Study ObjectivesDescribe a cost management system, its objectives, and its major systems.Identify the current factors affecting cost management.Describe how management accountants function within an organizationUnderstand the importance of ethical behavior for management accountants.Identify the three forms of certification available to internal accountants

Accounting Information System

Accounting Information SystemFinancial accounting systemfollows established rules and conventions to provide information (financial statements) to external users such as investors, government agencies, and banks.Cost management systemidentifies, collects, measures, classifies, and reports information that is useful to managers in costing (determining what something costs), planning, controlling, and decision making.

Subsystems of theAccounting Information System

Cost Management SystemCost accounting systemassigns costs to individual products and services and other cost objects as specified by management; satisfies financial reporting and management decision-making needs

Operational control systemprovides accurate and timely feedback concerning performance; concerned with what activities should be performed and assessing those activities.

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

Factors AffectingCost ManagementGrowth of the Service IndustryAs manufacturing 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

Factors AffectingCost ManagementAdvances in Information TechnologyComputers are used to continuously monitor and control system-wide operations.Increased ability to accurately cost products because of advances in available tools.Emergence of electronic commerce

Factors Affecting Cost ManagementAdvances in Management EnvironmentTheory Of Constraints is 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.

Factors Affecting Cost ManagementComputer-Integrated ManufacturingCan produce a competitive advantage for a firmTypically follows JIT as a response to increased needs for quality and shorter response time

Factors AffectingCost ManagementConsumer OrientationValue chain is the set of activities required to design, develop, produce, market, and deliver products and services to customersFirms compete not only in terms of technology and manufacturing, but in the speed of delivery and response to deliver value to the customer

Factors Affecting Cost ManagementNew Product DevelopmentManagement 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.

Factors Affecting Cost ManagementTotal Quality ManagementContinual 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.

Factors Affecting Cost ManagementTime as a Competitive ElementTime 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.

Factors AffectingCost ManagementEfficiencyWhile quality and time are important, improving these dimensions without corresponding improvements in financial performance may be futile, if not fatal.

The Role of Cost and Management AccountantResponsible for generating financial information required by the firm forInternal reportingExternal reporting

Accounting system information is used by management toPlanControlMake decisions

The Role of Cost and Management AccountantPlanningDetailed formulation of future actions to achieve a particular end.Requires setting objectives and identifying methods to achieve those objectives.

The Role of Cost and Management AccountantControllingThe managerial activity of monitoring a plans implementation and taking corrective action as needed.Feedback is information that can be used to evaluate or correct the steps being taken to implement a plan.Performance reports compare budgeted and actual data

The Role of Cost and Management AccountantContinuous ImprovementRequired in a dynamic environment if a firm is to remain competitive or to establish a competitive advantage.Searching for ways to increase overall efficiency throughReduction of wasteQuality improvementCost reduction

The Role of Cost and Management AccountantDecision MakingThe process of choosing among competing alternatives.Decisions are based on information provided by the accounting system

Accounting and Ethical ConductBenefits of Ethical BehaviorCan create customer and employee loyaltyAvoid litigation costsIncreases likelihood of commercial success

Standards of Ethical Conduct for Management AccountantsCompetenceConfidentialityIntegrityCredibility

CertificationCertified Public AccountantThe responsibility of a CPA is to provide assurance concerning the reliability of financial statements.

Certified Internal AuditorThe focus of the CIA is to recognize competency in internal auditing rather than external auditing.

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

CertificationFour areas emphasized on the CMA exam:Business analysisManagement accounting and reportingStrategic managementBusiness application

COST MANAGEMENT

Guan Hansen Mowen

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