motivating)

Measuring
Measuring
performance
performance
(Controlling)
(Controlling)
McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


Comparison of Financial and
Managerial Accounting

McGraw-Hill/Irwin

Exh.
1-2

Copyright © 2006, The McGraw-Hill Companies, Inc.


Organizational Structure
Decentralization
Decentralization is
is the
the delegation
delegation of
of decisiondecisionmaking
making authority
authority throughout
throughout an
an organization.
organization.

C o r p o r a te O r g a n iz a tio n C h a r t
B o a r d o f D ir e c t o r s
P r e s id e n t
P u r c h a s in g

P e rs o n n e l

V ic e P r e s id e n t
O p e r a t io n s

C h ie f F in a n c ia l
O f f ic e r

T re a s u re r
McGraw-Hill/Irwin

C o n t r o lle r

Copyright © 2006, The McGraw-Hill Companies, Inc.


Line and Staff Relationships
Line positions are
directly related to
achievement of the
basic objectives of an
organization.
 Example: Production
supervisors in a
manufacturing plant.

McGraw-Hill/Irwin

Staff positions support
and assist line
positions.
 Example: Cost
accountants in the
manufacturing plant.

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/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


The Changing Business Environment

••
••
••
••
••
••

Just-in-time
Just-in-time production
production
Total
Total quality
quality management

management
Process
Process reengineering
reengineering
Theory
Theory of
of constraints
constraints
International
International competition
competition
E-commerce
E-commerce

McGraw-Hill/Irwin

Business environment
changes in the past
twenty years

Copyright © 2006, The McGraw-Hill Companies, Inc.


Just-in-Time (JIT) Systems
Receive
Receive
customer
customer
orders.
orders.

Complete
Complete products
products
just
just in
in time
time to
to
ship
ship customers.
customers.

Schedule
Schedule
production.
production.
Receive
Receive materials
materials
just
just in
in time
time for
for
production.
production.
McGraw-Hill/Irwin

Complete

Complete parts
parts
just
just in
in time
time for
for
assembly
assembly into
into products.
products.
Copyright © 2006, The McGraw-Hill Companies, Inc.


JIT Consequences
Improved
Improved
plant
plantlayout
layout
Reduced
Reduced
setup
setup time
time

Zero
Zeroproduction
production
defects

defects
Flexible
Flexible
workforce
workforce

JIT
JIT purchasing
purchasing
Fewer,
Fewer, but
but more
more ultrareliable
ultrareliable suppliers.
suppliers.
Frequent
Frequent JIT
JIT deliveries
deliveries in
in small
small lots.
lots.
Defect-free
Defect-free supplier
supplier deliveries.
deliveries.
McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.

Benefits of a JIT System
Reduced
Reduced
inventory
inventory
costs
costs

Freed-up
Freed-up funds
funds
Greater
Greater
customer
customer
satisfaction
satisfaction

Higher quality
products

Increased
throughput
McGraw-Hill/Irwin

More
More rapid
rapid
response

response to
to
customer
customer orders
orders

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
as benchmarking
McGraw-Hill/Irwin

is

Copyright © 2006, The McGraw-Hill Companies, Inc.


Process Reengineering

AAbusiness

businessprocess
process
is
isdiagrammed
diagrammed
in
indetail.
detail.

Every
Everystep
stepin
in
the
thebusiness
business
process
processmust
must
be
bejustified.
justified.
McGraw-Hill/Irwin

Anticipated
Anticipatedresults:
results:
Process
Processis
is simplified.

simplified.
Process
Processis
is completed
completed
in
inless
lesstime.
time.
Costs
Costsare
arereduced.
reduced.
Opportunities
Opportunitiesfor
for
errors
errorsare
arereduced.
reduced.
The
Theprocess
processis
isredesigned
redesigned
to
to eliminate
eliminateall
all
non-value-added

non-value-addedactivities
activities

Copyright © 2006, The McGraw-Hill Companies, Inc.


Process Reengineering versus TQM
Process Reengineering
• Radically overhauls
existing processes.
• Likely to be imposed
from above and to use
outside consultants.

McGraw-Hill/Irwin

Total Quality
Management
• Tweaks existing
processes to realize
gradual improvements.
• Uses a team approach
involving people who
work directly in the
process.

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
The constraint
constraint in
in aa system
system is
is determined
determined
by
by the
the step
step that
that has
has the
the smallest
smallest capacity.
capacity.

McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


Theory of Constraints
Only actions
that strengthen
the weakest link
in the “chain”

improve the
process.

2.
2.Allow
Allowthe
the
weakest
weakest link
linkto
to
set
set the
thetempo.
tempo.
3.
3.Focus
Focuson
on
improving
improving
the
theweakest
weakest
link.
link.

1.
1.Identify
Identify the

the
weakest
weakest link.
link.

4.
4. Recognize
Recognizethat
that
the
theweakest
weakest link
link
is
isno
nolonger
longerso.
so.
McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


International Competition
Increasing
Increasing sophistication
sophistication
in
in international
international markets.

markets.

Fewer
Fewer tariffs,
tariffs,
quotas,
quotas, and
and
other
other barriers
barriers
to
to free
free trade.
trade.

Competition has
become worldwide
in most industries.

Improvements
Improvements
in
in global
global
transportation
transportation
systems.
systems.

An
An excellent
excellent management
management accounting
accounting system
system is
is needed
needed
to
to succeed
succeed in
in today’s
today’s competitive
competitive global
global marketplace.
marketplace.
McGraw-Hill/Irwin

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/Irwin

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:
 Ethical behavior.
 Resolution for an ethical conflict.

McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.


IMA Guidelines for Ethical Behavior
Follow
Followapplicable
applicable laws,
laws,
regulations

regulationsand
and
standards.
standards.
Maintain
Maintain
professional
professional
competence.
competence.

Competence
Competence
Prepare
Preparecomplete
completeand
andclear
clear
reports
reportsafter
afterappropriate
appropriate
analysis.
analysis.

McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.

IMA Guidelines for Ethical Behavior
Do
Do not
not disclose
disclose confidential
confidential
information
informationunless
unlesslegally
legally
obligated
obligatedto
todo
doso.
so.
Do
Donot
not use
use
confidential
confidential
information
informationfor
for
personal
personal
advantage.
advantage.

Confidentiality

Confidentiality
Ensure
Ensure that
thatsubordinates
subordinatesdo
do
not
not disclose
discloseconfidential
confidential
information.
information.

McGraw-Hill/Irwin

Copyright © 2006, The McGraw-Hill Companies, Inc.