Libby, Libby and Short

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Cost Management
ACCOUNTING AND CONTROL
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What is Accounting

• Accounting is the process of identifying,
  measuring and communicating economic information
  to permit informed judgments and decisions by
  users of information.

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Financial Accounting VersusCost Management

• Financial accounting is devoted to providing
  information for external users these users
  include investors, government agencies, and
  banks.
• Cost management identifies, collects, measures,
  classifies, and reports information that is
  useful to managers in costing (determining what
  something costs), planning, controlling, and
  decision making.

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Financial Accounting VersusCost Management

• Cost accounting attempts to satisfy costing
  objectives for both financial and management
  accounting.
• Management accounting is concerned specifically
  with how cost information and other financial and
  nonfinancial information should be used for
  planning, controlling, and decision making.

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Current Factors Affecting Cost Management
Global Competition

• The new competitive environment has increased the
  demand not only for more cost information but
  also for more accurate information.
• Vastly imported transportation and communication
  has led to a global market for many manufacturing
  and service firms.

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Current Factors Affecting Cost Management
Growth of the Service Industry

• As the traditional industries has declined in
  importance, the service sector of the economy has
  increased in importance.
• Deregulation of many services has increased
  competition in the service industry.

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Current Factors Affecting Cost Management
Advances in Information Technology

• Computers are used to monitor and control
  operations, which allows for a considerable
  amount of useful information to be collected and
  provided to management instantaneously.
• The emergence of electronic commerce which allows
  buyers and sellers to come together
  electronically.

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Current Factors Affecting Cost Management
Advances in Management Environment
The theory of constraints is a method used to
continuously improve manufacturing activities and
nonmanufacturing activities. Just-in-time
manufacturing is a demand-pull system that
strives to produce a product only when it is
needed and only in the quantities demanded by
customers. Computer-integrated manufacturing is
the automation of the manufacturing environment.
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Current Factors Affecting Cost Management
New Product Development

• Management recognizes that a high proportion of
  production costs are committed during the
  development and design stage of a new product.
• The requirement to control cost encourages the
  use of target costing and activity-based
  management.

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Current Factors Affecting Cost Management
Total Quality Management

• Continual improvement and elimination of waste
  are the two foundation principles that govern a
  state of manufacturing excellence.
• A philosophy of total quality management, in
  which managers strive to create an environment
  that will enable organizations to manufacture
  perfect products, has replaced the acceptable
  quality attitudes of the past.

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Current Factors Affecting Cost Management
Efficiency
While quality and time are important, improving
these dimensions without corresponding
improvements in financial performance may be
futile, if not fatal.
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Traditional Accounting System
Transactions
Journal Entries
Posting to Accounts
Financial Reports
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Data-Based Relationship Accounting System
Transactions
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Partial Organization Chart, Manufacturing Company
President
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The Management Process

• Planning is the detailed formulation of future
  actions to achieve a particular end. Planning
  requires setting objectives and identifying
  methods to achieve those objectives.

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The Management Process
Controlling is the managerial activity of
monitoring a plans implementation and taking
corrective action as needed.
Control is usually achieved with the use of
feedback.
Feedback is information that can be used to
evaluate or correct the steps being taken to
implement a plan.
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The Management Process
Continuous improvement is required in a dynamic
environment if a firm is to remain competitive or
to establish a competitive advantage.
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The Management Process
Decision making is the process of choosing among
competing alternatives.
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Standards of Ethical Conduct for Management
Accountants
Competence Management accountants have a
responsibility to--

• Maintain an appropriate level of professional
  competence by ongoing development of their
  knowledge and skills.
• Perform their professional duties in accordance
  with relevant laws, regulations, and technical
  standards.
• Prepare complete and clear reports and
  recommendations after appropriate analysis of
  relevant and reliable information.

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Standards of Ethical Conduct for Management
Accountants
Confidentiality Management accountants have a
responsibility to--

• Refrain from disclosing confidential information
  acquired in the course of their work except when
  authorized, unless legally obligated to do so.
• Inform subordinates as appropriate regarding the
  confidentiality of information acquired in the
  course of their work and monitor their activities
  to ensure the maintenance of that
  confidentiality.
• Refrain from using or appearing to use
  confidential information acquired in the course
  of their work for unethical or illegal advantage
  either personally or through a third party.

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Standards of Ethical Conduct for Management
Accountants
Integrity Management accountants have a
responsibility to--

• Avoid actual or apparent conflicts of interest
  and advise all appropriate parties of any
  potential conflict.
• Refrain from engaging in any activity that would
  prejudice their ability to carry out their duties
  ethically.
• Refuse any gift, favor, or hospitality that would
  influence their actions.
• Refrain from either actively or passively
  subverting the attainment of the organizations
  legitimate and ethical objectives.

Continued
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Standards of Ethical Conduct for Management
Accountants
Integrity Management accountants have a
responsibility to--

• Recognize and communicate professional
  limitations or other constraints that would
  preclude responsible judgment or successful
  performance of an activity.
• Communicate unfavorable as well as favorable
  information and professional judgments or
  opinions.
• Refrain from engaging in or supporting any
  activity that would discredit the profession.

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Standards of Ethical Conduct for Management
Accountants
Objectivity Management accountants have a
responsibility to--
1) Communicate information fairly and
objectively. 2) Disclose fully all relevant
information that could reasonably be expected to
influence an intended users understanding of the
reports, comments, and recommendations presented.
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End of
Chapter
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