1. Cost Management ACCOUNTING AND CONTROL
HANSEN & MOWEN

2. Introduction to Cost Management1
CHAPTER

3. Financial Accounting Versus Management Accounting
OBJECTIVE 1
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.

4. Financial Accounting Versus Management Accounting
OBJECTIVE 1
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.

5. Factors Affecting Cost Management
OBJECTIVE 2
Global Competition
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.

6. Factors Affecting Cost Management
OBJECTIVE 2
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.

7. Factors Affecting Cost Management
OBJECTIVE 2
Advances in Information Technology
Computers are used to monitor and control operations. The result is an operational system that is fully integrated with marketing and accounting data.
Increased ability to accurately cost products because of advances in tools.
Emergence of e-commerce
Internet trading
Electronic data interchange
Bar coding

8. Factors Affecting Cost Management
OBJECTIVE 2
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.

9. Factors Affecting Cost Management
OBJECTIVE 2
Customer Orientation
Firms are competing not only in terms of technology and manufacturing, but in the speed of delivery and response to deliver value to the customer.
Companies must also satisfy the needs of internal customers, such as staff functions exist to support line functions.

10. Factors Affecting Cost Management
OBJECTIVE 2
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.

11. Factors Affecting Cost Management
OBJECTIVE 2
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.

12. Factors Affecting Cost Management
OBJECTIVE 2
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.

13. Factors Affecting Cost Management
OBJECTIVE 2
Efficiency
While quality and time are important, improving these dimensions without corresponding improvements in financial performance may be futile, if not fatal.

14. Traditional Accounting System
OBJECTIVE 3
Transactions
Journal Entries
Posting to Accounts
Financial Reports

15. Data-Based Relationship Accounting System
OBJECTIVE 3
Transactions
Custom Report
Custom Report
Custom Report
Custom Report

16. Cost Management: A Cross-Functional Perspective
OBJECTIVE 4
Product costing must take into account costs associated with other functions, such as marketing, management and logistics.
A cost management system must be flexible enough to provide the appropriate cost for the circumstance.
Today’s accountant must be an expert at valuing methods of
Costing and achieving quality
Differentiating between value-added and non-value-added activities
Measuring and accounting for productivity

17. The Role of Today’s Cost and Management Accountant
OBJECTIVE 5
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.

18. The Role of Today’s Cost and Management Accountant
OBJECTIVE 5

19. The Role of Today’s Cost and Management Accountant
OBJECTIVE 5
The Controller
Financial reports
SEC reporting
Tax planning and reporting
Performance reporting
Internal auditing
Budgeting
Accounting systems and internal controls

20. The Role of Today’s Cost and Management Accountant
OBJECTIVE 5
The Treasurer
Collection of cash
Monitoring of cash payments
Monitors cash availability
Short-term investments
Short and long-term borrowing
Issuing of capital stock

21. The Role of Today’s Cost and Management Accountant
OBJECTIVE 5
Planning is the detailed formulation of future actions to achieve a particular end. Planning requires setting objectives and identifying methods to achieve those objectives.

22. The Role of Today’s Cost and Management Accountant
OBJECTIVE 5
Controlling is the managerial activity of monitoring a plan’s 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.

23. The Role of Today’s Cost and Management Accountant
OBJECTIVE 5
Continuous improvement is required in a dynamic environment if a firm is to remain competitive or to establish a competitive advantage.

24. The Role of Today’s Cost and Management Accountant
OBJECTIVE 5
Decision making is the process of choosing among competing alternatives.

25. Accounting and Ethical Conduct
OBJECTIVE 6
Benefits of Ethical Behavior
Can create customer and employee loyalty
Avoid litigation costs
Standards of Ethical Conduct for Management Accountants
Competence
Confidentiality
Integrity
Objectivity

26. Certification
OBJECTIVE 7
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.

27. Certification 7 Four areas emphasized on the CMA exam:
OBJECTIVE 7
Four areas emphasized on the CMA exam:
Economics, finance, and management
Financial accounting and reporting
Management report, analysis, and behavioral issues
Decision analysis and information systems

28. End of Chapter 1