Chapter 01 - Managerial Accounting and Business Environment

Chapter 1
Managerial Accounting and

the Business Environment
Lectured by Nguyễn Thanh Lâm, MA
Learning Objective 1
Understand the role of

management accountants in
an organization.
Organizational Structure
Decentralization is the delegation of decision-
making authority throughout an organization.
Corporate Organization Chart

Board of Directors
President
Purchasing Personnel Vice President Chief Financial

Operations Officer
Treasurer Controller
Line and Staff Relationships
Line positions are directly Staff positions support

related to achievement of and assist line positions.
the basic objectives of an ü Example: Cost
organization. accountants in the
ü Example: Production manufacturing plant.
supervisors in a
manufacturing plant.
The Chief Financial Officer (CFO)
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.
Understand the basic

concepts underlying Lean
Production, the Theory
of Constraints, and Six
Sigma.
Process Management
A business
process is a series of
steps that are followed in order to
carry out some task in
a business.
Product Customer
R&D Design Manufacturing Marketing Distribution Service
Business functions making up the value chain

Process Management
There are three approaches to

improving business processes . . .
Theory of
Constraints (TOC)
Lean Six
Production Sigma
Traditional “Push” Manufacturing Company
Forecast Sales Order components Store Inventory
Make Sales from

Finished Goods Store Produce goods in
Inventory Inventory anticipation of Sales
Traditional “Push” Manufacturing Company
Traditional “push” Large
manufacturing inventories
Raw Work in Finished

materials process goods
Materials waiting Completed products

to be processed. awaiting sale.
Partially completed products

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

arrangements around
model is a five
the flow of the
step approach. business process.
Continuously pursue Create a pull

perfection in the system that responds
business process. to customer orders.
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 Create Production Generate component

an order Order requirements
Goods delivered Production begins Components

when needed as parts arrive are ordered
Lean Production
Lean thinking can 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.
Theory of Constraints
A constraint (also called a bottleneck) is anything that
prevents you from getting more of what you want.
The Theory of Constraints is based on the observation that
effectively managing the constraint is the key to success.
The constraint in a system is determined

by the step that has the smallest capacity.
Theory of Constraints
Only actions 2. Allow the
that strengthen weakest link to
the weakest link set the tempo.
in the “chain”
improve the
process.
3. Focus on
1. Identify the improving
weakest link. the weakest
link.
4. Recognize that
the weakest link
is no longer so.
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 Sometimes

generates no more associated
than 3.4 defects per million with the term zero
opportunities. defects.
Six Sigma
The Six Sigma DMAIC Framework
Stage Goals
Define ● Establish the scope and purpose of the project.
● Diagram the flow of the current process.
● Establish the customer's requirements for the
process.
Measure ● Gather baseline performance data related to
the existing process.
● Narrow the scope of the project to the most
important problems.
Analyze ● Identify the root cause(s) of the problems
identified in the Measure stage.
Improve ● Develop, evaluate, and implement solutions
to the problems.
Control ● Ensure that problems remain fixed.
● Seek to improve the new methods over time.
Understand the role of

management accountants in
an organization.
Managerial Accounting and Financial
Accounting
Managerial accounting Financial accounting

provides information provides information
for managers of an to stockholders,
organization who creditors and others
direct and control who are outside
its operations. the organization.
Work of Management
Planning
Directing and
Motivating
Controlling
Planning
Identify
alternatives.
Select alternative that does

the best job of furthering
organization’s objectives.
Develop budgets to guide

progress toward the
selected alternative.
Directing and Motivating
Directing and motivating involves managing

day-to-day activities to keep the organization running
smoothly.
} Employee work assignments.
} Routine problem solving.
} Conflict resolution.
} Effective communications.
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.
Planning and Control Cycle
Formulating long-
Begin
and short-term plans
(Planning)
Comparing actual
Implementing
to planned Decision
plans (Directing
performance Making and Motivating)
(Controlling)
Measuring
performance
(Controlling)
Identify the major

differences and similarities
between financial and
managerial accounting.
Comparison of Financial and Managerial
Accounting
Financial Accounting Managerial Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization
2. Time focus Historical perspective Future emphasis
3. Verifiability Emphasis on Emphasis on relevance
versus relevance verifiability for planning and control
4. Precision versus Emphasis on Emphasis on
timeliness precision timeliness
5. Subject Primary focus is on Focuses on segments
the whole organization of an organization
6. GAAP Must follow GAAP Need not follow GAAP
and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory
End of Chapter 1

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Chapter 1

Managerial Accounting and

Understand the role of

Corporate Organization Chart

Purchasing Personnel Vice President Chief Financial

Line positions are directly Staff positions support

A member of the top management team responsible

Understand the basic

Business functions making up the value chain

There are three approaches to

Forecast Sales Order components Store Inventory

Make Sales from

Raw Work in Finished

Materials waiting Completed products

Partially completed products

The lean thinking  Organize work

 Continuously pursue  Create a pull

Customer places Create Production Generate component

Goods delivered Production begins Components

Lean thinking can be used to improve business

The term supply chain management refers to the

The constraint in a system is determined

Refers to a process that Sometimes

Understand the role of

Managerial accounting Financial accounting

Select alternative that does

Develop budgets to guide

Directing and motivating involves managing

Feedback in the form of performance reports

Identify the major

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The lean thinking Organize work

Continuously pursue Create a pull