1. 1-1 Introduction to Cost Management 1

2. 1-2 Financial Accounting Versus Management Accounting: A Systems Framework Accounting information systems Financial accounting Produces outputs for external users. Follows rules and conventions such as those set by the SEC and FASB. Creates outputs such as financial statements. Cost management accounting Produces outputs for internal users. Designed to cost services, products and other objects. Is used in planning and control and decision making. Criteria and formats set internally. Outputs include reports, schedules and analyses. 1

3. 1-3 Cost management accounting information system Two major subsystems Cost accounting information system Assigns costs to individual products and services. Assists external financial reporting by valuing inventories and determining cost of sales. These assignments must conform to external rules. Operational control information system Provides accurate and timely feedback concerning performance. Improve profit by increasing customer value. 1

4. 1-4 Factors Affecting Cost Management Advances in Information Technology 2 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

5. 1-5 Factors Affecting Cost Management Advances in Management Environment 2 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.

6. 1-6 Factors Affecting Cost Management Customer Orientation 2 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. 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.

7. 1-7 Factors Affecting Cost Management Time as a Competitive Element 2 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. Efficiency While quality and time are important, improving these dimensions without corresponding improvements in financial performance may be futile, if not fatal.

8. The Role of Today’s Cost and Management Accountant The Controller  Financial reports  SEC reporting  Tax planning and reporting  Performance reporting  Internal auditing  Budgeting  Accounting systems and internal controls The Treasurer  Collection of cash  Monitoring of cash payments  Monitors cash availability  Short-term investments  Short and long-term borrowing  Issuing of capital stock 1-8 3

9. 1-9 Information for Planning, Controlling, Continuous Improvement, and Decision Making 3 Planning is the detailed formulation of future actions to achieve a particular end. Planning requires setting objectives and identifying methods to achieve those objectives. 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.

10. 1-10 Information for Planning, Controlling, Continuous Improvement, and Decision Making 3 Continuous improvement is required in a dynamic environment if a firm is to remain competitive or to establish a competitive advantage. Decision making is the process of choosing among competing alternatives

11. 1-11 Certification 5 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.

12. 1-12 Certification 5 1)Business analysis 2)Management accounting and reporting 3)Strategic management 4)Business applications Four areas emphasized on the CMA exam: