managerial accounting and the business environment

Copyright © 2012 McGraw-Hill Ryerson Limited

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PowerPoint Author:

Robert G. Ducharme, MAcc, CAUniversity of Waterloo, School of Accounting and Finance

MANAGERIALACCOUNTINGNinth Canadian Edition GARRISON, CHESLEY, CARROLL, WEBB, LIBBY

MANAGERIALACCOUNTINGNinth Canadian Edition GARRISON, CHESLEY, CARROLL, WEBB, LIBBY

Managerial Accounting and the Business Environment

Chapter 1

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Strategic Management Skills

A strategyis a “game plan”

that enables a companyto attract customers

by distinguishing itselffrom competitors.

The focal point of acompany’s strategy should

be its target customers.

The focal point of acompany’s strategy should

be its target customers.

LO 1

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Customer Value Propositions

Understand and respond toindividual customer needs.Understand and respond toindividual customer needs.

CustomerIntimacyStrategy

OperationalExcellenceStrategy

Deliver products and servicesfaster, more conveniently,

and at lower prices.

Deliver products and servicesfaster, more conveniently,

and at lower prices.

ProductLeadership

StrategyOffer higher quality products.Offer higher quality products.

LO 1

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Work of Management

PlanningPlanning

ControllingControlling

Directing andMotivating


LO 1

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Planning

Identifyalternatives.

Identifyalternatives.

Select alternative that does the best job of furtheringorganization’s objectives.

Select alternative that does the best job of furtheringorganization’s objectives.

Develop budgets to guideprogress toward theselected alternative.

Develop budgets to guideprogress toward theselected alternative.

LO 1

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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.

LO 1

Directing and Motivating

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Controlling

The control function ensuresthat plans are being followed. The control function ensuresthat plans are being followed.

Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.

Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.

LO 1

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Planning and Control Cycle

DecisionMaking

Formulating long-and short-term plans

(Planning)

Formulating long-and short-term plans

(Planning)

Measuringperformance (Controlling)

Measuringperformance (Controlling)

Implementing plans (Directing and Motivating)

Implementing plans (Directing and Motivating)

Comparing actualto planned

performance (Controlling)

Comparing actualto planned

performance (Controlling)

Begin

LO 1

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A business plan consists of information about the company’s basic product or service and about the steps to be taken to reach its potential market. The plan includes information about: production methods competition management team, and details on how the business will be financed.

The business plan is a key document for: the organization’s internal management, and external use in attracting creditors and investors.

New businesses typically formalize their strategic planning in the form of a business plan.

New businesses typically formalize their strategic planning in the form of a business plan.

Business Plans

LO 1

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Comparison of Financial and Managerial Accounting: Seven Key Differences

LO 2

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Corporate Organization Chart

Purcha sing Personnel V ice PresidentO pera tions

T rea surer C ontro ller

C hief F ina ncia lO fficer

President

B oa rd of D irectors

Organizational Structure

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

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

LO 3

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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.

Staff positions support and assist line positions. Example: Cost

accountants in the manufacturing plant.

LO 3

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The Controller

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.

LO 3

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The Professional Management Accountant

Three types of professional accountants work as management accountants in Canada:CGACACMA

LO 3

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Certified Management Accountant

A management accountantwho has the necessary qualifications

and who passes a rigorous professional exam earns the right to be known as a

Certified Management Accountant (CMA).

A management accountantwho has the necessary qualifications

and who passes a rigorous professional exam earns the right to be known as a

Certified Management Accountant (CMA).

LO 3

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Professional Ethics forManagement Accountants

CMA Ontario provides clear guidance concerning what professional ethical standards to follow, including:

Accountants must maintain a level of competence appropriate to their designation.

Confidentiality is essential because of the importance of the information they analyze.

Integrity is maintained by avoiding conflicts of interest with their employers or clients, by communicating the limits of professional competence, and by not accepting favours that would compromise their judgment.

Objectivity must be present in communications, so that recipients can receive both favourable and unfavourable information.

LO 4

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CompetenceCompetenceFollow applicablelaws, regulationsand standards.

Follow applicablelaws, regulationsand standards.

Maintain professional competence.

Maintain professional competence.

Provide accurate, clear, concise, and timely decision

support information.

Provide accurate, clear, concise, and timely decision

support information.

CMA Guidelines for Ethical Behavior

Recognize and communicate professional limitations that preclude responsible judgment.

Recognize and communicate professional limitations that preclude responsible judgment.

LO 4

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ConfidentialityConfidentiality

Do not disclose confidential information unless legally

obligated to do so.

Do not disclose confidential information unless legally

obligated to do so.

Ensure that subordinates do not disclose confidential

information.

Ensure that subordinates do not disclose confidential

information.

Do not use confidential

information for unethical or illegal

advantage.

Do not use confidential

information for unethical or illegal

advantage.


LO 4

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Mitigate conflicts of interest and advise others

of potential conflicts.

Mitigate conflicts of interest and advise others

of potential conflicts.

Abstain from activities that might discredit the

profession.

Abstain from activities that might discredit the

profession.

Refrain from conduct that

would prejudice carrying out

duties ethically.

Refrain from conduct that

would prejudice carrying out

duties ethically.

IntegrityIntegrity


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Communicate information fairly and objectively.

Communicate information fairly and objectively.

Disclose all relevant information that could

influence a user’s understanding of reports and recommendations.

Disclose all relevant information that could

influence a user’s understanding of reports and recommendations.

CredibilityCredibility


Disclose delays or deficiencies in information timeliness, processing, or

internal controls.

Disclose delays or deficiencies in information timeliness, processing, or

internal controls.

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Abandoning ethical standards in business would lead to a lower quality of life with less

desirable goods and services at higher prices

Why Have Ethical Standards?

Without ethical standards in business, theeconomy, and all of us who depend on it for

jobs, goods, and services, would suffer

Ethical standards in business are essential for asmooth functioning advanced market economy

Ethical standards in business are essential for asmooth functioning advanced market economy

LO 4

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Corporate Governance

The system bywhich a company is directed

and controlled.

The system bywhich a company is directed

and controlled.

Board ofDirectorsBoard ofDirectors

TopManagement

TopManagement

ShareholdersShareholders

To pursueobjectives of

Incentives andmonitoring for

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Corporate Governance

And the communities inwhich the company operates.

And the communities inwhich the company operates.

An effective corporate governance system should also protect the interests of the

company’s other stakeholders.

An effective corporate governance system should also protect the interests of the

company’s other stakeholders.

EmployeesEmployees CustomersCustomers SuppliersSuppliersCreditorsCreditors

LO 4

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Corporate Social Responsibility

CSR extends beyond legal complianceto include voluntary actions that satisfy

stakeholder expectations.

CSR extends beyond legal complianceto include voluntary actions that satisfy

stakeholder expectations.

Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions.

Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions.

Customers Employees CommunitiesSuppliers ShareholdersEnvironmental

& Human RightsAdvocates

LO 4

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Process Management

Business functions making up the value chain

Product Customer R&D Design Manufacturing Marketing Distribution Service

A businessprocess is a series of

steps that are followed in order tocarry out some task in

a business.

LO 5

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Process Management

There are four approaches toimproving business processes . . .

LeanProduction

SixSigma

EnterpriseSystems

RiskManagement

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Forecast Sales Order components

Produce goods in Anticipation of Sales

Make Sales from Finished Goods

Inventory

Store Inventory

StoreInventory

Traditional “Push” Manufacturing Company

LO 5

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Traditional “push”manufacturing

Largeinventories

Finishedgoods

Rawmaterials

Work inprocess

Materials waitingto be processed.Materials waitingto be processed.

Completed products awaiting sale.

Completed products awaiting sale.

Partially completed products requiring more work before

they are ready for sale.

Partially completed products requiring more work before

they are ready for sale.LO 5

Traditional “Push” Manufacturing Company

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Lean ProductionExhibit

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The lean thinkingmodel is a fivestep approach.

The lean thinkingmodel is a fivestep approach.

Identify valuein specific

products/services.

Identify valuein specific

products/services.

Identify thebusiness process

that delivers value.

Identify thebusiness process

that delivers value.

Organize workarrangements around

the flow of thebusiness process.

Organize workarrangements around

the flow of thebusiness process.

Create a pullsystem that respondsto customer orders.

Create a pullsystem that respondsto customer orders.

Continuously pursueperfection in the

business process.

Continuously pursueperfection in the

business process.LO 5

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Lean Production

Customer places an order

Create Production Order

Generate component requirements

Production begins as parts arrive

Goods delivered when needed

Components are ordered

Lean Production is often called Just-In-Time (JIT) production.Lean Production is often called Just-In-Time (JIT) production.

The five step process results in a “pull” manufacturing system that reduces inventories, decreases defects, reduces wasted

effort, and shortens customer response times.

The five step process results in a “pull” manufacturing system that reduces inventories, decreases defects, reduces wasted

effort, and shortens customer response times.

LO 5

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Lean Production

Lean thinking may be used to improve business processes that link companies together.

The term supply chain management refers to the coordination of business processes across

companies to better serve end consumers.

LO 5

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Six Sigma

A process improvement method relying on customer feedback and fact-based data gathering and analysis

techniques to drive process improvement.

A process improvement method relying on customer feedback and fact-based data gathering and analysis

techniques to drive process improvement.

Refers to a process that generates no morethan 3.4 defects per million opportunities.

Refers to a process that generates no morethan 3.4 defects per million opportunities.

Sometimes associatedwith the term zero defects.

Sometimes associatedwith the term zero defects.

LO 5

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Six Sigma

Stage GoalsDefine ● Establish the scope and purpose of the project.

● Diagram the flow of the current process.● Establish the customer's requirements for the process.

Measure ● Gather baseline performance data related to the existing process.● Narrow the scope of the project to the most important problems.

Analyze ● Identify the root cause(s) of the problems identified in the Measure stage.

Improve ● Develop, evaluate, and implement solutions to the problems.

Control ● Ensure that problems remain fixed.● Seek to improve the new methods over time.

The Six Sigma DMAIC Framework

Exhibit1-9

LO 5

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Enterprise Systems

A single software system thatintegrates data across an organization,

thereby enabling all employees to have simultaneous access to a

common set of data.

All data are recorded onlyonce in the company’scentralized database.

All data are recorded onlyonce in the company’scentralized database.

The unique data elementscontained within a database

can be linked together.

The unique data elementscontained within a database

can be linked together.LO 5

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Enterprise Risk Management

A process usedA process usedby a company toby a company to

proactively identifyproactively identifyand manage risk.and manage risk.

Once a company identifies its risks, perhaps themost common risk management tactic is to reduce

risks by implementing specific controls.

Once a company identifies its risks, perhaps themost common risk management tactic is to reduce

risks by implementing specific controls.

Should I try to avoid the risk, accept the risk, or

reduce the risk?

LO 5

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Enterprise Risk Management

Examples of Controls toExamples of Business Risks Reduce Business Risks

● Products harming customers ● Develop a formal and rigorous new product testing program

● Losing market share due to the ● Develop an approach for legally unforeseen actions of competitors gathering information about

competitors' plans and practices● Poor weather conditions shutting ● Develop contingency plans for down operations overcoming weather-related

disruptions● Website malfunction ● Thoroughly test the website

before going "live" on the Internet● A supplier strike halting the flow ● Establish a relationship with two of raw materials companies capable of providing

raw materials● Financial statements unfairly ● Count the physical inventory on reporting the value of inventory hand to make sure that it agrees

with the accounting records● An employee accessing ● Create passwords barriers that unauthorized information prohibit employees from obtaining

information not needed to do their jobs

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Measurement Skills

A good manager compliments an understanding of

strategy, risks, and business processes with

data-driven analysis.

The key to effective analysis is to understand that the question you are addressing defines what you

measure and how you analyze the data.

LO 5

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Measurement Skills



PlanningPlanning

ControllingControlling

The primary purpose of this course is to teach measurement skills that managers

use to support planning, directing and motivating, and

controlling activities.

The primary purpose of this course is to teach measurement skills that managers

use to support planning, directing and motivating, and

controlling activities.

LO 5

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End of Chapter 1

managerial accounting and the business environment

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