Managerial Accounting and

the Business Environment

 Work of Management

Planning
Directing and
Motivating

Controlling
 Planning

Identify
alternatives.

Select alternative that does

the best job of furthering
organization’s objectives.

Develop budgets to guide

progress toward the
selected alternative.
 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 ensures that

plans are being followed.

Feedback in the form of performance reports

that compare actual results with the budget
is an essential part of the control function.
 Planning and Control Cycle

Formulating long-
Begin
and short-term plans
(Planning)

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

Measuring
performance
(Controlling)
 Types of Accounting Systems

Financial Accounting Management Accounting

 Rules and procedures  Decision support
 Information systems  Organizational control
 Internal controls  Cost management
 Auditing  Profit management
 Investment management
Cost Accounting
 Product costing Tax Accounting
 Activity-based costing  Individuals
 Partnerships/Corporations
 Estate and trusts
 International taxation
 Special tax issues and topics
 Financial vs. Managerial Accounting
Financial Accounting Managerial Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on relevance

versus relevance verifiability for planning and control

4. Precision versus Emphasis on Emphasis on

timeliness precision timeliness

5. Subject Primary focus is on Focuses on segments

the whole organization of an organization

6. GAAP Must follow GAAP Need not follow GAAP

and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory
 Organizational Structure

Decentralization is the delegation of decision-

making authority throughout an organization.

CorporateOrganizationChart
BoardofDirectors

President

Purchasing Personnel VicePresident ChiefFinancial

Operations Officer

Treasurer Controller
 Line and Staff Relationships

Line positions are directly Staff positions support

related to achievement of
the basic objectives of an
organization.
 Example: Production
supervisors in a
manufacturing plant.
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.
The Changing Business Environment

Striving for continuous improvement

in processes and activities

• Total quality management (TQM)

• Business process reengineering
• Six Sigma quality control
• Just-in-time production
• Theory of constraints
• International competition
• E-commerce
 The Changing Business Environment

• Total quality management (TQM)

 Emphasizes continuous improvement in all phases
of operations, 100% accuracy in performing tasks,
involvement and empowerment of employees
at all levels and departments, team-based work
design, and total customer satisfaction.

• Benchmarking
 Is the backbone of the process of identifying,
studying, and implementing best practices
The Changing Business Environment

• Business process reengineering

 Involves pulling the pieces of strategy-critical
activities out of different departments and
unifying their performance in a single department
or cross-functional work group.

• Six Sigma
 Is a statistics-based quality control system aimed
at producing not more than 3.4 defects per
million iterations for any business process—from
manufacturing to customer transactions.
The Changing Business Environment

• Just in Time
 Manufacturer produces goods to ship to
customers rather than producing goods for
inventory.
 Reduces the capital invested in inventory and
reduces the need for warehousing space.
 Other benefits include reduced throughput time,
more rapid response to customer demands,
reduced defect rates, and greater customer
satisfaction.
 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.
 Theory of Constraints

A constraint (also called a bottleneck) is anything that

prevents you from getting more of what you want.

The constraint in a system is determined

by the step that has the smallest capacity.
 Theory of Constraints

Only actions 2. Allow the

that strengthen weakest link to
the weakest link set the tempo.
in the “chain”
improve the
process.
3. Focus on
1. Identify the improving
weakest link. the weakest
link.

4. Recognize that
the weakest link
is no longer so.
 International Competition

Increasing sophistication
in international markets.

Fewer tariffs, Improvements

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

An excellent management accounting system is needed

to succeed in today’s competitive global marketplace.
 E-Commerce
Web
 Universal Access
 Standards

e-business
Using internet technologies to
transform key business
processes

IT
 Data
 Applications

 Core business processes

 Reliability, security, availability

e-business = Web + I/T