Cost Accounting

1
Cost Accounting

• Dr. Baldwin
• University of Arkansas Fort Smith
• Fall 2010

2
CHAPTER 1

• The Accountants Role
• in the Organization

3
Accounting Disciplines

• Financial Accounting
• focus on external users and GAAP rules
• Managerial Accounting
• focus on internal users and is not necessarily
  GAAP-driven. Also provides data for financial
  accounting. This includes
• Cost Accounting
• Cost Management

4
Some Major Differences between Financial and
Managerial Accounting

Help Managers Make Decisions




Managerial
Financial
Communicate Financial Position
Purpose
External Stakeholders
Internal Managers
Primary Users
Future Oriented
Focus
Past Oriented
Rules
GAAP
Cost-benefit
Time Span
Varies
Annual/Quarter
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Strategy and Management Accounting

• Strategy
• specifies how an organization matches its own
  capabilities with the opportunities in the
  marketplace to accomplish its objectives
• Strategic Cost Management
• focuses specifically on the cost dimension within
  the overall strategy

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Strategy and Management Accounting

• Accountants have become much more involved in
  strategy development.
• It is consistent with their role in developing
  forward looking data.
• They can provide relevant information about the
  sources of competitive advantage.

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Strategy and Management Accounting

• Management accounting helps answer questions such
  as
• Who are our most important customers?
• What substitute products exist?
• What is our critical resource?
• Will we have enough cash to support our strategy?

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Course Themes

• Customer Focus
• Key success factors
• Cost and efficiency
• Quality (TQM)
• Time
• Innovation
• Continuous improvement
• Value Chain Supply Chain

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Management Accounting and Value

• Creating value is an important part of planning
  and implementing strategy
• Value
• is the usefulness a customer gains from a
  companys product or service
• Value Chain
• is the sequence of business functions in which
  customer usefulness is added to products or
  services

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Management Accounting and Value

• The Value Chain
• Research and Development
• Design
• Production
• Marketing
• Distribution
• Customer Service
• Management accounting can provide information in
  each of these areas
• Analysis can also include the supply chain

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Supply Chain

• Describes the flow of goods, services, and
  information from cradle to grave.
• At the extreme, this can include the mining of
  raw materials to disposal of recycled products.
• The supply chain may be spread out over many
  entities.
• See page 8 for an example.

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Key Success Factors

• The dimensions of performance that customers
  expect, and that are key to the success of a
  company include
• Cost and efficiency
• Quality
• Time
• Innovation

13
Planning and Control Systems

• Planning
• selects goals, predicts results, decides how to
  attain goals, and communicates this to the
  organization
• Budget the most important planning tool
• Control
• takes actions that implement the planning
  decision, decides how to evaluate performance,
  and provides feedback to the organization

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Management Decisions 5-Step Process

• An accounting system must enable managers to work
  through issues to make decisions
• Planning phase
• Identify problems and uncertainties
• Obtain information
• Make predictions about the future
• Choosing among alternatives
• Control phase
• Implement plans, Evaluate performance
  (scorekeeping and attention directing), and
  Provide feedback
• Feedback is necessary to link the two types of
  activities

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Management Accounting Guidelines

• Cost benefit approach is commonly used
  benefits generally must exceed costs as a basic
  decision rule
• Behavioral and Technical Considerations
• people are involved in decisions, not just
  dollars and cents
• Different definitions of cost may be used for
  different applications

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Management Accounting Roles

• Problem Solver
• Scorekeeper
• Attention Director

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Organizational Structure and the Management
Accountant

• A typical structure might include
• CEO
• CFO
• Controller responsible for managerial and
  financial accounting
• Treasury
• Risk Management
• Taxation
• Internal Audit

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CFO

• oversees all financial operations
• Controllership
• Treasury
• Risk management
• Taxation
• Investor relations
• Internal audit

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Controller

• The controller is primarily responsible for the
  financial and managerial accounting and reporting
  of information.
• Requires
• Technical and analytical competence
• Behavioral and interpersonal skills

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Professional Ethics

• The four standards of ethical conduct for
  management accountants as advanced by the
  Institute of Management Accountants
• Competence
• Confidentiality
• Integrity
• Objectivity

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Resolution Of Ethical Conflict

• Discuss problem with supervisor and up the chain
  of command
• If issue is still unresolved, discuss with an
  objective advisor.
• Consult an attorney if necessary.
• If unresolved, may need to resign

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End of Chapter 1

• Just a review of things you already learned in
  Managerial Accounting.
• Now, lets move forward!