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MANAGERIAL
ACCOUNTING
Ninth Canadian Edition
GARRISON, CHESLEY, CARROLL, WEBB, LIBBY
Managerial Accounting and
the Business Environment
Chapter 1
PowerPoint Author:
Robert G. Ducharme, MAcc, CA
University of Waterloo, School of Accounting and Finance
Copyright © 2012 McGraw-Hill Ryerson Limited
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Strategic Management Skills
A strategy
is a “game plan”
that enables a company
to attract customers
by distinguishing itself
from competitors.
The focal point of a
company’s strategy should
be its target customers.
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Customer Value Propositions
Customer
Intimacy
Strategy
Understand and respond to
individual customer needs.
Operational
Excellence
Strategy
Deliver products and services
faster, more conveniently,
and at lower prices.
Product
Leadership
Strategy
Offer higher quality products.
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Work of Management
Planning
Directing and
Motivating
Controlling
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Planning
Identify
alternatives.
Select alternative that does
the best job of furthering
organization’s objectives.
Develop budgets to guide
progress toward the
selected 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 control function ensures
that plans are being followed.
Feedback in the form of performance reports
that compare actual results with the budget
are an essential part of the control function.
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Planning and Control Cycle
Formulating longand short-term plans
(Planning)
Comparing actual
to planned
performance
(Controlling)
Decision
Making
Begin
Implementing
plans (Directing
and Motivating)
Measuring
performance
(Controlling)
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Business Plans
New businesses typically formalize their strategic
planning in the form of a business plan.
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.
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Comparison of Financial and Managerial
Accounting: Seven Key Differences
Financial Accounting
Managerial Accounting
External persons who
make financial decisions
Managers who plan for
and control an organization
Historical perspective
Future emphasis
3. Verifiability
versus relevance
Emphasis on
objectivity and verifiability
Emphasis on
relevance
4. Precision versus
timeliness
Emphasis on
precision
Emphasis on
timeliness
Primary focus is on
companywide reports
Focus on
segment reports
Must follow GAAP / IFRS
and prescribed formats
Not bound by GAAP / IFRS
or any prescribed format
Mandatory for
external reports
Not
Mandatory
1. Users
2. Time focus
5. Subject
6. Rules
7. Requirement
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Organizational Structure
Decentralization is the delegation of decisionmaking authority throughout an organization.
Corporate Organization Chart
Board of Directors
President
Purchasing
Personnel
Vice President
Operations
Chief Financial
Officer
Treasurer
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Controller
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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.
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Staff positions support and
assist line positions.

Example: Cost
accountants in the
manufacturing plant.
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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.
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The Professional Management Accountant

Three types of professional accountants
work as management accountants in
Canada:
 CGA
 CA
 CMA
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Certified Management Accountant
A management accountant
who has the necessary qualifications
and who passes a rigorous professional
exam earns the right to be known as a
Certified Management Accountant
(CMA).
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Professional Ethics for
Management Accountants
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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.
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CMA Guidelines for Ethical Behavior
Recognize and
communicate professional
limitations that preclude
responsible judgment.
Maintain
professional
competence.
Competence
Follow applicable
laws, regulations
and standards.
Provide accurate, clear,
concise, and timely decision
support information.
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CMA Guidelines for Ethical Behavior
Do not disclose confidential
information unless legally
obligated to do so.
Do not use
confidential
information for
unethical or illegal
advantage.
Confidentiality
Ensure that subordinates do
not disclose confidential
information.
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CMA 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.
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CMA Guidelines for Ethical Behavior
Communicate information
fairly and objectively.
Credibility
Disclose delays or
deficiencies in information
timeliness, processing, or
internal controls.
Disclose all relevant
information that could
influence a user’s
understanding of reports
and recommendations.
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Why Have Ethical Standards?
Ethical standards in business are essential for a
smooth functioning advanced market 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
desirable goods and services at higher prices
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Corporate Governance
The system by
which a company is directed
and controlled.
Board of
Directors
Incentives and
monitoring for
Top
Management
To pursue
objectives of
Shareholders
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Corporate Governance
An effective corporate governance system
should also protect the interests of the
company’s other stakeholders.
Employees
Customers
Creditors
Suppliers
And the communities in
which the company operates.
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Corporate Social Responsibility
Corporate social responsibility (CSR) is a concept
whereby organizations consider the needs
of all stakeholders when making decisions.
Customers
Employees
Suppliers
Communities Shareholders
Environmental
& Human Rights
Advocates
CSR extends beyond legal compliance
to include voluntary actions that satisfy
stakeholder expectations.
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Process Management
A business
process is a series of
steps that are followed in order to
carry out some task in
a business.
R&D
Product
Design
Customer
Manufacturing Marketing Distribution Service
Business functions making up the value chain
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Process Management
There are four approaches to
improving business processes . . .
 Six
Sigma
 Lean
Production
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 Enterprise
Systems
 Risk
Management
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Traditional “Push” Manufacturing Company
Forecast Sales
Make Sales from
Finished Goods
Inventory
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Order components
Store
Inventory
Store Inventory
Produce goods in
Anticipation of Sales
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Traditional “Push” Manufacturing Company
Traditional “push”
manufacturing
Raw
materials
Materials waiting
to be processed.
Large
inventories
Work in
process
Finished
goods
Completed products
awaiting sale.
Partially completed products
requiring more work before
they are ready for sale.
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Exhibit
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Lean Production
 Identify value
in specific
products/services.
 Identify the
business process
that delivers value.
The lean thinking
model is a five
step approach.
 Organize work
arrangements around
the flow of the
business process.
 Continuously pursue
perfection in the
business process.
 Create a pull
system that responds
to customer orders.
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Lean Production
The five step process results in a “pull” manufacturing system
that reduces inventories, decreases defects, reduces wasted
effort, and shortens customer response times.
Customer places
an order
Create Production
Order
Generate component
requirements
Goods delivered
when needed
Production begins
as parts arrive
Components
are ordered
Lean Production is often called Just-In-Time (JIT) production.
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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.
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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.
Refers to a process that generates no more
than 3.4 defects per million opportunities.
Sometimes associated
with the term zero defects.
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LO 5
Exhibit
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Six Sigma
Stage
Define
●
●
●
Measure ●
●
Analyze
●
Improve ●
Control
●
●
The Six Sigma DMAIC Framework
Goals
Establish the scope and purpose of the project.
Diagram the flow of the current process.
Establish the customer's requirements for the
process.
Gather baseline performance data related to
the existing process.
Narrow the scope of the project to the most
important problems.
Identify the root cause(s) of the problems
identified in the Measure stage.
Develop, evaluate, and implement solutions
to the problems.
Ensure that problems remain fixed.
Seek to improve the new methods over time.
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Enterprise Systems
A single software system that
integrates data across an organization,
thereby enabling all employees to
have simultaneous access to a
common set of data.
All data are recorded only
once in the company’s
centralized database.
The unique data elements
contained within a database
can be linked together.
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Enterprise Risk Management
A process used
by a company to
proactively identify
and manage risk.
Should I try to avoid the
risk, accept the risk, or
reduce the risk?
Once a company identifies its risks, perhaps the
most common risk management tactic is to reduce
risks by implementing specific controls.
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Enterprise Risk Management
Examples of Business Risks
● Products harming customers
●
● Losing market share due to the
unforeseen actions of competitors
●
● Poor weather conditions shutting
down operations
●
● Website malfunction
●
● A supplier strike halting the flow
of raw materials
●
● Financial statements unfairly
reporting the value of inventory
●
● An employee accessing
unauthorized information
●
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Examples of Controls to
Reduce Business Risks
Develop a formal and rigorous
new product testing program
Develop an approach for legally
gathering information about
competitors' plans and practices
Develop contingency plans for
overcoming weather-related
disruptions
Thoroughly test the website
before going "live" on the Internet
Establish a relationship with two
companies capable of providing
raw materials
Count the physical inventory on
hand to make sure that it agrees
with the accounting records
Create passwords barriers that
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.
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Measurement Skills
The primary purpose
of this course is to
teach measurement
skills that managers
use to support
planning, directing
and motivating, and
controlling activities.
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Planning
Directing and
Motivating
Controlling
LO 5
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End of Chapter 1
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