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MANAGERIAL ACCOUNTING Eighth Canadian Edition GARRISON, CHESLEY, CARROLL, WEBB. Prepared by: Robert G. Ducharme, MAcc, CA University of Waterloo, School of Accounting and Finance. Managerial Accounting and the Business Environment. Chapter One. Learning Objective 1.
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MANAGERIALACCOUNTINGEighth Canadian EditionGARRISON, CHESLEY, CARROLL, WEBB Prepared by: Robert G. Ducharme, MAcc, CAUniversity of Waterloo, School of Accounting and Finance
Managerial Accounting and the Business Environment Chapter One
Learning Objective 1 List the functions of managers.
Work of Management Planning Directing and Motivating Controlling
Select alternative that does the best job of furtheringorganization’s objectives. Develop budgets to guideprogress toward theselected alternative. Planning Identifyalternatives.
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.
Controlling 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.
Planning and Control Cycle Formulating long-and short-term plans (Planning) Begin Comparing actualto planned performance (Controlling) Implementing plans (Directing and Motivating) DecisionMaking Measuringperformance (Controlling)
Business Plans 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.
Learning Objective 2 Identify the major differences and similarities between financial and managerial accounting.
Learning Objective 3 Describe the role of management accountants in an organization.
Organizational Structure Decentralization is the delegation of decision-making authority throughout an organization.
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. Line and Staff Relationships
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.
The Professional Management Accountant • Three types of professional accountants work as management accountants in Canada: • CGA • CA • CMA
Learning Objective 4 Explain the nature and importance of ethics for accountants.
Professional Ethics forManagement Accountants The U.S. 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 behaviour. Resolution for an ethical conflict.
IMA Guidelines for Ethical Behavior Recognize and communicate professional limitations that preclude responsible judgment. Follow applicablelaws, regulationsand standards. Maintain professional competence. Competence Provide accurate, clear, concise, and timely decision support information.
IMA Guidelines for Ethical Behavior Do not disclose confidential information unless legally obligated to do so. Do not use confidential information for unethical or illegaladvantage. Confidentiality Ensure that subordinates do not disclose confidential information.
IMA Guidelines for Ethical Behavior Mitigate conflicts of interest and advise others of potential conflicts. Refrain from conduct that would prejudice carrying out duties ethically. Integrity Abstain from activities that might discredit the profession.
IMA Guidelines for Ethical Behavior Communicate information fairly and objectively. Disclose delays or deficiencies in information timeliness, processing, or internal controls. Credibility Disclose all relevant information that could influence a user’s understanding of reports and recommendations.
IMA Guidelines for Resolutionof an Ethical Conflict • Follow employer’s established policies. • For unresolved ethical conflicts: • Discuss the conflict with immediate supervisor or next highest uninvolved manager. • If immediate supervisor is the CEO, consider the board of directors or the audit committee. • Contact with levels above the immediate supervisor should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved.
IMA Guidelines for Resolutionof an Ethical Conflict • Follow employer’s 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.
Without ethical standards in business, theeconomy, and all of us who depend on it forjobs, goods, and services, would suffer Abandoning ethical standards in business would lead to a lower quality of life with lessdesirable goods and services at higher prices Why Have Ethical Standards? Ethical standards in business are essential for asmooth functioning advanced market economy
Board ofDirectors Incentives andmonitoring for TopManagement To pursueobjectives of Stockholders Corporate Governance The system bywhich a company is directedand controlled.
Employees Customers Creditors Suppliers And the communities inwhich the company operates. Corporate Governance An effective corporate governance system should also protect the interests of thecompany’s other stakeholders.
Learning Objective 5 Explain the basic concepts of lean production, six sigma, computer technology and risk management.
Business functions making up the value chain Product Customer R&D Design Manufacturing Marketing Distribution Service Process Management A businessprocess is a series ofsteps that are followed in order tocarry out some task ina business.
Process Management There are four approaches toimproving business processes . . . • Six Sigma • Computer Technology • LeanProduction • RiskManagement
Forecast Sales Order components Store Inventory Make Sales from Finished Goods Inventory Produce goods in Anticipation of Sales StoreInventory Traditional “Push”Manufacturing Company
Materials waitingto be processed. Completed products awaiting sale. Partially completed products requiring more work before they are ready for sale. Traditional “Push”Manufacturing Company Traditional “push”manufacturing Largeinventories Rawmaterials Work inprocess Finishedgoods
Exhibit 1-6 Lean Production Identify valuein specificproducts/services. Identify thebusiness processthat delivers value. The lean thinkingmodel is a fivestep approach. Organize workarrangements around the flow of thebusiness process. Continuously pursueperfection in thebusiness process. Create a pullsystem that respondsto customer orders.
Customer Places an Order Create Production Order Generate Component Requirements Goods Delivered when needed Production Begins as Parts Arrive Components are Ordered Lean Production The five step process results in a “pull” manufacturing systemthat reduces inventories, decreases defects, reduceswasted effort, and shortens customer response times.
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.
Six Sigma 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. Sometimes associatedwith the term zero defects.
Exhibit 1-8 Six Sigma
E-Commerce E-commerce refers to businessconducted using the Internet. In addition to dot.com companies, traditionalbusinesses, such as banks and retailers,continue to expand their Internet presence. The growth in e-commerce is occurringbecause the Internet has important advantagesover more conventional marketplaces for manykinds of transactions.
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) • Activity-based costing (Chapter 5) • Cost estimation (Chapter 6) • Cost-volume-profit (Chapter 7) • Budgeting (Chapter 9) • Decision-making (Chapter 12) • Capital budgeting (Chapter 13)
All data are recorded onlyonce in the company’scentralized database. The unique data elementscontained within a databasecan be linked together. Enterprise Systems A single software system thatintegrates data across an organization, thereby enabling all employees to have simultaneous access to acommon set of data.
Should I try to avoid the risk, share the risk, accept therisk, or reduce the risk? Enterprise Risk Management A process usedby a company toproactively identifyand manage risk. Once a company identifies its risks, perhaps themost common risk management tactic is to reduce risks by implementing specific controls.
