Chapter
1
Managerial Accounting
and the Business
Environment
1-2
Learning Objectives
After studying this chapter, you should be able to:
1. Identify the major differences and
similarities between financial and
managerial accounting.
2. Understand the role of management
accountants in an organization.
3. Understand the basic concepts underlying
just-in-time (JIT), total quality management
(TQM), process reengineering, and the
theory of constraints (TOC).
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Learning Objectives
After studying this chapter, you should be able to:
4. Discuss the impact of international
competition on businesses and on
managerial accounting.
5. Explain the importance of upholding ethical
standards.
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Managerial Accounting and
Financial Accounting
Managerial accounting
provides information
to managers of an
organization who
direct and control
its operations.
Financial accounting
provides information
to stockholders,
creditors, and others
who are outside
the organization.
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1-5
Work of Management
Planning
Directing and
Motivating
Controlling
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Planning and Control Cycle
Formulating long- and
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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Comparison of Financial and
Managerial Accounting
Financial
Accounting
Managerial
Accounting
External persons who
make financial decisions
Managers who plan for
and control an organization
Historical perspective
Future emphasis
Objectivity and
Verifiability
Relevance
for planning and control
4. Importance
Precision of information
Timeliness of information
5. Subject focus
Summarized data for
the whole organization
Detailed segment reports
of an organization
6. Requirements
Must follow GAAP
and required for
external reports
Need not follow GAAP
and no mandatory use
1. Users
2. Time focus
3. Emphasis
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Expanding Role of Managerial
Accounting
Increasing complexity and
size of organizations
Regulatory
environment
World-wide
competition
Factors that
increase the need for
managerial accounting
information
Increased
emphasis
on quality
Rapid development and
implementation of technology
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Organizational Structure
An organization is a group of people
united for a common purpose.
Corporate Organization Chart
Board of Directors
President
Purchasing
Personnel
Vice President
Operations
Chief Financial
Officer
Treasurer
Controller
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Decentralization
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
Controller
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Line and Staff Relationships
Line positions are
directly involved in
achievement of the
basic objectives of an
organization.
 Example: Production
Staff positions support
and assist line
positions.
 Example: Cost
accountants in the
manufacturing plant.
supervisors in a
manufacturing plant.
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The Controller
The chief accountant in an organization
with responsibility for:
Financial planning and analysis.
Cost control.
Financial reporting.
Accounting information systems.
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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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The Changing Business
Environment
A more competitive
environment emphasizing:
 Higher quality products
 Lower prices and costs
 Global competition
 Meeting and anticipating
customer needs
Business environment
changes in the past
twenty years
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The Changing Business
Environment
New tools for
managers!
Just-In-Time
Total Quality
Management
Process Reengineering
Theory of Constraints
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Just-in-Time (JIT) Systems
Receive
customer
orders.
Complete products
just in time to
ship to customers.
Schedule
production.
Receive materials
just in time for
production.
Complete parts
just in time for
assembly into products.
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Key Elements for a Successful
JIT System
Improved
plant layout
Reduced
setup time
Zero production
defects
Flexible
workforce
JIT purchasing
Fewer, but more ultra-reliable suppliers.
Frequent JIT deliveries in small lots.
Defect-free supplier deliveries.
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Benefits of a JIT System
Reduced
inventory
costs
Higher quality
products
Less warehouse
space needed
Greater
customer
satisfaction
More rapid
response to
customer orders
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Total Quality Management
Where are we?
Benchmarking
Where do we want to go?
Plan
Do we need
to change
the plan?
Act
is
Check
Do
How do
we start?
Continuous
Improvement
How are we doing?
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Process Reengineering
A business process
is diagrammed
in detail.
Every step in
The process is
the business
process must
be justified.
redesigned to include
only those steps that add
value to the product.
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Process Reengineering
A business process
is diagrammed
in detail.
Anticipated results:
 Process is simplified.
 Process is completed
in less time.
 Costs are reduced.
 Opportunities for
errors are reduced.
Every step in
The process is
the business
process must
be justified.
redesigned to include
only those steps that make
the product more valuable.
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Theory of Constraints
A sequential process of identifying and
removing constraints in a system.
Restrictions or barriers that impede
progress toward an objective
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International Competition
Meeting world-class competition demands a
world-class management accounting system.
Managers must make decisions to plan, direct,
and control a world-class organization.
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Professional Ethics in Accounting
 Ethical accounting practices build trust and
promote loyal, productive relationships with
users of accounting information.
 Many companies and professional
organizations, such as the International
Federation of Accountants (IFAC),
have written codes of ethics that
serve as guides.
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IFAC Code of Ethics for
Professional Accountants
Competence
Confidentiality
Integrity
Objectivity
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End of Chapter 1
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