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.


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 (JIT), Total Quality Management (TQM), Process Reengineering, and the Theory of Constraints (TOC). These approaches can be combined.
B. The Just-In-Time (JIT) 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. Long throughput time makes 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.
4. Because of long throughput time, units may be obsolete or out of fashion by the time they are finally...

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