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MANAGERIAL ACCOUNTING
Eighth Canadian Edition
GARRISON, CHESLEY, CARROLL, WEBB

Robert G. Ducharme, MAcc, CA University of Waterloo, School of Accounting and Finance

2009 McGraw-Hill Ryerson Limited

Prepared by:

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Managerial Accounting and the Business Environment

Chapter One

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Learning Objective 1

List the functions of managers.

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Work of Management

Planning

Directing and Motivating

Controlling

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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 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)

Begin

Decision Making

Implementing plans (Directing and Motivating)

Measuring performance (Controlling)

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Business Plans
New businesses typically formalize their strategic planning in the form of a business plan. A business plan consists of information about the companys basic product or service and about the steps to be taken to reach its potential market. The plan includes information about:
production methods competition management team, and details on how the business will be financed.

The business plan is a key document for:

the organizations internal management, and external use in attracting creditors and investors.
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Learning Objective 2

Identify the major differences and similarities between financial and managerial accounting.

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Comparison of Financial and Managerial Accounting

Financial Accounting Managerial Accounting
Managers who plan for and control an organization Future oriented Relevance for planning and control Timeliness of information Detailed segment reports of an organization Need not follow GAAP or any prescribed format Not Mandatory External persons who make financial decisions Historical perspective Objectivity and verifiability Precision of information Summarized data for the whole organization Must follow GAAP and prescribed formats Mandatory for external reports

1. Users 2. Time focus 3. Emphasis 4. Importance 5. Subject focus 6. GAAP 7. Requirement

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Learning Objective 3

Describe the role of management accountants in an organization.

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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 Controller

Treasurer
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Line and Staff Relationships

Line positions are directly related to achievement of the basic objectives of an organization.
Example: Production supervisors in a manufacturing plant.

Staff positions support and assist line positions.

Example: Cost accountants in the manufacturing plant.

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The Controller
A member of the top management team responsible for:
Providing timely and relevant data to support planning and control activities. Preparing financial statements for external users.

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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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Learning Objective 4

Explain the nature and importance of ethics for accountants.

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Professional Ethics for Management Accountants

The U.S. Institute of Management Accountants (IMA) Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management have two major parts offering guidelines for: Ethical behaviour. Resolution for an ethical conflict.

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IMA Guidelines for Ethical Behavior

Recognize and communicate professional limitations that preclude responsible judgment.

Maintain professional competence.

Competence
Provide accurate, clear, concise, and timely decision support information.

Follow applicable laws, regulations and standards.

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IMA Guidelines for Ethical Behavior

Do not disclose confidential information unless legally obligated to do so. Do not use confidential information for unethical or illegal advantage.

Confidentiality

Ensure that subordinates do not disclose confidential information.

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IMA Guidelines for Ethical Behavior

Mitigate conflicts of interest and advise others of potential conflicts. Refrain from conduct that would prejudice carrying out duties ethically.

Integrity
Abstain from activities that might discredit the profession.

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IMA Guidelines for Ethical Behavior

Communicate information fairly and objectively.
Disclose delays or deficiencies in information timeliness, processing, or internal controls.

Credibility

Disclose all relevant information that could influence a users understanding of reports and recommendations.
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IMA Guidelines for Resolution of an Ethical Conflict

Follow employers established policies. For unresolved ethical conflicts:

Discuss the conflict with immediate supervisor or next highest uninvolved manager.
If immediate supervisor is the CEO, consider the board of directors or the audit committee. Contact with levels above the immediate supervisor should only be initiated with the supervisors knowledge, assuming the supervisor is not involved.

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IMA Guidelines for Resolution of an Ethical Conflict

Follow employers established policies. For unresolved ethical conflicts:

Except where legally prescribed, maintain confidentiality.

Clarify issues in a confidential discussion with an objective advisor. Consult an attorney as to legal obligations. The last resort is to resign.

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Why Have Ethical Standards?

Ethical standards in business are essential for a smooth functioning advanced market economy

Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer

Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods and services at higher prices
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Corporate Governance
The system by which a company is directed and controlled.

Board of Directors

Incentives and monitoring for

Top Management

To pursue objectives of

Stockholders
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Corporate Governance
An effective corporate governance system should also protect the interests of the companys other stakeholders.

Employees

Customers

Creditors

Suppliers

And the communities in which the company operates.

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Learning Objective 5

Explain the basic concepts of lean production, six sigma, computer technology and risk management.

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Process Management
A business process is a series of steps that are followed in order to carry out some task in a business.

R&D

Product Design

Customer Manufacturing Marketing Distribution Service

Business functions making up the value chain

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Process Management
There are four approaches to improving business processes . . .
Six Sigma Computer Technology

Lean Production

Risk Management

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Traditional Push Manufacturing Company

Forecast Sales

Order components

Store Inventory

Make Sales from Finished Goods Inventory

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Store Inventory

Produce goods in Anticipation of Sales

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Traditional Push Manufacturing Company

Large inventories

Traditional push manufacturing

Raw materials
Materials waiting to be processed.

Work in process

Finished goods
Completed products awaiting sale.

Partially completed products requiring more work before they are ready for sale.
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Lean Production
Identify value in specific products/services. Identify the business process that delivers value.

Exhibit 1-6

The lean thinking model is a five step approach.

Organize work arrangements around the flow of the business process.

Continuously pursue perfection in the business process.

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Create a pull system that responds to customer orders.

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Lean Production
The five step process results in a pull manufacturing system that reduces inventories, decreases defects, reduces wasted effort, and shortens customer response times.

Customer Places an Order

Create Production Order

Generate Component Requirements

Goods Delivered when needed

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Production Begins as Parts Arrive

Components are Ordered

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Lean Production
Lean thinking may be used to improve business processes that link companies together.

The term supply chain management refers to the coordination of business processes across companies to better serve end consumers.
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Six Sigma
A process improvement method relying on customer feedback and fact-based data gathering and analysis techniques to drive process improvement. Refers to a process that generates no more than 3.4 defects per million opportunities. Sometimes associated with the term zero defects.

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Six Sigma
Stage Define The Six Sigma DMAIC Framework Goals Establish the scope and purpose of the project. Diagram the flow of the current process. Establish the customer's requirements for the process. Gather baseline performance data related to the existing process. Narrow the scope of the project to the most important problems. Identify the root cause(s) of the problems identified in the Measure stage. Develop, evaluate, and implement solutions to the problems. Ensure that problems remain fixed. Seek to improve the new methods over time.

Exhibit 1-8

Measure Analyze

Improve Control

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E-Commerce
E-commerce refers to business conducted using the Internet. In addition to dot.com companies, traditional businesses, such as banks and retailers, continue to expand their Internet presence. The growth in e-commerce is occurring because the Internet has important advantages over more conventional marketplaces for many kinds of transactions.
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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) Activity-based costing (Chapter 5) Cost estimation (Chapter 6) Cost-volume-profit (Chapter 7) Budgeting (Chapter 9) Decision-making (Chapter 12) Capital budgeting (Chapter 13)

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Enterprise Systems
A single software system that integrates 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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Enterprise Risk Management

A process used by a company to proactively identify and manage risk.
Should I try to avoid the risk, share the risk, accept the risk, or reduce the risk?

Once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls.
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Enterprise Risk Management

Examples of Business Risks Products harming customers Losing market share due to the unforeseen actions of competitors Poor weather conditions shutting down operations Website malfunction A supplier strike halting the flow of raw materials Financial statements unfairly reporting the value of inventory An employee accessing unauthorized information Examples of Controls to Reduce Business Risks Develop a formal and rigorous new product testing program Develop an approach for legally gathering information about competitors' plans and practices Develop contingency plans for overcoming weather-related disruptions Thoroughly test the website before going "live" on the Internet Establish a relationship with two companies capable of providing raw materials Count the physical inventory on hand to make sure that it agrees with the accounting records Create passwords barriers that prohibit employees from obtaining information not needed to do their jobs

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End of Chapter 1

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