Introduction to Cost Accounting

1
Cost Accounting Foundations and
Evolutions Kinney, Prather, Raiborn

• Chapter 1
• Introduction to Cost Accounting

2
Learning Objectives (1 of 3)

• Describe the relationships among financial,
  management, and cost accounting
• Identify two common organizational strategies
• Describe the value chain and the major value
  chain functions

3
Learning Objectives (2 of 3)

• Explain how a balance scorecard is used to
  implement an organizations strategy
• Explain why accountants must understand the
  organizations structure in order to perform
  effectively

4
Learning Objectives (3 of 3)

• Identify the sources of ethical standards for
  cost accountants
• List the sources of authoritative pronouncements
  for the practice of cost accounting

5
Accountants

• Provide information to external parties
• Stockholders, creditors, regulators
• Estimate the cost of products produced and
  services provided
• Provide information to internal decision makers
• To plan, control, and evaluate performance

6
Accounting Differences

• Financial
• External focus
• Whole organization
• Historical
• Quantitative
• Monetary
• Verifiable
• GAAP
• Formal recordkeeping

• Managerial
• Internal focus
• Segments or divisions
• Current/projected
• Quantitative/qualitative
• Monetary and nonmonetary
• Timely/reasonable estimate
• Benefits exceed costs
• Formal and informal recordkeeping

7
Relationship of Financial, Management, and Cost
Accounting
Product Costs




FINANCIAL ACCOUNTING
MANAGEMENT ACCOUNTING
COST ACCOUNTING
8
Product Cost Information

• External parties - stockholders, creditors,
  regulators
• For investment and credit decisions
• Complies with GAAP
• Enterprise focus
• Internal parties
• Planning, controlling, decision making
• Evaluating performance
• Includes upstream and downstream costs
• Disaggregated

9
Organizational Strategy

1. Develop Mission Statement
2. Implement strategy
3. Measure and control the value chain and managers
   performance
4. Set balance scorecard goals, objectives, and
   targets

10
Organizational Strategy

• Develop Mission Statement
• What an organization wants to accomplish
• How its products/services can meet customer needs
• Why the organization exists
• Used to develop an organizations strategy
• Modify over time

11
Organizational Strategy

• Implement strategy
• Strategy - A plan to fulfill goals and
  objectives by deploying resources to create value
  for customers and shareholders
• Organization strategy is supported by business
  unit strategies

12
Organizational Strategies

• Cost leadership strategy - Undercut competitor
  prices
• Product differentiation strategy - Superior
  quality products or unique services sold at a
  premium
• Core competency critical function or activity
  providing a competitive advantage

13
Value Chain

• Measure and control the value chain and managers
  performance
• Set of value-adding functions and processes that
  convert inputs into products/services
• Research and Development
• Product Design
• Supply
• Production
• Marketing
• Distribution
• Customer Service

Communicate strategy to all members of the value
chain
14
Balanced Scorecard

• Set balance scorecard goals, objectives, and
  targets
• Business outcomes are evaluated against
  performance targets

Internal Business
Learning and Growth
Customer Value
Financial
15
Balance Scorecard

• Learning and Growth
• Internal Business
• Things to do well to meet customer needs and
  expectations
• Customer Value
• How well the organization is doing relative to
  important customer criteria
• Financial Performance
• Stockholders/stakeholders concerns about
  profitability and organizational growth

16
Organizational Structure

• Distribution of authority and responsibility in
  an organization
• Authority right to use resources to accomplish
  a task or achieve an objective
• Responsibility obligation to accomplish a task
  or achieve an objective

17
Ethics and Legislation

• Sarbanes-Oxley Act CEOs and CFOs personally
  accountable for the accuracy of their
  organizations financial reporting
• Foreign Corrupt Practices Act prohibits bribes
  to obtain/retain business
• False Claims Act whistle-blower protection
• Organization of Economic Cooperation and
  Development Convention crime to offer, promise,
  give bribes to obtain/retain internal business
  deals

18
Ethics Management Accountants

• Standards of Ethical Conduct for Management
  Accountants
• Competence
• Confidentiality
• Integrity
• Objectivity

Competence Confidentiality Integrity Objectivity
19
Accounting Bodies

• Financial
• Public Company Accounting Oversight Board (PCAOB)
• Securities and Exchange Commission (SEC)
• Financial Accounting Standards Board (FASB)

• Management
• IMA
• Society of Management Accountants of Canada
• Cost Accounting Standards Board (CASB)

20
Management Accounting Organizations

• IMA
• Statements on Management Accounting
• (not legally binding)
• Society of Management Accountants of Canada
• Management Accounting Guidelines
• (not legally binding)
• Cost Accounting Standards Board (CASB)
• Government contracting standards
• (legally binding)

21
Questions

• What is the relationship among financial,
  management, and cost accounting?
• How is the balance scorecard used to implement an
  organizations strategy?
• Where can an accountant find ethical standards
  for cost accountants?