11ch01-a

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1 - 12003 Prentice Hall Business Publishing, Cost Accounting11/e, Horngren/Datar/Foster

The Accountants Role

in the Organization

Chapter 1

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Learning Objective 1

Describe how cost

accounting supports

management accounting

and financial accounting.

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Management Accounting

It measures and reports financial and

nonfinancial information that helpsmanagers make decisions to fulfill the

goals of an organization.

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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.

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Cost Accounting

It provides information for both management

accounting and financial accounting.It measures and reports financial

and nonfinancial data.

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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.

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Understand how management

accountants affect

strategic decisions.

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Strategic Cost Management

Developing strategy

Building resources and capabilities

Implementing strategy

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Strategic Cost Management

Current

Assets

Long-Term

Productive

Assets

Intangible

Assets

Building resources and capabilities

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Distinguish between the

planning and control

decisions of managers.

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Planning and ControllingManagement Decision Management Accounting System

Planning

Control

Performance

Evaluation

Budgets

AccountingSystem

PerformanceReports

Fee

db

ac

k

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Planning and Controlling

What is planning?

Setting

goals

Predicting

results

Deciding how

to attain goals

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What is control?

Deciding

andtaking

actions

Deciding on

performanceevaluation

and feedback

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What are budgets?

They are

quantitative

expressionsof a proposed

plan of action.

They aid in the

coordination

andimplementation

of the plan.

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What are performance reports?

These are reports that

compare actual resultswith budgeted amounts.

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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 FFixed costs 5,000 5,000 0

Operating income $ 4,000 $ 3,700 $ 300 U

Boone Shop, July 2003

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Performance Report Example

Actual cost of goods sold were

72% of revenues instead of the budgeted 71%.Budget % Actual %

Revenues $59,000 100 $60,000 100

Cost of goods sold 42,000 71 43,400 72Gross margin $17,000 29 $16,600 28

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Feedback

This involves managers examining past performance

and systematically exploring alternative ways tomake better informed decisions in the future.

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Distinguish among the problem-

solving, scorekeeping, and

attention-directing roles of

management accountants.

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Problem Solving

This involves comparative analysis

for decision making.This role asks: Of the several alternatives

available, which is the best?

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Scorekeeping

This involves accumulating data and

reporting reliable results toall levels of management.

This role asks: How is the business doing?

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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 allopportunities to add value to an organization,

not just cost-reduction opportunities.

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Identify four themes managers

need to consider for

attaining success.

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Key Themes in Management

Decision Making

Customer Focus

Value Chainand

Supply ChainAnalysis

Key Success Factors:Cost and Efficiency,

Time, Quality,Innovation

ContinuousImprovement

andBenchmarking

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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.

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Value Chain and

Supply Chain Analysis

This theme has two related aspects:

1. Treat each of the business functions in the valuechain 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 businessfunctions in addition to developing the capabilities

of each individual business function.

2. Integrate and coordinate the efforts of all businessfunctions in addition to developing the capabilities

of each individual business function.

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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.

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Key Success Factors

These are operational factors that directly affect

the economic viability of the organization.

Cost organizations

are under continuouspressure to reduce costs.

Cost organizations

are under continuouspressure to reduce costs.

Quality customers

are expecting higherlevels of quality.

Quality customers

are expecting higherlevels of quality.

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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 meetpromised delivery dates more reliably.

Innovation there is now heightened recognition

that a continuing flow of innovative productsor services is a prerequisite to the ongoing

success of most organizations.

Innovation there is now heightened recognition

that a continuing flow of innovative productsor services is a prerequisite to the ongoing

success of most organizations.

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Continuous Improvement

and Benchmarking

Continuous improvement by competitors creates

a never-ending search for higher levels ofperformance within many organizations.

Continuous improvement by competitors creates

a never-ending search for higher levels ofperformance within many organizations.

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Describe the set of business

functions in the value chain.

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Value Chain

The term value chain refers to the sequence of

business functions in which usefulness is addedto 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 valueto the customer.

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Value Chain

Management accountants provide

decision support for managers in thefollowing six business functions:

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Value Chain

R & D Design Production

Marketing Distribution Service

Management Accounting

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Value Chain Functions

Research and Development

It is the process that is conducted to generateand experiment with ideas related to new

products, services, or processes.

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It is the detailed planning and engineeringof products, services, or processes.

Design

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It is the acquisition, coordination, andassembly of resources to produce

a product or deliver a service.

Production

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It is the manner by which companiespromote and sell their products

or services to customers

or prospective customers.

Marketing

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It is the delivery of products orservices to the customer.

Distribution

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It is the after-sale support activitiesprovided to customers.

Service

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Describe three ways

management accountants

support managers.

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Key Guidelines

1. Cost-benefit approach

2. Full recognition of behavioral as well astechnical considerations

3. Using different costs for different purposes

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Cost-Benefit Approach

A cost-benefit approach should be used in order

to spend resources if they promote decisionmaking that better attains organization goals

in relation to the costs of those resources.

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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

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Different Costs for

Different Purposes

A cost concept used for the external reporting

purpose need not be the appropriate conceptfor the purpose of internal routine reporting

to managers.

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Understand how cost management

accounting fits into an

organizations structure.

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Line and Staff Relationships

Line managementis directly responsible for

attaining the objectives of the organization.Staff managementexists to provide advice

and assistance to line management.

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C o n t r A u d i T a x T r e a s R i s k

M a n a

I n v e s

R e l a t

C h i e f F i n a n c i

P r e s i d e n t

C h i e f O p e r a t i

C h a i r m a n

C h i e f E x e c u t i

B o a r d o f D

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* G l o b a l F i n a n c i a

* O p e r a t i o n s A d m

* P r o f i t a b i l i t y R e p

* I n v e n t o r y

* R o y a l t i e s

* G e n e r a l L e d g e r

* A c c o u n t s P a y a b

* S u b s i d i a r y a n d

E x a m p l e s o f F

C o n t r o l l e r

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Understand what

professional ethics mean

to management accountants.

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Professional Ethics

Confidentiality

Integrity

Objectivity

Competence

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Ethical Guidelines

The Institute of Management Accountants (IMA)

is the largest association of managementaccountants in the United States.

The IMA has issued a Standards of Ethical

Conduct for Management Accountant.

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End of Chapter 1

11ch01-a

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