1-1 Cost Management Fourth Edition ACCOUNTING AND CONTROL HANSEN & MOWEN

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Cost ManagementCost ManagementFourth Edition

ACCOUNTING AND CONTROLACCOUNTING AND CONTROL

HANSEN & MOWENHANSEN & MOWEN

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Task Force Clip Art Task Force Clip Art included in this electronic included in this electronic presentation is used with presentation is used with

the permission of New the permission of New Vision Technology of Vision Technology of

Nepean Ontario, Canada.Nepean Ontario, Canada.

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Introduction to Introduction to Cost ManagementCost Management

Prepared by Douglas Cloud

Pepperdine University

Prepared by Douglas Cloud

Pepperdine University

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1. List the similarities and differences between financial accounting and cost management.

2. Identify the current factors affecting cost management.

3. Discuss the importance of the accounting system for internal and external reporting.

4. Explain the need for today’s cost accountant to acquire cross-functional expertise.

ObjectivesObjectivesObjectivesObjectives

After studying this After studying this chapter, you should chapter, you should

be able to:be able to:

After studying this After studying this chapter, you should chapter, you should

be able to:be able to:

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5. Describe how management accountants function within an organization.

6. Understand the importance of ethical behavior for management accounts.

7. Identify the thee forms of certification available to internal accountants.

ObjectivesObjectivesObjectivesObjectives

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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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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


• 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.

Global Competition

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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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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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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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Customer Orientation Firms are concentrating on the

delivery of value to the customer with the objective of establishing a competitive advantage.

Companies must compete not only in technological and manufacturing terms but also in terms of the speed of delivery and response.

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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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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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Time as a Competitive Element

Time is the crucial element in all phases of the value chain.

Decreasing non-value-added time appears to go hand-in-hand with increasing quality.

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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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Journal EntriesJournal Entries

Posting to Accounts

Financial Reports

TransactionsTransactions

Traditional Accounting SystemTraditional Accounting SystemTraditional Accounting SystemTraditional Accounting System

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TransactionsTransactions

Data-Based Relationship Data-Based Relationship Accounting SystemAccounting System

Data-Based Relationship Data-Based Relationship Accounting SystemAccounting System

Custom Report

Custom Report

Custom Report

Custom Report

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Line and Staff PositionsLine and Staff PositionsLine and Staff PositionsLine and Staff Positions

Line positions are positions that have direct responsibility for the basic objectives of an organization.

Staff positions are positions that are supportive in nature and have only indirect responsibility for an organization’s basic objectives.

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Partial Organization Chart, Manufacturing Company

PresidentPresidentLine Function Staff Function

Financial Financial Vice-PresidentVice-President

ControllerController TreasurerTreasurer

Internal Internal AuditAudit CostCost FinancialFinancial SystemsSystems

TaTaxx

Production Production Vice-PresidentVice-President

Production Production SupervisorSupervisor

Assembly Assembly ForemanForeman

Machining Machining ForemanForeman

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Role of Controller and TreasurerRole of Controller and TreasurerRole of Controller and TreasurerRole of Controller and Treasurer

1. Financial reports2. SEC reporting3. Tax planning and reporting4. Performance reporting5. Internal auditing6. Budgeting 7. Accounting systems and

internal controls

Controller

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Treasurer1. Collection of cash2. Monitoring of cash

payments3. Monitors cash availability4. Short-term investments5. Short and long-term

borrowing6. Issuing of capital stock

Role of Controller and TreasurerRole of Controller and TreasurerRole of Controller and TreasurerRole of Controller and Treasurer

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

The Management ProcessThe Management ProcessThe Management ProcessThe Management Process

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Controlling is the managerial activity of monitoring a plan’s implementation and taking corrective action as needed.

Control is usually achieved with the use of Control is usually achieved with the use of feedback.feedback.Control is usually achieved with the use of Control is usually achieved with the use of feedback.feedback.FeedbackFeedback is information that can be used to evaluate is information that can be used to evaluate or correct the steps being taken to implement a plan.or correct the steps being taken to implement a plan.

FeedbackFeedback is information that can be used to evaluate is information that can be used to evaluate or correct the steps being taken to implement a plan.or correct the steps being taken to implement a plan.

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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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Decision making is the process of choosing among competing alternatives.

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Standards of Ethical ConductStandards of Ethical Conduct for Management Accountantsfor Management Accountants


Competence: Management accountants have a responsibility to--

1. Maintain an appropriate level of professional competence by ongoing development of their knowledge and skills.

2. Perform their professional duties in accordance with relevant laws, regulations, and technical standards.

3. Prepare complete and clear reports and recommendations after appropriate analysis of relevant and reliable information.

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Confidentiality: Management accountants have a responsibility to--

1. Refrain from disclosing confidential information acquired in the course of their work except when authorized, unless legally obligated to do so.

2. 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.

3. 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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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 organization’s legitimate and ethical objectives.

ContinuedContinuedContinuedContinued

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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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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 user’s understanding of the reports, comments, and recommendations presented.



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CMA: One of the main purposes of the CMA was to establish management accounting as a recognized, professional discipline, separate from the profession of public accounting.

CPA: The responsibility of a CPA is to provide assurance concerning the reliability of financial statements.

CIA: The focus of the CIA is to recognize competency in internal auditing rather than external auditing as with the CPA.

Professional CertificationsProfessional CertificationsProfessional CertificationsProfessional Certifications

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The CMAThe CMAThe CMAThe CMA

Four areas emphasized on the exam:1) Economics, finance, and management

2) Financial accounting and reporting

3) Management report, analysis, and behavioral issues

4) Decision analysis and information systems

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ChapterEnd ofEnd of

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Documents

1-1 Cost Management Fourth Edition ACCOUNTING AND CONTROL HANSEN & MOWEN