Introduction to Cost Accounting

1
Cost Accounting Foundations and
Evolutions Kinney, Prather, Raiborn

• Chapter 1
• Introduction to Cost Accounting

2
Learning Objectives (1 of 2)

• 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 2)

• Explain why accountants must understand the
  organizations structure in order to perform
  effectively
• Identify the sources of ethical standards for
  cost accountants

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Two Types of Accounting

• Financial
• Meet external information needs
• Comply with GAAP

• Management
• Meet internal information needs
• Does not have to comply with GAAP

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Accounting Differences

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

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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

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Relationship of Financial, Management, and Cost
Accounting
Product Costs




FINANCIAL ACCOUNTING
MANAGEMENT ACCOUNTING
COST ACCOUNTING
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Product Cost Information

• External parties - stockholders, creditors,
  regulators
• For investment and credit decisions
• Complies with GAAP
• Enterprise-wide focus

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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

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Cost Management Goals

• Reduce costs
• Improve customer satisfaction

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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

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Organizational Strategy

• Develop Mission Statement
• 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

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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

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Strategy Questions

• Who are your five most important competitors?
• Is your firm more or less profitable than these
  firms?
• Compare prices for equivalent products/services.
  Explain the difference. Is it customers, costs,
  or profit requirements?
• What is your competitive advantage?

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Organizational Strategy

• Develop Mission Statement
• Implement strategy
• Measure and control the value chain and managers
  performance

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Value Chain

• 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
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Organizational Strategy

• Develop Mission Statement
• Implement strategy
• Measure and control the value chain and managers
  performance

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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

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Ethics Management Accountants

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

Competence Confidentiality Integrity Objectivity