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Cost Accounting: Information for Decision Making Chapter 1 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.

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Presentation on theme: "Cost Accounting: Information for Decision Making Chapter 1 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin."— Presentation transcript:

1 Cost Accounting: Information for Decision Making Chapter 1 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2 Value Chain – Value added activities – Non value added activities The Value Chain describes a set of activities that transforms raw materials and resources into the goods and services end users purchase and consume. L.O. 1 Describe the way managers use accounting information to create value in organizations

3 The Value Chain Components Research & Development DesignPurchasingMarketingDistribution Customer Service Production LO

4 Accounting Systems Financial accounting Financial position and income Reports Cost accounting Information about costs Reports L.O. 2 Distinguish between the uses and users of cost accounting and financial accounting information

5 Managerial Decisions Individuals make decisions. Decisions determine the performance of the organization. Managers use information from the accounting system to make decisions. Owners evaluate organizational and managerial performance with accounting information. L.O. 3 Explain how cost accounting information is used for decision making and performance evaluation in organizations

6 Costs for Decision Making Carmens Cookies has been making and selling cookies through a small store downtown. One of her customers suggests that she expand operations and sell to wholesalers and retailers. Should Carmen expand operations? LO

7 Carmens Cost Drivers DriverCost Rent Insurance Labor Ingredients Number of stores Number of cookies LO

8 Differential Costs, Revenues, and Profits Sales revenue Costs: Food Labor Utilities Rent Other Total costs Operating profits $6,300 1,800 1, ,250 1,000 $5,450 $ 850 $8,505 a 2,700 b 1,500 b 600 b 1,250 1,200 c $7,250 $1,255 $2, $1,800 $ 405 (1) Status Quo Original Shop Sales Only (2) Alternative Wholesale & Retail Distribution(3) Difference Carmens Cookies Projected Income Statement for One Week (a) 35 percent higher than status quo (b) 50 percent higher than status quo (c) 20 percent higher than status quo LO

9 Responsibility Centers, Revenues, and Costs Carmen Diaz President Ray Adams Vice-President Retail Operations Cathy Peterson Vice-President Wholesale Operations LO

10 Responsibility Centers, Revenues, and Costs Carmens Cookies Income Statement For the Month Ending April 30 Sales revenue Department costs: Food Labor a Utilities Rent Total department costs Center margin b General and admin. costs: General managers salary c Other (administrative) Total general and admin. costs Operating profit $28,400 13,500 4,500 1,800 5,000 $24,800 $ 3,600 $23,600 9,800 3,200 2,100 2,500 $17,600 $ 6,000 $52,000 23,300 7,700 3,900 7,500 $42,400 $ 9,600 5,000 3,200 $ 8,200 $ 1,400 Retail Operations Wholesale OperationsTotal (a) Includes department managers salaries but excludes Carmens salary (b) The difference between revenues and costs attributable to a responsibility center (c) Carmens salary LO

11 Responsibility Centers, Revenues, and Costs Carmens Cookies Retail Responsibility Center Budgeted versus Actual Costs For the Month Ending April 30 Food: Flour Eggs Chocolate Nuts Other Total food Labor: Manager Other Total labor Utilities Rent Total cookie costs Number of cookies sold $ 2,100 5,200 2,000 2,200 $13,500 3,000 1,500 $ 4,500 1,800 5,000 $24,800 32,000 $ 2,200 4,700 1,900 2,200 $12,900 3,000 1,500 $ 4,500 1,800 5,000 $24,200 32,000 $ (100) $ $ $ ActualBudgetDifference LO

12 Trends in Cost Accounting 1. Research and development 2. Design 3. Purchasing 4. Production 5. Marketing 6. Distribution 7. Customer service 8. ERP – Enterprise resource planning 9. Creating value in the organization L.O. 4 Identify current trends in cost accounting

13 Enterprise Resource Planning Information technology linking various processes of the enterprise into a single comprehensive information system Technology Purchasing Human Resources Marketing Production Finance LO

14 Ethical Issues for Accountants The design of the cost accounting system has the potential to be misused to defraud customers, employees, or shareholders. L.O. 5 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career

15 Sarbanes-Oxley Act of 2002 What is the intent? Who is impacted? How are corporations impacted? Address problem of corporate governance Accounting firms and corporations Corporate responsibility LO

16 Appendix 1 Institute of Management Accountants (IMA) Code of Ethics: Standards 1.Competence 2.Confidentiality 3.Integrity 4.Credibility

17 End of Chapter 1 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin


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