11th Edition
Chapter 1
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Managerial Accounting and
the Business Environment
Chapter One
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COMPARISON OF MANAGERIAL AND
FINANCIAL ACCOUNTING
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Work of Management
Planning
Directing and
Motivating
Controlling
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PLANS TO COMPETE
• INTRODUCE A NEW PRODUCT TO THE
MARKET
• ORGANIZE CAMPAIGNS
• INCREASE THE PAYMENT INSTALLMENTS
FOR THE CUSTOMER
• DECREASE PRICES
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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 dayto-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
Exh.
1-1
Begin
Implementing
plans (Directing
and Motivating)
Measuring
performance
(Controlling)
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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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The Changing Business Environment
•
•
•
•
•
•
Just-in-time production
Total quality management
Process reengineering
Theory of constraints
International competition
E-commerce
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Business environment
changes in the past
twenty years
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Just-in-Time (JIT) Systems
Receive
customer
orders.
Complete products
just in time to
ship customers.
Schedule
production.
Receive materials
just in time for
production.
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Complete parts
just in time for
assembly into products.
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JIT Consequences
Improved
plant layout
Reduced
setup time
Zero production
defects
Flexible
workforce
JIT purchasing
Fewer, but more ultrareliable suppliers.
Frequent JIT deliveries in small lots.
Defect-free supplier deliveries.
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Benefits of a JIT System
Reduced
inventory
costs
Freed-up funds
Greater
customer
satisfaction
Higher quality
products
Increased
throughput
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More rapid
response to
customer orders
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Total Quality Management (TQM)
TQM improves productivity by encouraging the use of fact
and analysis for decision making and if properly implemented,
avoids counter-productive organizational infighting.
Continuous
Improvement
Systematic
problem solving
using tools such
as benchmarking
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is
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Process Reengineering
A business process
is diagrammed
in detail.
Every step in
the business
process must
be justified.
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Anticipated results:
Process is simplified.
Process is completed
in less time.
Costs are reduced.
Opportunities for
errors are reduced.
The process is redesigned
to eliminate all
non-value-added activities
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Process Reengineering versus TQM
Process Reengineering
• Radically overhauls
existing processes.
• Likely to be imposed
from above and to use
outside consultants.
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Total Quality Management
• Tweaks existing
processes to realize
gradual improvements.
• Uses a team approach
involving people who
work directly in the
process.
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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.
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Theory of Constraints
Only actions
that strengthen
the weakest link
in the “chain”
improve the
process.
2. Allow the
weakest link to
set the tempo.
3. Focus on
improving
the weakest
link.
1. Identify the
weakest link.
4. Recognize that
the weakest link
is no longer so.
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International Competition
Increasing sophistication
in international markets.
Fewer tariffs,
quotas, and
other barriers
to free trade.
Competition has
become worldwide
in most industries.
Improvements
in global
transportation
systems.
An excellent management accounting system is needed
to succeed in today’s competitive global marketplace.
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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)
 Cost estimation (Chapter 5)
 Cost-volume-profit (Chapter 6)
 Activity-based costing (Chapter 8)
 Budgeting (Chapter 9)
 Decision-making (Chapter 13)
 Capital budgeting (Chapter 14)
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End of Chapter 1
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