BEYOND BEAN-COUNTINQ Accounting Help

From the pages of Busil1eSSWeel{ Clark H. Johnson, chief financial officer for Johnson & Johnson, was shocked when he read a Du Pom Co.-sponsored benchmarking study on finance-unit expenses back In 1989. It tumd out that his department ranked among the worst In Corporate America on Its overhead-to-sales ratio. Johnso” now says It was “hard to get people serious about costs when sales were growing at double-digit levels.

” But that troubling discovery prompted him to launch a revamp of finance operations that he figures has saved the .multinational health care products maker an average of about $200 million annually.  ‘The real benefits go much deeper than mere cost savings, however, In zeroing In on costs, Johnson (no relation to the founders) also -triggered a,revolution In the use of financial Information technology at J&J that has transformed his role fro~ bean-counter to full business parlnerwlth revenue-producing line units. Thanks In part to quantum leaps In computer hardware and software technology In the past few .years, Johnson’s finance department Is no longer preoccupied with transaction systems, reporting and cost efficiency,

but is concentrating on analyzing information to boost revenue. At Johnson & Johnson and other companies that have successfully embraced the new Information technology, the chief financial officer, rather than the chief information officer, has typically emerged ‘as the central player, In part because finance gathers a company’s most critical data In overseeing functions such as billing, accounts payable, and the general ledger. The CFO Is spearheading the shift from old mainframe-based “legacy” systems, which cranked out lots of data but IIHle useful Information, to the global Integrated systems that have made possible data warehouses. Source: Phillip L. Zweig, John Verity, Stephanie Anderson Forrest, Greg Burns, Rob Hof, and Nicole Harris, “Beyond Bean- Counting,

” Business Week, October 28, 1996, pp. 130-132. Reprinted by special permission, copyright C 1996 by The’ McGraw-HIli Companies The clef financial officer (CFO) of company must wear many hats. Not only are CFOstypically responsible ,  for preparing external financial statements (discussed in previous chapters), but they also design Internal man, aoernent accounting information systems ‘;that create, collect, an~lyze, and report accounting Information throughout the firm. At Johnson & Johnson, the CFOuses data warehousing software to allow managers in 51 countries to access and analyze masses of Information from computers allover the company. The CFOat , Johnson & Johnson is a practicing management accountant.Aj illustrated in the Business Week excerpt describing the CFO’s duties, management ateounting is the design and use of accounting information systems inside the company ·’to achieve the company’s objectives.

Three principles govern how management ms are desig First, management accounting systems help to decide Who mating auttioiity over company assets. Second, accounting inforrnati9n produced by or created from the management accounting system and decision making. Finally, management accounting reports provide Q, means.of.J enitoring, evaluating, and rewarding performance. To achieve organizational goals, managers are asslgl)ed decision-making authority for erllie firniis assets. For example Jlantmah gets typically are responsible or considerations equinm~nt in the plant; employees at the plant, the phy ical plant and sources of raw materials, among other things. Within the plant, the materials ingermay6e delegated decision.irresponsibility for reorder palpate on supervisor may be delegated decision-making responibiljty (or assigning employees to jobs on the production line. The eoint is that all members f an sanitation ‘have’: some deCision-makIng authority Employees within a.corporation explain the three principles they are outlined in a variety of ways, such asin job descriptions, verbal instructions guiding from their  rnanagement.

accounting ystem documents and reporter your instructor’s standards for,Y911 Iyalema. to follow to earn an A or B in this course, managers receive management accounting expected our comes to-help achieve.the organization’s goats. Just? you have qpmakipg rliponsibilityqverlh ass necessary to acri an A 11· ” (thhmeu allcte to studling) ecisionakin( reconsibilityover I. u’e asset mc1mf&hn thelr managemeht ccountmg teports Ample, th plan manager needs information to help assess ‘if equipment IS inefficient or certain .work arrangements and plant lavJ outs are more p”roductive than others. Thus managers need bot~ historical information (for example,

the current equipment’s cost and productivityr-and projected informa’tion (for example, the productivity and cost of other available equipment). They need jw~rmatiQn oriented both toward their specific coperati ptherpatt~ of  yalirec!Jain.j.Avalue. in is the linked set of activities ‘and resources necessary to create and to the customer, Therefore, plant managers will require information from other parts of the value chain such as engineering or sales. They need information from both internal operations and externally oriented benchtnark sources. More and more organizations are sharing information. Itis very common for organizations to participate in and undertake benchmark studies of the sort mentioned by the CFO of Johnson & Johnson. Independent consulting companies often create benchmark reports by collecting information from companies in the same industry.

These studies show an organization how their costs U1dprocesses compare to others in their industry. Organizations also share information with customers and suppliers in their value chain. For example, in order for shipments from suppliers to arrive.at the exact time they are needed for use in production (just-in-time inventory systems), buyers.and suppliers share their production information.

Customers often require or are voluntarily provided quality information. Thus the management accounting system provides a variety of past and future-oriented information for users both inside and outside of the firm..

Posted on November 23, 2015 in Management Accounting: A Business Partner

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