Kế toán tài chính 2 - Chapter 19: The changing business environment: A manager’s perspective

The Changing Business Environment:A Manager’sPerspectiveMultimedia Slides by: Gail A. Mestas, MAcc, New Mexico State UniversityChapter 19Learning ObjectivesDistinguish management accounting from financial accounting and explain the role of management accounting in the management cycle.Describe the value chain and its usefulness in analyzing a business.Identify the management tools used for continuous improvement and describe how they work to meet the demands of global competition and how management accounting supports them.Copyright © Houghton Mifflin Company. All rights reserved.Learning ObjectivesExplain the balanced scorecard and its relationship to performance measures.Prepare an analysis of nonfinancial data.Identify the standards of ethical conduct for management accountants.Copyright © Houghton Mifflin Company. All rights reserved.The Role of Management AccountingObjective 1Distinguish management accounting from financial accounting and explain the role of management accounting in the management cycleCopyright © Houghton Mifflin Company. All rights reserved.The Role of Management AccountingTo provide an information system that enables persons throughout an organization toMake informed decisionsBe more effective at their jobsImprove the organization’s performanceCopyright © Houghton Mifflin Company. All rights reserved.The Role of Management Accounting (cont’d)Managers need accurate and timely information toPlan and control an organization’s operationsMeasure its performanceMake decisions about products or servicesCopyright © Houghton Mifflin Company. All rights reserved.The Role of Management Accounting (cont’d)Employees who handle daily operations need accurate and timely information to do their job more efficientlySuch as managing the flow of materials into a production systemCopyright © Houghton Mifflin Company. All rights reserved.The Role of Management Accounting (cont’d)All types and sizes of organizations need management accountingManufacturingRetailServiceGovernmentalThe precise type of information needed depends on an organization’s goals and the nature of its operationsCopyright © Houghton Mifflin Company. All rights reserved.Management Accounting is the process ofidentification,measurement,accumulation,analysis,preparation,interpretation,and communicationof financial information used by managementto plan, evaluate, and control within the organizationand to assure appropriate use of and accountability for its resourcesAs defined by the Institute of Management Accountants (IMA) in 1982Copyright © Houghton Mifflin Company. All rights reserved.Management Accounting (cont’d)Since this definition was written in 1982, the importance of nonfinancial data has increased significantlyExamplesTime needed to complete one cycle of the production processTime needed to rework production errorsData pertaining to customer satisfactionCopyright © Houghton Mifflin Company. All rights reserved.Management Accounting and Financial Accounting: A ComparisonBoth management and financial accountingAssist decision makers by identifying, measuring, and processing relevant informationAnd communicating this information through reportsProvide managers with key measures of a company’s performanceProvide managers with cost information for valuing inventories on the balance sheetDespite the overlap in their functions, management accounting and financial accounting differ in a number of waysCopyright © Houghton Mifflin Company. All rights reserved.Copyright © Houghton Mifflin Company. All rights reserved.Primary UsersManagement accountingMangers and employeesThese are people inside the organizationFinancial accountingOwners or stockholders, lenders, customers, governmental agenciesThese are parties outside the organizationCopyright © Houghton Mifflin Company. All rights reserved.Primary UsersFinancial accounting takes the actual results of management decisions about operating, investing, and financing activities and prepares financial statements for parties outside the organizationManagers also rely on financial statements for evaluating an organization’s performanceCopyright © Houghton Mifflin Company. All rights reserved.Report Format and Purpose of ReportsManagement accountingFormat is flexibleDriven by the user’s needsProvide information for planning, control, performance measurement, and decision makingInformation may be either historical or future-orientedNo formal guidelines or restrictionsFinancial accountingMust follow standards and procedures specified by generally accepted accounting principles (GAAP)Focus on past performanceCopyright © Houghton Mifflin Company. All rights reserved.Nature of InformationManagement accountingMay be objective and verifiableExpressed in terms of dollar amounts or physical measures of time or objectsIf needed for planning purposes, may be subjectiveBased on estimatesPrepared as often as neededCopyright © Houghton Mifflin Company. All rights reserved.Nature of Information (cont’d)Financial accountingMust be based on objective and verifiable informationGenerally historicalMeasured in monetary termsPrepared and distributed periodicallyUsually quarterly and annuallyCopyright © Houghton Mifflin Company. All rights reserved.Management Accounting and the Management CycleManagement is expected to Use resources wiselyOperate profitablyPay debtsAbide by laws and regulationsTo fulfill these expectations, managersEstablish the goals, objectives, and strategic plans of the organizationGuide and control operating, investing, and financing activities accordinglyCopyright © Houghton Mifflin Company. All rights reserved.Management Accounting and the Management Cycle (cont’d)Management actions generally follow a four-stage cyclePlanningExecutingReviewingReportingManagement accounting supports each stage of the cycleCopyright © Houghton Mifflin Company. All rights reserved.The Management CycleCopyright © Houghton Mifflin Company. All rights reserved.PlanningThe overriding goal of a business is to increase the value of the owners’ interest in the businessFor a corporation, this means increasing stockholders’ valueThe value of the company as represented by the total market value of the shares of stock in the corporationCopyright © Houghton Mifflin Company. All rights reserved.Planning (cont’d)A company’s mission is a statement of the fundamental way in which the company will achieve its goal of increasing the owners’ valueThis is essential to the planning process, which must consider both strategic objectives and operating objectivesCopyright © Houghton Mifflin Company. All rights reserved.Planning (cont’d)Strategic objectivesBroad, long-term goalsDetermine the fundamental nature and direction of the businessServe as a guide for decision makingEstablished by top managementInvolve basic issuesWhat the company's main products or services will beWho its primary customers will beWhere it will operateCopyright © Houghton Mifflin Company. All rights reserved.Planning (cont’d)Operating objectivesShort-term goalsOutline expectations for performance of day-to-day operationsThe development of strategic and operating objectives requires managers to formulate a business planInvolves making decisions concerning various alternativesCopyright © Houghton Mifflin Company. All rights reserved.Planning (cont’d)Business planA comprehensive statement of how the company will achieve its objectivesUsually expressed in financial terms in the form of budgetsOften includes performance goals for individuals, teams, products, or servicesCopyright © Houghton Mifflin Company. All rights reserved.Planning (cont’d)Management accounting provides the information needed for development of Strategic and operating objectivesBusiness planCopyright © Houghton Mifflin Company. All rights reserved.Illustration of the Role of Management Accounting in the Planning ProcessGoalObtain an income from the businessTo increase the value of Wang’s investment in the businessMissionTo attract customers and retain them by selling satisfying sweets and providing excellent serviceAbbie Wang is about to open her own retail business called Sweet Treasures Candy StoreCopyright © Houghton Mifflin Company. All rights reserved.Illustration of the Role of Management Accounting in the Planning ProcessStrategic objectivesPurchase of high-quality confections from various candy distributors and the resale of these items to consumersOperating objectivesCourtesy and efficiency in serving customersPerformance will be measured by keeping a record of the number and type of customer complaintsAbbie Wang is about to open her own retail business called Sweet Treasures Candy StoreCopyright © Houghton Mifflin Company. All rights reserved.Illustration of the Role of Management Accounting in the Planning ProcessTo apply for a start-up loan, Wang must have a business planMust includeA full description of the businessComplete operating budget for the first two years of operationsThe budget must includeForecasted income statementForecasted statement of cash flowsForecasted balance sheet Copyright © Houghton Mifflin Company. All rights reserved.Illustration of the Role of Management Accounting in the Planning ProcessTo provide relevant information for the plan, Wang will have to determineThe types of candy to sellAnticipated sales volumeSelling price for each productMonthly costs ofLeasing or purchasing facilitiesMaintaining the facilitiesEmploying personnelNumber of display counters, storage units, and cash registers neededBecause she does not have a financial background, Wang will consult a local accounting firm to help her develop a business planCopyright © Houghton Mifflin Company. All rights reserved.ExecutingPlanning alone does not guarantee satisfactory operating resultsManagement must implement the business plan in ways that make optimal use of available resourcesCopyright © Houghton Mifflin Company. All rights reserved.Executing (cont’d)Smooth operations require one or more of the followingHiring and training personnelMatching human and technological resources to the work that must be donePurchasing or leasing facilitiesMaintaining an inventory of products for saleIdentifying operating activities, or tasks, that minimize waste and improve the quality of the products or servicesCopyright © Houghton Mifflin Company. All rights reserved.Executing (cont’d)Managers execute the business plan by overseeing the daily operations of the organizationSmall organizationsManagers have frequent direct contact with employeesSupervise and interact with employees to help them learn a task or improve performanceLarger, more complex organizationsLess direct contact between managers and employeesMay monitor performance by measuring The time taken to complete an activity (such as the number of inspections per hour)The frequency of an activity (such as number of inspections)Copyright © Houghton Mifflin Company. All rights reserved.Illustration of the Role of Management Accounting in the Executing ProcessThe budget prepared for the store’s first two years of operation provides the link between the business plan and the executing planItems that relate to the business plan appear in the budget and become authorizations for expendituresExamples includeSpending on store fixturesHiring employeesDeveloping advertising campaignsPricing items for special salesAbbie Wang has obtained a bank loan and Sweet Treasures Candy Store is now open for businessCopyright © Houghton Mifflin Company. All rights reserved.The Supply Chain is the path that leads from the suppliers of the materials from which the product is made to the final consumerAlso called the supply networkIs critical to managing any retail businessCopyright © Houghton Mifflin Company. All rights reserved.The Supply ChainCopyright © Houghton Mifflin Company. All rights reserved.ExecutingIn the supply chain for candy, sugar and other ingredients flow from suppliers to manufacturers to distributors to consumersWang’s business is toward the end of the supply chainBuys from distributors and sells to consumersMust coordinate deliveries from distributorsNeeds to meet demands of customers without having too much inventory on handToo much inventory ties up cashToo little inventory means lost salesManagement accounting information about deliveries and sales will help Wang manage the supply chainCopyright © Houghton Mifflin Company. All rights reserved.ReviewingIn the reviewing stage, managers compare actual performance with the performance levels established in the planning phaseSignificant variations are earmarked for further analysis to correct problemsMay revise original objectivesCopyright © Houghton Mifflin Company. All rights reserved.Illustration of the Role of Management Accounting in the Reviewing ProcessTo evaluate how well Sweet Treasures Candy Store is doing, Abbie Wang will monitor the followingFinancial performanceCompare the amounts estimated in the budget with information about actual resultsIf differences occur, they should be analyzedReasons for differences may lead to changes in her original business planCustomer serviceThe number and type of customer complaintsReview of these records may help develop new and better business strategiesCopyright © Houghton Mifflin Company. All rights reserved.ReportingIt is essential that both internal and external accounting reports Provide accurate informationClearly communicate this information to the readerCopyright © Houghton Mifflin Company. All rights reserved.Reporting (cont’d)Internal accounting reportsInaccurate or unclear information can have a negative impact on a company’s operations and profitabilityExternal accounting reportsGAAP requires full disclosure and transparency in financial statementsViolations of this precept can result in stiff penaltiesCopyright © Houghton Mifflin Company. All rights reserved.Reporting (cont’d)Congress passed legislation on financial reporting following reporting violations by Enron, WorldCom, and other companiesRequires top management of publicly owned corporations to certify that statements are accuratePenalties for issuing false statements can include loss of compensation, fines, and jail timeCopyright © Houghton Mifflin Company. All rights reserved.Reporting (cont’d)The four w’sWhy?Who?What?When?These four questions are the key to producing management accounting reports that communicate accurate and useful information in such a way that the meaning is transparent to the readerCopyright © Houghton Mifflin Company. All rights reserved.Why?Know the purpose of the reportFocus on it as you writeCopyright © Houghton Mifflin Company. All rights reserved.Who?Identify the audience for your reportCommunicate at your audience's level of understanding of the issue and their familiarity with accounting informationManager as the audienceA detailed, informal report may be appropriatePresident or board of directors as the audienceA concise summary may be appropriateCopyright © Houghton Mifflin Company. All rights reserved.What?What information is needed?Select relevant information from reliable sourcesWhat method of presentation is best?Information should be easy to read and understandMay include visual aids, such as bar charts or graphsCopyright © Houghton Mifflin Company. All rights reserved.When?Know the due date for the reportStrive to prepare an accurate report on a timely basisIf the report is needed urgently, some level of accuracy may have to be sacrificedCopyright © Houghton Mifflin Company. All rights reserved.Illustration of the Role of Management Accounting in the Reporting ProcessWhy?To report on the financial health of Sweet Treasures Candy StoreWho?Wang, her bank and other creditors, and potential investors are the audience for the reportAbbie Wang has hired Salvador Chavez to be her company’s accountant and prepare the company’s financial statementsCopyright © Houghton Mifflin Company. All rights reserved.Illustration of the Role of Management Accounting in the Reporting ProcessWhat?To report will include disclosures about assets, liabilities, product costs, and salesWhen?The required reporting deadline for the accounting periodAbbie Wang has hired Salvador Chavez to be her company’s accountant and prepare the company’s financial statementsCopyright © Houghton Mifflin Company. All rights reserved.Illustration of the Role of Management Accounting in the Reporting ProcessWang will also want periodic internal reports on various aspects of operationsMonthly reportSummarizes the costs of ordering candy from distributors and related shipping chargesIf costs appear too high, Wang may ask Salvador Chavez to conduct a special studyThe results of the study might result in a memorandum reportCopyright © Houghton Mifflin Company. All rights reserved.A Management Accounting ReportCopyright © Houghton Mifflin Company. All rights reserved.Management AccountingCan provide a constant stream of relevant information in all stages of the management cycleDeveloping a business planCommunicating the business plan to other parties, such as creditors and employeesEvaluating the performance of employeesReporting the results of operationsCopyright © Houghton Mifflin Company. All rights reserved.DiscussionMust management accounting information always be objective?No, information needed for planning purposes may be subjective because it is based on estimates. But, management accounting information should always be verifiableCopyright © Houghton Mifflin Company. All rights reserved.Value Chain AnalysisObjective 2Describe the value chain and its usefulness in analyzing a businessCopyright © Houghton Mifflin Company. All rights reserved.Value Chain includes all functions and related activities in the development path of a product or service that contribute to its value and marketabilityEach step in the manufacture of a product or delivery of a service can be thought of as a link in a chain that adds value to the product or serviceCopyright © Houghton Mifflin Company. All rights reserved.Value Chain AnalysisPrimary processesSteps that add value to a product or serviceRange from research and development to customer serviceSupport servicesAlso included in the value chainInclude legal services and management accountingFacilitate the primary processes but do not add value to the final product or serviceTheir roles are critical in making the primary processes as efficient and effective as possibleCopyright © Houghton Mifflin Company. All rights reserved.Primary Processes and Support ServicesAbbie Wang wants to determine if it is feasible to produce and sell her own brand of candyIdentify the primary processes and support services that will add value to the new candyCopyright © Houghton Mifflin Company. All rights reserved.Primary ProcessesResearch and developmentDeveloping new and better products or servicesDesignCreating improved and distinctive shapes, labels, or packages for productsWang plans to add value by developing a candy that has less sugar content than similar productsA package that is attractive and that describes the desirable features of Wang’s candy will add value to the productCopyright © Houghton Mifflin Company. All rights reserved.Primary Processes (cont’d)SupplyPurchasing materials for products or servicesProductionManufacturing the product or serviceWang will want to purchase high-quality sugar, chocolate, and other ingredients for the candy, as well as high-quality packagingWang will want to implement efficient manufacturing and packaging process to add value to the new candyCopyright © Houghton Mifflin Company. All rights reserved.Primary Processes (cont’d)MarketingCommunicating information about the products or services and selling themDistributionDelivering the product or service to the customerAttractive advertisements will facilitate sale of the new candy to customersCourteous and efficient service for in-store customers will add value to the product. Wang may also want to accommodate Internet customers by providing shippingCopyright © Houghton Mifflin Company. All rights reserved.Primary Processes (cont’d)Customer serviceFollowing up with service after sales or providing warranty serviceWang may offer replacement of any candy that does not satisfy the customer. She could also use questionnaires to measure customer satisfactionCopyright © Houghton Mifflin Company. All rights reserved.Support ServicesHuman resourcesHiring and training employees to carry out all the functions of the businessLegal servicesMaintaining and monitoring all contracts, agreements, obligations, and other relationships with outside partiesWang will need to hire and train personnel to make the new candyWang will want legal advice when applying for a trademark for the new candy’s name and when signing contracts with suppliersCopyright © Houghton Mifflin Company. All rights reserved.Support Services (cont’d)Information systemsEstablishing and maintaining technological means of controlling and communicating within an organizationManagement accountingProvides essential information in any businessWang will want a computerized accounting system that keeps financial records and customer informationCopyright © Houghton Mifflin Company. All rights reserved.Advantages of Value Chain AnalysisAllows a company to focus on its core competenciesWhat a company does bestWhat gives a company an advantage over its competitorsSony Corporation's core competencies are the design and manufacture of consumer electronic devices that are increasingly smaller in sizeCopyright © Houghton Mifflin Company. All rights reserved.Advantages of Value Chain Analysis (cont’d)OutsourcingThe engagement of other companies to perform a process or service of the value chain that is not among a company’s core competenciesNike’s core competencies are the design and marketing of athletic shoesThe company does not manufacture any shoes, but outsources manufacturing to companies that specialize in shoe manufactureCopyright © Houghton Mifflin Company. All rights reserved.Management Accounting’s Support of Value Chain AnalysisAnalysis of the value chain is critical to most company’s survival in today’s competitive business environmentManagers must provide the highest value to customers at the lowest costLow cost equates to the speed at which the primary processes of the value chain are executedReferred to as time to market Honda has a competitive advantage over General Motors in that it produces a car every 40 minutes, while GM requires 60 minutes per carCopyright © Houghton Mifflin Company. All rights reserved.Management Accounting’s Support of Value Chain Analysis (cont’d)Managers must also make the services that support the primary processes as efficient as possibleSupport services are essential and cannot be eliminatedBecause they do not add value to a product, they must be implemented as economically as possibleAdvances in technology have helped reduce the cost of the accounting function in many companies from 6 percent to 2 percent of total revenueCopyright © Houghton Mifflin Company. All rights reserved.Management Accounting’s Support of Value Chain Analysis (cont’d)As a support service, management accounting must be efficient and provide value to managersInformation must be developed that is useful in decision makingCopyright © Houghton Mifflin Company. All rights reserved.Illustration of Management Accounting’s Support of Value Chain AnalysisAbbie Wang will need accurate information about the cost of the candy, to determine whether manufacturing and selling her own brand of candy will be profitableTo remain competitive, Abbie knows she cannot sell her candy for more that $10 per poundShe also has an idea of how much candy she can sell in the first yearAbbie’s accountant, Salvador Chavez, analyzes the value chain and projects the initial costs per poundCopyright © Houghton Mifflin Company. All rights reserved.Value Chain AnalysisCopyright © Houghton Mifflin Company. All rights reserved.Illustration of Management Accounting’s Support of Value Chain Analysis (cont’d)Wang is concerned about the initial cost of $8 per poundThis leaves only $2 per pound ($10 - $8) to cover all support services and leave a profitThis margin is equal to 20 percent of revenues ($2 ÷ $10)Wang believes the margin should be at least 35 percent for the enterprise to be successfulSince the selling price is constrained by the competition, she must find a way to reduce costsCopyright © Houghton Mifflin Company. All rights reserved.Illustration of Management Accounting’s Support of Value Chain Analysis (cont’d)Chavez points out that the highest costs in the candy store’s value chain are for supply and productionWays to reduce the cost per poundSell a higher volume of candyNot realistic for the new productCopyright © Houghton Mifflin Company. All rights reserved.Illustration of Management Accounting’s Support of Value Chain Analysis (cont’d)Use a single supplierWang had planned on ordering from a number of suppliersHer orders would not be large enough to qualify for quantity discountsCost savings equal $.50 per poundOutsource productionA candy manufacturer with a high volume of products can produce the candy at a much lower cost than could be done at Sweet Treasures Candy StoreProduction costs from outsourcing would be $3.50 per pound versus $4.50 per pound if produced by Sweet TreasuresCost savings equal $1.00 per pound ($4.50 - $3.50)Copyright © Houghton Mifflin Company. All rights reserved.Illustration of Management Accounting’s Support of Value Chain Analysis (cont’d)These cost savings would allow Wang to sell her candy at a competitive price of $10/pound and make the targeted margin of 35 percentCopyright © Houghton Mifflin Company. All rights reserved.Illustration of Management Accounting’s Support of Value Chain Analysis (cont’d)Two important points illustrated by this value chain analysisSweet Treasures Candy Store’s mission is as a retailerThe company has no manufacturing experienceTo manufacture candy, the company would need to change its mission and make major changes in the way it does businessIt is often the best policy to outsource portions of the value chain that are not part of a company’s core competencyBecause Sweet Treasures Candy Store does not have a core competency in candy manufacturing, it would not be competitive in this fieldCopyright © Houghton Mifflin Company. All rights reserved.Illustration of Management Accounting’s Support of Value Chain Analysis (cont’d)Abbie Wang would be better off having an experienced candy manufacturer produce the candy according to her specificationsShe could then sell the candy under her store’s labelAs business grows, increased volume may allow Wang to reconsider undertaking candy manufacturingCopyright © Houghton Mifflin Company. All rights reserved.DiscussionIs customer service considered a primary process or support service in value chain analysis?Customer service is a primary process because it adds value to a product or serviceCopyright © Houghton Mifflin Company. All rights reserved.Meeting the Demands of Global CompetitionObjective 3Identify the management tools used for continuous improvement and describe how they work to meet the demands of global competition and how management accounting supports themCopyright © Houghton Mifflin Company. All rights reserved.Meeting the Demands of Global CompetitionGlobal competition has increased significantlyResult of managers having ready access to international markets and current information for informed decision makingManagers cannot afford to become complacentThe concept of continuous improvement evolved to avoid such complacencyCopyright © Houghton Mifflin Company. All rights reserved.Continuous Improvement is the management concept that one should never be satisfied with the way things are; one should always seek a better method, product, process, or resourceIn response to this concept, several important management tools have emergedThese tools help companies remain competitiveCopyright © Houghton Mifflin Company. All rights reserved.Management Tools for Continuous ImprovementJust-in-time (JIT) operating philosophyTotal quality management (TQM)Activity-based management (ABM)Theory of constraints (TOC)Copyright © Houghton Mifflin Company. All rights reserved.Just-in-Time (JIT) Operating Philosophy requires that all resources (materials, personnel, and facilities) be acquired and used only as neededObjectivesImprove productivityEliminate wasteCopyright © Houghton Mifflin Company. All rights reserved.The JIT EnvironmentProduction processes are consolidatedWorkers are trained to be multiskilledCan operate several different machinesRaw materials and parts are scheduled for delivery just at the time they are needed in the production processSignificantly reduces inventories of materialsCopyright © Houghton Mifflin Company. All rights reserved.The JIT Environment (cont’d)Goods are produced continuouslyWork in process inventories are very smallGoods are put into production only when an order is received and are shipped when completedReduces finished goods inventoryCopyright © Houghton Mifflin Company. All rights reserved.JIT Operating PhilosophyAdopting the JIT philosophyReduces production time and costsReduces investment in materials inventoryReduces materials wasteResults in higher quality goodsFunds no longer invested in inventory can be redirected according to the goals of the business planCopyright © Houghton Mifflin Company. All rights reserved.Total Quality Management (TQM) requires that all parts of a business work together to build quality into the business’s product or serviceGoalImproved quality of both the product or service and the work environmentWorkers act as team members and are empowered to make operating decisions that improve quality in these two areasCopyright © Houghton Mifflin Company. All rights reserved.TQMFocusImproving product or service quality by identifying and reducing or eliminating the causes of wasteEmphasisExamining current operations to spot possible causes of poor qualityUsing resources efficiently and effectively to Improve qualityReduce time needed to complete a task or provide a serviceCopyright © Houghton Mifflin Company. All rights reserved.TQM (cont’d)Has many characteristics of the JIT operating philosophyBoth result in Reduced waste of materialsHigher-quality goodsLower production costs in manufacturing environmentsCopyright © Houghton Mifflin Company. All rights reserved.TQM (cont’d)TQM managers use accounting information about the costs of quality to determine the impact of poor quality on profitsCosts of qualityCosts of achieving qualitySuch as training costs and inspection costsCosts of poor qualitySuch as the costs of rework and of handling customer complaintsCopyright © Houghton Mifflin Company. All rights reserved.Activity-Based Management (ABM) is a way of managing a business that Identifies all of its major operating activitiesDetermines what resources are used in each activityIdentifies what causes use of these resources for each activityCategorizes the activities as either adding value to a product or being nonvalue-addingABM includes a management accounting practice called activity-based costingCopyright © Houghton Mifflin Company. All rights reserved.Activity-Based Costingis a way of assigning cost that Identifies all of a company’s major operating activities (both production and nonproduction)Traces costs to those activitiesAssigns costs to the products or services that use the resources supplied by those activitiesCopyright © Houghton Mifflin Company. All rights reserved.Value- and Nonvalue-Adding ActivitiesValue-adding activitiesActivities that add value to a product or service, as perceived by the customerNonvalue-adding activitiesActivities that add cost to product or service but do not increase its market valueCopyright © Houghton Mifflin Company. All rights reserved.Value- and Nonvalue-Adding ActivitiesNonvalue-adding activities that do not support the organizationAre eliminated under ABMNonvalue-adding activities that do support the organizationAre focal points for cost reductionCopyright © Houghton Mifflin Company. All rights reserved.ABM ABM results inReduced costsReduced waste of resourcesIncreased efficiencyIncreased customer satisfactionABM produces more accurate costs than traditional cost allocation methodsLeads to improved decision makingCopyright © Houghton Mifflin Company. All rights reserved.ABM Approach IllustratedYou and three friends are planning a ski trip. The travel agent quotes a flat fee of $400 per person, or a total of $1,600, for a 3-day package that includes skiing, food, lodging, and entertainment One friend does not plan to ski, another eats much more that the rest, and two plan to only stay for two daysTwo methods to allocate the costsEach person pays an equal share of $400Allocate the costs according to activityAccording to ABM, each individual should make a payment equal to his or her level of involvement in each activityCopyright © Houghton Mifflin Company. All rights reserved.Theory of Constraints (TOC)maintains that limiting factors, or bottlenecks, occur during production of any product or service and once identified, attention and resources can be focused on the bottlenecks to achieve significant improvementsHelps managers set priorities for spending their time and resourcesConstraints are identified through information management accounting providesCopyright © Houghton Mifflin Company. All rights reserved.TOC Approach IllustratedA marketing manager wants to increase sales of doughnut-shaped chew toys for dogs. After reviewing management accounting reports, she concludes that potential sales are limited by production capacity of her company’s manufacturing plant It is determined that the problem lies in the plant's molding machineCan shape only 1,000 toys per hourThe marketing manager persuades the VP of manufacturing to purchase a second molding machine to overcome the constraintThe increase in production will enable sales to increaseTOC compliments JIT, TQM, and ABM by focusing resources on efforts that will yield the most effective improvementsCopyright © Houghton Mifflin Company. All rights reserved.Achieving Continuous ImprovementGoalPerfection by means of continuous improvementJIT approachStrives to eliminate wasted time, resources, and spaceTQM approachFocuses on improving the quality of the product pr service and the work environmentABM approachEmphasizes the ongoing reduction or elimination of nonvalue-adding activitiesTOC approachFocuses resources on efforts the will produce the most effective improvementsCopyright © Houghton Mifflin Company. All rights reserved.Achieving Continuous ImprovementJIT, TQM, ABM, and TOC are management tools for continuous improvement Each can be used individuallyParts of them can be combined to create a new operating environmentAre applicable to both service and manufacturing industriesAll contribute the same results in any organizationReduction in product or service costs and delivery timeImprovement in the quality of the product or serviceIncrease in customer satisfactionCopyright © Houghton Mifflin Company. All rights reserved.The Continuous Improvement EnvironmentCopyright © Houghton Mifflin Company. All rights reserved.DiscussionWhat is the common goal of JIT, TQM, ABM, and TOC?Continuous improvementCopyright © Houghton Mifflin Company. All rights reserved.Performance Measures: A Key to Achieving Organizational ObjectivesObjective 4Explain the balanced scorecard and its relationship to performance measuresCopyright © Houghton Mifflin Company. All rights reserved. are quantitative tools that gauge an organization’s performance in relation to a specific goal or expected outcomeMay be financial or nonfinancialPerformance MeasuresCopyright © Houghton Mifflin Company. All rights reserved.Financial Performance MeasuresIncludeReturn on investmentNet income as a percentage of salesCosts of poor quality as a percentage of salesCopyright © Houghton Mifflin Company. All rights reserved.Financial Performance Measures (cont’d)Use monetary information to gauge the performance of a profit-generating organization or its segmentsDivisionsProduct linesSales TerritoriesOperating activitiesCopyright © Houghton Mifflin Company. All rights reserved.Nonfinancial Performance MeasuresIncludeNumber of times an activity occursTime taken to perform a taskExamplesNumber of customer complaintsNumber of orders shipped the same dayHours of inspectionTime taken to fill an orderNonfinancial performance measures are useful in reducing or eliminating waste and inefficiencies in operating activitiesCopyright © Houghton Mifflin Company. All rights reserved.Use of Performance Measures in the Management CycleManagers use performance measures in all stages of the management cyclePlanning stageEstablish performance measures that will support the organization's mission and objectives of its business planReducing costs and increasing quality, efficiency, timeliness, and customer satisfactionExecuting stagePerformance measures guide and motivate the performance of employees and assist with assigning costs to products, departments, or operating activitiesCopyright © Houghton Mifflin Company. All rights reserved.Use of Performance Measures in the Management Cycle (cont’d)Reviewing stageManagers use the information that performance measures provide to Analyze significant differences between actual and planned performanceImprovise ways of improving performanceReporting stagePerformance measurement information is useful in communicating performance evaluations and developing new budgetsCopyright © Houghton Mifflin Company. All rights reserved.The Balanced ScorecardTo achieve its mission and objectives an organization must Identify the areas in which it needs to excel Establish measures of performance in these areasTo be effective, an approach that uses both financial and nonfinancial measures that are tied to the company’s mission and objectives is requiredCopyright © Houghton Mifflin Company. All rights reserved.The Balanced Scorecard is a framework that links the perspectives of an organization’s four stakeholder groups with the organization’s mission, objectives, resources, and performance measures Copyright © Houghton Mifflin Company. All rights reserved.The Balanced ScorecardMore than one group may be interested in the same performance objectiveHolders of internal processes and customer perspectives are both interested in performance that results in high-quality productsCopyright © Houghton Mifflin Company. All rights reserved.The Balanced Scorecard for Sweet Treasures Candy Store**Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review, Jan-Feb, 1996.Copyright © Houghton Mifflin Company. All rights reserved.BenchmarkingThe balanced scorecard enables a company to determine whether it is making continuous improvement in its operationsTo ensure its success, a company must also compare its performance with that of similar companies in the same industryCan be accomplished using benchmarkingCopyright © Houghton Mifflin Company. All rights reserved.Benchmarking is a technique for determining a company's competitive advantage by comparing its performance with that of its closest competitorsBenchmarks are measures of the best practices in an industryCopyright © Houghton Mifflin Company. All rights reserved.DiscussionAre nonfinancial performance measures ever expressed in monetary terms?No, only financial performance measures use monetary information to gauge performance. Nonfinancial performance measures use information that is not the result of monetary transactions, such as the number of times an activity occurs and the time taken to perform a taskCopyright © Houghton Mifflin Company. All rights reserved.Analysis of Nonfinancial Data in a Service OrganizationObjective 5Prepare an analysis of nonfinancial dataCopyright © Houghton Mifflin Company. All rights reserved.Analysis of Nonfinancial Data in a Service OrganizationLinda Babb supervises tellers at Kings Beach National Bank. The bank has three drive-up windows, each with a full-time teller. In the past, each teller served an average of 30 customers per hour. On November 1, 20x5, management implemented a new check-scanning procedure that has reduced the number of customers per hourData was collected on the number of customers served for the three-month period ending December 31, 20x5Copyright © Houghton Mifflin Company. All rights reserved.Analysis of Nonfinancial DataCopyright © Houghton Mifflin Company. All rights reserved.Analysis of Nonfinancial Data in a Service OrganizationThe service rate has decreased since OctoberDecember’s average is higher than November’s This means the tellers, as a group, are becoming more accustomed to the new procedureCopyright © Houghton Mifflin Company. All rights reserved.DiscussionWhat nonfinancial data might used to measure performance for a parcel delivery service?The number of packages delivered per hour or the number of miles driven per day Copyright © Houghton Mifflin Company. All rights reserved.Standards of Ethical ConductObjective 6Identify the standards of ethical conduct for management accountantsCopyright © Houghton Mifflin Company. All rights reserved.Standards of Ethical ConductManagers are responsible to external parties for the proper use of organizational resources and the financial reporting of their actionsConflicts of interest between external parties can create ethical dilemmas for management and for accountantsCopyright © Houghton Mifflin Company. All rights reserved.Standards of Ethical Conduct (cont’d)ExamplePurchase of a device to extract pollutants from the production processExternal partiesLocal communityObjective is to protect the communityStockholdersObjective is to maximize profitsCopyright © Houghton Mifflin Company. All rights reserved.Standards of Ethical Conduct (cont’d)Ethical dilemma exists for managers over which device to purchase―the more expensive device or the less expensive deviceOptionsPurchase more expensive deviceGreater protection for the community but profits will declineBenefits to community > Benefits to ownersPurchase less expensive deviceAchieve higher profits for owners, but will not protect community as wellBenefits to owners > Benefits to communityCopyright © Houghton Mifflin Company. All rights reserved.Standards of Ethical Conduct (cont’d)Managers must adhere to the highest standards of performance in order to be viewed credibly by the various parties that rely in the information they provideInstitute of Management Accountants (IMA) has issued standards of ethical conductFor practitioners of management accounting and financial managementPurpose is to provide guidanceCopyright © Houghton Mifflin Company. All rights reserved.Standards of Ethical Conduct for Practitioners of Management Accounting and Financial ManagementPractitioners of management accounting and financial management have an obligation toThe public, their profession, the organization they serve, and to themselvesMaintain the highest standards of ethical conductCopyright © Houghton Mifflin Company. All rights reserved.Standards of Ethical Conduct for Practitioners of Management Accounting and Financial ManagementThe Institute of Management Accountants (IMA) has promulgated standards of ethical conduct Adherence by practitioners of management accounting and financial management is integral to achieving the Objectives of Management Accounting Copyright © Houghton Mifflin Company. All rights reserved.IMA Standards of Ethical ConductCompetenceOngoing development of knowledge and skillsFollow relevant laws, regulations, and technical standardsAnalyze and report relevant and reliable informationConfidentialityOnly disclose confidential information when authorized or required by lawInform subordinates of confidentiality and monitor their activities to ensure confidentialityObjectivityCommunicate information fairly and objectivelyDisclose all relevant informationCopyright © Houghton Mifflin Company. All rights reserved.IMA Standards of Ethical Conduct (cont’d)IntegrityAvoid conflicts of interestAvoid activities that might prejudice the ability to carry out duties ethicallyRefuse gifts, favors, or hospitality that would influence or appear to influence actionsAvoid activities that would undermine attaining legitimate and ethical objectives of the organizationRecognize and communicate professional limitationsCommunicate favorable and unfavorable information and present professional judgments or opinionsDo not discredit the professionCopyright © Houghton Mifflin Company. All rights reserved.Resolution of Ethical ConflictFollow established policies of the organizationIf this fails, consider the followingDiscuss problem with the managerIf manager is involved in conflict, proceed to the next highest management levelIf problem is with the CEO, or equivalent, conflict may be presented to the audit committee, executive committee, board of directors, board of trustees, or ownersUnless legally prescribed , conflict should be resolved within the organizationCopyright © Houghton Mifflin Company. All rights reserved.Resolution of Ethical Conflict (cont’d)Clarify relevant ethical issues confidentially with an objective advisorMay consult an ethics counseling serviceConsult your own attorneyIf all courses of action are exhausted, and matter is significant, resignation may be requiredSubmit an informative memorandum to an appropriate representative of the organizationMay be appropriate to notify other partiesCopyright © Houghton Mifflin Company. All rights reserved.DiscussionWhat are the four standards for ethical conduct of practitioners of management accounting and financial management?Competence Confidentiality Integrity ObjectivityCopyright © Houghton Mifflin Company. All rights reserved.Time for ReviewDistinguish management accounting from financial accounting and explain the role of management accounting in the management cycleDescribe the value chain and its usefulness in analyzing a businessIdentify the management tools used for continuous improvement and describe how they work to meet the demands of global competition and how management accounting supports themCopyright © Houghton Mifflin Company. All rights reserved.And Finally Explain the balanced scorecard and its relationship to performance measuresPrepare an analysis of nonfinancial dataIdentify the standards of ethical conduct for management accountantsCopyright © Houghton Mifflin Company. All rights reserved.