KTQTCP_Chap 1_Cost Accounting

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<b>WELCOME ABOARD!</b>

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<b>CONTENT & LEARNING OUTCOMES ASSESSMENT </b>

<b>CONTENT</b>



_{Chap 1_Cost Accounting}



_{Chap 2_Cost Concepts & Behaviors}



_{Chap 6_Fundamentals of Product and Service Costing}



_{Chap 7_Job CostingChap}



_{8_Process Costing}



_{Chap 9_Activity Based Costing}

<b>LEARNING OUTCOMES ASSESSMENT </b>



_{Assignments: 20%;}



_{Mid-Test: 30%;}

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<b>CHAPTER 1: </b>

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<b>LEARNING OBJECTIVES</b>

<b>LO1</b>

Describe the way managers use accounting information

to create value in organizations.

<b>LO2 </b>

Distinguish between the uses and users of cost

accounting and financial accounting information.

<b>LO3 </b>

Explain how cost accounting information is used for

decision making and performance evaluation in

organizations.

<b>LO4</b>

Identify current trends in cost accounting.

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<b>VALUE CHAIN</b>

 Total

amount

that

buyers are willing to

pay

for a firm’s products.

 Usefulness

a customer

gains

from a company’s

product or service.

 A set of activities that transforms raw

materials and resources into the goods

and services that end users purchase and

consume.

<b> Value added activities: activities that </b>

customers perceive as adding utility to

goods or services they purchase.

<b> Non value-added activities: activities </b>

that do not add value to the good or

service from the customer’s perspective.

<b>Value </b>

<b>Value </b>

<b>_{Value Chain}</b>

<b>Value Chain </b>

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<b>Value Chain Components</b>

<b>Research & </b>
<b>Development</b>

<b>Research & </b>

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<b>Value Chain Components</b>

 support every function of

the value chain,

including:

o Accounting and finance;

o Human resource; and

o Information technology.

<b>Administrative </b>

<b>functions </b>

<b>Administrative </b>

<b>functions </b>

<b> Supply chain includes set of </b>

firms and individuals that sells

goods and services to the firm.

<b> Distribution chain comprises </b>

set of firms and individuals

that buys and distributes

goods and services from the

firm.

<b> Value chain </b>

<b>outside the firm</b>

<b> Value chain </b>

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<b>Cost Accounting and the Value Chain</b>



_{The measurement and reporting of costs is a}

valuable activity:



_{To assist managers in achieving the maximum}

value for their organizations.



_{To measure the effects of decisions on the}

value of the organization.



_{Cost accounting focuses on how the individual}

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<b>ACCOUNTING SYSTEMS</b>

 Field of accounting that

reports financial position

and income according to

accounting rules.

 Financial data are

governed by GAAP in the

United States and by IFRS

in many other countries.

<b>Financial </b>

<b>accounting</b>

<b>Financial </b>

<b>accounting</b>

 Field of accounting that

measures, records, and

reports information about

costs.

 Cost data for managerial

use need not comply with

GAAP or IFRS.

<b>Cost </b>

<b>accounting</b>

<b>Cost </b>

<b>accounting</b>

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<b>Financial vs. Cost Accounting</b>

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<b>Customers of Cost Accounting</b>



_{Cost information itself is a product with its own}

customers; the customers are managers.



_{Cost accountants must work with managers of cost}

accounting information to provide the best possible

information for managerial purposes.



_{Different uses of accounting information require}

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<b>FRAMEWORK</b>

<b>FOR ASSESSING COST ACCOUNTING SYSTEMS</b>

<b>0</b>

<b>1</b>

<b>Managers’ Job is to </b>

<b>Make Decisions</b>

<b>0</b>

<b>2</b>

 _{ASs are a primary source of}

information for managers.
 _{Concern whether AS}

provides the “best”

information to managers.

<b>Decision Making Requires </b>

<b>Information</b>

<b>0</b>

<b>3</b>

AS can identify costs of none
value-added activities in the value chain.
Managers perform cost-benefit

analyses to assess proposed
changes in an organization

<b>Finding and eliminating </b>

<b>activities that don’t add value</b>

<b>0</b>

<b>4</b>

use the value chain and cost
information to identify strategic
advantages in the market place.
identify activities that customers

value and which the company can
provide at lower cost.

<b>Identifying Strategic </b>

<b>Opportunities Using Cost Analysis</b>

<b>0</b>

<b>5</b>

AS provides information to owners about the performance of the
organization and the manager

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<b>COST DATA FOR MANAGERIAL DECISIONS</b>

Costs for

Decision

Making

Costs for

Control and

Evaluation

Different Data

for Different

Decisions

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<b>Costs for Decision Making</b>

<b>Example: </b>

Carmen’s Cookies has been making and selling cookies through a small store

downtown. One of her customers suggests that she expand operations and

sell to wholesalers and retailers. Should Carmen expand operations?

Cost

Rent

Insurance

Labor

Ingredients

Driver

Number of stores

Number of cookies

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<b>Costs for Decision Making</b>

<b>Carmen’s Cookies</b>

<b>Projected Income Statement for One Week</b>

<b>(1)</b> <b>(2)</b> <b>(3)</b>

<b>Status Quo:</b>
<b>Original Shop</b>

<b>Sales Only</b>

<b>Alternative:</b>
<b>Wholesale & Retail</b>

<b>Distribution</b> <b>Difference</b>

<b>Sales revenue</b> <b>$6,300</b> <b>$8,505a</b> <b>_$2,205</b>

<b>Costs:</b> <b> </b>

Food $1,800 2,700b _$900

Labor $1,000 1,500b _$500

Utilities $400 600b _$200

Rent $1,250 1,250

-0-Other $1,000 1,200c _$200

<b>Total costs</b> <b>$5,450</b> <b>$7,250 </b> <b>$1,800</b>

<b>Operating profits</b> <b>$850</b> <b>$1,255 </b> <b>$405</b>

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<b>Costs for Decision Making</b>

When consider two or more alternatives:



<b>_{Differential costs: costs that differ among or}</b>

between alternatives.



<b>_{Differential revenues: revenues that change in}</b>

response to a particular course of action.

To evaluate the financial consequences of alternatives,

<b>estimates of future costs, revenues, and/or assets, using:</b>



_{Past information}

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<b>Costs for Control and Evaluation</b>

<b>A responsibility center is a specific unit of an </b>

organization assigned to a manager who is held

accountable for its operations and resources.

Organizations divide responsibility for specific functions

among employees.

 Functions are grouped into organizational units, called

departments, divisions, segments, or subsidiaries.

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<b>Costs for Control and Evaluation</b>

<b>Budgeting:</b>



<b>_{Each responsibility center has a budget.}</b>



_{Helps managers decide whether their goals can be}

achieved and, if not, what modifications are

necessary.



_{Managers are responsible for preparing a budget}

and achieving the targets set in the budget.

<b>A budget is a </b>

financial plan of

revenues and

resources needed

to carry out

activities and

meet financial

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<b>Costs for Control and Evaluation</b>

<b>Carmen’s Cookies</b>
<b>Retail Responsibility Center</b>

<b>Budgeted versus Actual Costs For the Month Ending April 30</b>

<b>Actual</b> <b>Budget</b> <b>Difference</b>
<b>Food:</b>

Flour $2,100 $2,200 -$100

Eggs $5,200 $4,700 $500

Chocolate $2,000 $1,900 $100

Nuts $2,000 $1,900 $100

Other $2,200 $2,200 $0

<b>Total food</b> <b>$13,500</b> <b>$12,900</b> <b>$600</b>
<b>Labor:</b>

Manager $3,000 $3,000 $0

Other $1,500 $1,500 $0

<b>Total labor</b> <b>$4,500</b> <b>$4,500</b> <b>$0</b>

Utilities $1,800 $1,800 $0

Rent $5,000 $5,000 $0

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<b>Different Data for Different Decisions</b>



_{One principle of cost accounting is that different}

decisions often require different cost data.



<i>_{“One size fits all” does not apply to cost accounting.}</i>



_{Answers some following questions will guide your}

selection of the most appropriate accounting data.

+

_{How will the data be used?}

+

_{Are they for managers’ use in evaluating}

performance?

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<b>TRENDS IN COST ACCOUNTING </b>

<b>THROUGHOUT THE VALUE CHAIN</b>

1.

R&D

2.

Design

3.

Purchasing

4.

Production

5.

Marketing

6.

Distribution

7.

Customer service

<b>ERP </b>

Enterprise

Resource

Planning

Creating

value in the

organization

IT links various
activities into a

single
comprehensive
information
system
All these
tools are
meant to add

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<b>Trends in Cost Accounting</b>

Lean manufacturing
techniques are not simply

about production.

Companies partner with
suppliers in the
development stage to

ensure cost-effective
designs for products.

<b>Cost Accounting in</b>

<b> R&D</b>

Product designers must
write detailed specifications

on a product’s design.

This is often referred to as
design for manufacturing

(DFM).

Activity-based costing (ABC)
assigns costs of activities
needed to make a product,
then sums the cost of those

activities to compute the
total cost of the product.

<b>Cost Accounting in </b>

<b>Design</b>

Performance measurement
indicates how well a process

is working.

It minimizes unnecessary
transaction processes.

Benchmarking methods
measure products, services,

and activities against the
best performance.

Benchmarking is an ongoing
process resulting in
continuous improvement.

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<b>Trends in Cost Accounting</b>

A lean accounting
system provides
measures at a work
cell or process level.

JIT is an inventory

system designed to

lower the cost of
maintaining excess

inventory.

<b>Cost Accounting in </b>

<b>Production</b>

Customer relationship
management (CRM) is
a system that allows

firms to target
profitable customers
by assessing customer

revenues and costs. .

Harrah’s
Entertainment

provides
“complimentary”

services to some
customers (typically

called “comping”).

<b>Cost Accounting in </b>

<b>Marketing</b>

Outsourcing occurs
when a firm’s activities

are performed by
another organization

or individual in the
supply or distribution

chain.

Nikon, for example,
relies on UPS for

distribution.

<b>Cost Accounting in </b>

<b>Distribution</b>

TQM (Total Quality
Management) is a
management method

which focuses on
excelling in all

dimensions.

The emphasis is placed
on quality. Quality is

defined by the
customer.

Cost of quality is a
system that identifies
the costs of producing

defective items.

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<b>Enterprise Resource Planning (ERP)</b>

<b>ERP is the information technology that links the </b>

various systems of the enterprise into a single

comprehensive information system.

Technology

Purchasing

Human

Resources

Marketing

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<b>ETHICAL ISSUES FOR ACCOUNTANTS</b>

 The design of the cost accounting system has the

potential to be misused to defraud customers,

employees, or shareholders.

 Professional organizations IMA, AICPA have

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<b>Ethical Conducts for Accountants</b>

<b>Four ethical </b>

<b>conducts </b>

<b>required by </b>

<b>IMA</b>

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