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Louderback Holmen

Managerial Accounting
Tenth Edition


Task Force Clip Art included in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada.


Prepared by

Douglas Cloud
Pepperdine University


Describe four management functions and After to accounting. their relationships reading this chapter, you should Describe the value chain and explain how it be able to: relates to competitive strategies. Distinguish between financial accounting and managerial accounting. Describe some of the problems that arise in conventional manufacturing and how advanced manufacturing techniques overcome them.


Describe the activities of managerial accountants. Describe the code of ethics that managerial accountants follow. Describe some factors influencing the development of managerial accounting.


Management Functions and Accounting

Planning is setting goals and developing strategies and tactics to achieve them. Control is determining whether goals are being met, and if not, what can be done.


A value chain is the Managerial entire set of processes accountants prepare that transforms raw of the Much budgeted financial materials into finished provided statements, often called information Long-term planning, by managerial products. pro forma statements. often called strategic accountants is used in planning, is critical to decision making. organizations.


Performance evaluation Control reports


Managerial Accounting and Financial Accounting

Both managerial and financial accounting deal with economic events. Both require quantifying the results of economic activity. Both are concerned with revenues and expenses, assets, liabilities, and cash flows. Both involve financial statements. Both suffer from the difficulties of capturing, in quantitative terms, the many aspects of an economic event.


Managerial Accounting and Financial Accounting

Managerial accounting reports are specifically designed for a particular user or a particular decision. Financial accounting is primarily historical. Managerial accounting is concerned more with the future. Managerial accounting has no external restrictions, such as generally accepted accounting principles. Financial accounting serves persons outside the firm, while managerial accounting serves persons inside the firm.


Background of Conventional Manufacturing

American companies were the unchallenged world leaders in manufacturing following World War II. American companies had strong advantages in product quality, capacity, and distribution facilities. American firms could sell nearly anything they made. Production was the critical activity and the philosophy was to get it out the door.


Background of Conventional Manufacturing

American manufacturers adopted practices that reflected a just-in-case philosophy which led to large amounts of inventory, along with waste, scrap, and the reworking of defective units. Lead time or cycle times extended well beyond the time needed for the manufacturing process alone. A product that could be manufactured in one or two days took one or two months.


Just-in-Time (JIT)
Just-in-time (JIT) manufacturing is a philosophy that focuses on timing, efficiency, and quality in meeting commitments.
Companies that employ JIT strive for continual improvement and relentlessly search out and eliminate waste of materials, time, and space.


Just-in-Time (JIT)
Under ideal conditions, purchased materials and components arrive just in time to be used. Partly assembled units arrive at work stations just in time for the next step in production. Finished units emerge from production just in time to meet the shipping date requested by the customer. Setup times are reduced by a flexible manufacturing system.


Just-in-Time (JIT)
Computer-integrated manufacturing (CIM) provides that a factory is virtually all automated and controlled by computer.


Conventional Manufacturing
Departments working on all products Single-skilled workers Large batches, erratic flows Some defects seen as inevitable Long production cycle Large inventories held as buffers Large deliveries at irregular intervals Achieve acceptable performance Design and manufacturing separate


JIT Manufacturing
Manufacturing cells concentrating on one product Multiskilled workers Small batches, smooth flows Total quality control Short production cycle Zero or trivial inventories Daily delivery of materials/components Relentless search to improve, eliminate all waste Integrate design and manufacturing


Line Versus Staff Functions

Managers of line functions are concerned with the primary operating activities of the organization-manufacturing (or buying) and selling a physical product or performing a service. A staff manager manages a department that serves other departments.


Managerial Accountants in Businesses Include:

Controllers office Budget analysts Cost analysts Financial analysts


The Specific Duties of Managerial Accountants Include:

assisting in the design of the organizations information system. ensuring that the system performs adequately. periodically reporting information to interested managers. undertaking special analyses.


Standards of Ethical Conduct for Management Accountants

Management accountants have a responsibility to:
Maintain an appropriate level of professional competence by ongoing development of their knowledge and skills. Perform their professional duties in accordance with relevant laws, regulations, and technical standards. Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information.


Standards of Ethical Conduct for Management Accountants

CONFIDENTIALITY Management accountants have a responsibility to:
Refrain from disclosing confidential information acquired in the course of their work except when authorized unless legally obligated to do so. Inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that confidentiality.


Standards of Ethical Conduct for Management Accountants

CONFIDENTIALITY Management accountants have a responsibility to: Refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through third parties.


Standards of Ethical Conduct for Management Accountants

INTEGRITY Management accountants have a responsibility to: Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict. Refrain from engaging in any activity that would prejudice their ability to carry out their duties ethically. Refuse any gift, favor, or hospitality that would influence or would appear to influence their actions.


Standards of Ethical Conduct for Management Accountants

INTEGRITY Management accountants have a responsibility to: Refrain from either actively or passively subverting the attainment of the organizations legitimate and ethical objectives. Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.


Standards of Ethical Conduct for Management Accountants

INTEGRITY Management accountants have a responsibility to: Communicate unfavorable as well as favorable information and professional judgments or opinions. Refrain from engaging in or supporting any activity that would discredit the profession.


Standards of Ethical Conduct for Management Accountants

OBJECTIVITY Management accountants have a responsibility to: Communicate information fairly and objectively. Disclose fully all relevant information that could reasonably be expected to influence an intended users understanding of the reports, comments, and recommendations presented.


Resolving Ethical Conflict

Courses of Actions:
Discuss problems with immediate supervisor except when it appears the superior is involved. If the immediate superior is the chief executive officer, or equivalent, the acceptable reviewing authority may be the audit committee, board of trustees, or owners. Clarify relevant concepts by confidential discussion with an objective advisor to obtain an understanding of possible courses of action.


Resolving Ethical Conflict

Courses of Actions:
If the ethical conflict still exists after exhausting all levels of internal review, the management accountant may have no other recourse but resign. Except where legally prescribed, communication of such problems with external parties is not appropriate.


International Aspects of Managerial Accounting

Should capital be raised in the U.S. or elsewhere? Where should the company manufacture the products it sells to customers in and outside of the U.S.? What products should the company make and in which countries?


International Aspects of Managerial Accounting

Should the company make some parts for its production in one country and complete the manufacturing process in others? Would it be profitable to change some products to accommodate differences among countries in tastes and culture?


Deregulation is increasingly important to many companies and is among the factors that are influencing management accounting. In some regulated environments, companies are guaranteed a stipulated rate of profit. Such companies do not need to control costs because they can pass them along to consumers.


Chapter 1

The End