cost accounting: accountant's role in the accounting

cost accounting

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

2. 1 - 2©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.

3. 1 - 3©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.

4. 1 - 4©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.

5. 1 - 5©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.

6. 1 - 6©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.

7. 1 - 7©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 2
Understand how management
accountants affect
strategic decisions.

8. 1 - 8©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Strategic Cost Management
Developing strategy
Building resources and capabilities
Implementing strategy

9. 1 - 9©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

10. 1 - 10©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 3
Distinguish between the
planning and control
decisions of managers.

11. 1 - 11©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
F
e
e
d
b
a
c
k

12. 1 - 12©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

13. 1 - 13©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

14. 1 - 14©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.

15. 1 - 15©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.

16. 1 - 16©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Performance Report Example
Budget Actual Variance
Revenues $59,000$60,000$1,000 F
Cost of goods sold 42,000 43,400 1,400 U
Wages 6,700 7,000 300 U
General 1,300 900 400 F
Fixed costs 5,000 5,000 0
Operating income$ 4,000$ 3,700$ 300 U
Boone Shop, July 2003

17. 1 - 17©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$60,000100
Cost of goods sold 42,000 71 43,400 72
Gross margin $17,000 29$16,600 28

18. 1 - 18©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.

19. 1 - 19©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.

20. 1 - 20©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?

21. 1 - 21©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?

22. 1 - 22©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.

23. 1 - 23©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.

24. 1 - 24©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

25. 1 - 25©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.

26. 1 - 26©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.
2. Integrate and coordinate the efforts of all business
functions in addition to developing the capabilities
of each individual business function.

27. 1 - 27©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.

28. 1 - 28©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.
Quality – customers
are expecting higher
levels of quality.

29. 1 - 29©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.
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.

30. 1 - 30©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Continuous Improvement
and Benchmarking
Continuous improvement by competitors creates
a never-ending search for higher levels of
performance within many organizations.

31. 1 - 31©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.

32. 1 - 32©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.

33. 1 - 33©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:

34. 1 - 34©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Value Chain
R & D Design Production
Marketing Distribution Service
Management Accounting

35. 1 - 35©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.

36. 1 - 36©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Value Chain Functions
It is the detailed planning and engineering
of products, services, or processes.
Design

37. 1 - 37©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

38. 1 - 38©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Value Chain Functions
It is the manner by which companies
promote and sell their products
or services to customers
or prospective customers.
Marketing

39. 1 - 39©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

40. 1 - 40©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Value Chain Functions
It is the after-sale support activities
provided to customers.
Service

41. 1 - 41©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 7
Describe three ways
management accountants
support managers.

42. 1 - 42©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

43. 1 - 43©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.

44. 1 - 44©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

45. 1 - 45©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.

46. 1 - 46©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.

47. 1 - 47©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.

48. 1 - 48©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Line and Staff Relationships
C on troller A u d it Ta x Treasu ry R isk
M an agem en t
In vestor
R elation s
C h ief F in an cial O fficer (C F O )
P resid en t
C h ief O p eratin g O fficer (C O O )
C h airm an
C h ief E xecu tive O fficer (C E O )
B oard of D irectors

49. 1 - 49©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Line and Staff Relationships
* G lobal F inancial P lanning/B udgeting
* O perations A dministration
* P rofitability Reporting
* Inventory
* Royalties
* G eneral L edger
* A ccounts P ayable and Receivable
* Subsidiary and Liaison A ccounting
Examples of F unctions:
Controller

50. 1 - 50©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 9
Understand what
professional ethics mean
to management accountants.

51. 1 - 51©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Professional Ethics
Confidentiality
Integrity
Objectivity
Competence

52. 1 - 52©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.

53. 1 - 53©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
End of Chapter 1