Cornerstones of cost management 3rd edition hansen mowen chapter 1

INTRODUCTION TO COST
MANAGEMENT
CHAPTER 1

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CHAPTER 1 OBJECTIVES
1. Describe cost management and explain how
it differs from financial accounting
2. Identify the current factors affecting cost
management
3. Describe how management accountants
function within an organization
4. Understand the importance of ethical
behavior for management accountants
5. Identify the three forms of certification
available to internal accountants
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service or otherwise on a password-protected website for classroom use.


FINANCIAL ACCOUNTING VERSUS COST
MANAGEMENT: A SYSTEMS FRAMEWORK
Accounting Information System
•Consists interrelated manual and computer parts
•Uses processes such as collecting, recording,
summarizing, analyzing, and managing data to
transform inputs into information provided to users
Two major systems

•The financial accounting information system
•The cost management accounting information
system
• Major difference is the targeted user
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service or otherwise on a password-protected website for classroom use.


FINANCIAL ACCOUNTING VERSUS COST
MANAGEMENT: A SYSTEMS FRAMEWORK
Financial Accounting Information System
•Produces outputs for external users
•Follows rules and conventions set by the SEC and
FASB
•Provides outputs such as financial statements

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service or otherwise on a password-protected website for classroom use.


FINANCIAL ACCOUNTING VERSUS COST
MANAGEMENT: A SYSTEMS FRAMEWORK
Cost Management Information System
•Produces outputs for internal users

•Provides information for three broad objectives
• Cost services, products, and other objects
• Planning and control

• Decision making

•Criteria and formats are set internally

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service or otherwise on a password-protected website for classroom use.


FINANCIAL ACCOUNTING VERSUS COST
MANAGEMENT: A SYSTEMS FRAMEWORK
Different
Different Systems
Systems for
for Different
Different Purposes
Purposes
Cost Accounting Information System
•Assigns costs to individual products and services
•Assists external financial reporting
•Conforms to the rules and conventions set by the
SEC and the FASB
Operational Control Information System
•Provides accurate and timely feedback
•Improves profit by increasing customer value
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service or otherwise on a password-protected website for classroom use.

FACTORS AFFECTING COST MANAGEMENT
Global Competition
•Improved transportation and communication has
led to a global market
•Increased the demand for more accurate cost
information
Growth of the Service Industry
•Service sector of the economy has increased in
importance
•Deregulation has increased competition
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service or otherwise on a password-protected website for classroom use.


FACTORS AFFECTING COST MANAGEMENT
Advances in Information Technology
•Use of computers to monitor and control operations
• Integration of manufacturing with marketing and
accounting data

•Enterprise resource planning (ERP) software
provides an integrated system capability
•Emergence of e-commerce
• Internet trading
• Electronic data interchange
• Bar coding
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service or otherwise on a password-protected website for classroom use.

FACTORS AFFECTING COST MANAGEMENT
Advances in Manufacturing Environment
•Theory of constraints: method used to
continuously improve manufacturing activities and
nonmanufacturing activities
•Just-in-time manufacturing: strives to produce
a product only when it is needed and only in the
quantities demanded

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service or otherwise on a password-protected website for classroom use.


FACTORS AFFECTING COST MANAGEMENT
Advances in Manufacturing Environment
•Lean manufacturing: a persistent pursuit and
eliminates waste that simultaneously embodies
respect for people
•Computer-integrated manufacturing: an
automation of the manufacturing environment
allowing firms to reduce inventory, increase
productive capacity, improve quality and service,
decrease processing time, and increase output
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service or otherwise on a password-protected website for classroom use.

FACTORS AFFECTING COST MANAGEMENT
Customer Orientation
•Deliver value to the customer
•Value chain: the set of activities required to
design, develop, produce, market, and deliver
products and services to customers
•Satisfy internal customers

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service or otherwise on a password-protected website for classroom use.


FACTORS AFFECTING COST MANAGEMENT
New Product Development
•High proportion of production costs are involved
during the development and design stage of new
products
•Cost management procedures
• Target costing: encourages managers to assess
the overall cost impact of product designs over the
product’s life cycle
• Activity-based management: identifies the
activities produced at each stage of the
development process and assesses their costs
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service or otherwise on a password-protected website for classroom use.

FACTORS AFFECTING COST MANAGEMENT
Total Quality Management
•Continuous improvement and elimination of waste
are the two foundation principles
•Objectives: producing products and services that
actually perform according to specifications and
with little waste

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service or otherwise on a password-protected website for classroom use.


FACTORS AFFECTING COST MANAGEMENT
Time as a Competitive Element
•Crucial element in all phases of the value chain
•Decrease in non-value-added time increases
quality
Efficiency
•Improving efficiency is a vital concern
•Cost is a critical measure of efficiency

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service or otherwise on a password-protected website for classroom use.


THE ROLE OF THE MANAGEMENT
ACCOUNTANT

Line and Staff Positions
•Line positions: positions that have direct
responsibility for the basic objectives of an
organization
•Staff positions: positions that are supportive in
nature and have only indirect responsibility for
an organization’s basic objectives

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service or otherwise on a password-protected website for classroom use.


THE ROLE OF THE MANAGEMENT
ACCOUNTANT
The Controller
•Supervises all accounting departments
•Participates in planning, controlling, and decisionmaking activities
•Responsible for both internal and external
accounting requirements

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service or otherwise on a password-protected website for classroom use.


THE ROLE OF THE MANAGEMENT
ACCOUNTANT
The Treasurer
•Responsible for the finance function

•raises capital and manages cash, investments, and
investor relations
•in charge of credit and collections as well as
insurance

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service or otherwise on a password-protected website for classroom use.


EXHIBIT 1.1—PARTIAL ORGANIZATIONAL CHART:
MANUFACTURING COMPANY

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service or otherwise on a password-protected website for classroom use.


THE ROLE OF MANAGEMENT ACCOUNTANT
Information for Planning, Controlling,
Continuous Improvement, and Decision
Making
•Planning: a detailed formulation of future actions
to achieve a particular end
• Requires setting objectives and identifying methods
to achieve those objectives

•Controlling: a managerial activity of monitoring a
plan’s implementation and taking corrective action
• Achieved with the use of feedback

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service or otherwise on a password-protected website for classroom use.


THE ROLE OF MANAGEMENT ACCOUNTANT
Information for Planning, Controlling,
Continuous Improvement, and Decision
Making
•Continuous improvement: relentless pursuit of
improvement in the delivery of value to customer
• Required to remain competitive or to establish a
competitive advantage

•Decision making: process of choosing among
competing alternatives

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service or otherwise on a password-protected website for classroom use.


ACCOUNTING AND ETHICAL CONDUCT
Benefits of Ethical Behavior
•Creates customer and employee loyalty
•Avoids litigation costs

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service or otherwise on a password-protected website for classroom use.

ACCOUNTING AND ETHICAL CONDUCT
Standards of Ethical Conduct for
Management Accountants
•Competence
•Confidentiality
•Integrity
•Credibility
•Resolution of ethical conflict

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service or otherwise on a password-protected website for classroom use.


CERTIFICATION
• The Certificate in Management Accounting
Establishes management accounting as a
recognized and professional discipline
• The Certificate in Public Accounting
Intended for those practicing public accounting
• The Certificate in Internal Auditing
Recognizes competency in internal auditing
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service or otherwise on a password-protected website for classroom use.


END OF CHAPTER 1

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.