GNChap 001

11th Edition
Chapter 1
McGrawHill/Irwin
Copyright2006,TheMcGrawHillCompanies,Inc.
Managerial Accounting and

the Business Environment
Chapter One
McGrawHill/Irwin
Work of Management
Planning
Planning
Directing
Directing and
and
Motivating
Motivating
Controlling
Controlling
McGrawHill/Irwin
Planning
Identify
Identify
alternatives.
alternatives.
Select
Select alternative
alternative that
that does
does
the
the best
best job
job of
of furthering
furthering
organizations
organizations objectives.
objectives.
Develop
Develop budgets
budgets to
to guide
guide
progress
progress toward
toward the
the
selected
selected alternative.
alternative.
McGrawHill/Irwin
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.
McGrawHill/Irwin
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.
McGrawHill/Irwin
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)
McGrawHill/Irwin
Comparison of Financial and

Managerial Accounting
McGrawHill/Irwin
Exh.
1-2
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
McGrawHill/Irwin
C o n t r o lle r
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.
McGrawHill/Irwin
Staff positions support

and assist line positions.
Example: Cost
accountants in the
manufacturing plant.
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.
McGrawHill/Irwin
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
McGrawHill/Irwin
Business environment
changes in the past
twenty years
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.
McGrawHill/Irwin
Complete
Complete parts
parts
just
just in
in time
time for
for
assembly
assembly into
into products.
products.
JIT Consequences
Improved
Improved
plant
plant layout
layout
Reduced
Reduced
setup
setuptime
time
Zero
Zero production
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.
McGrawHill/Irwin
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
McGrawHill/Irwin
More
More rapid
rapid
response
response to
to
customer
customer orders
orders
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
McGrawHill/Irwin
is
Process Reengineering
AAbusiness
businessprocess
process
is
isdiagrammed
diagrammed
in
indetail.
detail.
Every
Everystep
step in
in
the
thebusiness
business
process
processmust
must
be
bejustified.
justified.
McGrawHill/Irwin
Anticipated
Anticipated results:
results:
Process
Processis
issimplified.
simplified.
Process
Processis
iscompleted
completed
in
inless
lesstime.
time.
Costs
Costsare
arereduced.
reduced.
Opportunities
Opportunitiesfor
for
errors
errorsare
arereduced.
reduced.
The
Theprocess
processis
isredesigned
redesigned
to
to eliminate
eliminate all
all
non-value-added
non-value-added activities
activities
Process Reengineering versus TQM

Process Reengineering
Radically overhauls
existing processes.
Likely to be imposed
from above and to use
outside consultants.
McGrawHill/Irwin
Total Quality Management

Tweaks existing
processes to realize
gradual improvements.
Uses a team approach
involving people who
work directly in the
process.
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.
McGrawHill/Irwin
Theory of Constraints
Only actions
that strengthen
the weakest link
in the chain
improve the
process.
2.
2.Allow
Allow the
the
weakest
weakestlink
link to
to
set
set the
thetempo.
tempo.
3.
3. Focus
Focus on
on
improving
improving
the
theweakest
weakest
link.
link.
1.
1.Identify
Identifythe
the
weakest
weakest link.
link.
4.
4.Recognize
Recognizethat
that
the
theweakest
weakest link
link
is
isno
nolonger
longerso.
so.
McGrawHill/Irwin
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 todays
todays competitive
competitive global
global marketplace.
marketplace.
McGrawHill/Irwin
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)
McGrawHill/Irwin
Code of Conduct for

Management Accountants
The Institute of Management Accountants (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.
McGrawHill/Irwin
IMA Guidelines for Ethical Behavior

Follow
Follow applicable
applicablelaws,
laws,
regulations
regulationsand
and
standards.
standards.
Maintain
Maintain
professional
professional
competence.
competence.
Competence
Competence
Prepare
Preparecomplete
completeand
andclear
clear
reports
reports after
after appropriate
appropriate
analysis.
analysis.
McGrawHill/Irwin

Do
Donot
not disclose
discloseconfidential
confidential
information
information unless
unless legally
legally
obligated
obligated to
to do
do so.
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
disclose confidential
confidential
information.
information.
McGrawHill/Irwin

Avoid
Avoid conflicts
conflictsof
ofinterest
interest
and
and advise
adviseothers
othersof
of
potential
potentialconflicts.
conflicts.
Do
Donot
not subvert
subvert
organizations
organizations
legitimate
legitimate
objectives.
objectives.
Integrity
Integrity
Recognize
Recognizeand
and
communicate
communicatepersonal
personal and
and
professional
professional limitations.
limitations.
McGrawHill/Irwin

Avoid
Avoid activities
activitiesthat
thatcould
could
affect
affect your
yourability
abilityto
to
perform
performduties.
duties.
Refrain
Refrainfrom
from
activities
activities
that
thatcould
could
discredit
discredit the
the
profession.
profession.
Refuse
Refuse gifts
gifts
or
or favors
favors
that
thatmight
might
influence
influence
behavior.
behavior.
Integrity
Integrity
Communicate
Communicate
unfavorable
unfavorableas
aswell
wellas
as
favorable
favorable information.
information.
McGrawHill/Irwin
Communicate
Communicate information
information
fairly
fairlyand
and objectively.
objectively.
Objectivity
Objectivity
Disclose
Disclose all
all information
information
that
thatmight
might be
beuseful
usefulto
to
management.
management.
McGrawHill/Irwin
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.
McGrawHill/Irwin
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.
McGrawHill/Irwin
Why Have Ethical Standards?

Ethical
Ethical standards
standards in
in business
business are
are essential
essential for
for aa
smooth
smooth functioning
functioning advanced
advanced market
market economy.
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
desireable goods and services at higher prices.
McGrawHill/Irwin
Codes of Conduct on
the International Level
The
The Guidelines
Guidelines on
on Ethics
Ethics for
for Professional
Professional
Accountants,
Accountants, issued
issued by
by the
the International
International
Federation
Federation of
of Accountants
Accountants (IFAC),
(IFAC), govern
govern the
the
activities
activities of
of professional
professional accountants
accountants worldwide.
worldwide.
In
In addition
addition to
to competence,
competence, objectivity,
objectivity, independence,
independence,
and
and confidentiality,
confidentiality, the
the IFACs
IFACs code
code deals
deals with
with
the
the accountants
accountants ethical
ethical responsibilities
responsibilities in:
in:
Taxes
Taxes
Fees
Fees and
and commissions
commissions
Advertising
Advertising and
and solicitation
solicitation
Handling
Handling of
of monies
monies
Cross-border
Cross-border activities.
activities.
McGrawHill/Irwin
Certified Management Accountant
A
A management
management accountant
accountant
who
who has
has the
the necessary
necessary qualifications
qualifications and
and
who
who passes
passes aa rigorous
rigorous professional
professional exam
exam earns
earns
the
the right
right to
to be
be known
known as
as aa Certified
Certified
Management
Management Accountant
Accountant (CMA).
(CMA).
Information
Information about
about becoming
becoming aa CMA
CMA and
and the
the CMA
CMA
program
program can
can be
be accessed
accessed on
on the
the IMAs
IMAs website
website at
at
www.imanet.org
www.imanet.org or
or by
by calling
calling 1-800-638-4427.
1-800-638-4427.
McGrawHill/Irwin
End of Chapter 1
McGrawHill/Irwin

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11th Edition

Managerial Accounting and

Directing and Motivating

Directing and motivating involves managing

Planning and Control Cycle

Comparison of Financial and

Line and Staff Relationships

Staff positions support

The Chief Financial Officer (CFO)

The Changing Business Environment

Just-in-Time (JIT) Systems

Benefits of a JIT System

Total Quality Management (TQM)

Process Reengineering versus TQM

Total Quality Management

Code of Conduct for

IMA Guidelines for Ethical Behavior

IMA Guidelines for Ethical Behavior

IMA Guidelines for Ethical Behavior

IMA Guidelines for Ethical Behavior

IMA Guidelines for Ethical Behavior

IMA Guidelines for Resolution

protection to those reporting corporate

If immediate superior is the CEO,

IMA Guidelines for Resolution

Why Have Ethical Standards?

Without ethical standards in business, the

Abandoning ethical standards in business would

Certified Management Accountant

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