Managerial Accounting Solutions (Chapter-1/B)

Now we have come with managerial accounting solutions (Finishing Part of First Chapter) 

JIT Consequences: Managers that attempted to implement the JIT approach found that it was necessary to make other major improvements in operations if inventories were to be significantly reduced. First, production would be held up and a deadline for shipping a product would be missed if a key part was missing or was found to be defective, so supplies had to be able to be delivered defect free goods in just the right quantity and just when needed.

Benefits of JIT Systems Managerial Accounting Solutions:

The main benefits of JIT are:

1. Funds that were tied up in inventories can be used elsewhere.

2. Areas previously used to store inventories are made available for other, more productive uses.

3.Throughout time is reduced, resulting in greater potential output and quicker response to customers.

4. Defect rates are reduced resulting in less waste and greater customer satisfaction.

To remain competitive in an ever changing and ever more competitive business environment, companies must strive for continuous improvement. 

05. Professional Ethics;

a) Competence requires qualification, experience, training and understanding.

b) Responsibility and accountability; should go together .responsibility without accountability is meaningless.

c) Objectivity; objectivity ensures communicating information.

d) Integrity; should be a man of high integrity which includes morality.

e) Pleasant behavior; behavioral aspect must be pleasant. 

f) Dutiful.

g) Regularity; Must maintain regularity in duties.

h) Loyalty of organization; must be loyal.

i) Confidentiality of the organization; must maintain confidentiality.

           06. Ethical Standards

Case Study: 01

Mr. Thomas and Mrs. Linda are the president and assistant controller respectively of a sugar mill of a country which has 20 stores spread over the whole country. Both Mr. Thomas and Mrs. Linda have been working in the mill for the last fifteen years. Mrs. Linda has been given the responsibilities of inspecting the stores for the last ten years and asked to give a report on inventory.

While inspecting the stores Linda has discovered a sizable number of inventories not recorded in the stores account during the period. In the mean time she has discussed the matter with the other members of the management team and sought their opinions on the matter. The members of the management team had advised her just to ignore the matter as obsolete inventory. Other wise, all the members including Linda will have to face adverse impact on their compensation.

Required;

a)      What would be the responsibility of Linda in respect of the obsolete inventory? Examine in the context of the following standards of ethical conducts;

                                                       I.              Competence,

                                                    II.              Integrity and

                                                 III.              Objectivity

b)    What difficulties Mrs. Linda will face while recording the obsolete inventory in her report? How she would overcome those.

Solution:

           a)   Failure to report the obsolete nature of the inventory would violate the Standards of Ethical conduct as follows;

          Competence

• Perform duties in accordance with relevant technical standards.
• Prepare complete reports using reliable information.

By failing to write down the value of the obsolete inventory, Mrs. Linda would not be preparing a complete report using reliable information. In addition, generally accepted accounting principles (GAAP) require the write down of obsolete inventory.

     Integrity

1.  Avoid conflicts of interest.
2. Refrain from activities that prejudice the ability to perform duties ethically.
3.  Refrain from subverting the legitimate goals of the organization.
4. Refrain from discerning the profession.

Members of the " Managerial accounting solutions " team, of which Mrs. Linda is a part, are responsible for both operations and recording the results of operations. Since the team will benefit from a bonus, increasing earnings by ignoring the obsolete inventory is clearly a conflict of interest. Perelman would also be concealing unfavorable and subverting the goals of the organization. Furthermore, such behavior is a discredit to the profession.

            

    Objectivity

• Communication of information fairly and objectively.
• Disclose all relevant information.

Hiding the obsolete inventory impairs the objectivity and relevance of financial statements.

b) As discussed above, the ethical course of action would be for Mrs. Linda to insist on writing down the obsolete inventory. This would not, however, be an easy thing to do. Apart from adversely affecting her own compensation, the ethical action may anger her colleagues and make her very unpopular. Taking the ethical action would require considerable courage and self – assurance.

07. Business environment;

a)      TQM; Both from the views of customers and enterprises.

b)      JIT; provide necessary inventory looking at the minimum level.

c)      Re-engineering; process engineering ensuring a business process.

d)     E-commerce; introducing IT in commerce.

e)      Global business: international business.

  

For First Discussion of Managerial Accounting Solutions Click On: Chapter 1/A  

 

 So now finished the last chapter of M.A. I think you may got the point from managerial accounting solutions