Cost Accounting Dr. Baldwin University of Arkansas – Fort Smith Fall 2010

CHAPTER 1 The Accountant’s Role in the Organization

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

Some Major Differences between Financial and Managerial Accounting Help Managers Make Decisions ManagerialFinancial Purpose Primary Users Focus Rules Time Span Communicate Financial Position Internal Managers External Stakeholders Future Oriented Past Oriented Cost-benefit GAAP Varies Annual/Quarter

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

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.

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?

Course Themes Customer Focus Key success factors –Cost and efficiency –Quality (TQM) –Time –Innovation Continuous improvement Value Chain & Supply Chain

Management Accounting and Value Creating value is an important part of planning and implementing strategy Value –is the usefulness a customer gains from a company’s product or service Value Chain –is the sequence of business functions in which customer usefulness is added to products or services

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

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.

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

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

Cost Accounting 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

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

Management Accounting Roles Problem Solver Scorekeeper Attention Director

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

Cost Accounting CFO oversees all financial operations –Controllership –Treasury –Risk management –Taxation –Investor relations –Internal audit

Cost Accounting 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

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

Cost Accounting 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

End of Chapter 1 Just a review of things you already learned in Managerial Accounting. Now, let’s move forward!