©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster The Accountant’s Role in the Organization Chapter 1

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 1 Describe how cost accounting supports management accounting and financial accounting.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Management Accounting It measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Financial Accounting Its focus is on reporting to external parties. It provides financial statements based on generally accepted accounting principles. It measures and records business transactions.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Cost Accounting It provides information for both management accounting and financial accounting. It measures and reports financial and nonfinancial data. It includes those parts of both management accounting and financial accounting in which cost information is collected or analyzed

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Cost Management It describes the activities of managers in planning and control of costs. It is a key part of general management strategies and their implementation. It includes the continuous reduction of costs.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 2 Understand how management accountants affect strategic decisions.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Strategic Cost Management Developing strategy Building resources and capabilities Implementing strategy

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Strategic Cost Management Current Assets Long-Term Productive Assets Intangible Assets Building resources and capabilities

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 3 Distinguish between the planning and control decisions of managers.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Planning and Controlling Management DecisionManagement Accounting System Planning Control Performance Evaluation Budgets Accounting System Performance Reports Feedback

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Planning and Controlling What is planning? Setting goals Predicting results Deciding how to attain goals

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Planning and Controlling What is control? Deciding and taking actions Deciding on performance evaluation and feedback

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Planning and Controlling What are budgets? They are quantitative expressions of a proposed plan of action. They aid in the coordination and implementation of the plan.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Planning and Controlling What are performance reports? These are reports that compare actual results with budgeted amounts.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Performance Report Example Budget Actual Variance Revenues$59,000$60,000$1,000 F Cost of goods sold 42,000 43,400 1,400 U Wages 6,700 7, U General 1, F Fixed costs 5,000 5,0000 Operating income$ 4,000$ 3,700$ 300 U Boone Shop, July 2003

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Performance Report Example Actual cost of goods sold were 72% of revenues instead of the budgeted 71%. Budget % Actual % Revenues$59,000100$60, Cost of goods sold 42, , Gross margin$17,000 29$16,600 28

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Feedback This involves managers examining past performance and systematically exploring alternative ways to make better informed decisions in the future.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 4 Distinguish among the problem- solving, scorekeeping, and attention-directing roles of management accountants.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Problem Solving This involves comparative analysis for decision making. This role asks: Of the several alternatives available, which is the best?

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Scorekeeping This involves accumulating data and reporting reliable results to all levels of management. This role asks: How is the business doing?

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Attention Directing This involves helping managers properly focus their attention. This role asks: Which opportunities and problems should be emphasized first. Attention directing should focus on all opportunities to add value to an organization, not just cost-reduction opportunities.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 5 Identify four themes managers need to consider for attaining success.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Key Themes in Management Decision Making Customer Focus Value Chain and Supply Chain Analysis Key Success Factors: Cost and Efficiency, Time, Quality, Innovation Continuous Improvement and Benchmarking

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Customer Focus The challenge facing managers is to continue investing sufficient (but not excessive) resources in customer satisfaction such that profitable customers are attracted and retained. The challenge facing managers is to continue investing sufficient (but not excessive) resources in customer satisfaction such that profitable customers are attracted and retained.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Value Chain and Supply Chain Analysis This theme has two related aspects: 1. Treat each of the business functions in the value chain as an essential and valued contributor. 1. Treat each of the business functions in the value chain as an essential and valued contributor. 2. Integrate and coordinate the efforts of all business functions in addition to developing the capabilities of each individual business function. 2. Integrate and coordinate the efforts of all business functions in addition to developing the capabilities of each individual business function.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Value Chain and Supply Chain Analysis Supply chain – describes the flow of goods, services, and information from cradle to grave, regardless of whether those activities occur in the same organization or other organizations. Supply chain – describes the flow of goods, services, and information from cradle to grave, regardless of whether those activities occur in the same organization or other organizations.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Key Success Factors These are operational factors that directly affect the economic viability of the organization. Cost – organizations are under continuous pressure to reduce costs. Cost – organizations are under continuous pressure to reduce costs. Quality – customers are expecting higher levels of quality. Quality – customers are expecting higher levels of quality.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Key Success Factors Time – organizations are under pressure to complete activities faster and to meet promised delivery dates more reliably. Time – organizations are under pressure to complete activities faster and to meet promised delivery dates more reliably. Innovation – there is now heightened recognition that a continuing flow of innovative products or services is a prerequisite to the ongoing success of most organizations. Innovation – there is now heightened recognition that a continuing flow of innovative products or services is a prerequisite to the ongoing success of most organizations.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 6 Describe the set of business functions in the value chain.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Value Chain The term “value chain” refers to the sequence of business functions in which usefulness is added to the products or services of an organization. The term “value” is used because as the usefulness of the product or service is increased, so is its value to the customer.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Value Chain Management accountants provide decision support for managers in the following six business functions:

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Value Chain R & D Design Production Marketing Distribution Service Management Accounting

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Value Chain Functions Research and Development It is the process that is conducted to generate and experiment with ideas related to new products, services, or processes. It is the detailed planning and engineering of products, services, or processes. Design

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Value Chain Functions It is the acquisition, coordination, and assembly of resources to produce a product or deliver a service. Production It is the manner by which companies promote and sell their products or services to customers or prospective customers. Marketing

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Value Chain Functions It is the delivery of products or services to the customer. Distribution It is the after-sale support activities provided to customers. Service Video Clip

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 7 Describe three ways management accountants support managers.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Key Guidelines 1. Cost-benefit approach 2. Full recognition of behavioral as well as technical considerations 3. Using different costs for different purposes

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Cost-Benefit Approach A cost-benefit approach should be used in order to spend resources if they promote decision making that better attains organization goals in relation to the costs of those resources.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Behavioral and Technical Considerations A management accounting system should have two simultaneous missions for providing information: 1. To help managers make wise economic decisions 2. To help managers and other employees to aim and strive for goals of the organization

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Different Costs for Different Purposes A cost concept used for the external reporting purpose need not be the appropriate concept for the purpose of internal routine reporting to managers.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 8 Understand how cost management accounting fits into an organization’s structure.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Line and Staff Relationships Line management is directly responsible for attaining the objectives of the organization. Staff management exists to provide advice and assistance to line management.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Line and Staff Relationships

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Line and Staff Relationships

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 9 Understand what professional ethics mean to management accountants.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Professional Ethics Confidentiality Integrity Objectivity Competence

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Ethical Guidelines The Institute of Management Accountants (IMA) is the largest association of management accountants in the United States. The IMA has issued a Standards of Ethical Conduct for Management Accountant. CMA – Certified Management Accountant