1. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

2. PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Cost Accounting: Information for Decision Making Chapter 1

3. 1-3 Value Chain The value chain describes a set of activities that transforms raw materials and resources into the goods and services end users purchase and consume. LO 1-1 Describe the way managers use accounting information to create value in organizations. LO 1-1 Value-Added Activities Those activities that customers perceive as adding utility to the goods or services they purchase.

4. 1-4 The Value Chain Components Research & Development DesignPurchasing MarketingDistribution Customer Service Production LO 1-1

5. 1-5 Accounting Systems Financial accounting Financial position and income Reports Cost accounting Information about costs Reports LO 1-2 Distinguish between the uses and users of cost accounting and financial accounting information. LO 1-2

6. 1-6 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. LO 1-3 Explain how cost accounting information is used for decision making and performance evaluation in organizations. LO 1-3

7. 1-7 Differential Costs Costs that change in response to a particular course of action. Differential costs change (differ) between actions. LO 1-3

8. 1-8 Differential Revenues Revenues that change in response to a particular course of action. Differential revenues change (differ) between actions. LO 1-3

9. 1-9 Costs for Control and Evaluation A responsibility center is a specific unit of an organization assigned to a manager who is held accountable for its operations and resources. LO 1-3

10. 1-10 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 LO 1-4 Identify current trends in cost accounting. LO 1-4

11. 1-11 Cost Accounting in Research and Development Lean manufacturing techniques are not simply about production. Companies partner with suppliers in the development stage to ensure cost-effective deigns for products. LO 1-4

12. 1-12 Cost Accounting in Design Product designers must write detailed specifications on a product’s design. ABC assigns costs of activities needed to make a product, then sums the cost of those activities to compute the total cost of the product. This is often referred to as design for manufacturing (DFM). LO 1-4

13. 1-13 Cost Accounting in Purchasing Performance measurement indicates how well a process is working. It minimizes unnecessary transaction processes. Benchmarking methods measure products, services, and activities against the best performance. Benchmarking is an ongoing process resulting in continuous improvement. LO 1-4

14. 1-14 Cost Accounting in Production A lean accounting system provides measures at a work cell or process level. JIT is an inventory system designed to lower the cost of maintaining excess inventory. LO 1-4

15. 1-15 Cost Accounting in Marketing Cost relationship management (CRM) is a system that allows firms to target profitable customers by assessing customerrevenues and costs. Harrah’s Entertainment provides “complimentary” services to some customers. (typically called “comping”). LO 1-4

16. 1-16 Cost Accounting in Distribution Outsourcing occurs when a firm’s activities are performed by another organization or individual in the supply or distribution chain. Nikon, for example, relies on UPS for distribution. LO 1-4

17. 1-17 Cost Accounting in Customer Service TQM is a management method which focuses on excelling in all dimensions. Cost of quality is a system that identifies the cost of producing low quality items. The emphasis is placed on quality. Quality is defined by the customer. LO 1-4

18. 1-18 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 1-4

19. 1-19 Key Financial Players in an Organization TreasurerManages liquid assets Determines where to invest cash balances Controller Plans and designs information systems Determines cost accounting policies Internal auditor Ensures compliance with laws Ensures that procurement rules are followed Cost accountant Records, measures, and, analyzes costs Evaluates costs of products and processes Chief financial officer (CFO) Manages entire finance and accounting function Signs off on financial statements Major Responsibilities Example Activities Title LO 1-4

20. 1-20 Ethical Issues for Accountants The design of the cost accounting system has the potential to be misused to defraud customers, employees, or shareholders. LO 1-5 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career. LO 1-5

21. 1-21 Ethics Follow the Institute of Management Accountants (IMA) guidelines: CLARIFY the relevant issues and concepts by discussion with a disinterested party or contact the appropriate confidential ethics “hotline.” DISCUSS conflicts with the immediate superior, unless the superior is involved. If so, go to the next authority level. CONSULT an attorney about your rights and obligations. LO 1-5

22. 1-22 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 1-5

23. 1-23 Corporate Responsibility Who is impacted? What is the impact? CEO– Chief Executive Officer – Manages entire corporation CFO– Chief Financial Officer – Manages accounting and finance The officers of the corporation must sign the financial reports stipulating that the financial statements do not omit material information. The company must disclose the evaluation of their internal controls. LO 1-5

24. 1-24 Appendix: Institute of Management Accountants Code of Ethics CompetenceConfidentiality IntegrityCredibility

25. 1-25 End of Chapter 1