Chapter 1

Managerial Accounting
and the Business
Environment

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Managerial Accounting and
the Business Environment

Chapter One

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Strategy

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Customer Value propositions

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Work of Management

Planning
Planning
Directing
Directing and
and
Motivating
Motivating

Controlling
Controlling

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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.
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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.

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Controlling

The
The control
control function
function ensures
ensures
that
that plans
plans are
are being
being followed.
followed.

Feedback
Feedback inin the
the form
form ofof 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.

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Exh.

Planning and Control Cycle

1-1

Formulating
Formulatinglong-
long- Begin
and
andshort-term
short-termplans
plans
(Planning)
(Planning)

Comparing
Comparingactual
actual Implementing
Implementing
to
toplanned
planned Decision plans
performance Making plans(Directing
(Directing
performance and
(Controlling) andMotivating)
Motivating)
(Controlling)

Measuring
Measuring
performance
performance
(Controlling)
(Controlling)
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Comparison of Financial and Exh.
1-2

Managerial Accounting

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Organizational Structure

Decentralization
Decentralization is
is the
the delegation
delegation of
of decision-
decision-
making
making authority
authority throughout
throughout anan organization.
organization.

Corporate O rganization Chart

B oa rd of D irectors

P resident

P urcha sing P ersonnel V ice P resident C hief Fina ncia l

O pera tions O fficer

T rea surer C ontroller

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Line and Staff Relationships

Line positions are directly Staff positions support

related to achievement of and assist line positions.
the basic objectives of an  Example: Cost
organization. accountants in the
 Example: Production manufacturing plant.
supervisors in a
manufacturing plant.

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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.

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The Changing Business Environment

•• Just-in-time
Just-in-time production
production
•• Total
Total quality
quality management
management
•• Process
Process reengineering
reengineering Business environment
•• Theory
Theory of
of constraints
constraints changes in the past
•• International
International competition
competition twenty years
•• E-commerce
E-commerce
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Just-in-Time (JIT) Systems

Receive
Receive
customer Complete
Complete products
products
customer
orders. just
just in
in time
time to
to
orders.
ship
ship customers.
customers.

Schedule
Schedule
production.
production.

Receive
Receive materials
materials Complete
Complete partsparts
just
just in
in time
time for
for just
just in
in time
time for
for
production.
production. assembly
assembly into
into products.
products.

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JIT Consequences

Improved
Improved Zero
Zeroproduction
production
plant
plantlayout
layout defects
defects

Reduced
Reduced Flexible
Flexible
setup
setuptime
time 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.
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Benefits of a JIT System

Reduced
Reduced Freed-up
Freed-up funds
funds
inventory
inventory
costs
costs
Greater
Greater
customer
customer
Higher quality satisfaction
satisfaction
products

More
More rapid
rapid
response
response toto
Increased customer
customer orders
orders
throughput

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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

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Process Reengineering

Anticipated
Anticipatedresults:
results:
AAbusiness
businessprocess
process Process
is Processis issimplified.
simplified.
isdiagrammed
diagrammed Process
Processis iscompleted
completed
in
indetail.
detail. in
inless
lesstime.
time.
Costs
Costsare
arereduced.
reduced.
Opportunities
Opportunitiesforfor
errors
errorsare
arereduced.
reduced.

Every
Everystep
stepinin The
Theprocess
processisisredesigned
redesigned
the
thebusiness
business to
toeliminate
eliminateall
all
process
processmust
must non-value-added
non-value-addedactivities
activities
be
bejustified.
justified.
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Process Reengineering versus TQM

Process Reengineering Total Quality Management

• Radically overhauls • Tweaks existing
existing processes. processes to realize
• Likely to be imposed gradual improvements.
from above and to use • Uses a team approach
outside consultants. involving people who
work directly in the
process.

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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 inin aa system
system is
is determined
determined
by
by the
the step
step that
that has
has the
the smallest
smallest capacity.
capacity.

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Theory of Constraints

Only actions 2.
2. Allow
Allow the
the
that strengthen weakest
weakestlink
linkto
to
the weakest link set
in the “chain” setthe
thetempo.
tempo.
improve the
process.
3.
3. Focus
Focuson on
1.
1. Identify
Identifythe
the improving
improving
weakest
weakestlink.
link. the
theweakest
weakest
link.
link.

4.
4. Recognize
Recognizethat
that
the
theweakest
weakestlink
link
is
isno
nolonger
longerso.
so.
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International Competition

Increasing
Increasing sophistication
sophistication
in
in international
international markets.
markets.

Fewer
Fewer tariffs,
tariffs, Improvements
Improvements
Competition has
quotas,
quotas, and
and in
in global
global
other
other barriers
barriers
become worldwide transportation
transportation
to
to free
free trade.
trade. in most industries. systems.
systems.

An
An excellent
excellent management
management accounting
accounting system
system is
is needed
needed
to
to succeed
succeed inin today’s
today’s competitive
competitive global
global marketplace.
marketplace.
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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)

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End of Chapter 1

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