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MGT223H5 Study Guide - Midterm Guide: Enterprise Risk Management, Six Sigma, Dmaic

Course Code
Kathy Falk
Study Guide

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MGT223H5F – Managerial Accounting I (Summer 2010)
Textbook Chapter Notes
Chapter 1: Managerial Accounting and the Business Environment
Learning Objectives:
Functions of Managers: planning, directing & motivating, controlling
Financial Accounting: follows GAAP, limited set of documents, for external use by
stakeholders of a company
Managerial Accounting: does not follow GAAP, for internal use by managers to assist
in planning, controlling and for decision-making.
Role of management accountants: delegation, line & staff relationships, controller
Ethics: SOX act
Lean production: 5-step, pulls units through in response to customer orders
Six sigma: process improvement method, relies on customer feedback and fact-based
gathering and analysis techniques to drive process improvement
Computer technology: e-commerce and enterprise systems
Risk management: process used by a company to proactively identify and manage risks
Financial Accounting vs Managerial Accounting:
Financial Accounting Managerial Accounting
Definition phase of accounting
concerned with providing
info to shareholders,
creditors and others outside
the organization
phase of accounting
concerned with providing
info to managers for use in
planning and controlling
operations and for decision-
Users External people who make
financial decisions
Managers who plan for and
control an organization
Time focus Historical perspective Future oriented
Emphasis Objectivity and Verifiability Relevance for planning and
Importance Precision of information Timeliness of information
and non-monetary data
Subject focus Summarized data for the
entire organization are
Detailed segment reports
about departments,
products, customers and
employees are prepared
GAAP Must follow GAAP and
prescribed formats
Need not follow GAAP or
any prescribed format
Requirement Mandatory for external
Not mandatory

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Work of Managers and their need for Managerial Accounting Information:
Planning: selecting a course of action and specifying how the action will be implemented
Directing and motivating: mobilizing people to carry out plans and run routine operations
Controlling: ensuring that the plan is actually carried out and is appropriately modified as
circumstances change.
Strategy: “game plan” that enables a company to attract customers by distinguishing itself
from competitors.
Cost leadership strategy: emphasis is on cost efficiency; differentiate from competitors
through lower prices established by low costs.
Eg: Walmart
Budget: detailed plan for the future, usually expressed in formal quantitative terms
Business plan: consists of information about the company’s basic product or service and
about the steps to be taken to reach its potential market.
Customer value propositions (a reason for customers to choose one company’s product
over another):
Customer intimacy: we understand and respond to your individual needs better than
our competitors. Eg: Tim Hortons
Operational excellence: we can deliver products and services faster, more
conveniently, and at a lower price than our competitors. Eg: Walmart
Product leadership: we offer higher quality products and services than our
competitors. Eg: BMW
Control: the process of instituting procedures and then obtaining feedback to ensure that all
parts of the organization are functioning effectively and moving toward overall company
Feedback: accounting and other reports that help managers monitor performance and focus
on problems and/or opportunities that might otherwise go unnoticed
Performance report: detailed report comparing budgeted data to actual data.
Planning and control cycle: flow of management activities through planning (formulating
long and short-term goals), directing and motivating (implementing plans) and controlling
(measuring performance) and then back to planning (comparing actual to planned
performances) again.
Organizational Structure:
Decentralization: delegation of decision-making authority throughout an organization by
providing managers at various operating levels with the authority to make key decisions
relating to their areas of responsibility
Organization chart: visual diagram of a firm’s organizational structure that depicts formal
lines of reporting, communication and responsibility between managers.

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Line: position in an organization that is directly related to the achievement of the
organization’s basic objectives.
Staff: position in an organization that is only indirectly related to the achievement of the
organization’s basic objectives. Such positions are supportive in nature in that they provide
service or assistance to line positions of other staff positions.
Controller: manager in charge of the accounting department in an organization
Chief Financial Officer (CFO): member of the top-management team who is given the
responsibility of providing relevant and timely data to support planning and control
activities and of preparing financial statements for external users.
Corporate governance: system by which a company is directed and controlled
Process Management:
Business process: series of steps that are followed in order to carry out some task in a
Value chain: consists of the major business functions that add value a company’s products
and services
Business functions making up the value chain:
R&D, product design, manufacturing, marketing, distributing, customer service
Raw materials (RM): materials that are used to make a product
Work in process (WIP): inventories consisting of units of product that are only partially
Finished goods (FG): inventories consisting of units of product that have been completed
but have not yet been sold to customers
Lean thinking model: five-step management approach that organizes resources around the
flow of business processes and pulls units through in response to customer orders. Eg:
1. Identify value in specific products/services
2. Identify the business process that delivers value
3. Organize work arrangements around the flow of the business process
4. Create a pull system that responds to customer orders
5. Continuously pursue perfection in the business process
Lean production results in lower inventories, fewer defects, less wasted effort and quicker
customer response times.
Just-In-Time (JIT): a pull system in the lean thinking model where production isn’t
initiated until a customer has ordered a product.
Supply chain management: the coordination of business processes across companies to
better serve end customers
Six sigma: a process improvement method that relies on customer feedback and fact-based
data gathering and analysis techniques to drive process improvement. It uses DMAIC to
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