Managerial Accounting and the Business Environment Assignment

Managerial Accounting and the Business Environment Assignment Words: 2596

Prologue Managerial Accounting and the Business Environment Study Suggestions The prologue describes important aspects of the contemporary business environment. While there are no written assignments, you should be familiar with the major ideas as background for your study Of managerial accounting. HIGHLIGHTS A. In many industries, a company that does not continually improve will find itself quickly overtaken by competitors. The text discusses four major approaches to improvement-?just-in-Time (KIT), Total Quality Management (TTS), Process Reengineering, and the Theory of Constraints (TCO).

These approaches can be combined. B. The Just-Len-Time TIT) approach is based on the insight that reducing inventories can be the key to improving operations. Work in process inventories (I. E. , inventories of partially completed goods) create a number of problems: 1. Work in process inventories tie up funds and take up space. 2. Work in process inventories increase the throughput time, which is the amount of time required to make a product. If a company has two weeks of work in process inventories, then it takes two weeks longer to complete a unit than if there were no work in process inventories.

Don’t waste your time!
Order your assignment!

order now

Long throughput time sakes it difficult to respond quickly to customers and can be a major competitive disadvantage. 3. When work in process inventories are large, partially completed products are stored for long periods of time before being passed to the next workstation. Therefore, defects introduced at a workstation may not be noticed for quite some time. If a machine is out Of calibration or incorrect procedures are being followed, many defective units will be produced before the problem is discovered. And when the defects are finally discovered, it may be very difficult to track down the source of the problem. Because of long throughput time, units may be obsolete or out of fashion by the time they are finally completed. 5. Large work in process inventories encourage sloppy procedures and mask inefficiencies and problems in the production process. When inventories are reduced, these problems are uncovered and can be identified and dealt with. C. Under KIT, inventories are reduced to the absolute minimum levels possible. “Just in time” means that raw materials are received just in time to go into production, subassembly are completed just in time to be assembled onto products, and products are completed just in time to be shipped to customers. . In KIT, the flow of goods is controlled by a “pull” approach; work is initiated only in response to customer orders. In contrast, under conventional systems parts and material are “pushed” forward to the next workstation regardless of need. There is also a tendency in conventional systems to seek to “keep everyone busy. ” The result in both cases is a needless buildup of inventory. 3. A KIT company should strive for zero defects. If any units in an order are defective, the whole production process would have to be restarted to place the defective units. This would make it impossible to deliver the order on time.

D. Many benefits result from a KIT system. The most important are: 1. Funds that were tied up in inventories can be used for more productive purposes. 2. Areas used to store inventories are made available for more productive uses. 3. Throughput time is reduced, resulting in greater potential output and quicker response to customer needs. 4. Defect rates are reduced, resulting in less waste and greater customer satisfaction. E. Total Quality Management (TTS) is an approach to continuous improvement that focuses on the customer and that involves systematic problem-solving using teams of front-line workers.

Specific TTS tools include benchmarking and the Plan-Do-Check-Act Cycle. 1. Benchmarking involves studying how a successful “world-class” company runs a particular operation. For example, a company trying to improve its customer service might study how Disney trains its employees. 2. The Plan-Do-Check-Act (PDA) Cycle is a systematic, fact-based approach to continuous improvement. Exhibit 1 in the text illustrates the PDA Cycle. A. In the Plan phase, the current process is studied, data are collected, ND possible causes of the problem at hand are identified.

A plan is developed to deal with the problem. B. In the Do phase, the plan is implemented and data are collected. This is done on a small scale if possible since at this point the team is rarely sure that the plan will work. C. In the Check phase, the data collected in the Do phase are analyzed to verify whether the expected improvement actually occurred. D. In the Act phase, the plan is implemented on a large scale if it was successful. If the plan was not successful, the cycle is started again with the Plan phase. 3.

Perhaps the most important characteristics oft are that it empowers front-line workers to solve problems and it focuses attention on solving problems rather than on finger pointing. F. Process Reengineering is a more radical approach to improvement than TTS. It involves completely redesigning business processes and it is often implemented by outside consultants. 1. In Process Reengineering, all of the steps in a business process are displayed as a flowchart. Many of the stops are often unnecessary and are called non-value-added activities. 2.

The process is then completely redesigned, eliminating non-value-added activities. 3. Process Reengineering should result in a streamlined process that uses fewer resources, takes less time, and generates fewer errors. 4. However, some managers fall into a trap. If Process Reengineering results in laying off workers who are no longer needed, employees will resist further Process Reengineering efforts and morale will suffer. G. The Theory of Constraints (TCO) recognizes that every organization has at least one constraint that prevents it from obtaining more of its objective.

For example, a machine that is slower than other machines on an assembly line ill prevent the company from increasing its rate of output. To improve its rate of output, the company must focus its improvement efforts on the constraint. Improvement efforts will be largely wasted if focused on areas that are not constraints. H. Organizational Structure. 1. Almost all organizations are decentralized. Decentralization involves delegating decision-making authority to lower levels in the organization. 2. An organization chart shows the levels of responsibility and formal channels of communication in an organization.

It shows who reports to whom. Exhibit 2 in the text provides an example of an organization chart. . A manager may occupy either a line position or a staff position. A. Line positions are directly related to achieving the basic objectives of the organization. B. Staff positions provide service, assistance, and specialized support to the line positions. They do not have direct authority over line positions. Accounting is a staff position. 4. The controller is the manager of the accounting department and often acts as a key adviser to top management. L. Ethics plays a vital role in an advanced market economy. . If people were generally dishonest, it would become more difficult for impasses to raise investment funds, the quality of goods and services would decline, fewer goods and services would be available for sale, and prices would be higher. 2. The Institute of Management Accountants has issued the Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management. This is a useful, practical guide for general managers as well as management accountants. The Standards for Ethical Conduct are reproduced in Exhibit 5 in the text.

Chapter 1 An Introduction to Managerial Accounting and Cost Concepts Chapter Study Suggestions This chapter provides some general background discussion and introduces cost terms that will be used throughout the book. The chapter also gives a broad overview of the flow of costs in a manufacturing company. (Chapter 2 covers cost flows in more depth. ) As you read the chapter, note each new term and be sure you understand its meaning. It is important to keep in mind that costs are classified in many ways, depending on how the costs will be used. This is the reason for so many different cost terms.

To fit the cost terms into a framework, you should frequently refer to Exhibit 1-10 as you go through the chapter. Exhibit 1-6 presents the schedule of cost of goods manufactured. You should memorize the format of this schedule, as well as the material in Exhibit 1-8. Learning this material will help you in Chapter 2 and will also lay a foundation for many chapters that follow. CHAPTER HIGHLIGHTS A. An organization is a group of people united for a common purpose. Organizations are run by managers who carry out three major activities: planning, directing and motivating, and controlling. . Planning involves identifying alternatives and selecting the alternative that best furthers the organization’s objectives. 2. Directing and motivating involves monopolizing people to carry out the plans and overseeing day-to-day activities. 3. Controlling involves obtaining feedback to ensure that all parts of the organization are following the plans. B. Financial and managerial accounting differ in a number of ways. In contrast to financial accounting, managerial accounting: 2. 3. 4. Focuses on providing data for internal uses. Places more emphasis on the future.

Emphasizes relevance and flexibility rather than precision. Emphasizes the segments of an organization, rather than just looking at the organization as a whole. 5. Is not governed by Generally Acceptable Accounting Practices. 6. Is not mandatory. C. Manufacturing costs are the costs involved in making a product. Manufacturing costs can be divided into three basic elements direct materials, direct labor, and manufacturing overhead. 1. Direct materials are those materials that become an integral part of a finished product and can be conveniently traced into it. A.

An example of direct materials would be the tires on a new Ford. B. Small material items, such as glue, are classified as indirect materials rather than as direct materials. It is too costly and inconvenient to trace such mall costs to individual units. 2. Direct labor consists of labor costs that can be easily traced to individual units of product. Direct labor is sometimes called touch labor. A. An example of direct labor would be a worker on a manufacturing assembly line. B. Other labor costs, such as supervisors and janitors, are treated as indirect labor rather than as direct labor.

These costs cannot be traced to individual units of product since these individuals do not directly work on the product. 3. Manufacturing overhead consists of all manufacturing costs except direct materials and direct labor. Manufacturing overhead includes indirect materials, indirect labor, and other manufacturing costs such as factory rent, factory utilities, and depreciation on factory equipment and facilities. 4. The terms prime cost and conversion cost are also used to categorize manufacturing costs. A. Prime cost consists of direct materials plus direct labor. B. Conversion cost consists of direct labor plus manufacturing overhead.

D. Manufacturing costs are those costs involved with selling and administrative activities. 1. Selling, or marketing, costs include all costs associated with marketing knishes products such as sales commissions, costs of delivery equipment, costs of finished goods warehouses, and advertising. 2. Administrative costs include all costs associated with the general administration of an organization, including secretarial salaries, depreciation of general administrative facilities and equipment, and executive compensation. E. For purposes of external financial reports, costs can be classified as product costs or period costs. . Period costs are expensed on the income statement in the period in which they are incurred. (By incurred, we mean the period in which the cost is accrued, not necessarily when it is paid. For example, remember from financial accounting that salaries are counted as costs not when they are paid, but when they are earned by employees. The cost is incurred in the period in which it is earned. Just continue to use the rules you learned in financial accounting. ) 2. Product costs are matched with units of product and are recognized as an expense on the income statement only when the units are sold.

Until that time, product costs are considered to be assets and are recognized on the balance sheet as inventory. 3. In a manufacturing company, product costs include direct materials, direct labor, and manufacturing overhead. Thus, in a manufacturing company, product costs and manufacturing costs are synonymous. 4. In a manufacturing company, period costs and manufacturing costs are synonymous terms. Thus, the period costs are selling and administrative costs. 5. In a merchandising company such as Macy’s or Wall-Mart, product costs consist solely of the costs of products purchased from suppliers for resale to customers.

All other costs are period costs. F. Income statements and balance sheets prepared by manufacturing firms fifer from those prepared by merchandising firms. 1. The balance sheet off manufacturing firm contains three inventory accounts: Raw Materials, Work in Process, and Finished Goods. By contrast, the balance sheet of a merchandising firm contains only one inventory account-?Merchandise Inventory. A. Raw Materials inventory consists of materials on hand in stockrooms that will be used to make products. B. Work in Process consists of unfinished products. . Finished Goods consists of units of product that are completed and ready for sale. 2. The income statement of a manufacturing firm contains an element armed cost of goods manufactured. You should study the schedule of cost of goods manufactured in Exhibit 1-6 in the text very carefully. If you have difficulty understanding this exhibit, look at Exhibit 1-7, which shows the same information in a different format. G. Manufacturing costs (direct materials, direct labor, and overhead) are also known as inventories costs. 1.

The term inventories costs is used since direct materials, direct labor, and overhead costs are assigned to Work in Process and Finished Goods inventory accounts as they are incurred. If goods are either not completed or to sold at the end of a period, these costs will be included as part of these inventory accounts on the balance sheet. 2. You should study Exhibit 1-8 in the text with care. It shows the flow of manufacturing costs through inventory accounts and the way these costs become an expense (cost of goods sold) on the income statement.

This is a key exhibit for Chapter 1. 3. We can summarize manufacturing and manufacturing cost terms as follows: Synonymous Cost Costs Terms Involved ; Manufacturing costs ; Direct materials, direct ; Product costs labor, and manufacture- ; Inventories costs ins overhead Ђћ ; Manufacturing ; Selling and costs administrative ; Period costs expenses H. Computation of cost of goods manufactured, cost of goods sold, and preparation of the income statement. 1. Computing the cost of goods sold for a manufacturing company involves a number of steps.

These steps rely on the following basic model that describes flows into and out of any inventory account. Basic inventory flows: Beginning balance *Additions to inventory -?Available – Ending balance -?V’/tetrahedral from inventory 2. To compute the raw materials used in production, this basic model is written as follows: Beginning balance raw materials *Purchases of raw materials -?Raw materials available for use -? Ending balance raw materials -?Raw materials used in production The raw materials used in production could include both direct materials and indirect materials.

However, unless otherwise stated in a problem, you can assume that there are no indirect materials. 3. The next step is to compute the total manufacturing cost for the period. This is the SSL_km Of direct materials, direct labor, and manufacturing overhead costs: Direct materials + Direct labor + Manufacturing overhead = Total manufacturing cost . The next step is to compute the cost of goods manufactured. This refers to the cost of the goods that were finished during the period.

How to cite this assignment

Choose cite format:
Managerial Accounting and the Business Environment Assignment. (2022, Jan 17). Retrieved May 20, 2022, from