ACC 6620 LECTURE ONE

Development and Changing Role of MA

Define Managerial Accounting

Managerial accounting is the process of Identifying Measuring Analyzing Interpreting Communicating information

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The Changing Business Environment

A more competitive environment emphasizing: Higher quality products Lower prices and costs Global competition Meeting and anticipating customer needs

Business environment changes in the past twenty years

Traditional World View Management Organisation

Mechanistic form Hierarchical structure Individual-productivity focused Short-term emphasis Product Concept, Design & Development Design for engineering features Mechanisation (machine-paced) Manufacturing Single-production facility Maximum volume High volume, standard production Inventory as buffers Scrap & rework expected Ex post control Standard costing & variance reporting Inventory mgt

Domestic competition
Cost recovered via pricing Standard products

Financial information
Profitability (External fin. Reporting)

Mass production using same technology in stable labour-intensive production environment Long product life cycle

Post-Sales Service & Disposal

Contemporary World View

Management Organisation

Global competition CSF: Cost Quality Time Variety (Diversity) Innovative technology &advanced production techniques shortened product life cycle

Organic form Flatter structure Cross-functional team Strategic focus Product Concept, Design & Development Design for manufacturability Reverse engineering Target costing Value engineering Life cycle costing Reengineering Benchmarking Manufacturing Flexible mfg system ABC & ABM Automation Kaizen costing Mass customization Low volume, high variety production JIT Elimination of waste, TQM inventory & unevenness Theory of constraints Employee empowerment Individually & team-paced Visual control Post-Sales Service & Disposal Back-end costs Disposal of harmful wastes

Strategic cost & non-financial information

(CSF)

The Balanced Scorecard

How do we look to owners? Financial Perspective Goals Measures

Customer Perspective Goals Measures How do customers see us?

In which activities must we excel? Operations Perspective Goals Measures

Innovation Perspective Goals Measures

How can we continue to improve?

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Evolution and Adaptation in Managerial Accounting

Service Vs. Manufacturing Firms
Emergence of New Industries Global Competition Focus on the Customer Cross-Functional Teams Continuous Improvement

Computer-Integrated Manufacturing
Information and Communication Technology Product Life Cycles Total Quality Management Time-Based Competition Just-in-Time Inventory

Change

Major Themes in Managerial Accounting

Behavioral Issues Costs and Benefits

Information and Incentives

Evolution and Adaptation

Managerial Accounting
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Strategic Cost Management and the Value Chain

Product Design Production Research and Development Securing raw materials and other resources

Marketing

Distribution Customer Service

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Start

IN SEARCH OF ANSWERS
What impact will changes in processes/product designs have on the bottom line? Improved profitability

How can support costs be reduced? Better tracing of support costs to activities that cause costs to be incurred.
How can waste be eliminated? Better resource utilization What are the key success factors? Time, Quality and Price (Cost) What are the key performance indicators for measuring how well the organization is performing? Time, Quality and Price (Cost)

World Class Manufacturing

Who is a World Class Manufacturer? A manufacturer who demonstrates industrys best practices. The Purpose of World Class Manufacturing:
Companies that attains WCM status hope to achieve the industries best practices through the provision of high quality goods and services, competitive prices, delivery speed, delivery reliability, flexibility, innovation, customers satisfaction, etc.

Operations of a WCM
A world-class manufacturer can best be distinguished from other manufacturers through the way he conducts his business. A world-class manufacturer has the following components in his business.
International Business: A world-class manufacturer conducts his business in more than one country. Usually, world-class manufacturer would have businesses in many parts of the world. For example, Toyota would have businesses such as manufacturing plants and marketing in Asia, North America, Europe and Latin America.

International Financing:
A world-class manufacturer finances his operations not just from its country of residence but from other places as well.
Financing may be secured from places where he conducts his business, or from places where it has no operations at all. Thus, Toyota may secure funding from Switzerland even if it does not have any plant or manufacturing or even sales outlets there.

International Employer
A world-class manufacturer would employ people from across the globe. Employees may come from the country where it has operations or they may be recruited from other countries to serve in other parts of the world where the company has operations. For example, a Ghanaian may be working for Toyota Company in The United States.

International Customers
Whiles most companies have their products patronized by customers from other parts of the world; this is usually the case for all WCM; Due to the high quality of their products as well as its competitive prices, the products of world-class manufacturers are well sought by global customers. Thus one can find such products as Gillette Shaving Blades in every corner of the globe: From New Zealand to Chad in West Africa

International Raw Material Procurement

World-class manufacturers source their raw material and other supplies from different parts of the world. Usually, they look for quality and competitive prices. Thus, Toyota may source some of its parts from Malaysia, Thailand, Brazil, Togo or Indonesia.

Advantages and Challenges of World Class manufacturing

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Better Quality Reducing Inventories as a result of JIT Reduced floor space High Inventory Turnovers Shorter setup and lead-times General Reduction in production cost

International Competition
Meeting world-class competition demands a worldclass management accounting system. Managers must make decisions to plan, direct, and control a world-class organization.

The effect of WCM on management accounting and finance

WCM changes the way companies manage their accounts and finances. changes the way goods are produced, stored and delivered. changes in the nature and components of expenses such as increase in research and development and capital (technology) expenses poses a challenge to accountants With the complex financing of these expenditures, WCM greatly affects the nature of finance. Hence the prominence of such accounting/finance topics as bond valuation, leasing and MRP. WCM also affects the way WIP, Direct labour, stock valuation and overheads are being accounted for

How do these changes affect management accounting?

The management accountants role:
Provide cost-management information at a rigorous pace to keep up with the ever-changing environment The information provided should include as many nonfinancial measures as possible a variety of operating and financial measures The reports should be applicable to crossfunctional teams and conducive with a flexible management structure

IFACs Phases for Developing Cost Management Information Systems

Stage One (Prior to 1950) Stage Two (By 1965) Stage Three (By 1985) Stage Four (By 1995)
MA focused on cost determination and financial control (via budgeting and cost accounting technologies) Provision of info. for mgt planning and control via techniques such as decision analysis and responsibility accounting Focus on reduction of waste in in biz processes via the use of process analysis and cost management. Focus on creation of value via effective use of resources which examine main stakeholders value and orgn innovation.

Managing Resources, Activities, and People

An organization . . .
Directing

Acquires Resources

Organized set of activities

Decision Making

Controlling

Planning

Hires People
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Ethical Climate of Business

The corporate scandals experienced over the last few years have shown us that unethical behavior in business is wrong in a moral sense and can be disastrous in the economy. In addition to Sarbanes-Oxley, there will likely be more reforms in corporate governance and accounting.

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Importance of Ethics in Accounting

Ethical accounting practices build trust and promote loyal, productive relationships with users of accounting information. Many companies and professional organizations, such as the Institute of Management Accountants (IMA), have written codes of ethics which serve as guides for employees. Code of Conduct for Management Accountants

Managerial Accounting as a Career

Professional Organizations
Institute of Management Accountants (IMA)

Publishes Management Accounting and research studies.

Administers Certified Management Accountant program

Develops Standards of Ethical Conduct for Management Accountants

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IMA Code of Ethics for Management Accountants

Four broad areas of responsibility: Maintain a high level of professional competence treat sensitive matters with confidentiality Maintain personal integrity Be objective in all disclosures