Managerial Accounting & the Business Environment

Chapter: 1

Study 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).

Managerial Accounting and Financial Accounting

Managerial accounting provides information for managers inside an organization who direct and control its operations.

Financial accounting provides information to stockholders, creditors and others who are outside the organization.

Differences Between Financial and Managerial Accounting

Financial Accounting
1. Users 2. Time focus 3. Verifiability versus relevance 4. Precision versus timeliness 5. Subject 6. Requirements External persons who make financial decisions Historical perspective Emphasis on verifiability Emphasis on precision Primary focus is on the whole organization Must follow GAAP and prescribed formats

Managerial Accounting
Managers who plan for and control an organization Future emphasis Emphasis on relevance for planning and control Emphasis on timeliness Focuses on segments of an organization Need not follow GAAP or any prescribed format

The Changing Business Environment

Growth of the internet International competition

The Changing Business Environment

Just-In-Time
Total Quality Management Process Reengineering

Theory of Constraints

Just-in-Time (JIT) Systems

A production and inventory control system in which units are produced and materials are purchased only as needed to meet actual customer demand.

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. Complete parts just in time for assembly into products.

JIT Consequences
Improved plant layout Zero production defects

Reduced setup time

Flexible workforce

JIT purchasing Fewer, but more ultrareliable suppliers. Frequent JIT deliveries in small lots. Defect-free supplier deliveries.

Benefits of a JIT System

Reduced inventory costs Freed-up funds

Higher quality products

Greater customer satisfaction More rapid response to customer orders

Decreased throughput

Total Quality Management

An approach to continuous improvement that focuses on customers and using teams of frontline workers to systematically identify and solve problems.

Total Quality Management

Study the current process. Collect data. Analyze the data to identify possible causes.

Develop a plan for improvement.

Decide how to measure improvement.

Plan

If successful, make the change permanent. If the results are not successful, try again.

Act

is

Do

Implement the plan on a small scale if possible. Collect data.

Check

Evaluate the data collected during the Do phase. Did the expected improvement occur?

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. The process is redesigned to include only those steps that make our product more valuable.

Every step in the business process must be justified.

End of Chapter 1