Chapter 01(Modified1)

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Copyright 2008, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin

Chapter One

Accountants role in

organizations


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Learning Objective 1

Understand the role of

management accountants

in an organization.


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The Nature of Cost Accounting

The Nature of Cost Accounting:


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The relationship of cost accounting and other

accounting disciplines



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7/36Copyright 2008, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin

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Identify the major

differences and similarities

between financial and

managerial accounting.

C i f Fi i l d



1-9 Comparison of Financial andManagerial Accounting

Financial Accounting Managerial Accounting1. 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



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Work of Management

Planning

Controlling

Directing and

Motivating



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Planning

Identify

alternatives.

Select alternative that does

the best job of furthering

organizations 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 reportsthat compare actual results with the budget

are an essential part of the control function.

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Planning and Control Cycle

Decision

Making

Formulating long-

and short-term plans

(Planning)

Measuring

performance

(Controlling)

Implementing

plans (Directing

and Motivating)

Comparing actual

to planned

performance

(Controlling)

Begin

Exhibit

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1-15


Understand the basic

concepts underlying LeanProduction, the Theory of

Constraints, and Six

Sigma.

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Process Management

Business functions making up the value chain

Product Customer

R&D Design Manufacturing Marketing Distribution Service

A businessprocess is a series of

steps that are followed in order to

carry out some task in

a business.

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Process Management

There are three approaches toimproving business processes . . .

Lean

Production

Theory of

Constraints (TOC)Six

Sigma


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1 19Traditional Push



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Traditional pushmanufacturing

Traditional Push

Manufacturing Company

Largeinventories

Finished

goods

Raw

materials

Work in

process

Materials waitingto be processed.

Completed productsawaiting sale.

Partially completed productsrequiring more work before

they are ready for sale.

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Lean ProductionExhibit

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The lean thinking

model is a five

step approach.

Identify value

in specific

products/services.

Identify the

business process

that delivers value.

Organize workarrangements around

the flow of the

business process.

Create a pull

system that responds

to customer orders.

Continuously pursue

perfection in the

business process.

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Customer Places

an Order

Create Production

Order

Generate Component

Requirements

Production Begins

as Parts Arrive

Goods Delivered

when needed

Components

are Ordered

Lean Production

The five step process results in a pull manufacturing system

that reduces inventories, decreases defects, reduceswasted effort, and shortens customer response times.

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Lean Production

Lean thinking may be used to improve business

processes that link companies together.

The term supply chain managementrefers to

the coordination of business processes across

companies to better serve end consumers.

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A constraint (also called a bottleneck) is anything thatprevents you from getting more of what you want.

The Theory of Constraints is based on the observation thateffectively managing the constraint is the key to success.

The constraint in a system is determined

by the step that has the smallest capacity.

Theory of Constraints

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4. Recognize that

the weakest link

is no longer so.

1. Identify the

weakest link.

2. Allow theweakest link to

set the tempo.

3. Focus on

improving

the weakest

link.

Only actionsthat strengthen

the weakest link

in the chain

improve the

process.

Theory of Constraints

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Enterprise Systems

A single software system thatintegrates 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 companys

centralized database.

The unique data elements

contained within a database

can be linked together.

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Understand theimportance of upholding

ethical standards.

1-27 Code of Conduct for


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Code of Conduct forManagement Accountants

The Institute of Management Accountants (IMA)Standards of Ethical Conduct for Practitioners

of Management Accounting and Financial

Management have two major parts,which offer guidelines for:

Ethical behavior.

Resolution for an ethical conflict.

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CompetenceFollow applicable

laws, regulations

and standards.

Maintain

professional

competence.

Provide accurate, clear,

concise, and timely decision

support information.

IMA Guidelines for Ethical Behavior

Recognize and

communicate professional

limitations that preclude

responsible judgment.

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Confidentiality

Do not disclose confidentialinformation unless legally

obligated to do so.

Ensure that subordinates do

not disclose confidential

information.

Do not useconfidential

information for

unethical or illegal

advantage.


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Mitigate conflicts of

interest and advise others

of potential conflicts.

Abstain from activities that

might discredit the

profession.

Refrain from

conduct that

would prejudice

carrying out

duties ethically.

Integrity


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G f


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Communicate informationfairly and objectively.

Disclose all relevant

information that could

influence a users

understanding of reports

and recommendations.

Credibility


Disclose delays or

deficiencies in informationtimeliness, processing, or

internal controls.

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Company Codes of Conduct

Employees Customers Suppliers

And to the communities in

which the company operates.

Broad-based statements of a

companys responsibilities to:

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Corporate Governance

The system bywhich a company is directed

and controlled.

Board ofDirectors

Top

Management

Stockholders

To pursue

objectives of

Incentives andmonitoring for

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Corporate Governance

And the communities in

which the company operates.

An effective corporate governance systemshould also protect the interests of the

companys other stakeholders.

Employees Customers SuppliersCreditors

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C tifi d M t A t t


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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 CertifiedManagement Accountant (CMA).

Information about becoming a CMA and the CMA

program can be accessed on the IMAs website at

www.imanet.org or by calling 1-800-638-4427.

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http://www.imanet.org/http://www.imanet.org/


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End of Chapter 1

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